Gujarat State Fertilisers & Chemicals Ltd., Vadodara V. THE DY,CIT, CIRCLE-1(1)(1), Vadodara

ITA 624/AHD/2016

AI Insights

The case involves cross appeals by Gujarat State Fertilizers & Chemicals Limited and the Revenue against the order of the CIT(A)-1, Vadodara, concerning various disallowances made under the Income Tax Act, 1961 for the Assessment Year 2011-12. The primary issues revolved around the disallowance of administrative expenses, repairs and maintenance expenses, contributions to a trust, and the treatment of interest on income tax refund. The Tribunal examined the applicability of Rule 8D in the computation of disallowances related to exempt income and the nature of certain expenditures as capital or revenue. The Tribunal's decision involved a detailed analysis of the legal provisions, precedents, and the specific facts of the case.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 129783 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Next Hearing Date: 27-02-2023
• Assessment Year: 2011-2012
• Appeal Filed On: 10-03-2016
• Other Referred Cases: CIT vs. Mahalaxmi Textile Mills Ltd., Addl. CIT vs. Desai Bro., CIT vs. Renu Sagar Power Co., Precision Wires India Ltd.
• Laws Referred To: Income-tax Act, 1961, Income-tax Rules, 1962
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Earning of tax free income; Commercial expediency; Revenue expenditure; Capital expenditure; Rule 8D; Set aside; CHAPTER IV
• Section: 32; 37; 14A; 115JB; 37(1); 80G; 201; 207; 113; 13; 22

Judgement Text

ITA Nos.624 & 547/Ahd/2016 & C.O. No.58/Ahd/2016 Assessment Years: 2011-12 Page 1 of 26 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “A” BENCH, AHMEDABAD BEFORE Ms. SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA No.624/Ahd/2016 Assessment Year: 2011-12 Gujarat State Fertilizers & vs. Dy. Commissioner of Income Tax, Chemicals Limited, Central Circle-1(1)(1), Vadodara. P.O. Fertilizer Nagar, Vadodara – 391 750. [PAN – AAACG 7996 C] ITA No.547/Ahd/2016 Assessment Year: 2011-12 Dy. Commissioner of Income Tax, vs. Gujarat State Fertilizers & Central Circle-1(1)(1), Vadodara. Chemicals Limited, P.O. Fertilizer Nagar, Vadodara – 391 750. [PAN – AAACG 7996 C] C.O. No.58/Ahd/2016 (In ITA No.547/Ahd/2016) Assessment Year: 2011-12 Gujarat State Fertilizers & vs. Dy. Commissioner of Income Tax, Chemicals Limited, Central Circle-1(1), Vadodara. P.O. Fertilizer Nagar, Vadodara – 391 750. [PAN – AAACG 7996 C] (Appellants) (Respondents) Assessee by : Shri Yogesh Shah, AR Revenue by : Shri Vijay Kumar Jaiswal, CIT(DR) & Shri Satish Solanki, Sr. D.R. Date of hearing : 28.02.2023 Date of pronouncement : 24.03.2023 O R D E R PER SUCHITRA KAMBLE, JUDICIAL MEMBER : These are cross appeals filed by the Assessee & Revenue against the order dated 31.12.2015 passed by the CIT(A)-1, Vadodara for the Assessment Year 2011- ITA Nos.624 & 547/Ahd/2016 & C.O. No.58/Ahd/2016 Assessment Years: 2011-12 Page 2 of 26 12. The assessee has also filed a Cross Objection against the same order passed by the learned CIT(A). 2. The Assessee in its ITA No.624/Ahd/2016 has raised the following grounds of appeal :- “The appellant being dissatisfied with the order passed by the Commissioner of Income Tax (Appeals)-I, Vadodara ("learned CIT(A)"), prefers an appeal against the same on the following amongst other grounds, which are without prejudice to each other. 1. The order passed by the learned CIT(A) is erroneous and contrary to the provisions of law and facts and therefore requires to be suitably modified. It is submitted that it be so done now. 2. The learned CIT(A) erred on facts and in law in upholding disallowance of administrative expenditure made by the Assessing Officer ("AO") in accordance with Rule 8D of the Income-tax Rules, 1962 ("the Rules") read with Section 14A(2) of the Income-tax Act, 1961 ("the Act") even though the appellant had suo-moto made disallowance of proportionate administrative expenditure of Rs.60,276 relating to the exempt income. It is submitted that it be so held now. 2.1. The learned CIT(A) erred on facts and in law in upholding disallowance of administrative expenses made in accordance with Rule SD of the rules read with Section 14A(2) of the Act despite the fact that the AO had not recorded any satisfaction having regard to the books of accounts of the appellant that the claim of the appellant in respect of expenses incurred for purpose of earning exempt income was incorrect. It is submitted that it be so held now. 2.2. The learned CIT(A) ought to have accepted the disallowance of Rs.60,276 made in the return of income however, without prejudice the learned CIT(A) erred on facts and in law in not following the order of the Hon'ble ITAT for AY 2004-05 to 2007-08 and orders of Hon'ble Gujarat High Court confirming such orders in the appellant's own case whereby, in similar facts and circumstances, the Hon'ble ITAT had upheld the disallowance of administrative expenditure of Rs.5 Lacs which was upheld by Hon'ble High Court. It is submitted that it be so held now. 3. The learned CIT(A) erred on facts and in law in upholding the disallowance of repairs and maintenance expenses of Rs.1,06,25,294 (being expenditure incurred on replacement of water pipeline and purchase of dual fuel burner system) made by the AO on the ground that the said expenditure incurred by the appellant was in nature of capital expenditure and not in nature of 'current repairs' allowable as deduction ITA Nos.624 & 547/Ahd/2016 & C.O. No.58/Ahd/2016 Assessment Years: 2011-12 Page 3 of 26 under Section 31 of the Act. It is submitted that in the facts and circumstances of the case, the expenses are allowable under Section 31/ 37 of the Act. II is submitted that it be so held now. 3.1. The learned CIT(A) erred on facts in holding that the impugned expenditure was incurred for purchase of individual machinery/ new pipeline whereas such expenditure was incurred to ensure proper functioning of the existing plant and these are not capable of functioning on standalone basis. It is submitted that it be so held now. 4. The learned CIT(A) erred on facts and in law in upholding the disallowance of contribution of Rs.10,00,00,000/- to Sardar Vallabhbhai Patel Rashtriya Ekta Trust (SVPRET) made by the AO as not attributable to the business of the appellant. It is submitted that the expenditure has been incurred wholly and exclusively for the business and is allowable as deduction on account of commercial expediency. It is submitted that it be so held now. 5. The learned CIT(A) erred on facts and in law in including interest on income tax refund of Rs.3,07,12,378 in total income disregarding the accounting policy followed by the appellant of recognizing such interest when matter had reached finality and there was reasonable certainty in respect of such income. It is submitted that it be so held now. 5.1. Without prejudice to the above, the learned CIT(A) erred in not directing the AO to grant deduction of interest on refund in the year in which the same is withdrawn and/or not to tax in the year in which same is accounted for. It is submitted that it be so held now. 5.2. The learned CIT(A) erred on facts and in law in not giving the above direction to the AO by holding that the appellant can file revised return for AY 2014-15 (being the year in which the said interest income has been offered for tax). It is submitted that it be so held now. 6. The learned CIT(A) erred on facts and in law in upholding the disallowance of Rs. 252.77 lacs being the amount of business expenditure incurred for the purpose of setting up of the projects which were abandoned, by holding that the expenditure has been incurred for establishing new projects and are therefore, capital in nature. It is submitted that it be so held now. 6.1. The learned CIT(A) ought to have appreciated that expenditure incurred was either for