The DCITGNR Circle, Gandhinagar V. Gujarat Informatics Ltd., Gandhinagar

ITA 727/AHD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 72998 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 14-02-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 07-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL
• Assessee Lawyers: ANIL R SHAH
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH BEFORE: SRI D.K TYAGI, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEM BER DEPUTY COMMISSIONER OF INCOME TAX, GANDHINAGAR (APPELLANT) VS GUJARAT INFORMATICS LTD., BLOCK NO. 1 8 TH FLOOR, UDHYOG BHAVAN, SECTOR- 11, GANDHINAGAR PAN: AABCG586B (RESPONDENT) GUJARAT INFORMATICS LTD., BLOCK NO. 1 8 TH FLOOR, UDHYOG BHAVAN, SECTOR- 11, GANDHINAGAR PAN: AABCG586B (CROSS OBJECTOR) VS DEPUTY COMMISSIONER OF INCOME TAX, GANDHINAGAR (RESPONDENT) REVENUE BY: SRI P.L. KUREEL, SR.D.R. ASSESSEE BY: SRI ANIL R. SHAH, A.R. DATE OF HEARING : 14-02-2014 DATE OF PRONOUNCEMENT : 21-02-20 14 ITA NO. 727/AHD/2011 ASSESSMENT YEAR 2007-08 C.O. NO. 97/AHD/2011 ASSESSMENT YEAR 2007-08 I.T.A NO. 727/AHD/2011 & CO NO 97/AHD/2011 A.Y. 2007-08 PAGE NO DCIT VS. GUJARAT INFORMATICS LTD 2 / ORDER PER : D.K. TYAGI, JUDICIAL MEMBER:- THIS IS THE REVENUES APPEAL AGAINST THE ORDER OF LD. CIT(A), GANDHINAGAR DATED 09-12-2010. 2. THE REVENUE HAS TAKEN FOLLOWING EFFECTIVE GROUND :- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION AMOUNTING TO RS. 1,25,63,415/- ON ACCOUNT OF DISALLOWANCE MADE U/S. 36(1)(III) AND 37(1) OF THE IT ACT, 1961. 3. BRIEF FACTS OF THE CASE ARE THAT DURING THE ASSE SSMENT PROCEEDINGS AO ON PERUSAL OF POFIT AND LSS ACCOUNT NOTED THAT THE ASSESSEE HAS DEBITED A SUM OF RS. 1,25,63,415/- @ 5% ON ACCOUNT OF INTEREST ON GRANTS/ADVANCES RECEIVED FROM THE DEPARTMENT OF SCIENCE AND TECHNOL OGY GOV. OF INDIA. EXPLANATION OF THE ASSESSEE WAS CALLED FOR BY THE A O WHICH WAS NOT ACCEPTABLE TO HIM AND HE WENT ON TO MAKE ADDITION O F RS. 1,25,63,415/- TO THE INCOME OF THE ASSESSEE BY OBSERVING AS UNDER:- 4.4 IT MAYBE POINTED OUT THAT THE ASSESSEE HAS CHA RGED THE INTEREST ON UNUTILIZED GRANTS RECEIVED FROM THE DEPARTMENT O F SCIENCE AND TECHNOLOGY AND OTHER DEPARTMENTS, WHICH BY ANY STRE TCH OF IMAGINATION CANNOT BE CLASSIFIED AS A BORROWED CAPI TAL FOR THE PURPOSE OF ITS BUSINESS OR PROFESSION. OF COURSE TH E DEPARTMENT OF SCIENCE AND TECHNOLOGY HAS SANCTIONED VARIOUS AMOUN TS OF GRANTS TO THE ASSESSEE FOR SPECIFIED PURPOSES OF ITS BUSINESS WHICH THE ASSESSEE OUGHT TO HAVE UTILIZED. SINCE THE ASSESSEE HAS FAI LED TO UTILIZE THE ENTIRE GRANT SANCTIONED TO IT, THE SANCTIONING AUTH ORITY HAS ORDERED TO PAY SIMPLE INTEREST @ 6% ON UNSPENT AMOUNT LYING WI TH IT , AND THE I.T.A NO. 727/AHD/2011 & CO NO 97/AHD/2011 A.Y. 2007-08 PAGE NO DCIT VS. GUJARAT INFORMATICS LTD 3 SAME CANNOT BE REGARDED AS AN EXPENDITURE MADE FOR THE PURPOSE OF BUSINESS OR PROFESSION. FURTHER MORE, IT IS WORTHWH ILE TO MENTION THAT THE GRANTS SECTIONED TO IT CANNOT BE REGARDED AS BO RROWED CAPITAL, AS THERE NO ELEMENT OF REFUND OR REPAYMENT I.E. THE AS SESSEE IS NOT UNDER OBLIGATION TO REPAY THE AMOUNT GRANTED TO THE SANCT IONING AUTHORITY. IN ABSENCE OF OBLIGATION TO REFUND AMOUNT GRANTED T O IT , INTEREST ON SUCH CAPITAL IS NOT DEDUCTIBLE U/S.36(1)(III) OF TH E ACT AS LAID DOWN BY HONBLE PUNJAB & HARAYANA HIGH COURT IN THE CASE OF PEPSU ROAD TRANSPORT CORPORATION VS. CIT [1981] 130 ITR 18. TH EREFORE, CONTENTION OF THE ASSESSEE THAT THE EXPENDITURE ALL OWABLE U/S. 36(1)(III)/37(L) HAS NO MERIT, THEREFORE, THE SAME IS REJECTED. 