Gujarat Energy Transmission ... vs Assessee

BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI RAJPAL YADAV, JUDICIAL MEMBER आयकर अपील सं./ ITA No. 704/Ahd/2012 नधा रण वष /Assessment Year: 2008-09 Gujarat Energy Transmission Corpn. Ltd. ACIT, Cir.1(1) Sardar Patel Vidyut Bhavan Vs Baroda. Race Course Circle, Baroda. PAN : AABCG 4029 R

आयकर अपील सं./ ITA No. 761/Ahd/2012 नधा रण वष /Assessment Year: 2008-09 ACIT, Cir.1(1) Gujarat Energy Transmission Baroda. Vs Corpn. Ltd. Sardar Patel Vidyut Bhavan Race Course Circle, Baroda. PAN : AABCG 4029 R

अपीलाथ!/ (Appellant) "#यथ!/ (Respondent)

Assessee(s) by : Shri J.P. Shah, AR Revenue by : Shri T.P. Krishnakumar, CIT-DR

सन ु वाई क तार ख/ Dateof Hearing : 03/06/2015 घोषणा क तार ख / Date of Pronouncement: 12/06/2015

आदे श/O R D E R

PER N.S. SAINI, ACCOUNTANT MEMBER: These are cross-appeals

of the assessee and the Revenue against the order of the CIT(A)-I, Baroda dated 30.1.2012. Both these appeals are disposed of with this common order for the sake of convenience.

ITA No.704/Ahd/2012 (Assessee's Appeal) 2. The ground no.1 of the appeal of the Revenue is directed against the order of the CIT(A) in confirming, the disallowance of Rs.62,75,000/- on account of losses due to earthquake.

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3. Brief facts of the case are that the assessee claimed loss on account of earthquake of Rs.62,75,000/- under the head "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 expenditure. Therefore, he disallowed the same.

4. On appeal, the CIT(A) held that the assessee has filed details of expenses in question. The expenses were incurred towards construction of GR, SQ and other ancillary buildings for GEB at various earthquake affected areas in Gujarat State. The assessee's contention that the expenditure was towards repairs and maintenance, was not substantiated, and rather from the description of work, 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 itself dated 8.5.2015 passed in ITA No.1931/Ahd/2010, 2974/Ahd/2010 and 3004/Ahd/2010 and submitted that the issue was covered in favour of the assessee. The AR of the assessee submitted that only difference 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 expenditure claimed under the head "Extraordinary Items" was for the construction of new building, and not for the purpose of repairs of buildings damaged due to earthquake, therefore, the decision cited by the AR is of no help to the assessee.

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7. We find that in the instant case, the CIT(A) has given a categorical finding that "the expenses were incurred toward construction of GR, SQ and other ancillary buildings for GEB at various earthquake affected areas in Gujarat State." Further, the assessee has brought no material before us to show that the above findings of the CIT(A) is not correct. We find that the decision of this Tribunal in the case of the assessee (supra) relied upon by the assessee is distinguishable on facts. In that case, the Tribunal 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 amount was more than the corresponding amount of loss or expenditure. In the above facts, the Tribunal has held that after treating the receipt amount as revenue receipt, it was not open to the department to treat the corresponding expenditure of the lesser amount as not 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 treated by the department as revenue receipt. Thus, the above decision of the Tribunal does not help the case of the assessee. Further, in the absence of any material or details brought before us to show that the expenditure was incurred only for repairing of building or asset, and not for construction of new building, we do not find any good reason to interfere with the order of the CIT(A), which is confirmed. The ground of appeal of the assessee is dismissed.