de-bottlenecking of existing plant to optimise its functioning or was incurred on setting up of projects which were interconnected with the existing business of the appellant and not for setting up of new business. It is submitted that it be so held now. 6.2. The learned CIT(A) ought to have followed the ratio laid down by the Tribunal in the appellant's case for AY 2000-01, wherein it was held that ITA Nos.624 & 547/Ahd/2016 & C.O. No.58/Ahd/2016 Assessment Years: 2011-12 Page 4 of 26 expenditure on abandoned project which is an extension for business is an allowable revenue expenditure. It is submitted that it be so held now. 6.3. The learned CIT(A) erred on facts and in law in relying on the decisions (including that of Hon'ble Gujarat High Court), which are distinguishable on the facts of the case. It is submitted that it be so held now, 7. The learned CIT(A) erred on facts and in law in upholding the disallowance of expenditure made by the AO and in not accepting the claim of the appellant that the amount of Rs.4.41 crores incurred by the appellant for obtaining land on lease for a period of 20 years was revenue expenditure and not capital expenditure, and hence, allowable as deduction under Section 37(1) of the Act. It is submitted that it be so held now. 7.1. Without prejudice to the above, the learned CIT(A) erred in not granting depreciation under Section 32(1) of the Act considering that the leasehold right was in nature of intangible asset eligible for depreciation by holding that such type of right does not fall within the definition of any of the intangible assets listed in Section 32 of the Act on which depreciation is admissible. It is submitted that it be so held now. 7.2. Without prejudice to the above, the learned CIT(A) erred on facts and in law in not directing to allow deduction of the said amount in 20 equal instalments over a period of 20 years being the terms of lease agreement by holding that the amount paid by the appellant is capital in nature. It is submitted that it be so held now. 8. The learned CIT(A) erred on facts and in law in not allowing deduction of amount of Rs.30,63,86,072 paid on account of wage revision on payment basis despite the fact that the said expenditure was not allowed on accrual basis while computing income for AY 2010-11 on the ground that same was not paid off during that year. It is submitted that it be so held now. 8.1. The learned CIT(A) erred on facts and in law in not directing to allow the expenditure in AY 2011-12 by holding that the issue has not become final, since the assessee has not claimed the deduction in the return of income and the appeal is pending before the Tribunal., It is submitted that it be so held now. 9. The learned CIT(A) erred on facts and in law in confirming adjustment to the book profit computed under Section 115JB of the Act in respect of proportionate expenditure related to exempt income computed in accordance with the formula prescribed under Rule SD of the rules read with Section 14A{2) of the Act. 9.1. The learned CIT(A) erred in law in not appreciating that the provisions of section I4A of the Act read with rule 8D of the rules is applicable to only ITA Nos.624 & 547/Ahd/2016 & C.O. No.58/Ahd/2016 Assessment Years: 2011-12 Page 5 of 26 computation of total income under chapter IV whereas the book profit is being calculated under chapter XII-B of the Act. It is submitted that it be so held now. Your appellant prays for leave to add, alter and/or amend all or any of the grounds before the final hearing of appeal.” 2.1 The Assessee in its ITA No.547/Ahd/2016 has raised the following grounds of appeal:- “1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance made out of interest expenses u/s.14A r.w.r. 8D in relation to exempted income of dividend, without taking note that it was up to assessee to adduce evidence that all the borrowings were used for the purposes of the business and it is the assessee’s own surplus funds that were invested in the shares earning exempted income. 2. The Ld. CIT(A) has erred in deleting addition on account of repairs and maintenance made by the AO without appreciating the findings of the assessing officer in the assessment order. 3. The Ld. CIT(A) has erred in deleting addition on account of prior period expenses made by the AO without appreciating the findings of the Assessing Officer in the assessment order. 4. The Ld. CIT(A) has erred in deleting addition on obsolete spares & write off made by the AO without appreciating the findings of the assessing officer in the assessment order and also ignore the fact that the spares now becoming obsolete and being written off cannot be allowed as a deduction as the amount would have already been debited to profit and loss account as purchases. 5. The appellant craves leave to add to, amend or later the above grounds as may be deemed necessary. Relief claimed in appeal It is prayed that the order of the CIT (Appeals) be set aside and that of the Assessing Officer be restored.” 3. The assessee company is engaged in the business of manufacturing and selling of Fertilizers & Chemicals. The assessee filed its e-return of income on 28.09.2011 declaring total income of Rs.8,90,01,99,410/-. During the year under consideration, the assessee has shown total receipts of Rs.492370.07 Lakhs and ITA Nos.624 & 547/Ahd/2016 & C.O. No.58/Ahd/2016 Assessment Years: 2011-12 Page 6 of 26 Gross Profit of Rs.140133.10 Lakhs i.e. 29.47%. In the earlier year, the figures were respectively Rs.401919.29.59 Lakhs and Rs.68891.80 Lakhs i.e. 17.14%. After perusing details furnished by the assessee, the Assessing Officer made disallowance under Section 14A of the Income Tax Act, 1961, thereby making the addition of Rs.3,95,40,410/-. The Assessing Officer further made addition of Rs.1,21,48,089/- after considering depreciation at 15% of Rs.12,06,253/- regarding repairs and maintenance. The Assessing Officer made further addition of Rs.58,95,000/- towards prior period expenses, addition of Rs.10 Crores in respect of donation, addition of Rs.3,07,12,378/- towards interest of income tax refund, addition of Rs.2,52,77,000/- towards abandoned project written off and also addition in respect of expense made for obtaining land on lease for a period of 20 years amounting to Rs.4,41,00,000/-. The Assessing Officer further made addition of Rs.24,61,000/- towards obsolete spares & write off. 4. Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee. 5. The Ld. AR submitted that as regards ITA No.624/Ahd/2016 filed by the assessee, the concise grounds of appeal were filed which is reproduced as under:- “CONCISED GROUNDS OF APPEAL “The appellant being dissatisfied with the order passed by the Commissioner of Income Tax (Appeals)-I, Vadodara ("learned CIT(A)"), prefers an appeal against the same on the following amongst other grounds, which are without prejudice to each other. 