4.5. REGARDING THE DISALLOWABILITY OF EXPENDITURE U /S.37(1)/57(III) IT MAY BE POINTED OUT THAT THE CONDITION OF EXPENDITUR E WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR EARNING THAT INCOME SHOULD ALSO BE FULFILLED FOR APPLICABILITY OF THIS SECTION . SINCE THE INTEREST CHARGED TO PROFIT & LOSS ACCOUNT IS A PROVISION FOR PAYMENT OF INTEREST ON UNSPENT GRANT WHICH HAS NOT BEEN USED B Y THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS. THEREFORE, UNDER SECTI ON 37(1)/57(III) ALSO THE ASSESSEE 'S CLAIM CANNOT BE ALLOWED. 4.6 WITHOUT PREJUDICE TO THE ABOVE, IT MAY BE SEEN THAT THE ASSESSEE HAS SHOWN THE UNUTILIZED GRANTS AND INTEREST THEREO N IN SCHEDULE-G OF BALANCE SHEET UNDER THE HEAD CURRENT LIABILITY AND PROVISIONS. THE ASSESSEE WAS REQUIRED TO FURNISH THE DETAILS OF INT EREST RECEIVED ON UN- UTILIZED GRANTS, BUT THE SAME HAS NOT BEEN BROUGHT ON RECORD. THE ASSESSEE HAS SUBMITTED A VAGUE REPLY THAT THE INTER EST RECEIVED CREDITED TO P & L A/C AND THE INTEREST PAID IS DEBI TED TO THE P&L A/C. THE ASSESSEE HAS NEITHER FURNISHED THE ACTUAL DETAI LS OF INTEREST RECEIVED OR INTEREST PAID ON SUCH GRANTS. NO CORRE CTION HAS BEEN GIVEN TO ESTABLISH THAT THE INTEREST EXPENSES HAVE BEEN INCURRED EXCLUSIVELY TO EARN SUCH INTEREST INCOME. THEREFOR E, IN VIEW OF THE ABOVE DISCUSSION THE INTEREST EXPENSES CLAIMED AT R S. 1,25,63,415/- ARE DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 4. LD. CIT(A) DELETED THIS DISALLOWANCE MADE BY AO BY PLACING RELIANCE ON THE DECISION OF HIS PREDECESSOR FOR THE A.Y. 200 6-07. I.T.A NO. 727/AHD/2011 & CO NO 97/AHD/2011 A.Y. 2007-08 PAGE NO DCIT VS. GUJARAT INFORMATICS LTD 4 5. BEFORE US LEARNED COUNSEL OF THE ASSESSEE AT THE TIME OF HEARING AT THE OUTSET SUBMITTED THAT THE ISSUE IS COVERED BY THE D ECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR ASST. YEAR. 2006-07 WHEREIN ORDER OF LD. CIT(A) DELETING ADDITION MADE ON IDENTICAL FACT WAS UPHELD BY THE HOBBLE TRIBUNAL. HE THEREFORE SUBMITTED THAT THIS YEAR ALSO ORDER PA SSED BY LD. CIT(A) MAY KINDLY BE UPHELD. LD. DR RELIED ON THE OTHER OF LO WER AUTHORITIES. 5. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD, WE FIND THAT CONTENTION OF THE LEARNED COUNSEL OF THE ASSESSEE I S CORRECT AS DURING THE YEAR 2006-07 ADDITION MADE BY AO ON IDENTICAL BASIS WAS DELETED BY LD. CIT(A) AND ORDER OF LD. CIT(A) WAS UPHELD BY HONBLE ITAT DISMISSING THE APPEAL OF THE REVENUE BY OBSERVING AS UNDER:- 7. WE HAVE HEARD BOTH THE SIDES. WE HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW IN THE LIGHT OF VOLUMINOUS CO MPILATION FILED AND CASE LAWS CITED. THE ADMIRED FACTUAL POSITION IS TH AT THE ASSES SEE- COMPANY IS A GOVERNMENT UNDERTAKING INCORPORATED FO R THE IMPLEMENTATION OF IT POLICIES IN THE STATE OF GUJAR AT AND TO PROVIDE CONSULTATION SERVICES TO VARIOUS GOVERNMENT DEPAR TMENTS TOWARDS SOFTWARE DEVELOPMENT. CERTAIN GRANTS WERE GIVEN TO THE ASSESSEE. THERE WAS A CLAUSE AS PER CERTAIN GOVERNMENT REGULA TIONS THAT IF AN AMOUNT REMAINS UNSPENT OUT OF THE GRANT, THEN THE U NSPENT AMOUNT SHALL BEAR INTEREST @ 6% PER ANNUM. IN THE LIGHT OF THE SAID INSTRUCTIONS, THE ASSESSEE HAS MADE THE PROVISION I N ITS BOOKS OF ACCOUNT. IN THIS REGARD, FEW G.RS ARE PLACED ON R ECORD. HOWEVER, THE MAIN QUESTION BEFORE US IS THAT THE ACTION OF THE A SSESSEE OF PROVIDING 6% INTENSE ON THE UNSPENT AMOUNT OF GRANT IS ALLOWA BLE WHETHER U/S.36(1)(III) OF IT ACT OR U/S.37(1) OF IT ACT. WE ARE OF THE VIEW THAT SINCE THE AMOUNT IN QUESTION WAS NOT IN THE NATURE OF BORROWINGS OR LOANS, THEREFORE THE PROVISIONS OF SE CTION 36(1)(III) DO NOT APPLY ON THESE FACTS. WE ARE IN AGREEMENT WITH LD.CIT(A) THAT THIS PLEA OF THE ASSESSEE IS NOT ACCEPTABLE. ONCE WE H AVE HELD SO AND THAT THIS VIEW HAS ALREADY BEEN EXPRESSED BY LD.CIT(A), THEREFORE THE I.T.A NO. 727/AHD/2011 & CO NO 97/AHD/2011 A.Y. 2007-08 PAGE NO DCIT VS. GUJARAT INFORMATICS LTD 5 OBJECTION OF THE REVENUE DEPARTMENT THAT THE LD.CIT (A) WAS NOT JUSTIFIED IN ALLOWING THE EXPENDITURE U/S. 36(1)(II I) IS UNWARRANTED. BECAUSE OF THIS REASON, WE HEREBY ALSO HOLD THAT TH E CASE LAWS CITED BY LD. DR OF PEPSU ROAD TRANSPORTATION (SUPRA) DO N OT APPLY ON THE PRESENT FACTS OF THIS APPEAL OF THE REASON THAT THE HON'BLIE P&H HIGH COURT IN THAT DECISION HAS SETTLED THE ISSUE WHICH REVOLVE AROUND THE PROVISION 5 OF SECTION 36(1)(III) OF IT ACT. NOW T HE QUESTION LEFT BEFORE US IS THAT WHETHER THE PROVISIONS SO MADE BY THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 37(1) OF IT ACT. IN THIS CONNECTION, FEW DECISIONS WERE CITED BEFORE LD CIT(A) AND CONSIDERI NG ALL THOSE DECISIONS AS CITED SUPRA, WE ARE OF THE CONSIDERED VIEW THAT ON ONE HAND THE ASSESSEE HAS EARNED INTEREST INCOME ON INV ESTMENT OF THE SURPLUS FUND AND ON THE OTHER HAND MADE THE PROVISI ONS OF INTEREST, HENCE SUCH A CLAIM DOES FALL UNDER THE PROVISIONS O F SECTION 37(L) OF IT ACT. WE HAVE BEEN INFORMED THAT THE UNSPENT SURPLU S FUNDS HAVE BEEN INVESTED AS PER THE GUIDELINES AND THEREUPON INTERE ST WAS EARNED BY THE ASSESSEE. ON THE OTHER HAND, THE ASSESSEE HAS TO PAY INTEREST THAT TOO AS PER THE DIRECTIONS OF THE GOVERNMENT, HENCE THE PROVISIONS MADE BY THE ASSESSEE IS THEREFORE, MEANT FOR THE PU RPOSE OF THE BUSINESS, HENCE QUALIFY FOR CLAIM U/S. 37(1) OF THE TT ACT. IN THE RESULT, THE VIEW TAKEN BY THE LD.CIT(A) IS HEREBY C ONFIRMED AND THIS GROUND OF THE REVENUE IS DISMISSED. RESPECTFULLY FOLLOWING THE ABOVE, THE ORDER OF LD. CIT(A) IS HEREBY UPHELD DELETING THE ADDITION OF RS. 1,25,63,415/- MADE BY AO. 6. IN THE RESULT, REVENUES APPEAL IS DISMISSED. C.O. NO. 97/AHD/2011 CO HAS BEEN FILED BY ASSESSEE IN SUPPORT OF LD. CIT (A). IN VIEW OF OUR DECISION IN REVENUES APPEAL, THIS CO HAS BECOME IN FRUCTUOUS AND IS BEING DISMISSED AS INFRUCTUOUS. I.T.A NO. 727/AHD/2011 & CO NO 97/AHD/2011 A.Y. 2007-08 PAGE NO DCIT VS. GUJARAT INFORMATICS LTD 6 7. IN THE RESULT, BOTH THE REVENUES APPEAL AND ASS ESSEES CO ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE SD/- SD/- (N.S. SAINI) ( D.K. TYAGI) ACCOUNTANT MEMBER J UDICIAL MEMBER AHMEDABAD : DATED 21/02/2014 AK / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,