8. In the ground no.2 of the assessee's appeal is against the order of the CIT(A) in confirming the disallowance of the expenditure of Rs.75,38,35,000/- being the provision made for employees cost of arrears payable upto 31st 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 6th Pay Commission arrears. The assessee in the Note on Account in Note No.8(i) stated that awaiting the final decision on the recommendations of the 6th Pay Commission, the company has provided Rs.7538 lakhs towards employees cost for arrears payable upto 31st March, 2008. During the course of assessment proceedings, the assessee was asked to state justification for allowability of the expenditure. The assessee's submission was that the pending final decision of 6th Pay Commission, the company has provided Rs.7538 lakhs towards employees' cost for arrears payable upto 31st March, 2008, in terms of accounting practice prescribed by the Institute of Chartered Accountants of India. Since the contention about the payment of arrears existed on the balance sheet date, the liability arising from payment of arrears to the employees had 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 during the year under consideration, since the final decision to pay the same was still awaited. There was no liability fastened upon the assessee to pay the arrears of 6th Pay Commission, and that since the assessee was following mercantile system of accounting, and the liability to pay arrears of 6th 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 contingent liability.

11. On appeal, the CIT(A) observed that if liability on account of implementation of 6th Pay Commission recommendation in assessee's case had indeed crystallized during the financial year 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 being asked to file such Government order, the assessee had instead requested 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 year. As far as the allowance on payment basis in the year of payment is concerned, 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.1931/Ahd/2010, 2974/Ahd/2010 and 3004/Ahd/2010 (supra), and the Tribunal held that the CIT(A) has recorded the fact that the Gujarat Government accepted the 6th Pay Commission in December, 2008, and therefore, following the ratio laid down in the judgement of Hon'ble High Court 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 case of CIT Vs. Bharat Heavy Electrical Ltd., 352 ITR 88 (Del), disallowance 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 liability towards employees' cost as per 6th 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 copy of order of this Bench of the Tribunal in the case of assessee itself 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 has held as under:

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"15. Now, we take up the Assessee's 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 (Appeals) 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 payable upto 31st March, 2007 without considering the facts that such expenditure was pending the decision of 6th Pay Commission based on the provisions of Accounting Standards and generally accepted accounting principles.

2.0 The learned Commissioner of Income Tax (Appeals) has erred in law and facts in confirming the enhancement 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 liability. 3.0 The appellant craves leave to add to, alter, delete or modify any of the grounds of appeal either before or at the time of hearing of this appeal.

15.1. First ground of assessee's 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 Hon'ble Kerala High Court rendered in the case of CIT vs. Kerala State Financial Enterprises Ltd. reported at (2008) 219 CTR 147(Ker.) and the judgement of Hon'ble Delhi High Court rendered in the case of CIT 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 disallowed the expenditure by observing that "I have considered the 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 same was still awaited. There was not liability fastened upon the assessee to pay the arrears of 6th pay commission. Since the assessee is following mercantile system of accounting and the liability 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 accrued from the day when the report was accepted by the Central Government. In respect of State Governments the report is not ITA No.704 and 761/Ahd/2012 7

binding and it is not to be mandatorily accepted and adopted. In fact, number of State Governments were against accepting 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, without acceptance of the report the liability cannot be said to have accrued or crystallized. Crystallization of employee cost liability is contingent upon approval or otherwise from Gujarat Government. The Gujarat Government accepted the six Pay Commission Report in December-2008. In view thereof, in my humble opinion for AY 07-08 the provision towards employees cost for arrears payable upto 31.3.07 is a contingent liability, contingent upon the State Government accepting the report of the pay commission. The Hon'ble Delhi High Court in the case of CIT vs. Bharat Heavy Electrical Ltd.(supra) has observed as under:-

"5. In the earliest decision on the question of whether such liability incurred towards employees' services or fulfilment of their terms of employment which may become payable in future but claimed by the assessee in a given previous year is allowable as deduction, the Supreme Court observed as follows in Metal Box Company of India Ltd. 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 certain 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 present value. Even if the liability is contingent liability, 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 properly 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 ascertain the true profits."

In Bharat Earth Movers (supra) (decided by the Supreme Court), the question which the Court had to consider was whether the provision for meeting earned-leave- encashment by the employee was an admissible deduction in the hands of the employer. The Court reiterated and applied its previous decision in Metal Box' case (supra) and held as follows:

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"(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 certainty 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 there was no dispute as regards the terms of employment of the workers and officers. The only question was the exact quantification 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 public sector employees, union demands and other relevant factors. The Tribunal also held that with the expiry 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 that period cannot be termed as contingent because the wage and the probable revision or rates of revision would 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 quantification, however, had not happened."