1. The order passed by the learned CIT(A) is erroneous and contrary to the provisions of law and facts and therefore requires to be suitably modified. It is submitted that it be so done now. 2. The learned CIT(A) erred on facts and in law in upholding disallowance of administrative expenditure amounting to Rs.2,12,49,050/- made by the Assessing Officer ("AO") in accordance with Rule 8D of the Income- tax Rules, 1962 ("the Rules") read with Section 14A(2) of the Income-tax Act, 1961 ("the Act"). It is submitted that it be so held now. 3. The learned CIT(A) erred on facts and in law in upholding the disallowance of repairs and maintenance expenses to the extent of Rs.1,06,25,294/-. It is submitted that it be so held now. ITA Nos.624 & 547/Ahd/2016 & C.O. No.58/Ahd/2016 Assessment Years: 2011-12 Page 7 of 26 4. The learned CIT(A) erred on facts and in law in upholding the disallowance of contribution of Rs.10,00,00,000/- to Sardar Vallabhbhai Patel Rashtriya Ekta Trust (SVPRET) made by the AO. It is submitted that it be so held now. 5. The learned CIT(A) erred on facts and in law in upholding addition of interest on income tax refund of Rs.3,07,12,378/- to the total income. It is submitted that it be so held now. 5.1. Without prejudice to the above, the learned CIT(A) erred in not directing the AO to grant deduction of interest on refund in the year in which the same is withdrawn and/or not to tax in the year in which same is accounted for. It is submitted that it be so held now. 6. The learned CIT(A) erred on facts and in law in upholding the disallowance of Rs.252.77 lakhs being the amount of business expenditure incurred for the purpose of setting up of the projects which were abandoned. It is submitted that it be so held now. 7. The learned CIT(A) erred on facts and in law in upholding the disallowance of expenditure made by the AO of Rs.4.41 crores incurred for obtaining land on lease for a period of 20 years. It is submitted that it be so held now, 8. The learned CIT(A) erred on facts and in law in not allowing deduction of amount of Rs.30,63,86,072/- of wage revision on payment basis which was disallowed in AY 2010-11 on accrual basis. It is submitted that it be so held now. 9. The learned CIT(A) erred on facts and in law in confirming adjustment to the book profit computed under Section 115JB of the Act in respect of expenditure disallowable under Rule 8D read with Section 14A(2). It is submitted that it be so held now.” 5.1 The assessee has also filed additional ground of appeal which is reproduced as under :- “The appellant is eligible for deduction of education cess paid in view of recent Bombay High Court judgement in case of Sesa Goa Limited in Tax Appeal No.17 & 18 of 2013 which ought to have been allowed as deduction. The Assessing Officer be directed to allow the said deduction. It is submitted that it be so held now. Since the above additional ground is a pure legal ground and since it goes to the root of the issue, the same may please be admitted for the sake of doing substantial justice in the matter. ITA Nos.624 & 547/Ahd/2016 & C.O. No.58/Ahd/2016 Assessment Years: 2011-12 Page 8 of 26 In this regard, the appellant relies on the following Supreme Court judgements: (1) National Thermal Power Corporation, 229 ITR 353 (2) Jute Corporation of India Limited, 187 CIT 688” 6. The Ld. AR submitted that ground no.1 is general in nature, hence the same is dismissed. 7. The Ld. AR submitted that Ground no. 2 is related to disallowance of administrative expenditure amounting to Rs.2,12,49,050/- to arrive at average total asset for computing disallowance as per formula prescribed by Rule 8D on the opening and closing of gross block of fixed assets should be considered. The Ld. AR further submitted that current liabilities and provisions should not be reduced from the opening and closing stock of current assets. Ld. AR further submitted that if issue of disallowance in respect of Section 14A of the Income Tax Act, 1961 is held in Department’s favour the same should be considered. Ld. AR further submitted that the assessee has huge fund of its own and, therefore, the mechanical application under Rule 8D was not proper and justifiable. 8. The Ld. DR submitted that the CIT(A) in respect of invoking of Rule 8D related to administrative expenses has applied 0.5%. The Ld. DR relied upon the Assessment Order. The Ld. DR submitted that the department has challenged this issue in ITA No. 547/Ahd/2016 filed by the Revenue. The Ld. DR submitted that it was upto the assessee to adduce evidence that all the borrowing were used for the purpose of the business and it is the assessee’s own surplus funds that were invested in the shares earning exempt income. 9. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that there was element of administrative expenses and CIT(A) has taken cognisance of the same and directed the Assessing Officer to take 0.5% thereby invoking the said rule. But the submissions made by the Ld. AR that current liabilities and provisions should not be reduced from the opening and closing stock of current assets should have been taken into account by the Assessing ITA Nos.624 & 547/Ahd/2016 & C.O. No.58/Ahd/2016 Assessment Years: 2011-12 Page 9 of 26 Officer. Therefore, we direct the Assessing Officer to look into the said aspect and verify the same to the extent of the contentions of the revenue that the borrowings were used for the purpose of the business as well as the investment was from assessee’s own fund for earning exempt income. Thus, we remand back this issue to the file of the Assessing Officer for proper verification and the adjudication and decide the same as per law. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Ground no.2 of the assessee’s appeal is partly allowed for statistical purpose. 10. As regards ground no.3 of the assessee’s appeal relating to disallowance of repairs and maintenance expenses, the Ld. AR submitted that it was not an entire plant & machinery but the part of the machinery has been repaired. Therefore, the Ld. AR further submitted that the Assessing Officer as well as the CIT(A) was not right in upholding the addition to the extent of Rs.1,06,25,294/-. The Ld. AR submitted that in respect of repair and maintenance amounting to Rs. 22,41,225 and Rs. 25,58,693 from the vendor Avlani Enterprise, this expenditure was incurred for replacement of the corroded water pipeline which was used for supply of water to the DAP Plant at Sikka. The said expenditure is for maintenance and does not give rise to any enduring advantage. The expenditure neither brings into existence any new asset nor increases capacity of DAP Plant. The plant and machinery, for which the repairs and maintenance expenditure is incurred, was established at a cost of Rs. 100 crore (approximately) in December 1986. So, expenditure incurred is very negligible considering the present value of total plant and machinery. The disallowance of Rs. 58,25,376 from the vendor Thermax Ltd., the Ld. AR submitted that this expenditure is for replacement of a small part of the DAP Plant. The Burner system being replaced is not capable of functioning on a standalone basis. Accordingly, the expenditure does not give rise to any enduring advantage. The expenditure neither brings into existence any new asset nor increases capacity of DAP Plant. The plant and machinery, for which the repairs and maintenance expenditure is incurred, was established at a cost of Rs. 100 crore (approximately) in December 1986. So, expenditure incurred is very negligible considering the present value of total plant and machinery. The Ld. AR further submitted that burner system is not an independent plant but merely one spare part of the entire DAP plant which was established at total cost of around Rs. 100 ITA Nos.624 & 547/Ahd/2016 & C.O. No.58/Ahd/2016 Assessment Years: 2011-12 Page 10 of 26 crore in December 1986. The Ld. AR submitted that burner system cannot function independently and therefore reliance on Supreme Court decision by the CIT(A) is completely misplaced. Similarly replacement of water pipeline of DAP plant was also part of existing DAP plant and not an independent plant and machinery. The Ld. AR relied upon the decision of the Ahmedabad Tribunal in case of Gujarat Industries Power Co. Ltd. wherein on identical facts the Tribunal held that replacement of parts of machinery is not capital expenditure and they have dealt with the Hon’ble Supreme Court decision in case of Saravana Spinning also. The Ld. AR further submitted that the entire expenditure is in the nature of current repairs and no new enduring benefit or advantage or asset has come into existence and the expenditure not being in the nature of capital expenditure is accordingly, allowable under the provisions of Section 31 of the Act. The Ld. AR submitted that in the books of account this expenditure is debited to Profit and Loss account under the head ‘repairs and maintenance’. The assessee’s books are audited by the independent CA firm as well as by CAG and no adverse comment is made. The Ld. AR pointed out that the gross block of plant and machinery is more than Rs. 3000.00 crores whereas the repairs and maintenance expenditure is approximately Rs. 62.83 crore only. The Assessing Officer and the CIT(A) are driven by the value of the spares however, the replaced item is very insignificant in compared to total cost of entire plant and it do not add to increasing the capacity of the plant. The Ld. AR relied upon the following decisions: a. CIT vs. Mahalaxmi Textile Mills Ltd. 66 ITR 710 (SC) b. Addl. CIT vs. Desai Bro. 108 ITR 14(Guj) c. CIT vs. Renu Sagar Power Co. 298 ITR 94 (All) d. Precision Wires India Ltd. (2020) 116 taxmann.com 608 (Guj) 11. The Ld. DR submitted that the CIT(A) has confirmed the three items but has distinguished spare parts. The CIT(A) should have considered the same as not eligible for repairs and maintenance expenses as the same is not part of machinery as a whole. The Ld. DR relied upon the assessment order. The Ld. DR submitted that the Assessing Officer has disallowed Rs. 1,33,54,342 being expenses in the nature of capital. The CIT(A) carefully analysed each and every expenses and held that the expenses (Rs. 22,41,225/- + Rs. 25,58,693/-) incurred for replacement of water pipe line from Pipali Pump House of DAP Sikka Plant as capital expenditure as the entire ITA Nos.624 & 547/Ahd/2016 & C.O. No.58/Ahd/2016 Assessment Years: 2011-12 Page 11 of 26 pipe line was replaced by new pipe line. The new pipe line has an enduring benefit and has a significant life, therefore, the CIT(A) as well as the Assessing Officer has rightly held the same has capital expenditure. Similarly, the expenses (Rs.58,25,376/-) incurred for purchase for “Dual fuel burner system” also amounts to purchase of an individual machinery which is a part of the factory of assessee company and has enduring benefit. The CIT(A) has rightly upheld the addition relying on the decision of the Hon’ble Supreme Court in case of Saravana Shipping Pvt. Ltd. (supra). The finding given by the CIT(A) in para 6.2.1 is relied by the Department. During the course of hearing as well as in the written submission the Ld. AR of the assessee submitted that the cost of the entire plant and machinery is around 100 crores and therefore the expenses incurred for replacement of water pipe line and purchase of “Duel fuel burner system” is negligible and therefore it should be treated as revenue expenditure. The contention of the Ld. AR is very general in nature and what is to be seen is whether the item replaced has an enduring benefit or not is deciding factor with regard to the nature of expenditure. The 100 crores cost is not for the pipe line but of the entire plant and machinery. The Ld. AR has not given the details of cost of the pipe line. Therefore, the cost of pipe line replaced is significant and required to be capitalised. Similarly the replacement of “Duel fuel burner system” has an enduring benefit and has been rightly treated as capital expenditure. The reliance placed by the assessee that of the decision of Ahmedabad Tribunal in case of Gujarat Industries Power Co. Ltd. is misplaced as the same was dealing with replacement of certain parts of air conditioner or TV and therefore was held revenue expenditure. In this case, the entire pipe line from Pipali Pump House to plant site at MK was replaced. Similarly, a new fuel burner system was purchased which is an individual/independent machinery capable of functioning independently. The other judgment relied by the assessee is distinguishable on facts and the CIT(A) has rightly relied on the judgment of Sarvana Spinning Mills Pvt. Ltd. 12. In rejoinder, the Ld. AR submitted that the burner system and pipe line are not an independent plant itself but merely one spare part of the entire DAP plant which was established at total cost of around Rs. 100 crore in December, 1986. The Ld. AR further submitted that the contention of the Ld. DR that the said system can function independently is factually incorrect and therefore, reliance on the Hon’ble Supreme ITA Nos.624 & 547/Ahd/2016 & C.O. No.58/Ahd/2016 Assessment Years: 2011-12 Page 12 of 26 Court’s decision is completely misplaced. The Ld. AR submitted that the issue is very well covered by the decision of the Ahmedabad Tribunal in case of Gujarat Industries Power Co. Ltd. Therefore, the Ld. AR prayed that the aforesaid expenditure are revenue in nature and order of the CIT(A) be reversed. 13. We have heard both the parties and perused all the relevant material available on record. The assessee submitted that the expenditure on Avlani Enterprise has been incurred for replacement of the corroded water pipeline which was used for supply of water to the DAP Plant in Sikka. The said expenditure is for maintenance and does not give rise to any enduring advantage. The expenditure neither bring into existence any new asset nor increases capacity of DAOP Plant. The Plant & Machinery for which the repairs and maintenance expenditure is incurred was established at a cost of Rs.100 Crores (approximately) in December 1986. So expenditure incurred is very negligible considering the present value of total Plant & Machinery. The expenditure related to Thermax Limited is for replacement of a small part of the DAP Plant. The burner system being replaced is not capable of functioning on a standalone basis. Accordingly the expenditure does not give rise to any enduring advantage. The expenditure neither brings into existence any new asset nor increases capacity of DAP Plant. The Plant & Machinery for which the repairs and maintenance expenditure is incurred was established at a cost of Rs.100 Crores (approximately) in December 1986. So, the expenditure incurred is very negligible considering the present value of total Plant & Machinery. The Ld. AR relied upon the decision of Ahmedabad Tribunal in the case of Gujarat Industries Power Co. Ltd. (ITA No. 3003/Ahd/2010, 1534/Ahd/2009 a/w CO No. 117/Ahd/2009, 1109/Ahd/2010, 644/Ahd/2010, 521/Ahd/2012 & 495/Ahd/2012 order dated 28.02.2022) wherein on identical facts the Tribunal held that replacement of parts of machinery is not capital expenditure and they have dealt with Supreme Court decision in the case of Sarvana Spinning Mills Pvt. Ltd. 293 ITR 201 also. The Ld. AR at the time of hearing submitted that the entire expenditure is in the nature of current repairs and no new enduring benefit has come into existence and, therefore, the expenditure not being in the nature of capital expenditure are allowable under the provisions of the Section 31 of the Act. The gross block of plant and machinery is more than Rs.3,000 Crores whereas the repairs & maintenance expenditure is approximately Rs.62.83 Crores only. ITA Nos.624 & 547/Ahd/2016 & C.O. No.58/Ahd/2016 Assessment Years: 2011-12 Page 13 of 26 Therefore, the Ld. AR submitted that these are revenue in nature and the same may be allowed. From the perusal of the documents, it can be seen that these expenditures were not totally on the replacement but replacement of part of machinery/plant which in totality cannot be treated at par with the repairs and maintenance that of entire Plant & Machinery. The pipelines and duel fuel burner system are forming some part of entire plant and machinery and both these parts do not function independently or used independently for the projects of the assessee company. Thus, the CIT(A) was not right in confirming the addition. In fact, these expenditures are revenue in nature. Ground no.3 of assessee’s appeal is allowed. 14. As regards grounds no.4, related to disallowance of contribution of Rs.10 Crores to Sardar Vallabhbhai Patel Rashtriya Ekta Trust, the Ld. AR submitted that for an expenditure to be eligible as business expenditure, merely the Trust is registered under Section 80G would not debar the expenditure, provided it satisfies the test of business expenditure. In the given facts, the Ld. AR relied upon the decision of Hon’ble Gujarat High Court in the case of Gujarat Narmada Valley Fertilisers Co. Ltd. (Tax Appeal No. 770 of 1999 with Tax Appeal No. 77 of 2008 with Tax Appeal No. 78 of 2008 judgment dated 06.05.2011), wherein on identical facts the claim was allowed by the Tribunal and affirmed by the Hon’ble Gujarat High Court. The Agro Products of the assessee company are sold under the brand name ‘Sardar’ which is very popular amongst the farming community since more than four decades. The said brand has been derived from the iconic character of Vallabhbhai Patel who was referred to as ‘Sardar’. The construction of a statue of Sardar Vallabhbhai Paltel would significantly enhance the value of the brand name under which the assessee carries on its business. This would help enhance sales as well as exports of the company’s agro products and would as a corollary enhance the brand value of other products of the company. As a part of its obligation to contribute towards the society, the assessee has incurred such expenditure as a part of CSR (Corporate Social Responsibility). Accordingly, the expenditure was incurred wholly and exclusively for the purpose of business on account of commercial expediency and accordingly is allowable under Section 37 of the Act. In alternate, the Ld. AR submitted that the amount of contribution of Rs 10 Crores should be allowed as deduction under Section 37 of the Act. ITA Nos.624 & 547/Ahd/2016 & C.O. No.58/Ahd/2016 Assessment Years: 2011-12 Page 14 of 26 15. The Ld. DR submitted that the expenditure is not for business and the CSR expenditure are totally different than the contribution to SVPRET. The Ld. DR further submitted that reasoning was given by the CIT(A) while confirming the addition. The Ld. DR submitted that the assessee claimed donation made to SVPRET of Rs. 10,00,00,000/- as expenditure u/s 37(1). The Assessing Officer has disallowed the same as not being incurred wholly and exclusively for the purposes of business. The Assessing Officer has also allowed deduction u/s 80G @ 50% of Rs. 10,00,00,000/-. In substance the Assessing Officer has only disallowed Rs. 5 crores. The CIT(A) has considered the argument of the assessee and upheld the addition as given in para 8.2 of the CIT(A)’s order. The CIT(A) has demolished the argument put forward with the assessee company with the following remark:- “During the course of the appellate proceedings, the appellant’s AR has filed detailed submissions which are similar to the submissions filed before the AO which has been reproduced above. In this respect, it is seen that the donation made to Sardar Patel Rashtriya Ekta Trust was eligible for tax exemption @ 50% u/s 80G. The appellant’s claim that the statue of unity of Sardar Patel will enhance the value of the ‘Sardar Brand’ under which the company’s products are sold, is farfetched. It is nowhere shown that the appellant has been allowed by the trust, which is constructing the statue of unity, to utilise the images of such statue for advertisement of its products. Until and unless the appellant can show that by making this donation, it has acquired right to utilise the images and other details of Statue of Unity for selling its products, only because its produce are sold under the name ‘Sardar Brand’ and this word occurs in the name of Sardar Patel, it cannot be said that the donation made is wholly and exclusively for the business purposes of the appellant. The AO has also pointed out there are large number of social and educational and other project and scheme in the name of Hon’ble Sardar Vallabhbhai Patel which are running and are established. Therefore, contributing to each schemes does not in any way, is fruitful for the business of the appellant. Hence, the AO’s action of not allowing entire expenditure as a deduction is upheld. The AO has rightly allowed the deduction u/s 80G of the Act of this payment. Hence, this ground of appeal is dismissed. ITA Nos.624 & 547/Ahd/2016 & C.O. No.58/Ahd/2016 Assessment Years: 2011-12 Page 15 of 26 The Ld. DR further submitted that during the course of hearing the Ld. AR of the assessee relied on various decision including the decision of Hon’ble Gujarat High Court in the case of Gujarat Narmada Valley Fertilizers Co. Ltd. wherein identical facts, the claim was allowed by the ITAT and affirmed by Hon’ble Gujarat High Court. The nature of expenses in that case was quite different and same were incurred per various projects including (i) purchasing Charkhas for tribal women, (ii) construction of hostel for boys and girls in Bhekhadia Village, (iii) contribution for providing potable drinking water in the villages of Bharuch District, (iv) providing computers to entrepreneurs, (v) contribution to conferences on socio-economic issues, (vii) sponsorships of various programmers / events, (viii) contributions to various health projects of various organizations, (ix) contribution to independence Day celebrations by GOG, Rajpipla and (x) contribution to DST, Govt. of Gujarat for two satellites. The Ld. DR further submitted that in the instant case, there was no mandatory CSR obligation and in fact expenses incurred is purely donation in nature and eligible for deduction u/s 80G. The CIT(A) rightly analysed the argument of the assessee company and held that donation given for construction of statue of unity is not wholly and exclusively incurred for the business of the assessee and therefore not eligible for deduction u/s 37(1). It is also a question of fact that there was no mandatorily CSR obligation in the year under appeal and the allowance of any expenses must satisfy its nexus with the business of the assessee and whether it is wholly and exclusively incurred for the purpose of business. Therefore, the Ld. DR prayed that the decision of the CIT(A) be upheld and appeal of the assessee be rejected. 16. In rejoinder, the Ld. AR submitted that the Ld. DR stated that the assessee’s reliance on the decision of the jurisdictional High Court in the case of Gujarat Narmada Valley Fertilizers Co. Ltd. is incorrect in view of the fact that the nature of expense was quite different as compared with the facts of the current case. The Ld. AR submitted that above observations of the Ld. DR is not correct. The Ld. DR made observation from the facts of the A.Y. 2010-11 of Gujarat Narmada Valley Fertilizers Co. Ltd. without looking to the facts of the said company for A.Y. 2011-12 which are similar as there was similar contribution was made for Rs. 7 Crore along with other donations in A.Y. 2011-12. The Ld. AR pointed out the relevant paras of the assessment order and the Tribunal’s order for A.Y. 2011-12 and also the para of the ITA Nos.624 & 547/Ahd/2016 & C.O. No.58/Ahd/2016 Assessment Years: 2011-12 Page 16 of 26 High court’s order for A.Y. 2010-11 and 2011-12. Thus, the Ld. AR submitted that the nature of expenses in the case of Gujarat Narmada Valley Fertilizers Co. Ltd. is same as compared with the facts of the current case. Therefore, amount of contribution of Rs. 10 crores should be allowed as deduction under Section 37 of the Act. The Ld. AR submitted that the Ld. DR has not brought any contrary decision of the jurisdictional High Court or Supreme Court and therefore, the decision in case of Gujarat Narmada Valley Fertilizers Co. Ltd. has to be followed and the deduction be allowed under Section 37 of the Act. 17. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the Agro Products of the assessee company are sold under the brand name ‘Sardar’ which is very popular amongst the farming community since more than four decades. It was an apprehension of the assessee that the construction of a statue of Sardar Vallabhbhai Paltel would significantly enhance the value of the brand name under which the assessee carries on its business. This would help enhance sales as well as exports of the company’s agro products and would as a corollary enhance the brand value of other products of the company. Thus, the contention of the Ld. AR that the expenditure was incurred wholly and exclusively for the purpose of business on account of commercial expediency and accordingly is allowable under Section 37 of the Act, appears to be genuine. Further, it appears that the funding was for State Government. The decision of the Hon’ble Gujarat High Court in the case of Gujarat Narmada Valley Fertilisers Co Ltd. (supra) under identical facts held that, the said expenditures were allowed related to deduction under Section 37 of the Act. Noting contrary was placed on record by the Ld. DR in respect of the decision of the Hon’ble Gujarat High Court. Thus, these expenditures are allowable and hence ground no.4 of the assessee’s appeal is allowed. 18. As regards ground no.5 related addition of interest on income tax refund of Rs.3,07,12,378/-, the Ld. AR submitted that the same is against the assessee. 19. We have heard both the parties and perused all the relevant material available on record. At the time of hearing, the assessee admitted that the issue is covered ITA Nos.624 & 547/Ahd/2016 & C.O. No.58/Ahd/2016 Assessment Years: 2011-12 Page 17 of 26 against the assessee in respect of interest on income tax refund and, therefore, ground no.5 is dismissed. 20. As regards ground no.5.1, Ld. AR submitted that the same is not pressed and hence dismissed. 21. As regards ground no.6 related to disallowance of Rs.252.77 Lakhs being the amount of business expenditure incurred for the purpose of setting up of projects which were abandoned, the Ld. AR submitted that the assessee is in the business of manufacturing of chemicals through Caprolactum-II Plant, which is in operation since March 1992. The aforesaid expenditure was incurred for carrying out feasibility study and other incidental expenses for debottlenecking of HAS and Lactum Plant forming part of Caprolactum-II Plant. However, since the project was considered to be unviable based upon the feasibility study and cost benefit analysis, the project was not executed and hence, the expenditure incurred were written off to the profit & loss account for the year under consideration. The Ld. AR relied upon the decision of Hon’ble Supreme Court in the case of Veecumsees vs. CIT, 220 ITR 185 (SC) and Standard Refinery and Distillery Limited, 79 ITR 589 (SC). The Ld. AR also relied upon the decision of Hon’ble Gujarat High Court in case of CIT vs. Alembic Glass Industries Limited, 103 ITR 715 (Guj.). The Ld. AR further submitted that Tribunal in assessee’s own case for A.Y. 2000-01 held that where the expenditure is for expansion of existing business, such expenditure may be allowed as deduction if the project does not take off. 22. The Ld. DR submitted that no evidence as to abandoned project relating to the business of the assessee was produced before the Assessing Officer by the assessee. The Ld. DR further submitted that it should be claimed when it was incurred and not afterwards. The Ld. DR relied upon the Assessment Order and the order of the CIT(A). The Ld. DR submitted that the Assessing Officer has held that the aforesaid expenditure is not allowable in view of the fact that the project have been abandoned midway and expenditure has been incurred before the commencement of project. Since the business has not commenced the expenditure incurred for setting ITA Nos.624 & 547/Ahd/2016 & C.O. No.58/Ahd/2016 Assessment Years: 2011-12 Page 18 of 26 off a new plant in the nature of capital loss and not allowable. The CIT(A) after carefully analysing the fact of the case upheld the addition with following remark:- “I have considered the appellant’s submissions and the AO’s observations. From the perusal of the assessment order as well as the submissions made by the appellant, it is evident that these expenses had been incurred by the appellant for establishing new projects. The appellant had obtained feasibility study and cost benefit analysis for the purposes of the establishment of these new projects and on the basis of the same, decided not to execute the commencement of the projects and the projects were abandoned. The appellant has itself stated that it had written off net balance in capital work in progress of Rs. 91.72 lakhs on account of Jathropa Project and had written off expenditure of Rs. 161.05 lakhs incurred on feasibility study and other incidental expenses on another project. There are series of decisions including the decision of the Jurisdictional High Court in which it has been decided that capital expenditure incurred on establishment of a new project or on acquisition of any capital assets cannot be claimed as revenue expenditure in the P&L account, only because the project did not materialize or the capital asset could not be acquired. Some of these are as follows: i) 236 ITR 921 (GUJ), Ambica Mills Ltd. In this decision it has been held that the expenditure was incurred by the assessee for getting a feasibility report for setting up a new mini steel plant which project did not materialize. The mini steel plant which the assessee wanted to put up was quite different from its existing business of manufacturing steel tubes. The expenditure incurred for getting the feasibility report was, therefore, capital expenditure. ii) 196 ITR 0237 (GUJ), Saurashtra Cement and Chemical Industries Ltd. in this decision the court had held as follows: The assessee is a public limited company and the assessment year under consideration is 1973-74, the accounting year being year ended on 30-6-1972. 2. The assessee manufactures cement as well as industrial salts. These industrial salts are utilized in manufacturing other chemicals and salts. The assessee had plans to manufacture soda ash from industrial salts and, for that purpose, it obtained techno-economic feasibility report from Industrial Consulting Bureau (P.) Ltd. to whom it paid fee of Rs. 15,000. It also consulted Dr. G. M. Pandya for the manufacture of soda ash and paid his fee of Rs. 500. In ITA Nos.624 & 547/Ahd/2016 & C.O. No.58/Ahd/2016 Assessment Years: 2011-12 Page 19 of 26 the course of income-tax assessment for the assessment year 1973-74, the assessee claimed deduction of the aforesaid two amounts, namely, Rs. 15,000 and Rs. 500 as revenue expenditure. The ITO prepared draft assessment order and called upon the assessee by his letter dated 12-2-1976 to show cause why the aforesaid two amounts should not be disallowed as capital expenditure. The assessee, in its reply dated 6-3-1976, explained as to why the said expenditure was revenue expenditure. The submission of the assessee was that it had established Singach Salt Works at Singach, near Jamnagar in 1963 with a view to manufacturing certain chemicals like soda ash and caustic soda eventually at a later stage in which the basic raw material is industrial salt. Therefore, according to the assessee, the expenditure, which it had incurred on obtaining techno-economic feasibility report of soda ash and on payment of consulting fees to Dr. Pandya, was in furtherance of its business, which was already carried on prior to the date the expenditure was incurred. It was submitted that, soda ash project, which the assessee proposed to establish, had to be regarded only as part of the existing business and not a new and separate business. The ITO, in his assessment order held that he did not propose to disallow the aforesaid expenditure totalling to Rs. 15,500 as preliminary expenditure. The techno- economic feasibility report and consultation fees paid for the soda ash plant were for the purpose of expanding the business either by putting up a plant similar to the plant already in existence or launching upon a new activity. The ITO, therefore, held that the expenditure, which the assessee had incurred for techno- economic feasibility report and consultation was nothing but capital expenditure even if the new activity would not be a separate business but part of the same business carried on by the assessee. This view taken by the ITO was confirmed in appeal by the AAC. In the further appeal to the Tribunal it was urged on behalf of the assessee that the assessee was already manufacturing industrial salt and it merely wanted to expand its activities by manufacturing soda ash in which the industrial salt would be used. Therefore, according to the assessee, the establishment of a new unit would not constitute a new business as such. On the other hand, it was urged on behalf of the revenue that, it was unnecessary to consider whether the new soda ash plant contemplated was a new business or part of the old business. According to the revenue, the very fact that the ITA Nos.624 & 547/Ahd/2016 & C.O. No.58/Ahd/2016 Assessment Years: 2011-12 Page 20 of 26 assessee was going to set up a new unit meant that the aforesaid expenditure incurred for establishing this new unit would be capital expenditure. The Tribunal accepted the statement made on behalf of the revenue and held that what was material was whether the establishment of the soda ash plant amounted to establishing a new unit or not. According to the Tribunal, even if establishment of the soda ash plant amounted to the expansion of the existing plant, the expansion of the new unit would mean acquisition or establishment of a new asset. Therefore, according to the Tribunal, any initial expenditure incurred for feasibility report or for consultation would constitute capital expenditure. In the result, the Tribunal upheld the view taken by the authorities below. The assessee, being aggrieved by the view taken by the Tribunal, the following question has been referred to us for our opinion, at its instance, under section 256(1) of the Income-tax Act, 1961 (‘Act’): “Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the sum of Rs. 15,000 and Rs. 500 paid for obtaining techno-economic feasibility report and consultation for soda ash plant were rightly disallowed as being capital expenditure” 3. In order that an expenditure can be allowed as business expenditure under section 37 of the Act, the following essential conditions have to be satisfied: (i) It must be expenditure in the nature of revenue expenditure and not in the nature of capital expenditure. (ii) It must be laid out or expended wholly and exclusively for the purpose of the business or profession. (iii) It must not be of the nature described in section 30 to 36 and section 80W of the Act [vide CIT v. Navsari Cotton & Silk Mills Ltd. [1982] 135 ITR 546 (Guj.)]. 4. In the instant case, the finding of the Tribunal is that the assessee proposed to establish a new unit for the manufacture or production of soda ash and it was for the purpose of establishment of this new unit that it had incurred expenditure for obtaining techno-economic feasibility report and consulted Dr. Pandya. The Tribunal has found that the expenditure was incurred for acquiring a new asset and, consequently, it was an expenditure of capital in nature. We do not see any reason to disturb this finding. Once it is found that the expenditure in ITA Nos.624 & 547/Ahd/2016 & C.O. No.58/Ahd/2016 Assessment Years: 2011-12 Page 21 of 26 question was incurred for acquiring capital asset, the expenditure would be capital in nature. Deduction of expenditure, which is capital in nature, cannot be allowed under Section 37. In the view which we are taking, the decision of the Supreme Court in India Cements Ltd. v. CIT [1966] 60 ITR 52 and Alembic Chemical Works Co. Ltd. v. CIT [1989] 177 ITR 377 and the decisions of the Gujarat High Court in Sayqji Iron & Engg. Works (P.) Ltd. v. CIT [1974] 96 ITR 240 and CIT v. Alembic Glass Industries Ltd. [1976] 103 ITR 715 (Guj.) cannot be of any assistance to the assessee. In our opinion, the expenditure in question, being capital expenditure, its deduction was rightly disallowed by the Tribunal. We, therefore, answer the question which is referred to us in the affirmative and against the assessee. (iii) 207 ITR 985 (Bom), J K Chemicals Ltd. In this decision the court has held that: It was an accepted position that if the assessee were do set up its unit at Rajasthan, it would have to acquire land, plant and machinery and incur capital expenditure in that connection for setting up its unit at Rajasthan. The project report was obtained for the purpose of setting up such a unit at Rajasthan. In other words, the expenditure incurred for the project was incurred by the assessee-company in order to decide whether to acquire some profit-making assets for the purposes of its business which would be of an enduring nature. The expenses incurred for the project report had, therefore, to be viewed as being capital in nature. Simply because the assessee had a running business of manufacturing fertilisers, it could not be said that the expense for obtaining such a project report was a part of the expenses incurred by the assessee for running its business. It was clearly an expenditure incurred for ascertaining whether to acquire new assets of some durability for the purpose of earning profits. The expenditure of Rs. 2,50,000 incurred for preparation of the project report constituted capital expenditure. Thus, this issue is covered against the appellant by above jurisdictional pronouncement, which include pronouncements made by the Jurisdictional High Court. The expenses incurred were for establishing a new project and hence these will remain capital expenditure in nature even if these projects did not ITA Nos.624 & 547/Ahd/2016 & C.O. No.58/Ahd/2016 Assessment Years: 2011-12 Page 22 of 26 materialized. Hence, the claim of the appellant cannot be allowed. Accordingly, the AO’s action is upheld and this ground of appeal is dismissed.” Thus, the Ld. DR submitted that the CIT(A) has rightly upheld the addition of Rs. 252.77 lacs. During the course of hearing, the Ld. AR of the assessee argued that the expenses were incurred for extension of the existing business but unable to prove the same from the fact of the case. In fact, it was a new unit being proposed to be set up at different locations. Same can be seen from the submission of the assessee because the project was abandoned for various reasons such as unfavourable soil conditions, saline water quality, local agitation etc. This proves that the new plants were being set up at different locations and hence cannot be said as extension of the existing plant. The decision relied by the CIT(A) is squarely applicable in the fact of the case and the decision relied by the Ld. AR of the assessee is distinguishable in facts. 23. We have heard both the parties and perused all the relevant material available on record. Abandoned project was part of the business of manufacturing of chemicals and once the said plant if would have been a possibility, then the business expenditure of the assessee would have been much more. Therefore, the expenditure written off by the assessee has to be considered as business revenue expenditure. Therefore, ground no.6 of the assessee’s appeal is allowed. 24. As relates to Ground No. 7 regarding disallowance of expenditure made by the Assessing Officer of Rs. 4.41 crores incurred for obtaining land on lease for a period of 20 years, the Ld. AR submitted that the charges were paid for the following purposes as per Purchase Order dated 03.04.2010 and 22.10.2010 entered into by the assessee with M/s Suzlon Windpark Gujarat Ltd. (SWGL): i. Land identification and arrangement cost ii. Infrastructure charges iii. Obtaining various statutory / Govt. approvals iv. Land development charges Therefore, the Ld. AR submitted that the expenditure has been incurred for facilitation to obtain the land on lease for installation of windmill and necessary arrangement cost for installation of wind turbines in connection with the existing business of the ITA Nos.624 & 547/Ahd/2016 & C.O. No.58/Ahd/2016 Assessment Years: 2011-12 Page 23 of 26 assessee i.e. generation of power. The Ld. AR further submitted that the expenditure is in nature of expenditure on facilitation of lease land and other expenditure necessary for identification and development of land and is not in the nature of cost of land or premium for acquiring land on lease. The assessee also entered into a separate lease agreement subsequent to the aforesaid Purchase Order whereby the land has been obtained on lease for a period of 20 years. The Ld. AR submitted that the expenditure of Rs. 4.41 crores is not for acquisition of land as observed by the Assessing Officer but is for facilitation, identification of land and obtaining necessary approvals from the Government, etc. The expenditure does not entitle the assessee to any enduring benefit. Moreover, the expenditure does not result in acquisition of land for which separate agreement has been entered by the assessee subsequently. Accordingly the Ld. AR submitted that the same should be allowed as deduction as revenue expenditure u/s 37(1) of the Act. In alternatively, the Ld. AR submitted that the deduction of the amount paid for obtaining land on lease must be allowed as deduction in 20 equal instalments over a period of 20 years being the terms of the lease agreement. The Ld. AR relied upon the following decisions: i. CIT vs. Sun Pharmaceuticals Ltd. ii. CIT vs. Cinecita (P.) Ltd. 10 Taxman 82 (Bom.) iii. CIT vs. Hoechst Pharmaceuticals Ltd. (1978) 113 ITR 877 (Bom.) iv. CIT vs. Herdillia Chemicals Ltd. (1995) 216 ITR 742 (Bom.) Without prejudice to the above, the Ld. AR submitted that the expenditure is for the purpose of preparation of land and make it suitable for installation of windmill and accordingly, the said expenditure should be considered to be cost of plant and machinery (windmill) and direction be given to the Assessing Officer to allow depreciation in respect of the same. The Ld. AR further submitted that error in computation of total income due to addition / disallowance of expenditure which has not been reduced from statement of computation of total income but has merely been claimed by way of notes forming part of the return of income. Further without prejudice to the above, the Ld. AR submitted that the assessee had claimed the aforesaid expenditure by way of notes forming part of return of income and had neither debited the said expenditure to the profit & loss account for the year under consideration nor had reduced the said amount from statement of computation of total income. Despite the same, the Assessing Officer has made an addition of Rs. 4,41,00,000 to the total ITA Nos.624 & 547/Ahd/2016 & C.O. No.58/Ahd/2016 Assessment Years: 2011-12 Page 24 of 26 income of the assessee resulting into incorrect addition to the total income of the assessee. Accordingly, the Ld. AR submitted that the Assessing Officer be directed to rectify this mistake and reduce the total income of the assessee accordingly. 25. The Ld. DR relied upon the assessment order and the order of the CIT(A). 26. We have heard both the parties and perused all the relevant material available on record. The contentions of the Ld. AR that the expenditure is in nature of expenditure on facilitation of lease land and other expenditure necessary for identification and development of land and is not in the nature of cost of land or premium for acquiring land on lease appears to be not correct. But from the perusal of the record it appears that the expenditure is for the purpose of preparation of land and make it suitable for installation of windmill. Therefore it will be appropriate to remand back this issue to the file of the Assessing Officer for proper verification and adjudication and if the said expenditure appears to be cost of plant and machinery (windmill) and then accordingly the Assessing Officer may allow depreciation in respect of the same. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Ground No. 7 is partly allowed for statistical purpose. 27. Ground no.8 relating to deduction of amount of Rs.30,63,,86,072/- of wage revision on payment basis which was disallowed in A.Y. 2010-11 on accrual basis was allowed in subsequent year and the Ld. AR submitted that this ground does not sustain. Hence, ground no.8 is dismissed. 28. As regards ground no.9 relating to adjustment to the book profit under Section 115JB of the Act in respect of expenditure disallowable under Rule 8D read with Section 14A(2), the Ld. AR relied upon the decision of Delhi Tribunal special bench in the case of Vireet Investment (ITA No. 502/Del/2012 order dated 16.06.2017) 29. The Ld. DR relied upon the assessment order and the order of the CIT(A). ITA Nos.624 & 547/Ahd/2016 & C.O. No.58/Ahd/2016 Assessment Years: 2011-12 Page 25 of 26 30. We have heard both the parties and perused all the relevant material available on record. This ground is related to ground no.2 of assessee’s appeal and hence it is in consonance Vireet Investment, and the provisions relating to Section 115JB relating to exempt income we direct the Assessing Officer to verify the same and adjudicate the same as per law. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Ground No.9 is thus partly allowed for statistical purpose. 31. ITA No 624/Ahd/2016 filed by the assessee is partly allowed for statistical purpose. 32. As regards Cross Objection No.58/Ahd/2016 filed by the assessee, since the assessee has filed regular appeal, Cross Objection does not survive and hence the Cross Objection filed by the assessee is dismissed. 33. As regards Revenues’ appeal ITA No.547/Ahd/2016, in respect of ground no.1 the same is identical to ground no.2 of assessee’s appeal. Hence, the same is partly allowed for statistical purpose. 34. As regards ground no.2, the same is related to addition on account of repairs and maintenance which is identical to ground no.3 of the assessee’s appeal. Hence, the same is dismissed. 35. As regards to ground no.3 related to prior period expenses made by the Assessing Officer, the Ld. DR submitted that the CIT(A) was not correct in deleting the said addition. The Ld. DR relied upon the Assessment Order. 36. The Ld. AR relied upon the order of the CIT(A). 37. We have heard both the parties and perused all the relevant material available on record. The CIT(A) has rightly observed that the assessee established that these expenses were crystallised during the current F.Y. and accordingly are eligible for ITA Nos.624 & 547/Ahd/2016 & C.O. No.58/Ahd/2016 Assessment Years: 2011-12 Page 26 of 26 deduction while computing total income of the assessee. There is no need to interfere with the same. Hence, ground no.3 of Revenue’s appeal is dismissed. 38. As regards ground no.4 related to addition on obsolete spares, it is in consonance with ground no.2 of Revenue’s appeal and identical to ground no.3 of the assessee’s appeal. Hence, ground no.4 of Revenue’s appeal is dismissed. 39. Thus, Appeal filed by the Revenue being ITA No. 547/Ahd/2016 is partly allowed for statistical purpose. 40. In the result, appeal of the assessee and appeal of the Revenue is partly allowed for statistical purpose as well as Cross Objection of the assessee is dismissed. Order pronounced in the open Court on this 24 th day of March, 2023. Sd/- Sd/- (WASEEM AHMED) (SUCHITRA KAMBLE) Accountant Member Judicial Member Ahmedabad, the 24 th day of March, 2023 PBN/* Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad