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

ITA 704/AHD/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89513 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 03-06-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 26-03-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T P KRISHNA KUMAR
• Assessee Lawyers: J P SHAH
• Keywords: Capital asset; Depreciation; Commercial expediency; Revenue expenditure
• Section: 115JB

Judgement Text

, C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI RAJPAL YADAV, JUDICIAL MEMBER ./ ITA NO. 704/AHD/2012 / ASSESSMENT YEAR: 2008-09 GUJARAT ENERGY TRANSMISSION CORPN. LTD. SARDAR PATEL VIDYUT BHAVAN RACE COURSE CIRCLE, BARODA. PAN : AABCG 4029 R VS ACIT, CIR.1(1) BARODA. ./ ITA NO. 761/AHD/2012 / ASSESSMENT YEAR: 2008-09 ACIT, CIR.1(1) BARODA. VS GUJARAT ENERGY TRANSMISSION CORPN. LTD. SARDAR PATEL VIDYUT BHAVAN RACE COURSE CIRCLE, BARODA. PAN : AABCG 4029 R ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE(S) BY : SHRI J.P. SHAH, AR REVENUE BY : SHRI T.P. KRISHNAKUMAR, CIT-DR / DATE OF HEARING : 03/06/2015 / DATE OF PRONOUNCEMENT: 12/06/2015 $%/ O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER: THESE ARE CROSS-APPEALS OF THE ASSESSEE AND THE REVENUE AGAINST THE ORDER O F THE CIT(A)-I, BARODA DATED 30.1.2012. BOTH THESE APPEALS ARE DIS POSED OF WITH THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.704/AHD/2012 (ASSESSEES APPEAL) 2. THE GROUND NO.1 OF THE APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A) IN CONFIRMING, THE DISALLOW ANCE OF RS.62,75,000/- ON ACCOUNT OF LOSSES DUE TO EARTHQUA KE. ITA NO.704 AND 761/AHD/2012 2 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CL AIMED LOSS ON ACCOUNT OF EARTHQUAKE OF RS.62,75,000/- UNDER THE H EAD EXTRAORDINARY ITEMS IN THE PROFIT & LOSS ACCOUNT. SUCH LOSS OF FIXED ASSETS WAS HELD BY THE AO TO BE NOT ALLOWABLE AS IT WAS A CAPITAL E XPENDITURE. THEREFORE, HE DISALLOWED THE SAME. 4. ON APPEAL, THE CIT(A) HELD THAT THE ASSESSEE HA S FILED DETAILS OF EXPENSES IN QUESTION. THE EXPENSES WERE INCURRED TOWARDS CONSTRUCTION OF GR, SQ AND OTHER ANCILLARY BUILDING S FOR GEB AT VARIOUS EARTHQUAKE AFFECTED AREAS IN GUJARAT STATE. THE AS SESSEES CONTENTION THAT THE EXPENDITURE WAS TOWARDS REPAIRS AND MAINTE NANCE, WAS NOT SUBSTANTIATED, AND RATHER FROM THE DESCRIPTION OF W ORK, AS PER MEMORANDUM OF PAYMENTS MADE TO THE CONTRACTORS, THE WORK WAS OF CONSTRUCTION OF NEW BUILDING, WHICH WAS CLEARLY OF CAPITAL NATURE. THEREFORE, THE DISALLOWANCE OF RS.62,75,000/- MADE BY THE AO BY HOLDING THE EXPENDITURE TO BE OF CAPITAL NATURE WAS CONFIRMED. 5. BEFORE US, THE AR OF THE ASSESSEE FILED COPY OF THE ORDER OF THIS BENCH OF THE TRIBUNAL IN THE CASE OF ASSESSEE ITSEL F DATED 8.5.2015 PASSED IN ITA NO.1931/AHD/2010, 2974/AHD/2010 AND 3 004/AHD/2010 AND SUBMITTED THAT THE ISSUE WAS COVERED IN FAVOUR OF THE ASSESSEE. THE AR OF THE ASSESSEE SUBMITTED THAT ONLY DIFFEREN CE IN FACTS WAS THAT IN THAT CASE THE LOSS WAS DUE TO FLOOD, AND IN THE PRESENT APPEAL, THE LOSS WAS DUE TO EARTHQUAKE. 6. THE DR ON THE OTHER HAND SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES AND SUBMITTED IN ANY CASE THE EXPENDITU RE CLAIMED UNDER THE HEAD EXTRAORDINARY ITEMS WAS FOR THE CONSTRUC TION OF NEW BUILDING, AND NOT FOR THE PURPOSE OF REPAIRS OF BUI LDINGS DAMAGED DUE TO EARTHQUAKE, THEREFORE, THE DECISION CITED BY THE AR IS OF NO HELP TO THE ASSESSEE. ITA NO.704 AND 761/AHD/2012 3 7. WE FIND THAT IN THE INSTANT CASE, THE CIT(A) HAS GIVEN A CATEGORICAL FINDING THAT THE EXPENSES WERE INCURRE D TOWARD CONSTRUCTION OF GR, SQ AND OTHER ANCILLARY BUILDING S FOR GEB AT VARIOUS EARTHQUAKE AFFECTED AREAS IN GUJARAT STATE. FURT HER, THE ASSESSEE HAS BROUGHT NO MATERIAL BEFORE US TO SHOW THAT THE ABOV E FINDINGS OF THE CIT(A) IS NOT CORRECT. WE FIND THAT THE DECISION O F THIS TRIBUNAL IN THE CASE OF THE ASSESSEE (SUPRA) RELIED UPON BY THE ASS ESSEE IS DISTINGUISHABLE ON FACTS. IN THAT CASE, THE TRIBUN AL FOUND THAT THE GRANT RECEIVED FOR LOSS OR DAMAGE OF ASSET WAS TREATED BY THE DEPARTMENT AS REVENUE RECEIPT CHARGEABLE TO TAX, AND THE SAME AMO UNT WAS MORE THAN THE CORRESPONDING AMOUNT OF LOSS OR EXPENDITUR E. IN THE ABOVE FACTS, THE TRIBUNAL HAS HELD THAT AFTER TREATING TH E RECEIPT AMOUNT AS REVENUE RECEIPT, IT WAS NOT OPEN TO THE DEPARTMENT TO TREAT THE CORRESPONDING EXPENDITURE OF THE LESSER AMOUNT AS N OT REVENUE EXPENDITURE. IN THE INSTANT CASE, NO MATERIAL HAS BEEN BROUGHT BEFORE US TO SHOW THAT ANY RECEIPT, WHICH WAS RECEIVED BY THE ASSESSEE IN RELATION TO THE EXPENDITURE IN QUESTION, WAS TREATE D BY THE DEPARTMENT AS REVENUE RECEIPT. THUS, THE ABOVE DECISION OF TH E TRIBUNAL DOES NOT HELP THE CASE OF THE ASSESSEE. FURTHER, IN THE ABS ENCE OF ANY MATERIAL OR DETAILS BROUGHT BEFORE US TO SHOW THAT THE EXPEN DITURE WAS INCURRED ONLY FOR REPAIRING OF BUILDING OR ASSET, AND NOT FO R CONSTRUCTION OF NEW BUILDING, WE DO NOT FIND ANY GOOD REASON TO INTERFE RE WITH THE ORDER OF THE CIT(A), WHICH IS CONFIRMED. THE GROUND OF APPE AL OF THE ASSESSEE IS DISMISSED. 8. IN THE GROUND NO.2 OF THE ASSESSEES APPEAL IS A GAINST THE ORDER OF THE CIT(A) IN CONFIRMING THE DISALLOWANCE OF THE EX PENDITURE OF RS.75,38,35,000/- BEING THE PROVISION MADE FOR EMPL OYEES COST OF ARREARS PAYABLE UPTO 31 ST MARCH, 2008. 9. BRIEF FACTS OF THE CASE ARE THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE DEBITED SUM OF RS.75,38, 35,000/- IN RESPECT ITA NO.704 AND 761/AHD/2012 4 OF 6 TH PAY COMMISSION ARREARS. THE ASSESSEE IN THE NOTE ON ACCOUNT IN NOTE NO.8(I) STATED THAT AWAITING THE FINAL DECISIO N ON THE RECOMMENDATIONS OF THE 6 TH PAY COMMISSION, THE COMPANY HAS PROVIDED RS.7538 LAKHS TOWARDS EMPLOYEES COST FOR ARREARS PA YABLE UPTO 31 ST MARCH, 2008. DURING THE COURSE OF ASSESSMENT PROCE EDINGS, THE ASSESSEE WAS ASKED TO STATE JUSTIFICATION FOR ALLOW ABILITY OF THE EXPENDITURE. THE ASSESSEES SUBMISSION WAS THAT TH E PENDING FINAL DECISION OF 6 TH PAY COMMISSION, THE COMPANY HAS PROVIDED RS.7538 LAKHS TOWARDS EMPLOYEES COST FOR ARREARS PAYABLE U PTO 31 ST MARCH, 2008, IN TERMS OF ACCOUNTING PRACTICE PRESCRIBED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. SINCE THE CONTENTI ON ABOUT THE PAYMENT OF ARREARS EXISTED ON THE BALANCE SHEET DAT E, THE LIABILITY ARISING FROM PAYMENT OF ARREARS TO THE EMPLOYEES HA D TO BE PROVIDED IN THE ACCOUNTS IN TERMS OF PROVISIONS OF AS-4 ISSUED BY ICAI. 10. THE AO, AFTER CONSIDERING THE ABOVE SUBMISSIONS , OBSERVED THAT THE LIABILITY OF PAY ARREARS HAD NOT CRYSTALLIZED D URING THE YEAR UNDER CONSIDERATION, SINCE THE FINAL DECISION TO PAY THE SAME WAS STILL AWAITED. THERE WAS NO LIABILITY FASTENED UPON THE ASSESSEE T O PAY THE ARREARS OF 6 TH PAY COMMISSION, AND THAT SINCE THE ASSESSEE WAS FO LLOWING MERCANTILE SYSTEM OF ACCOUNTING, AND THE LIABILITY TO PAY ARREARS OF 6 TH PAY COMMISSION HAD ACTUALLY NOT BEEN CRYSTALLIZED, DURING THE YEAR UNDER CONSIDERATION, A SUM OF RS.75,38,35,000/- WAS DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE BEING CONTINGEN T LIABILITY. 11. ON APPEAL, THE CIT(A) OBSERVED THAT IF LIABILIT Y ON ACCOUNT OF IMPLEMENTATION OF 6 TH PAY COMMISSION RECOMMENDATION IN ASSESSEES CASE HAD INDEED CRYSTALLIZED DURING THE FINANCIAL Y EAR 2007-08, AS CONTENDED BY THE ASSESSEE, THE GOVERNMENT ORDER TO THIS EFFECT WOULD HAVE BEEN ISSUED DURING THE YEAR F.Y.2007-08. ON B EING ASKED TO FILE SUCH GOVERNMENT ORDER, THE ASSESSEE HAD INSTEAD REQ UESTED FOR ALLOWING THE CLAIM ON PAYMENT BASIS IN THE YEAR OF PAYMENT. IN VIEW OF ITA NO.704 AND 761/AHD/2012 5 THIS, THE DISALLOWANCE OF PROVISION OF RS.75,38,35, 000/- WAS CONFIRMED SINCE THE LIABILITY DID NOT CRYSTALLIZE IN THIS YEA R. AS FAR AS THE ALLOWANCE ON PAYMENT BASIS IN THE YEAR OF PAYMENT IS CONCERNE D, THE CLAIM WAS FIRST TO BE MADE BEFORE THE AO IN THIS REGARD, WHO SHALL DECIDE THE ISSUE ON FACTS AND AS PER LAW. 12. THE AR OF THE ASSESSEE SUBMITTED THAT THE ISSUE WAS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN THE CASE OF ASSESSEE ITSELF DATED 8.5.2015 PASSED IN ITA NO.193 1/AHD/2010, 2974/AHD/2010 AND 3004/AHD/2010 (SUPRA), AND THE TR IBUNAL HELD THAT THE CIT(A) HAS RECORDED THE FACT THAT THE GUJARAT G OVERNMENT ACCEPTED THE 6 TH PAY COMMISSION IN DECEMBER, 2008, AND THEREFORE, F OLLOWING THE RATIO LAID DOWN IN THE JUDGEMENT OF HONBLE HIGH CO URT OF KERALA IN THE CASE OF CIT VS. KERALA STATE FINANCIAL ENTERPRISES, 219 CTR 147 (KER.) AND THE DECISION OF THE DELHI HIGH COURT IN THE CAS E OF CIT VS. BHARAT HEAVY ELECTRICAL LTD., 352 ITR 88 (DEL), DISALLOWAN CE MADE BY THE AO WAS DELETED. 13. ON THE OTHER HAND, DR SUBMITTED THAT BEFORE THE CIT(A) ASSESSEE COULD NOT SUBMIT GOVERNMENT ORDER FOR PAYMENT OF LI ABILITY TOWARDS EMPLOYEES COST AS PER 6 TH PAY COMMISSION RECOMMENDATION, AND THE PLEA OF THE ASSESSEE WAS THAT IT SHOULD BE ALLOWED IN THE YEAR OF PAYMENT TO THE ASSESSEE. HENCE, HE SUBMITTED THAT THERE WAS NO INFIRMITY IN THE ORDER OF THE CIT(A), WHICH SHOULD BE CONFIRMED. 14. WE FIND THAT THE AR OF THE ASSESSEE HAS FILED C OPY OF ORDER OF THIS BENCH OF THE TRIBUNAL IN THE CASE OF ASSESSEE ITSEL F FOR THE ASSTT.YEARS 2006-07 AND 2007-08 DATED 8.5.2015 PASSED IN ITA NO.1931/AHD/2010, 2974/AHD/2010 AND 3004/AHD/2010. THE TRIBUNAL IN THAT CASE WHILE CONSIDERING THE SIMILAR ISSUE HA S HELD AS UNDER: ITA NO.704 AND 761/AHD/2012 6 15. NOW, WE TAKE UP THE ASSESSEES APPEAL IN ITA NO.2974/AHD/2010 FOR AY 2007-08, WHEREIN FOLLOWING GROUNDS HAVE BEEN RAISED:- 1.0. THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF THE EXPENDITURE OF RS.61,00,00,000/ - BEING THE PROVISION MADE FOR EMPLOYEES COST FOR ARREARS P AYABLE UPTO 31ST MARCH, 2007 WITHOUT CONSIDERING THE FACTS THAT SUCH EXPENDITURE WAS PENDING THE DECISION OF 6TH PA Y COMMISSION BASED ON THE PROVISIONS OF ACCOUNTING STANDARDS AND GENERALLY ACCEPTED ACCOUNTING PRINCIP LES. 2.0 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN LAW AND FACTS IN CONFIRMING THE ENHANC EMENT OF BOOK PROFIT COMPUTED UNDER SECTION 115JB OF THE INCOME TAX ACT, 1961 BY RS.61,00,00,000/- ON ACCOUNT OF PROVISION FOR EMPLOYEES COST PENDING THE DECISION OF PAY COMMISSION TREATING THE SAME AS UNASCERTAINED LIABI LITY. 3.0 THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER, DE LETE OR MODIFY ANY OF THE GROUNDS OF APPEAL EITHER BEFORE O R AT THE TIME OF HEARING OF THIS APPEAL. 15.1. FIRST GROUND OF ASSESSEES APPEAL IS AGAINST CONFIRMING THE DISALLOWANCE OF THE EXPENDITURE OF RS.61,00,00,000/ - BEING THE PROVISION MADE FOR EMPLOYEES COST FOR ARREARS. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF ASSESSEE BY THE JUDGEMENT OF HONBLE KERA LA HIGH COURT RENDERED IN THE CASE OF CIT VS. KERALA STATE FINANC IAL ENTERPRISES LTD. REPORTED AT (2008) 219 CTR 147(KER.) AND THE J UDGEMENT OF HONBLE DELHI HIGH COURT RENDERED IN THE CASE OF CI T VS. BHARAT HEAVY ELECTRICAL LTD. REPORTED AT (2013) 352 ITR 88 (DELHI). 15.2. ON THE CONTRARY, CIT-DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE AO HAD DISALLOW ED THE EXPENDITURE BY OBSERVING THAT I HAVE CONSIDERED TH E SUBMISSION OF THE ASSESSEE BUT THE SAME IS NOT ACCEPTABLE. THE LIABILITY TO PAY THE ARREARS OF PAY HAD NOT CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION SINCE THE FINAL DECISION TO PAY THE S AME WAS STILL AWAITED. THERE WAS NOT LIABILITY FASTENED UPON THE ASSESSEE TO PAY THE ARREARS OF 6TH PAY COMMISSION. SINCE THE AS SESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THE L IABILITY TO PAY ARREARS OF 6TH PAY COMMISSION HAD ACTUALLY NOT BEEN CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION, A SUM OF RS.61 ,00,00,000/- IS DISALLOWED AND ADDED BACK TO TOTAL INCOME BEING CONTINGENT LIABILITY. THE LD.CIT(A) CONFIRMED THE FINDING OF THE AO BY OBSERVING THAT THE REPORT OF THE 6TH PAY COMMISSION WAS SUBMITTED TO THE GOVERNMENT OF INDIA IN MARCH- 2008 . IN RESPECT OF THE CENTRAL GOVERNMENT EMPLOYEES THE LIABILITY A CCRUED FROM THE DAY WHEN THE REPORT WAS ACCEPTED BY THE CENTRAL GOVERNMENT. IN RESPECT OF STATE GOVERNMENTS THE REP ORT IS NOT ITA NO.704 AND 761/AHD/2012 7 BINDING AND IT IS NOT TO BE MANDATORILY ACCEPTED AN D ADOPTED. IN FACT, NUMBER OF STATE GOVERNMENTS WERE AGAINST ACCE PTING THE REPORT BECAUSE OF HUGE FINANCIAL BURDEN AND IN FACT GOVERNMENT OF MADHYA PRADESH CONSTITUTED PAY COMMISSION OF ITS OWN, TO REFRAME THE RECOMMENDATIONS. IN OTHER WORDS, WITHOU T ACCEPTANCE OF THE REPORT THE LIABILITY CANNOT BE SA ID TO HAVE ACCRUED OR CRYSTALLIZED. CRYSTALLIZATION OF EMPLOYE E COST LIABILITY IS CONTINGENT UPON APPROVAL OR OTHERWISE FROM GUJARAT GOVERNMENT. THE GUJARAT GOVERNMENT ACCEPTED THE SIX PAY COMMISS ION REPORT IN DECEMBER-2008. IN VIEW THEREOF, IN MY HUMBLE OPI NION FOR AY 07-08 THE PROVISION TOWARDS EMPLOYEES COST FOR ARRE ARS PAYABLE UPTO 31.3.07 IS A CONTINGENT LIABILITY, CONTINGENT UPON THE STATE GOVERNMENT ACCEPTING THE REPORT OF THE PAY COMMISSI ON. THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. BHA RAT HEAVY ELECTRICAL LTD.(SUPRA) HAS OBSERVED AS UNDER:- 5. IN THE EARLIEST DECISION ON THE QUESTION OF WHE THER SUCH LIABILITY INCURRED TOWARDS EMPLOYEES' SERVICES OR F ULFILMENT OF THEIR TERMS OF EMPLOYMENT WHICH MAY BECOME PAYAB LE IN FUTURE BUT CLAIMED BY THE ASSESSEE IN A GIVEN PR EVIOUS YEAR IS ALLOWABLE AS DEDUCTION, THE SUPREME COURT OBSERVED AS FOLLOWS IN METAL BOX COMPANY OF INDIA L TD. V. THEIR WORKMEN, 73 (1969) ITR 53: - 'THE QUESTION THAT CONCERNS US IS WHETHER, WHILE WORKING OUT THE NET PROFITS, A TRADER CAN PROVIDE FROM HIS GROSS RECEIPTS HIS LIABILITY TO PAY A CERT AIN SUM FOR EVERY ADDITIONAL YEAR OF SERVICE WHICH HE RECEIVES FROM HIS EMPLOYEES. THIS, IN OUR VIEW, HE CAN DO, IF SUCH LIABILITY IS PROPERLY ASCERTAINABLE AND IT IS POSSIBLE TO ARRIVE AT A PROPER DISCOUNTED PRE SENT VALUE. EVEN IF THE LIABILITY IS CONTINGENT LIABILIT Y, PROVIDED ITS DISCOUNTED PRESENT VALUE IS ASCERTAINABLE, IT CAN BE TAKEN INTO ACCOUNT. CONTINGENT LIABILITIES DISCOUNTED AND VALUED AS NECESSARY CAN BE TAKEN INTO ACCOUNT AS TRADING EXPENSES IF THEY ARE SUFFICIENTLY CERTAIN TO BE CAPABLE OF VALUATION AND IF PROFITS CANNOT BE PROPE RLY ESTIMATED WITHOUT TAKING THEM INTO ACCOUNT. CONTINGENT RIGHTS, IF CAPABLE OF VALUATION, CAN SIMILARLY BE TAKEN INTO ACCOUNT AS TRADING RECEIPTS WHERE IT IS NECESSARY TO DO SO IN ORDER TO ASCERTAI N THE TRUE PROFITS.' IN BHARAT EARTH MOVERS (SUPRA) (DECIDED BY THE SUPR EME COURT), THE QUESTION WHICH THE COURT HAD TO CONSIDE R WAS WHETHER THE PROVISION FOR MEETING EARNED-LEAVE- ENCASHMENT BY THE EMPLOYEE WAS AN ADMISSIBLE DEDUCT ION IN THE HANDS OF THE EMPLOYER. THE COURT REITERATED AND APPLIED ITS PREVIOUS DECISION IN METAL BOX' CASE (S UPRA) AND HELD AS FOLLOWS: ITA NO.704 AND 761/AHD/2012 8 '(I)F A BUSINESS LIABILITY HAS DEFINITELY ARISEN IN THE ACCOUNTING YEAR, THE DEDUCTION SHOULD BE ALLOWED ALTHOUGH THE LIABILITY MAY HAVE TO QUANTIFY AND DISCHARGE AT A FUTURE DATE. WHAT SHOULD BE CERTAIN IS THE INCURRING OF THE LIABILITY. IT SHOULD ALSO BE CAPABLE OF BEING ESTIMATED WITH REASONABLE CERTAINT Y THOUGH THE ACTUAL QUANTIFICATION MAY NOT BE POSSIBLE. IF THESE REQUIREMENTS ARE SATISFIED, THE LIABILITY IS NOT A CONTINGENT ONE. THE LIABILITY IS IN PRAESENTI THOUGH IT WILL BE DISCHARGED AT A FUTURE DATE. IT DOES NOT MAKE ANY DIFFERENCE IF THE FUTURE DATE ON WHICH THE LIABILITY SHALL HAVE TO BE DISCHARGED IS NOT CERTAIN. ' 15.3. FURTHER, THE HIGH COURT HELD AS UNDER:- 6. IN THIS CASE, THE TRIBUNAL HAD NOTICED THAT THE RE WAS NO DISPUTE AS REGARDS THE TERMS OF EMPLOYMENT OF THE W ORKERS AND OFFICERS. THE ONLY QUESTION WAS THE EXACT QUANT IFICATION OF THE COMPENSATION OR WAGE REVISION. THE TRIBUNAL ALSO HELD THAT PROVISION FOR WAGE REVISION WAS BASED ON PAST EXPERIENCE, INTERIM PAY COMMISSION OF GOVERNMENT EMPLOYEES, PREVIOUS PAY COMMISSION'S REPORTS OF PUB LIC SECTOR EMPLOYEES, UNION DEMANDS AND OTHER RELEVANT FACTORS. THE TRIBUNAL ALSO HELD THAT WITH THE EXPIR Y OF ONE WAGE SETTLEMENT OR AGREEMENT, INVARIABLY, THERE IS A TIME LAG WHEN ANOTHER FRESH WAGE REVISION AGREEMENT IS NEGOTIATED AND ENTERED. THE DEDUCTION CLAIMED FOR T HAT PERIOD CANNOT BE TERMED AS CONTINGENT BECAUSE THE W AGE AND THE PROBABLE REVISION OR RATES OF REVISION WOUL D BE WITHIN THE FAIR ESTIMATION OF THE EMPLOYER. IN THIS CASE, BHEL HAD THE BENEFIT OF PAST EXPERIENCE OF SUCH PAY REVISIONS. ITS LIABILITY COULD NOT BE CHARACTERIZED AS CONTINGENT BUT WAS IN FACT ASCERTAINED; THE QUANTIF ICATION, HOWEVER, HAD NOT HAPPENED. 15.4. THE HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. KERALA STATE FINANCIAL ENTERPRISES LTD.(SUPRA) HELD AS UND ER:- 3. EVEN THOUGH LEARNED STANDING COUNSEL FOR THE R EVENUE CONTENDED THAT CONTRACTUAL LIABILITY ARISES ONLY ON THE DATE OF SIGNING THE AGREEMENT, WE ARE UNABLE TO ACCEPT T HIS ARGUMENT IN THIS CASE. IN THE NORMAL COURSE, AN AGR EEMENT CALLED SETTLEMENT AS INCREASE IN WAGES TAKES EFFECT FROM THE DATE OF EXPIRY OF THE PREVIOUS SETTLEMENT AND T HIS CASE IS NO EXCEPTION TO IT. WHAT IS IMPORTANT IS NOT THE DATE OF SIGNING THE AGREEMENT NOR THE LATER APPROVAL GRANTE D BY THE GOVERNMENT, BUT THE EFFECTIVE DATE OF COMMENCEM ENT OF THE WAGE REVISION UNDER THE AGREEMENT. THERE IS NO DISPUTE THAT THE WAGE INCREASE WAS GRANTED AS A ITA NO.704 AND 761/AHD/2012 9 CONTINUOUS MEASURE FROM THE DATE OF EXPIRY OF THE P REVIOUS SETTLEMENT, I.E. W.E.F. 1ST AUG., 1992. THEREFORE, THE LIABILITY FOR WAGE INCREASE REALLY ACCRUED FOR THE RESPONDENT ASSESSEE W.E.F. 1ST AUG., 1992. THE ASSESSEE IS ENT ITLED TO CLAIM DEDUCTION OF SUCH WAGE INCREASE ATTRIBUTABLE UPTO THE END OF THE PREVIOUS YEAR, NO MATTER EXACT AMOUN T WAS ASCERTAINED AND PAYMENT MADE LATER. IN THE DECISION OF THE SUPREME COURT REFERRED TO ABOVE, IT IS MADE VERY CL EAR THAT WHAT IS TO BE CONSIDERED IS WHETHER THE LIABIL ITY IS ATTRIBUTABLE TO THE PREVIOUS YEAR OR NOT AND IT IS IMMATERIAL IF THE ACTUAL LIABILITY WAS ASCERTAINED AND SETTLED ONLY IN THE NEXT YEAR. EVEN THOUGH THE OTHER TWO DECISIONS CITE D BY THE ASSESSEE ARE NOT DIRECTLY ON THE POINT, THE PRI NCIPLES LAID DOWN THEREIN ARE APPLICABLE TO THE FACTS OF TH IS CASE. IT IS CLEAR FROM THE ORDERS THAT BY THE TIME THE ACCOU NTS WERE FINALISED AND RETURNS WERE FILED, THE ASSESSEE HAD ASCERTAINED THE ACTUAL LIABILITY ATTRIBUTABLE TO TH E PREVIOUS YEAR AND THEREFORE THE ACTUAL AMOUNT PAYABLE ONLY W AS CLAIMED BASED ON MERCANTILE SYSTEM OF ACCOUNTING FO LLOWED BY THE ASSESSEE. 15.5. IN THE PRESENT CASE, THE LD.CIT(A) HAS RECORD ED THE FACT THAT THE GUJARAT GOVERNMENT ACCEPTED THE 6TH PAY COMMISSION IN DECEMBER- 2008. THEREFORE, RESPECTFULLY FOLLOWING THE RATIO L AID DOWN IN THE JUDGEMENT OF HONBLE HIGH COURT OF KERALA IN THE CA SE OF CIT VS. KERALA STATE FINANCIAL ENTERPRISES LTD.(SUPRA) AND IN THE JUDGEMENT OF HONBLE HIGH COURT OF DELHI IN THE CASE OF CIT VS. BHARAT H EAVY ELECTRICAL LTD.(SUPRA), THE DISALLOWANCE MADE BY THE AO IS HER EBY DELETED. THUS, GROUND OF ASSESSEES APPEAL IS ALLOWED. THE DR COULD NOT POINT OUT ANY DISTINGUISHABLE FEA TURES IN THE ABOVE QUOTED ORDER OF THE TRIBUNAL. FACTS BEING ID ENTICAL, RESPECTFULLY FOLLOWING THE PRECEDENT, WE DELETE THE ADDITION OF RS.75,38,35,000/- AND ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. 15. THE GROUND NO.3 OF THE APPEAL OF THE ASSESSEE I S DIRECTED AGAINST THE ORDER OF THE CIT(A) IN CONFIRMING THE ACTION OF THE AO IN TRANSFERRING 15% OF THE CAPITAL GRANTS AS INCOME ALTHOUGH THE DI SALLOWANCE MADE UNDER THIS HEAD HAS BEEN RESTRICTED TO RS.18,93,11, 850/- AS AGAINST THE DISALLOWANCE OF RS.30,97,61,800/- MADE BY THE AO. 16. THE BRIEF FACTS OF THE CASE ARE THAT ON VERIFIC ATION OF SUBSIDIES AND GRANTS, THE AO OBSERVED THAT THE ASSESSEE HAS SHOWN DEFERRED GOVERNMENT GRANTS, SUBSIDIES, CONTRIBUTION AT RS.73 05.70 LAKHS AS ON ITA NO.704 AND 761/AHD/2012 10 1.4.2007 AND THE ASSESSEE HAD SHOWN RS.15941.67 LAK HS AT THE END OF THE YEAR I.E. AS ON 31.3.2008. ON SHOW CAUSE BY TH E AO TO EXPLAIN THE TREATMENT IN ACCOUNTS OF THE SUBSIDY, GRANTS THE AS SESSEE STATED THAT DURING THE YEAR CAPITAL GRANT RECEIVED FROM GOVERNM ENT OF GUJARAT AND OTHER. THE ASSESSEE SUBMITTED THAT IN ORDER TO IM PROVE VARIOUS FUNCTIONS ASSOCIATED WITH THE GENERATION, TRANSMISS ION AND DISTRIBUTION OF ELECTRICITY, AND ALSO BECAUSE THE PSUS CONNECTED WITH POWER SECTION WERE MAKING CONSISTENT LOSSES, THE GOVERNMENT DECID ED TO INTRODUCE REFORMS IN THE DIRECTION OF STATE PSUS. ACCORDINGL Y, UNDER THE PROVISION OF GUJARAT ELECTRICITY INDUSTRIAL (REORGNISATION & REGULATION) ACT, 2000, THE ERSTWHILE GEB WAS SPLIT INTO SEVEN COMPANIES, F OR THE PURPOSE OF FINANCIAL RESTRUCTURING PLAN, AND THE APPROVAL WAS ACCORDED TO PROVIDE SOME FINANCIAL/CAPITAL SUPPORT TO GUVNL. THE GRANT WAS GIVEN IN TERMS OF THE POWER REFORMS FOR THE OVERALL DEVELOPMENT OF THE POWER SECTOR. SUCH GRANT WAS NOT GRANTED TO ACTUALLY MEET THE COS T OF ASSETS. FURTHER, THE GRANT WAS GIVEN TO THE HOLDING COMPANY , GUVNL AND THEN IT WAS ALLOCATED TO THE ASSESSEE COMPANY, ONE OF TH E SUBSIDIARY COMPANIES. THE ASSESSEE WAS NOT ENTITLED TO AN AM OUNT BEYOND A CERTAIN LIMIT, EVEN IF IT IS SPENT LARGE AMOUNT ON PURCHASE OF FIXED ASSETS. FURTHER, THE GRANT WAS NOT WITH REFERENCE TO ANY PARTICULAR FIXED ASSETS. IT WAS FURTHER SUBMITTED THAT THE R ESOLUTION SANCTIONING THE GRANT NO WHERE INDICATED THAT THE GRANT WAS MEA NT TO OFFSET THE COST OF THE CAPITAL ASSETS PURCHASED BY THE COMPANY . RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. P.J. CHEMICALS LTD., 121 CTR 201, WHEREIN THE D ECISION OF THE GUJARAT HIGH COURT IN THE CASE OF CIT GRACE PAPER I NDUSTRIES P. LTD., 83 CTR 1, WHICH WAS AFFIRMED BY THE HONBLE SUPREME CO URT BY OBSERVING THAT THE AMOUNT OF SUBSIDIES AND GRANTS RECEIVED BY THE ASSESSEE CANNOT BE REDUCED FROM THE COST OF ASSETS. IT WAS FURTHER SUBMITTED THAT THE SUBSIDY RECEIVED UNDER SCHEME CANNOT BE RE DUCED FROM THE ACTUAL COST OF THE ASSETS BY APPLYING THE PROVISION S OF SECTION 43(1) OF THE INCOME TAX ACT. THE AO DID NOT ACCEPT THE SUBM ISSION OF THE ITA NO.704 AND 761/AHD/2012 11 ASSESSEE AND HELD THAT THE SUBMISSION OF THE ASSESS EE THAT THE GRANT WAS NOT CAPITAL IN NATURE, IS FACTUALLY INCORRECT, AND FROM THE RESOLUTION, IT WAS CLEAR THAT THE GRANT RECEIVED FROM THE STATE GOVERNMENT WAS IN THE NATURE OF CAPITAL GRANT AND IT SHOULD HAVE BEEN REDUCED FROM THE CAPITAL ASSETS. THE DECISIONS QUOTED BY THE ASSESSE E ARE NOT APPLICABLE AFTER INSERTION OF EXPLANATION 10 OF SECTION 43(1) OF THE ACT, AS THEY PERTAINED TO EARLIER YEARS PRIOR TO INSERTION OF EXPLANATION 10 OF SECTION 43(1) OF THE ACT. AFTER INSERTION OF EXPLANATION 10 OF SECTION 43(1) OF THE ACT, THE POSITION OF LAW WAS VERY CLEAR. SINCE THE ASSESSEE FAILED TO REDUCE THE CAPITAL GRANT AGAINST THE COST OF CAPITA L ASSETS, AND CLAIMED EXCESS DEPRECIATION, WHICH WAS DISALLOWED AND WORKE D OUT AT 15% OF THE CAPITAL ASSETS. 17. ON APPEAL, THE CIT(A) HELD THAT IN ASSESSEES C ASE, 10% OF GRANT UNDER THREE HEADS NAMELY SUBSIDY TOWARDS COST OF C APITAL ASSETS, GRANTS TOWARDS COST OF CAPITAL ASSETS AND CONSUM ER CONTRIBUTION FOR CAPITAL ASSETS I.E. THE GRANTS APPEARING IN SCHEDU LE -3 OF THE BALANCE SHEET AS ON 31.3.2008 WERE OFFERED FOR TAX. THE A MOUNT OF GRANT ON WHICH 10% WAS CALCULATED WAS ON THE OPENING BALANCE OF GRANTS OF RS.73,05,70,492/-, AND THE GRANTS RECEIVED DURING T HE YEAR WAS RS.103,56,34,226/-, AGGREGATING TO RS.176,62,04,718 /-. AS THESE GRANTS WERE TOWARDS COST OF CAPITAL ASSETS, 15% OF THE SAME SHOULD HAVE BEEN REDUCED FROM THE DEPRECIATION CLAIMED ON ACCOUNT OF MAKING ADJUSTMENT IN THE ACTUAL COST OF ASSTS AS PER EXPLANATION 10 BELOW SECTION 43(1). SINCE THE ASSESSEE HAS ALREADY OFFE RED FOR TAX, 10% OF THE OPENING BALANCE OF GRANTS PLUS GRANTS RECEIVED DURING THE YEAR UNDER THESE THREE HEADS OF SCHEDULE-3 GRANTS, SUCH AMOUNT OFFERED FOR TAX WAS TO BE REDUCED FROM THE EXCESS DEPRECIATION TO BE DISALLOWED AT THE RATE OF 15% OF RS.176,62,04,718/- I.E. RS.26,49 ,30,708/-. THE NET DISALLOWANCE ON THIS COUNT WORKED OUT RS.26,49,30,7 08/- MINUS RS.17,20,37,655/-, THE AMOUNT ALREADY OFFERED FOR T AXATION I.E. RS.9,28,93,053/-. SINCE NO PORTION OF GRANT OF RS. 6427.94 LAKHS BEING ITA NO.704 AND 761/AHD/2012 12 CAPITAL GRANT FOR CAPITAL SUPPORT APPEARING IN SCHE DULE-2 OF THE BALANCE SHEET AS ON 31.3.2008 WAS OFFERED AS INCOME NOR IT WAS REDUCED FROM THE COST OF ASSETS, 15% OF THE SAME I.E. RS.964.191 LAKH NEEDED TO BE DISALLOWED AS EXCESS DEPRECIATION CLAIMED IN RESPEC T OF THE SAME. THE TOTAL DISALLOWANCE TOWARDS EXCESS DEPRECIATION, THE REFORE, WORKED OUT TO RS.9.289 CRORES PLUS RS.9.641 CRORES I.E. RS.18.93 CRORES. THUS, INSTEAD OF NET ADDITION OF RS.30,97,61,800/- MADE B Y THE AO, ADDITION OF RS.18.93 CRORE WAS DIRECTED TO BE MADE ON THIS C OUNT. 18. BEFORE US, THE AR OF THE ASSESSEE ARGUED THAT U NIFORM RATE OF 15% CANNOT BE APPLIED FOR MAKING DISALLOWANCE. HE SUBMITTED THAT THE GRANT SHOULD BE APPORTIONED ACCORDING TO THE VALUE OF THE ASSET GIVEN IN THE BALANCE SHEET. HE ARGUED THAT THE RATE OF DEPR ECIATION ON LAND WAS ZERO PERCENT, BUILDING WAS 5% AND THE PLANT & MACHI NERY WAS 15%, AND HENCE, THE DISALLOWANCE AT THE UNIFORM RATE AT 15% IS NOT JUSTIFIED. 19. ON THE OTHER HAND, THE DR ARGUED AND SUBMITTED THAT THE ORDER OF THE CIT(A) WAS CORRECT, AND HE AFTER APPRECIATING T HE ENTIRE FACTS HAD REDUCED THE DISALLOWANCE FROM RS.30.97 CRORES TO RS .18.93 CRORES. 20. WE FIND THAT IN THE INSTANT CASE, THE CIT(A) HE LD THAT EXCESS DEPRECIATION CLAIMED ON ACCOUNT OF CAPITAL GRANT CO MES TO RS.18.93 CRORES BEING 15% OF RS.176,62,04,718/-, I.E. RS.26, 49,30,708/- MINUS RS.17,20,37,655/-, WHICH AMOUNTS TO RS.9,28,93,053/ -, AND 15% OF RS.6427.94 LAKHS AMOUNTING TO RS.964.191 LAKH. THE SUBMISSIONS OF THE ASSESSEE BEFORE US IS THAT THE UNIFORM RATE OF 15% ADOPTED BY THE CIT(A) IS NOT JUSTIFIED. AS PER PROVISIONS OF SECT ION 43(1) OF THE ACT, THE CAPITAL GRANT SHOULD BE REDUCED FROM THE COST/WDV O F THE RELEVANT ASSET, AND THEREAFTER THE DEPRECIATION IS TO BE CAL CULATED. THUS, THE CAPITAL GRANT RECEIPT IN RESPECT OF ASSET, ON WHICH DEPRECIATION IS ALLOWABLE AT THE RATE DIFFERENT FROM 15% SHOULD BE WORKED OUT AS PER THE APPLICABLE RATE. THE DR COULD NOT POINT OUT AN Y MISTAKE IN THE ABOVE SUBMISSION OF THE ASSESSEE, WHICH WE FIND IS IN ACCORDANCE WITH ITA NO.704 AND 761/AHD/2012 13 LAW. WE, THEREFORE, SET ASIDE THE ORDERS OF THE LO WER AUTHORITIES ON THIS ISSUE, AND RESTORE THE MATTER BACK TO THE FILE OF T HE AO FOR ADJUDICATION AFRESH AFTER VERIFYING THE PROPORTIONATE AMOUNT OF GRANT RELATING TO DIFFERENT ASSET, AND APPLYING THE ACTUAL RATE OF DE PRECIATION WHICH RELATE TO THESE ASSETS. THUS, THIS GROUND OF APPEAL OF TH E ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 21. THE GROUND NO.4 OF THE APPEAL OF THE ASSESSEE I S DIRECTED AGAINST THE ORDER OF THE CIT(A) IN CONFIRMING THE ENHANCEME NT OF BOOK PROFIT COMPUTED UNDER SECTION 115JB OF THE ACT BY RS.75,38 ,35,000/-. 22. BRIEF FACTS OF THE CASE ARE THAT THE AO OBSERVE D THAT THE ADDITION IN RESPECT OF EXPENDITURE OF 6 TH PAY COMMISSION UNDER NORMAL PROVISIONS OF IT ACT OF RS.75,38,35,000/- WAS MADE, AND SAME WAS ALSO DISALLOWABLE FROM BOOK PROFIT U/S.115JB, SINCE IT W AS A PROVISION MADE FOR MEETING LIABILITIES OTHER THAN ASCERTAINED LIAB ILITIES. 23. ON APPEAL, THE CIT(A) OBSERVED THAT THE LIABILI TY TOWARDS ARREAR PAYABLE TO THE EMPLOYEES PENDING DECISION OF THE 6 TH PAY COMMISSION DID NOT CRYSTALLIZE DURING THE FINANCIAL YEAR 2007- 08. THE PROVISION MADE TOWARDS THE LIABILITY OTHER THAN ASCERTAINED A RE TO BE ADDED BACK TO THE BOOK PROFIT UNDER SECTION 115JB UNDER CLAUSE (C) OF EXPLANATION 1 BELOW SECTION 115JB. IN VIEW OF THIS ADDITION OF RS.75,38,35,000/- BEING PROVISION MADE FOR ARREARS PAYABLE TO THE EMP LOYEES PENDING THE DECISION OF 6 TH PAY COMMISSION TO BOOK PROFIT COMPUTED UNDER SECTI ON 115JB IS CONFIRMED. 24. THE AR OF THE ASSESSEE SUBMITTED THAT THIS GROU ND OF APPEAL OF THE ASSESSEE IS CONSEQUENTIAL TO GROUND NO.2 RAISED IN THIS APPEAL. 25. ON THE OTHER HAND, DR SUPPORTED THE ORDERS OF T HE LOWER AUTHORITIES. ITA NO.704 AND 761/AHD/2012 14 26. WE FIND THAT THE TRIBUNAL IN THE CASE OF ASSESS EE ITSELF IN THE ASSTT.YEAR 2006-07 AND 2007-08, WHILE DECIDING SIMI LAR ISSUE, VIDE ORDER DATED 8.5.2015 PASSED IN ITA NO.1931/AHD/2010 , 2974/AHD/2010 AND 3004/AHD/2010 HELD AS UNDER: 12. GROUND NO.6 IS AGAINST THE DIRECTION GIVEN TO THE AO TO RECOMPUTE THE BOOK PROFIT U/S.115JB OF THE ACT FOR THE PURPOSE OF COMPUTING MAT BY THE LD.CIT(A). THE LD.CIT-DR SUPPO RTED THE ORDER OF THE AO AND SUBMITTED THAT THE LD.CIT(A) WA S NOT JUSTIFIED IN GIVING DIRECTION TO THE AO FOR RECOMPUTING THE B OOK PROFIT U/S.115JB OF THE ACT FOR MAT. 12.1 ON THE CONTRARY, LD.COUNSEL FOR THE ASSESSEE S UPPORTED THE ORDER OF THE LD.CIT(A) AND SUBMITTED THAT LD.CIT(A) HAS FOLLOWED THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT R ENDERED IN THE CASE OF DCIT VS. VARDHMAN FABRICS (P) LTD. REPORTED AT 122 TAXMAN 375. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE LD.CIT(A) HAS DECIDED THIS ISSUE IN PARAS- 12.3 & 12.4 OF HIS ORDER, WHICH ARE REPRODUCED HERE UNDER:- 12.3 THUS, WHAT IS MATERIAL FOR THE PURPOSES OF SEC TION 115JB IS NOT THE PROFIT & LOSS ACCOUNT PREPARED IN TERMS OF THE INCOME-TAX ACT BUT THAT PREPARED IN TERMS OF SC HEDULE- VI OF THE COMPANIES ACT. PART-II OF SCHEDULE-VI LAY S DOWN THE REQUIREMENT AS TO PROFIT AND LOSS ACCOUNT. AT I TEM NO. 3(IV), IT HAS BEEN LAID DOWN THAT THE PROFIT AND LO SS ACCOUNT SHALL DISCLOSE INFORMATION RELATING TO THE AMOUNT P ROVIDED FOR DEPRECIATION, RENEWALS OR DIMINUTION IN THE VAL UE OF FIXED ASSETS. SCHEDULE-XIV LAYS DOWN THE RATES OF DEPRECI ATION IN RESPECT OF VARIOUS ASSETS, BOTH IN TERMS OF WRITTEN DOWN VALUE (WDV) AND STRAIGHT LINE METHOD (SLM). AT THE SAME TIME, THE DEPARTMENT OF COMPANY AFFAIRS HAS ISSUED CIRCULAR DT. 7.3.2009 WHICH ALLOWS DEPRECIATION TO BE CLAIMED AT HIGHER RATES ON THE BASIS OF BONA FIDE TECHNOLOGICAL EVALUATION. IT HAS BEEN CLEARLY STATE D THEREIN THAT THE RATES PRESCRIBED IN SCHEDULE - XIV COULD B E VIEWED AS MINIMUM RATES. FROM PART B (WHEREIN NOTES TO THE ACCOUNTS HAVE BEEN DISCLOSED) IT IS SEEN AT ITEM- 5 (VII) RELATING TO DEPRECIATION, THAT THE COMPANY PROVIDES DEPRECIATION AS PER THE RATES NOTIFIED BY CERC, A R EGULATORY COMMISSION BY VIRTUE OF SECTION 76 OF ELECTRICITY A CT, 2003, WHICH ARE DIFFERENT FROM THE RATES PRESCRIBED UNDER THE ITA NO.704 AND 761/AHD/2012 15 COMPANIES ACT, 1956. DURING THE YEAR SUCH RATES WER E REDUCED, WHICH COULD NOT HOWEVER BE IMPLEMENTED BY THE ASSESSEE DURING THE YEAR DUE TO THE FACT THAT THE N OTIFICATION WAS RECEIVED VERY LATE. THE ASSESSEE HAS COMPLIED W ITH THE PROVISIONS OF SCHEDULE-VI OF COMPANIES ACT WHILE PR EPARING ITS ACCOUNTS. 12.4 THE SUPREME COURT HAS HELD VERY CLEARLY IN APOLLO (SUPRA) AS WELL AS MALAYALA MANORAMA CO L TD V CIT, 168 TAXMAN 471 THAT THE POWER TO MAKE ENHANCEM ENT AND REDUCTION U/S 115J IS LIMITED ONLY TO THE SPECI FIC ITEMS PROVIDED UNDER CLAUSES (A) TO (I) AND (I) TO (VIII) . THE AO HAS ONLY TO SATISFY HIMSELF THAT THE PROVISIONS OF THE COMPANIES ACT HAVE BEEN COMPLIED WITH WHILE PREPARI NG THE ACCOUNTS. THE PROVISIONS OF INCOME-TAX ACT WITH REG ARD TO DEPRECIATION ETC., WOULD NOT BE MATERIAL TO THE COM PUTATION. ON SIMILAR FACTS, THE JURISDICTIONAL HIGH COURT OF GUJARAT IN DCIT V VARDHMAN FABRICS (P) LTD., 122 TAXMAN 375 HA D OCCASION TO CONSIDER THE CIRCULAR OF THE COMPANY LA W BOARD WHICH CLARIFIED THAT THE RATES PRESCRIBED IN SCHEDU LE XIV WERE MINIMUM RATES OF DEPRECIATION AND THE COMPANY COULD CLAIM HIGHER DEPRECIATION ON THE BASIS OF A BONAFID E TECHNOLOGICAL EVALUATION AND PROPER DISCLOSURE THER EOF IN THE NOTES FORMING PART OF ANNUAL ACCOUNTS. IN THE INSTA NT CASE, FROM THE FACTS AS ABOVE, I AM OF THE OPINION THAT T HE ASSESSEE HAS COMPLIED WITH THE PROVISIONS CONTAINED IN SCHEDULE-VI TO THE COMPANIES ACT READ WITH SCHEDULE -XIY AND CIRCULAR DT. 7.3.2009 OF THE DEPARTMENT OF COMP ANY AFFAIRS. HENCE THE AO'S ACTION IN REDUCING THE CLAI M OF DEPRECIATION UNDER ITEM (II)(A) BY RS.14,32,02,331/ - IS HELD TO BE UNJUSTIFIED. THE AO IS DIRECTED TO RECOMPUTE THE BOOK PROFIT FOR MAT BY ALLOWING THE DEPRECIATION CLAIMED . 13.1. THE LD.CIT(A) HAS APPLIED THE RATIO LAID DOWN IN THE JUDGEMENTS OF HONBLE APEX COURT RENDERED IN THE CA SE OF APOLLO TYRES LTD. (255 ITR 273), MALAYALA MANORAMA CO.LTD. VS. CIT (168 TAXMAN 471) AND THE JUDGEMENT OF HONBLE JURIS DICTIONAL HIGH COURT RENDERED IN THE CASE OF DCIT VS. VARDHMA N FABRICS (P) LTD. (122 TAXMAN 375). THE LD.CIT-DR COULD NOT DIST INGUISH THE FACTS OF THE CASE, THEREFORE WE DO NOT FIND ANY REA SON TO INTERFERE WITH THE ORDER OF THE LD.CIT(A), SAME IS HEREBY UPH ELD. THUS, THIS GROUND OF REVENUES APPEAL IS REJECTED. THE DR COULD NOT POINT OUT ANY DISTINGUISHABLE FEA TURES IN THE ABOVE QUOTED ORDER OF THE TRIBUNAL. FACTS BEING ID ENTICAL, RESPECTFULLY FOLLOWING THE PRECEDENT, WE DELETE THE ADDITION OF RS.75,38,35,000/- AND ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. ITA NO.704 AND 761/AHD/2012 16 27. THE GROUND NO.5 AND 6 OF THE APPEAL OF THE ASSE SSEE READ AS UNDER: 5. THE LD.CIT(A) ERRED IN LAW AND ON FACTS HAS DIS MISSED THE GROUND RELATING TO THE INITIATION OF PENALTY PROCEE DINGS UNDER SECTION 271(1)(C) OF THE ACT. 6. THE LD CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE CHARGING OF INTEREST UNDER SECTION 234B, 234C A ND 234D OF THE IT ACT, 1961. 28. THE AR OF THE ASSESSEE SUBMITTED THAT HE IS NOT PRESSING THESE GROUNDS OF APPEAL. HENCE, THEY ARE DISMISSED FOR W ANT OF PROSECUTION. ITA NO.761/AHD/2012 (REVENUES APPEAL) 29. IN THE REVENUES APPEAL, THE GROUND NO.1 OF THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE CIT(A) IN DELETING THE ADD ITION OF RS.50,90,96,000/- MADE ON ACCOUNT OF DISALLOWANCE O F CLAIM OF GUARANTEE FEES PAID TO GOVERNMENT OF GUJARAT. 30. BRIEF FACTS OF THE CASE ARE THAT THE AO OBSERVE D THAT THE ASSESSEE PAID GUARANTEE FEE OF RS.5,69,35,000/- TO THE GOVT. OF GUJARAT IN CONSIDERATION OF GUARANTEE ISSUED BY IT FOR REPAYME NT OF UNSECURED LOAN. FURTHER, THE ASSESSEE ALSO CLAIMED RS.21,61, 000/- ON ACCOUNT OF COST OF RAISING FINANCE UNDER THE HEAD COST OF RAI SING FINANCE AS PER THE PROFIT & LOSS ACCOUNT. 31. IN REPLY TO SHOW CAUSE NOTICE TO THE ASSESSEE, THE ASSESSEE SUBMITTED THAT ERSTWHILE GEB HAS RAISED VARIOUS LOA NS, GUARANTEE OF WHICH WAS GIVEN BY GOVT. OF GUJARAT, AND FOR THE GU ARANTEE GIVEN BY THE GOVT. OF GUJARAT, THE GEB IS REQUIRED TO PAY GU ARANTEE FEES AS PER RULES. AFTER THE SPLIT OF THE COMPANY, THE SAID LO AN WERE STILL CONTINUED, WHICH WERE GUARANTEED BY THE GOVT. OF GUJARAT. THER EFORE, EVERY YEAR THESE GUARANTEE FEES BECOME PAYABLE TO GOVT. OF GUJ ARAT ON RECURRING BASIS. REGARDING THE COST OF RAISING FINANCE, THE ASSESSEE SUBMITTED THAT THE FINANCE WAS RAISED DURING THE YEAR, AND AC CORDINGLY, THE COST ITA NO.704 AND 761/AHD/2012 17 INCURRED FOR RAISING FINANCE WAS CHARGED TO CURRENT YEARS PROFIT & LOSS ACCOUNT. THE AO DID NOT ACCEPT THE ABOVE EXPLANAT ION OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE DID NOT FURNISH THE DETAILS OF THE PURPOSE FOR WHICH THE LOANS WERE TAKEN FOR WHICH TH E GUARANTEE FEES WERE CLAIMED. FURTHER, IF THE FEES PAID FOR LOANS FACILITY IN RESPECT OF FIXED ASSETS, NATURE OF ASSETS, THE DATE OF PUT-TO- USE HAS NOT BEEN SUBMITTED. THE ASSESSEE ALSO FAILED TO FURNISH AN Y AGREEMENT WITH THE GOVT. OF GUJARAT FOR CHARGING GUARANTEE FEES AND ME THOD OF ITS COMPUTATION AGAINST THE LOAN AMOUNTS. IN THE ABSEN CE OF THESE DETAILS IT WAS NOT POSSIBLE TO ENTERTAIN THE ASSESSEES CLA IM. THE AO FURTHER OBSERVED THAT THE COST OF RAISING THE FINANCE CAN A LSO NOT BE CONSIDERED AS REVENUE EXPENSES FOR WANT OF DETAILS. HE, ACC ORDINGLY, DISALLOWED RS.5,90,96,000/-. 32. ON APPEAL, THE CIT(A) OBSERVED THAT GUARANTEE F EE WAS AN ANNUAL RECURRING EXPENDITURE INCURRED BY THE ASSESSEE. GU ARANTEE FEE WAS PAYABLE TO GOVT. OF GUJARAT EVERY YEAR IN RESPECT O F LOANS TAKEN BY THE ASSESSEE AND GUARANTEED BY THE GOVT. OF GUJARAT. A S HELD BY HONBLE SUPREME COURT IN THE CASE OF INDIA CEMENTS LTD., 60 ITR 52 (SC), LOAN CANNOT BE TREATED AS ASSET OR ADVANTAGE RESULTING I N ENDURING BENEFITS. GUARANTEE FEES PAID TO GOVT. OF GUJARAT WAS IN CONN ECTION WITH RAISING OF LOANS AND ENDURING BENEFIT OR ADVANTAGE COULD NO T BE SAID TO HAVE RESULTED BY TAKING SUCH LOANS. ONLY IF THE ASSETS ACQUIRED OUT OF SUCH LOANS WERE NOT PUT-TO-USE TILL THE END OF PREVIOUS YEAR I.E. 31.3.2008, THE GUARANTEE FEES TO SUCH EXTENT I.E. IN RESPECT O F SUCH LOANS ONLY COULD BE CAPITALIZED AS COST OF SUCH ASSET. THE AS SESSEE HAS CERTIFIED THAT NO NEW PROJECT WAS STARTED OR COMMISSIONED DUR ING THE YEAR FOR WHICH ABOVE GUARANTEE WAS PAID, AND THE GUARANTEE F EES WAS IN RESPECT OF LOANS FOR ACQUISITION OF CAPITAL ASSETS, WHICH W ERE ALREADY PUT-TO-USE PRIOR TO 1.4.2007. THE GUARANTEE FEES OF RS.5,69,3 5,000/- IS DIRECTED TO BE ALLOWED AS REVENUE EXPENDITURE, SUBJECT TO VE RIFICATION BY THE AO OF THE CERTIFICATE FILED DURING THE APPELLATE PROCE EDINGS I.E. THERE WAS NO ITA NO.704 AND 761/AHD/2012 18 CAPITAL WORK-IN-PROGRESS IN RESPECT OF LOANS ON WHI CH GUARANTEE FEES WAS PAID. 33. REGARDING COST OF RAISING FINANCE OF RS.21.61 L AKHS IS CONCERNED, THE CIT(A) OBSERVED THAT THE SAME WAS AN ALLOWABLE DEDUCTION AND BEING REVENUE EXPENDITURE, FOLLOWING THE DECISION I N THE CASE OF INDIA CEMENTS LTD. (SUPRA) DISALLOWANCE OF RS.21,61,000/- WAS CANCELLED. 34. THE DR SUPPORTED THE ORDER OF THE AO, WHEREAS, THE AR OF THE ASSESSEE SUPPORTED THE ORDER OF THE CIT(A) AND SUBM ITTED THAT THE ISSUE WAS NOW COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THIS TRIBUNAL IN THE CASE OF ASSESSEE ITSELF DATED 8.5.2 015 PASSED IN ITA NO.1931/AHD/2010, 2974/AHD/2010 AND 3004/AHD/2010. 35. WE FIND THAT THE TRIBUNAL IN ITS ORDER DATED 8. 5.2015 CITED SUPRA HAS HELD AS UNDER: 6. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE LD.CIT(A) DECIDED THESE ISS UES IN PARAS- 5.2 & 5.3 AND 6.2 RESPECTIVELY BY OBSERVING AS UNDE R:- 5.2. I HAVE CONSIDERED THE SUBMISSIONS OF THE LD.A R AND THE FACTS OF THE CASE. THE ISSUE RELATING TO WHETHE R AN ITEM OF EXPENDITURE LIES IN THE CAPITAL OR THE REVENUE F IELD HAS EXERCISED THE COURTS IN NUMEROUS CASES. FROM AN ANA LYSIS OF SUCH CASES A FEW GUIDING PRINCIPLES/TESTS CAN BE ID ENTIFIED. ONE OF THE IMPORTANT TESTS FOR CATEGORIZING ANY EXP ENDITURE AS CAPITAL IN NATURE IS WHETHER THE LAYING OUT OF T HE IMPUGNED EXPENDITURE RESULTS IN THE ACQUISITION OF CREATION OF ANY NEW ASSET. WHERE NO SUCH ASSET IS CREATED, I T WOULD BE INDICATIVE OF AN EXPENDITURE WHICH WAS NOT CAPIT AL IN NATURE. ANOTHER TEST RELATES TO THE PRINCIPLE OF E NDURING BENEFIT. ENDURING BENEFIT MAY BE IN THE FORM OF LONG LASTING USE OF AN ASSET OR THE ACQUISITION OF A RIG HT TO EXPLOIT CERTAIN COMMERCIAL PROCESSES, ETC. IN THE INSTANT C ASE, THE ASSESSEE DID NOT ACQUIRE ANY RIGHT TO EXPLOIT A COM MERCIAL TECHNOLOGY OR PROCESS, AND NEITHER WAS THE BENEFIT ENDURING, SINCE THE PAYMENT OF GUARANTEE COMMISSI ON WAS AN ANNUAL CHARGE. THE BENEFIT DERIVED FROM PAYM ENT OF SUCH COMMISSION THUS LASTED FOR EXACTLY ONE YEAR ON LY. SUCH ITA NO.704 AND 761/AHD/2012 19 SHORTLIVED BENEFIT CANNOT BE CATEGORIZED AS ENDURI NG. HENCE, I AM INCLINED TO THE VIEW THAT THE PAYMENT O F GUARANTEE COMMISSION WAS A REVENUE EXPENDITURE. 5.3 . FURTHER, THE JURISDICTIONAL BENCH OF ITAT HAD OCCAS ION TO CONSIDER THE ALLOWABILITY OF GUARANTEE COMMISSION P AID TO A DIRECTOR OF THE COMPANY IN RESPECT OF LOANS TAKEN F ROM THE BANK. IN THE CASE OF HIMALAYA MACHINERY PVT.LTD. (I TA NO.738/AHD/2009) FOR AY 2006-07, THE TRIBUNAL HELD, VIDE ORDER DT.5.6.2009, FOLLOWING THE DECISION OF THE RA JASTHAN HIGH COURT IN CIT V. METALISING EQUIPMENT CO.PVT.LT D., 8 DTR 12, THAT THE PAYMENT OF COMMISSION FOR GUARANTE EING REPAYMENT OF LOAN WAS ALLOWABLE AS REVENUE EXPENSE. IN THE INSTANT CASE, THE LOAN HAS BEEN GUARANTEED BY T HE GOVERNMENT OF GUJARAT. HENCE, QUITE APART FROM THE OTHER SOUND REASONS FOR TREATING THE EXPENDITURE AS REVEN UE, IT WOULD BE UNREALISTIC TO SAY THAT THE APPELLANT COMP ANY COULD DERIVE ANY UNDUE ADVANTAGE OR COLLATERAL BENE FIT BY MAKING SUCH PAYMENT TO THE GOG. IN VIEW OF THE TOTA LITY OF THE CIRCUMSTANCES, I AM OF THE OPINION THAT THE AO WAS NOT JUSTIFIED IN TREATING THE PAYMENT OF GUARANTEE COMM ISSION (RS.8,39,04,550/-) AS CAPITAL IN NATURE. THE ADDITI ON IS DIRECTED TO BE DELETED. 6.2. I HAVE CONSIDERED THE SUBMISSIONS OF THE LD.AR AND THE FACTS OF THE CASE. THE JURISDICTIONAL BENCH OF ITAT HAS HELD IN THE CASE O F SHRI RAMA MULTI TECH VS. ACIT, 92 TTJ 568, THAT IN DETER MINING THE NATURE OF EXPENDITURE INCURRED FOR OBTAINING LO AN, IT IS IRRELEVANT TO CONSIDER THE PURPOSE OF LOAN. THE AMO UNT SPENT ON STAMP DUTY, LAWYER FEES, ETC. FOR OBTAININ G 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 O F COMMERCIAL EXPEDIENCY. IN INDIA CEMENTS LTD. VS. CI T, 60 ITR 52, THE SUPREME COURT HAD ALSO HELD THAT THE EXPENDITURE INCURRED FOR SECURING THE USE OF MONEY FOR A CERTAIN PERIOD WAS REVENUE EXPENDITURE. IN THE INST ANT CASE, THE ASSESSEE HAS SECURED THE LOAN BY CREATING A CHA RGE (HYPOTHECATION OF ITS ASSETS). HENCE THE RATIO OF T HE ABOVE MENTIONED TWO CASES WOULD SQUARELY APPLY. ACCORDING LY, IT IS HELD THAT THE AO WAS NOT JUSTIFIED IN MAKING THE DISALLOWANCE OF RS.45,24,582/-, WHICH IS DIRECTED T O BE DELETED. 6.1 THE LD.CIT(A) HAS FOLLOWED THE DECISION OF THE TRIBUNAL PASSED IN ITA NO.738/AHD/2009 FOR AY 2006-07 IN THE CASE O F HIMALAYA MACHINERY PVT.LTD., DATED 5.6.2009 AND IN THE CASE OF SHRI RAMA MULTI TECH VS. ACIT REPORTED AT 92 TTJ 568. ITA NO.704 AND 761/AHD/2012 20 6.2. THE LD.CIT-DR COULD NOT DISTINGUISH THE FACTS OF THE CASE, THEREFORE WE DO NOT SEE ANY REASON TO INTERFERE WIT H THE ORDER OF THE LD.CIT(A), SAME IS HEREBY UPHELD. THUS, THESE T WO GROUNDS RAISED IN THE REVENUES APPEAL ARE REJECTED. 36. DR COULD NOT POINT OUT ANY GOOD REASON AS TO WH Y THE ABOVE QUOTED ORDER OF THE TRIBUNAL SHOULD NOT BE FOLLOWED FOR THE YEAR UNDER CONSIDERATION. IN THE ABSENCE OF DISTINGUISHING FE ATURES BEING POINTED OUT BY THE DR, AND THE FACTS BEING IDENTICAL, RESPE CTFULLY FOLLOWING THE ABOVE QUOTED DECISION OF THE TRIBUNAL, WE CONFIRM T HE ORDER OF THE CIT(A), AND DISMISS THIS GROUND OF APPEAL OF THE RE VENUE. 37. THE GROUND NO.2 OF THE REVENUE IS DIRECTED AGAI NST THE ORDER OF THE CIT(A) IN DELETING THE ADDITION OF RS.1,41,15,0 00/- MADE ON ACCOUNT OF DISALLOWANCE OF LOSS OF MATERIAL THROUGH PILFERA GE, SHORTAGE OF MATERIAL-IN-TRANSIT, SHORTAGE ARISING ON PHYSICAL V ERIFICATION ETC. 38. BRIEF FACTS OF THE CASE ARE THAT THE AO OBSERVE D THAT THE ASSESSEE HAS CLAIMED RS.1,41,15,000/- ON ACCOUNT OF MISCELLA NEOUS LOSS AND WRITE OFFS. IN REPLY TO THE SHOW CAUSE NOTICE, TH E ASSESSEE SUBMITTED THAT THESE LOSSES ARE ON ACCOUNT OF LOSS OF MATERIA LS, THROUGH PILFERAGE, SHORTAGE OF MATERIAL-IN-TRANSIT, SHORTAGE ARISING O N PHYSICAL VERIFICATION, OBSOLESCENCE OF MATERIALS/STORES, LOSS IN SALE OF S CRAP ETC. IT WAS SUBMITTED THAT THE LOSSES HAVE BEEN INCURRED IN THE DAY-TO-DAY BUSINESS ACTIVITIES AND IS PURELY OF REVENUE NATURE . THE AO OBSERVED THAT FROM THE SUBMISSION OF THE ASSESSEE, IT WAS CL EAR THAT THE ASSESSEES CLAIM WAS NOT SUBSTANTIATED WITH ANY DOC UMENTARY EVIDENCE. ACCORDINGLY, HE DISALLOWED DEDUCTION OF RS.1,41,15, 000/-. 39. ON APPEAL, THE CIT(A) DELETED THE ADDITION AND HELD THAT SIMILAR ISSUE WAS DECIDED BY THE CIT(A) IN FAVOUR OF THE AS SESSEE IN ASSESSEES OWN CASE FOR THE ASST.YEAR 2006-07 AND 2007-08. FO LLOWING THE SAME, HE DELETED THE DISALLOWANCE OF RS.1,41,15,000/-. ITA NO.704 AND 761/AHD/2012 21 40. THE DR RELIED ON THE ORDER OF THE AO. HE COULD NOT BRING ANY MATERIAL ON RECORD TO HOW THAT THE RELIEF ALLOWED B Y THE CIT(A) IN THE ASSTT.YEAR 2006-07 AND 2007-08 WAS APPEALED AGAINST BEFORE HIGHER FORUMS, AND THE ORDER OF THE CIT(A) WAS VARIED BY A NY HIGHER AUTHORITY. IN THE ABSENCE OF ANY SUCH MATERIAL, WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) ON THIS ISSU E, WHICH IS HEREBY CONFIRMED AND THE GROUND OF APPEAL OF THE REVENUE I S DISMISSED. 41. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED AS INDICATED ABOVE AND THE APPEAL OF THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN THE COURT ON FRIDAY THE 12 TH DAY OF JUNE, 2015 AT AHMEDABAD. SD/- SD/- (RAJPAL YADAV) JUDICIAL MEMBER ( N.S. SAINI) ACCOUNTANT MEMBER