15.4. The Hon'ble Kerala High Court in the case of CIT vs. Kerala State Financial Enterprises Ltd.(supra) held as under:-

" 3. Even though learned standing counsel for the Revenue contended that contractual liability arises only on the date of signing the agreement, we are unable to accept this argument in this case. In the normal course, an agreement called settlement as increase in wages takes effect from the date of expiry of the previous settlement and this case is no exception to it. What is important is not the date of signing the agreement nor the later approval granted by the Government, but the effective date of commencement 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 previous 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 entitled to claim deduction of such wage increase attributable upto the end of the previous year, no matter exact amount was ascertained and payment made later. In the decision of the Supreme Court referred to above, it is made very clear that what is to be considered is whether the liability 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 cited by the assessee are not directly on the point, the principles laid down therein are applicable to the facts of this case. It is clear from the orders that by the time the accounts were finalised and returns were filed, the assessee had ascertained the actual liability attributable to the previous year and therefore the actual amount payable only was claimed based on mercantile system of accounting followed by the assessee."

15.5. In the present case, the ld.CIT(A) has recorded the fact that the Gujarat Government accepted the 6th Pay Commission in December- 2008. Therefore, respectfully following the ratio laid down in the judgement of Hon'ble High Court of Kerala in the case of CIT vs. Kerala State Financial Enterprises Ltd.(supra) and in the judgement of Hon'ble High Court of Delhi in the case of CIT vs. Bharat Heavy Electrical Ltd.(supra), the disallowance made by the AO is hereby deleted. Thus, ground of assessee's appeal is allowed."

The DR could not point out any distinguishable features in the above quoted order of the Tribunal. Facts being identical, 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 is 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 disallowance 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 verification of subsidies and grants, the AO observed that the assessee has shown deferred government grants, subsidies, contribution at Rs.7305.70 lakhs as on ITA No.704 and 761/Ahd/2012 10

1.4.2007 and the assessee had shown Rs.15941.67 lakhs at the end of the year i.e. as on 31.3.2008. On show cause by the AO to explain the treatment in accounts of the subsidy, grants the assessee stated that during the year capital grant received from Government of Gujarat and other. The assessee submitted that in order to improve various functions associated with the generation, transmission and distribution of electricity, and also because the PSUs connected with power section were making consistent losses, the Government decided to introduce reforms in the direction of State PSUs. Accordingly, under the provision of Gujarat Electricity Industrial (Reorgnisation & Regulation) Act, 2000, the erstwhile GEB was split into seven companies, for 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 cost of assets. Further, the grant was given to the holding company, GUVNL and then it was allocated to the assessee company, one of the subsidiary companies. The assessee was not entitled to an amount 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 resolution sanctioning the grant no where indicated that the grant was meant to offset the cost of the capital assets purchased by the company. Reliance was placed on the decision of the Hon'ble Supreme Court in the case of CIT Vs. P.J. Chemicals Ltd., 121 CTR 201, wherein the decision of the Gujarat High Court in the case of CIT Grace Paper Industries P. Ltd., 83 CTR 1, which was affirmed by the Hon'ble Supreme Court 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 reduced from the actual cost of the assets by applying the provisions of section 43(1) of the Income Tax Act. The AO did not accept the submission of the ITA No.704 and 761/Ahd/2012 11

assessee and held that the submission of the assessee 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 assessee 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 capital assets, and claimed excess depreciation, which was disallowed and worked out at 15% of the capital assets.

17. On appeal, the CIT(A) held that in assessee's case, 10% of grant under three heads namely "Subsidy towards cost of capital assets", "Grants towards cost of capital assets" and "Consumer contribution for capital assets" i.e. the grants appearing in Schedule -3 of the balance sheet as on 31.3.2008 were offered for tax. The amount 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 the 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 offered 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.26,49,30,708/- minus Rs.17,20,37,655/-, the amount already offered for taxation 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 Schedule-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 respect of the same. The total disallowance towards excess depreciation, therefore, 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 by the AO, addition of Rs.18.93 crore was directed to be made on this count.

18. Before us, the AR of the assessee argued that uniform 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 depreciation on land was zero percent, building was 5% and the plant & machinery 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 the 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) held that excess depreciation claimed on account of capital grant comes 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 section 43(1) of the Act, the capital grant should be reduced from the cost/WDV of the relevant asset, and thereafter the depreciation is to be calculated. 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 any 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 lower authorities on this issue, and restore the matter back to the file of the AO for adjudication afresh after verifying the proportionate amount of grant relating to different asset, and applying the actual rate of depreciation which relate to these assets. Thus, this ground of appeal of the assessee is allowed for statistical purpose.

21. The ground no.4 of the appeal of the assessee is directed against the order of the CIT(A) in confirming the enhancement 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 observed that the addition in respect of expenditure of 6th 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 was a provision made for meeting liabilities other than ascertained liabilities.

23. On appeal, the CIT(A) observed that the liability towards arrear payable to the employees pending decision of the 6th Pay Commission did not crystallize during the financial year 2007-08. The provision made towards the liability other than ascertained are 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 employees pending the decision of 6th Pay Commission to book profit computed under section 115JB is confirmed.

24. The AR of the assessee submitted that this ground 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 the lower authorities.

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26. We find that the Tribunal in the case of assessee itself in the Asstt.Year 2006-07 and 2007-08, while deciding similar 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 supported the order of the AO and submitted that the ld.CIT(A) was not justified in giving direction to the AO for recomputing the book profit u/s.115JB of the Act for MAT.

12.1 On the contrary, ld.counsel for the assessee supported the order of the ld.CIT(A) and submitted that ld.CIT(A) has followed the decision of Hon'ble Jurisdictional High Court rendered in the case of DCIT vs. Vardhman Fabrics (P) Ltd. reported at 122 Taxman 375.

13. 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) has decided this issue in paras- 12.3 & 12.4 of his order, which are reproduced hereunder:-

12.3 Thus, what is material for the purposes of section 115JB is not the profit & loss account prepared in terms of the Income-tax Act but that prepared in terms of Schedule-

VI of the Companies Act. Part-II of Schedule-VI lays down the requirement as to profit and loss account. At item No. 3(iv), it has been laid down that the profit and loss account shall disclose information relating to the amount provided for depreciation, renewals or diminution in the value of fixed assets. Schedule-XIV lays down the rates of depreciation 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 stated therein that the rates prescribed in Schedule - XIV could be 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 regulatory commission by virtue of section 76 of Electricity Act, 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 were reduced, which could not however be implemented by the assessee during the year due to the fact that the notification was received very late.

The assessee has complied with the provisions of Schedule-VI of Companies Act while preparing its accounts. 12.4 The Supreme Court has held very clearly in Apollo (supra) as well as Malayala Manorama Co Ltd v CIT, 168 Taxman 471 that the power to make enhancement and reduction u/s 115J is limited only to the specific 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 preparing the accounts. The provisions of Income-tax Act with regard to depreciation etc., would not be material to the computation. On similar facts, the jurisdictional High Court of Gujarat in DCIT v Vardhman Fabrics (P) Ltd., 122 Taxman 375 had occasion to consider the Circular of the Company Law Board which clarified that the rates prescribed in Schedule XIV were minimum rates of depreciation and the company could claim higher depreciation on the basis of a bonafide technological evaluation and proper disclosure thereof in the notes forming part of annual accounts. In the instant case, from the facts as above, I am of the opinion that the 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 Company Affairs. Hence the AO's action in reducing the claim 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 Hon'ble Apex Court rendered in the case of Apollo Tyres Ltd. (255 ITR 273), Malayala Manorama Co.Ltd. vs. CIT (168 Taxman 471) and the judgement of Hon'ble Jurisdictional High Court rendered in the case of DCIT vs. Vardhman Fabrics (P) Ltd. (122 Taxman 375). The ld.CIT-DR could not distinguish the facts of the case, therefore we do not find any reason to interfere with the order of the ld.CIT(A), same is hereby upheld. Thus, this ground of Revenue's appeal is rejected."

The DR could not point out any distinguishable features in the above quoted order of the Tribunal. Facts being identical, respectfully following the precedent, we delete the addition of Rs.75,38,35,000/- and allow this ground of appeal of the assessee.

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27. The ground no.5 and 6 of the appeal of the assessee read as under:

"5. The ld.CIT(A) erred in law and on facts has dismissed the ground relating to the initiation of penalty proceedings 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 and 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 want of prosecution.

ITA No.761/Ahd/2012 (Revenue's Appeal) 29. In the Revenue's appeal, the ground no.1 of the appeal is directed against the order of the CIT(A) in deleting the addition of Rs.50,90,96,000/- made on account of disallowance of claim of guarantee fees paid to Government of Gujarat.

30. Brief facts of the case are that the AO observed 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 repayment of unsecured loan. Further, the assessee also claimed Rs.21,61,000/- on account of cost of raising finance under the head "cost of raising 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 loans, guarantee of which was given by Govt. of Gujarat, and for the guarantee given by the Govt. of Gujarat, the GEB is required to pay guarantee fees as per rules. After the split of the company, the said loan were still continued, which were guaranteed by the Govt. of Gujarat. Therefore, every year these guarantee fees become payable to Govt. of Gujarat on recurring basis. Regarding the cost of raising finance, the assessee submitted that the finance was raised during the year, and accordingly, the cost ITA No.704 and 761/Ahd/2012 17

incurred for raising finance was charged to current year's profit & loss account. The AO did not accept the above explanation 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 the 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 any agreement with the Govt. of Gujarat for charging guarantee fees and method of its computation against the loan amounts. In the absence of these details it was not possible to entertain the assessee's claim. The AO further observed that the cost of raising the finance can also not be considered as revenue expenses for want of details. He, accordingly, disallowed Rs.5,90,96,000/-.

32. On appeal, the CIT(A) observed that guarantee fee was an annual recurring expenditure incurred by the assessee. Guarantee fee was payable to Govt. of Gujarat every year in respect of loans taken by the assessee and guaranteed by the Govt. of Gujarat. As held by Hon'ble Supreme Court in the case of India Cements Ltd., 60 ITR 52 (SC), loan cannot be treated as asset or advantage resulting in enduring benefits. Guarantee fees paid to Govt. of Gujarat was in connection with raising of loans and enduring benefit or advantage could not be said to have resulted by taking such loans. Only if the assets acquired out of such loans were not put-to-use till the end of previous year i.e. 31.3.2008, the guarantee fees to such extent i.e. in respect of such loans only could be capitalized as cost of such asset. The assessee has certified that no new project was started or commissioned during the year for which above guarantee was paid, and the guarantee fees was in respect of loans for acquisition of capital assets, which were already put-to-use prior to 1.4.2007. The guarantee fees of Rs.5,69,35,000/- is directed to be allowed as revenue expenditure, subject to verification by the AO of the certificate filed during the appellate proceedings i.e. there was no ITA No.704 and 761/Ahd/2012 18

capital work-in-progress in respect of loans on which guarantee fees was paid.

33. Regarding cost of raising finance of Rs.21.61 lakhs is concerned, the CIT(A) observed that the same was an allowable deduction and being revenue expenditure, following the decision in 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 submitted that the issue was now covered in favour of the assessee by the decision of this Tribunal in the case of assessee itself dated 8.5.2015 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 issues in paras- 5.2 & 5.3 and 6.2 respectively by observing as under:-

"5.2. I have considered the submissions of the ld.AR and the facts of the case. The issue relating to whether an item of expenditure lies in the capital or the revenue field has exercised the courts in numerous cases. From an analysis of such cases a few guiding principles/tests can be identified. One of the important tests for categorizing any expenditure as capital in nature is whether the laying out of the impugned expenditure results in the acquisition of creation of any new asset. Where no such asset is created, it would be indicative of an expenditure which was not capital in nature. Another test relates to the principle of "enduring benefit". "Enduring benefit" may be in the form of long lasting use of an asset or the acquisition of a right to exploit certain commercial processes, etc. In the instant case, the assessee did not acquire any right to exploit a commercial technology or process, and neither was the benefit "enduring", since the payment of guarantee commission was an annual charge. The benefit derived from payment of such commission thus lasted for exactly one year only. Such ITA No.704 and 761/Ahd/2012 19

shortlived benefit cannot be categorized as "enduring".

Hence, I am inclined to the view that the payment of guarantee commission was a revenue expenditure. 5.3. Further, the jurisdictional Bench of ITAT had occasion to consider the allowability of guarantee commission paid to a Director of the company in respect of loans taken from the bank. In the case of Himalaya Machinery Pvt.Ltd. (ITA No.738/Ahd/2009) for AY 2006-07, the Tribunal held, vide order dt.5.6.2009, following the decision of the Rajasthan High Court in CIT v. Metalising Equipment Co.Pvt.Ltd., 8 DTR 12, that the payment of commission for guaranteeing repayment of loan was allowable as revenue expense. In the instant case, the loan has been guaranteed by the Government of Gujarat. Hence, quite apart from the other sound reasons for treating the expenditure as revenue, it would be unrealistic to say that the appellant company could derive any undue advantage or collateral benefit by making such payment to the GOG. In view of the totality of the circumstances, I am of the opinion that the AO was not justified in treating the payment of guarantee commission (Rs.8,39,04,550/-) as capital in nature. The addition is directed to be deleted. 6.2. I have considered the submissions of the ld.AR and the facts of the case. The jurisdictional Bench of ITAT has held in the case of Shri Rama Multi Tech vs. ACIT, 92 TTJ 568, that in determining the nature of expenditure incurred for obtaining loan, it is irrelevant to consider the purpose of loan. The amount spent on stamp duty, lawyer fees, etc. for obtaining loan secured by charge on its fixed assets is a revenue expenditure, because the transactions were entered into directly to facilitate the business of the company and payment of consultancy charges was made on ground of commercial expediency. In India Cements Ltd. vs. CIT, 60 ITR 52, the Supreme Court had also held that the expenditure incurred for securing the use of money for a certain period was revenue expenditure. In the instant case, the assessee has secured the loan by creating a charge (hypothecation of its assets). Hence the ratio of the above mentioned two cases would squarely apply. Accordingly, it is held that the AO was not justified in making the disallowance of Rs.45,24,582/-, which is directed to be deleted."

6.1 The ld.CIT(A) has followed the decision of the Tribunal passed in ITA No.738/Ahd/2009 for AY 2006-07 in the case of Himalaya Machinery Pvt.Ltd., dated 5.6.2009 and in the case of Shri Rama Multi Tech vs. ACIT reported at 92 TTJ 568.

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 with the order of the ld.CIT(A), same is hereby upheld. Thus, these two grounds raised in the Revenue's appeal are rejected."

36. DR could not point out any good reason as to why the above quoted order of the Tribunal should not be followed for the year under consideration. In the absence of distinguishing features being pointed out by the DR, and the facts being identical, respectfully following the above quoted decision of the Tribunal, we confirm the order of the CIT(A), and dismiss this ground of appeal of the Revenue.

37. The ground no.2 of the Revenue is directed against the order of the CIT(A) in deleting the addition of Rs.1,41,15,000/- made on account of disallowance of loss of material through pilferage, shortage of material-in-transit, shortage arising on physical verification etc.

38. Brief facts of the case are that the AO observed that the assessee has claimed Rs.1,41,15,000/- on account of miscellaneous loss and write offs. In reply to the show cause notice, the assessee submitted that these losses are on account of loss of materials, through pilferage, shortage of material-in-transit, shortage arising on physical verification, obsolescence of materials/stores, loss in sale of scrap 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 clear that the assessee's claim was not substantiated with any documentary 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 assessee in assessee's own case for the Asst.Year 2006-07 and 2007-08. Following 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 by 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 any 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 issue, which is hereby confirmed and the ground of appeal of the Revenue is dismissed.

41. In the result, the appeal of the assessee is partly allowed as indicated above and the appeal of the Revenue is dismissed.

Order pronounced in the Court on Friday the 12th day of June, 2015 at Ahmedabad.

Sd/- Sd/- (RAJPAL YADAV) ( N.S. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER