Income Tax Appellate Tribunal - Chandigarh
Haryana Power Generation Corporation ... vs Addl. Cit,, Panchkula on 21 November, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH, CHANDIGARH
BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER
AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER
ITA No.454/Chd/2010
(Assessment Year : 2004-05)
The D.C.I.T., Vs. M/s Haryana Power Generation
Panchkula Circle, Corporation Ltd., Sector 6,
Panchkula. Panchkula.
PAN: AABCH4536J
ITA No.453/Chd/2010
(Assessment Year : 2005-06)
Haryana Power Generation Vs. The Addl.CIT,
Corporation Ltd., Sector 6, Range Panchkula,
Panchkula. Panchkula.
PAN: AABCH4536J
And
ITA No.398/Chd/2010
(Assessment Year : 2005-06)
The D.C.I.T., Vs. M/s Haryana Power Generation
Panchkula Circle, Corporation Ltd., Sector 6,
Panchkula. Panchkula.
PAN: AABCH4536J
ITA No.1048/Chd/2010
(Assessment Year : 2006-07)
The A.C.I.T., Vs. M/s Haryana Power Generation
Panchkula Circle, Corporation Ltd., Sector 6,
Panchkula. Panchkula.
PAN: AABCH4536J
ITA No.19/Chd/2011
(Assessment Year : 2007-08)
The D.C.I.T., Vs. M/s Haryana Power Generation
Panchkula Circle, Corporation Ltd., Sector 6,
Panchkula. Panchkula.
PAN: AABCH4536J
2
And
ITA No.26/Chd/2011
(Assessment Year : 2007-08)
Haryana Power Generation Vs. The Addl.CIT,
Corporation Ltd., Sector 6, Range Panchkula,
Panchkula. Panchkula.
PAN: AABCH4536J
And
ITA No.698/Chd/2012
(Assessment Year : 2008-09)
Haryana Power Generation Vs. The Addl.CIT,
Corporation Ltd., Urja Bhawan, Range Panchkula,
Sector 6,Panchkula. Panchkula.
PAN: AABCH4536J
(Appellant) (Respondent)
Assessee by : Shri Harish Nayyar
Department by : Shri Manoj Mishra, CIT DR
Date of hearing : 10.08.2016
Date of Pronouncement : 21.11.2016
O R D E R
PER BENCH:
The above mentioned seven appeals, out of which the appeal of the Revenue in ITA No.454/Chd/2010 is directed against the order of learned Commissioner of Income Tax (Appeals), Panchkula dated 16.2.2010 for assessment year 2004-05, the cross appeals in ITA No. 453/Chd/2010 & ITA No.398/Chd/2010 are directed against the order of learned Commissioner of Income Tax (Appeals), Panchkula dated 12.2.2010 for assessment year 2005-06, the appeal of the Revenue in ITA 3 No.1048/Chd/2010 is directed against the order of learned Commissioner of Income Tax (Appeals), Panchkula dated 17.5.2010 for assessment year 2006-07, the cross appeals in ITA No. 19/Chd/2011 & ITA No.26/Chd/2011 are directed against the order of learned Commissioner of Income Tax (Appeals), Panchkula dated 22.10.2010 for assessment year 2007-08, and the appeal of the assessee in ITA No.698/Chd/2012 is directed against the order of learned Commissioner of Income Tax (Appeals), Panchkula dated 18.4.2012 for assessment year 2008-09.
2. Since the issues arising in all the above appeals are common, they were heard together and are being disposed off by this consolidated order for the sake of convenience.
3. We will first deal with the appeal of the Revenue in ITA No.454/Chd/2010 .
ITA No.454/Chd/2010 : (Revenue's Appeal):
4. The revised ground No.1 raised by the Revenue reads as under :
"1. Whether on the facts and circumstances of the case the Ld. C1T (A) was justified in deleting the addition of Rs.4,66,12,183/- made by the Assessing Officer on account of prior period expenses despite the fact that assessee is following a mercantile system of accounting and thus only those expenses which relate to current year can be allowed against the income."4
5. In this ground, the Revenue has challenged the deletion of disallowance made on account of prior period expenses.
6. Brief facts relating to the issue are that the Assessing Officer found that the assessee had claimed deduction of Rs.4,66,12,183/- on account of previous year expenses. The Assessing Officer held that since the assessee is following mercantile system of accounting, these expenses were not allowable in the impugned year and could be claimed in the year of incurring liability. He, therefore, disallowed the expenses holding them to be previous year expenses.
7. During appellate proceedings, the assessee submitted that all the expenses held as previous year expenses by the Assessing Officer, had in fact crystallized in the impugned assessment year only since the bills had been received in the impugned year and, therefore, even following the mercantile system of accounting, the same could not be categorized as previous year expenses. The assessee submitted that out of total expenses of Rs.4,66,12,183/- held as previous year expenses, an amount of Rs.38,70,342/- related to fuel expenses whose bills were received in the current year. Similarly, the assessee submitted that operating expenses of the previous year amounting to Rs.44,89,932/- in respect of RLA study rendered by M/s Utility Tech had been claimed in the impugned year since the bills were received during 5 the year. The assessee stated that the same was the position with regard to all the above expenses and further enclosed details of the same. The learned CIT (Appeals) after considering the assessee's argument and going through the details filed by the assessee held that the liability of the impugned expenses had in fact crystallized during the year and the Assessing Officer was, therefore, not justified in making these expenses. He, therefore, deleted the disallowance made. The relevant findings of the Ld. CIT (Appeals) at para 5 of the order is as follows :
"5. The third ground of appeal Is regarding disallowance of Rs.4,66,12,183/- being prior period expenses. The counsel for the appellant has explained that the liability of these expenses crystallized during the year under consideration. The counsel has filed details of all the expenses pertaining to the previous period the liability of which has crystallized during the assessment year under consideration. These details as discussed as part of the written submissions of the counsel. In view of the fact that the liability of the expenses crystallized during the year under consideration the AO is not justified making disallowance of these expenses. The addition made by the AO is ordered to be deleted. This ground of appeal is allowed."
8. Against the impugned order, the Revenue has come up in appeal before us. Before us the learned counsel for the assessee relied upon the submissions made before the learned CIT (Appeals) and the order of the CIT(A), while the learned D.R. relied upon the order of the Assessing Officer.
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9. We have heard the contentions of both the parties. We find that the order passed by the Ld. CIT (Appeals), allowing this ground raised by the assessee, is a cryptic and non-speaking order. The Ld. CIT (Appeals) has given no reason for holding that the liability pertaining to the impugned expenses crystallized in the year under appeal, except for stating that the assessee explained that the expenses crystallized during the year and filed details of the same. The Ld. CIT (Appeals) has simply accepted the assessee's contentions that since bills pertaining to the expenses were received in the impugned year, the liability crystallized in the year under appeal.
10. The receipt of bills in a particular year cannot alone lead to the crystallization of liability in that year. What is imperative for crystallization of a liability is incurring of the same and quantification of the same with reasonable certainty. Assessees maintaining mercantile system of accounting can treat the liability to incur the expenses having crystallized in the year in which it becomes definite, certain or ascertainable. For answering the question whether prior period expenses can be claimed as business expenses for the relevant assessment year, the point to be considered is whether the claims were ascertained and crystallized only during the year. In the absence of any finding given on the above lines for holding the liability pertaining to prior period expenses to have crystallized in this year, we consider it fit to restore the 7 issue back to the file of the Ld. CIT (Appeals) to consider the expenditure and evidences filed by the assessee afresh and thereafter pass a reasoned order ,in accordance with law. We may add that the assessee be granted due opportunity of hearing in this regard.
11. In view of the above, the ground of appeal of the Revenue is allowed for statistical purposes.
12. Revised ground No.2 raised by the Revenue reads as under :
"2. Whether on the facts and circumstances of the case the Ld. C1T (A) was justified in deleting the addition of Rs.2,01,88,372/- despite the fact that the expenses incurred and claimed by the assessee on account of modernization and renovation of the project are capital in nature since it gives the assessee a long benefit spread over a number of years."
13. Brief facts relating to the issue are that during the impugned assessment year, interest amounting to Rs.2,01,88,372/-had been booked against renovation/modernization of project. The Assessing Officer held this expenditure to be capital in nature being on account of renovation and modernization of project which gave long term benefit to the assessee and, therefore, disallowed the same.
14. Before the learned CIT (Appeals), the assessee pleaded that out of the impugned expenses, a sum of Rs.78,60,710/- had been capitalized by the assessee 8 itself, while the balance pertained to interest incurred after the date of capitalization of assets on account of increase in the loan under Central Assistance for renovation and modernization. The assessee stated that the loan amounting to Rs.15,82,47,351/- was taken by erstwhile HSEB, which has been transferred to the assessee and the interest on the same had been correctly claimed by the assessee as revenue. The assessee stated that a loan of Rs.50,04,98,245/- which was taken for new projects and interest on the same had already been capitalized while the balance loan having been taken on existing assets had been correctly claimed as revenue. The learned CIT (Appeals) after considering assessee's submissions and going through details filed by it allowed the assessee's claim for expenses.
15. Before us, the learned counsel for the assessee reiterated submissions made before the learned CIT (Appeals) and stated that having capitalized the interest which related to projects under construction, the balance related only to interest paid on loans on account of completed projects which were to be treated as revenue in nature as per the provisions of section 36(1)(iii) of the Act.
16. The learned D.R., on the other hand, relied upon the order of the Assessing Officer.
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17. We have heard the contentions of both the parties and gone through the orders of the Assessing Officer and CIT (Appeals). The relevant para of the CIT (Appeals)'s order deleting the disallowance is reproduced as under :
"6. The fourth ground of appeal is regarding disallowance of Rs.2,01,88,372/- on account of renovation /modernization of the project. The AO has mentioned that the appellant has claimed this amount as expenditure on account of interest on renovation and modernization of the project which is capital expenditure since it gives a long term benefit to the appellant. The counsel on the other hand argued that a sum of Rs.78,60,710/- has been capitalized as interest on additional loan received during the year 2001-02 and the balance interest is for the loans transferred by erstwhile HSEB against the completed schemes and is revenue is nature. The counsel has filed details of the expenses capitalized and the balance expenses which pertain to the loans raised for completed projects. Since the appellant has already capitalized the interest expenditure required to be capitalized, the AO is not justified in disallowing the interest expenditure. The addition made by the AO is ordered to be deleted. This ground of appeal is allowed.
18. On going through the above, we find that the CIT (Appeals) has deleted the impugned disallowance by simply accepting the assessee's submissions, giving no reason for doing so, nor referring to any documents, which supports the assessee's argument. Clearly, the CIT (Appeals) has not passed a well-reasoned order supporting his findings. The Ld. CIT (Appeals) has merely reiterated the assessee's submissions that a part of interest had 10 been capitalized by it, while the balance pertained to loans transferred by HSEB against completed scheme and hence is revenue in nature. There is no mention of how the CIT (Appeals) was satisfied on both the aspects of the matter or what documents produced before him lead him to concur/agree with the assessee's submissions.
19. In view of the non-speaking order passed by the Ld. CIT (Appeals), we consider it fit to restore the matter back to the file of the CIT (Appeals) to consider the issue afresh after giving due opportunity of hearing to the assessee and pass a reasoned order in accordance with law.
20. This ground of appeal raised by the Revenue is allowed for statistical purposes.
21. The appeal of the Revenue is, therefore, allowed for statistical purposes.
22. We will now deal with the cross appeals in ITA Nos.453 & 398/Chd/2010, taking up the assessee's appeal in ITA No.453/Chd/2010 first.
ITA No.453/Chd/2010 : (Assessee's Appeal):
23. The grounds of appeal raised by the assessee in its appeal read as under:
"1] That the order passed by the CIT (A) confirming the additions made by the learned Assessing Officer is illegal, 11 arbitrary, and has been passed in a haste and has ignored basic aspects an facts of the case thus causing undue hardship to the assessee.
2] That the CIT (A) has erred both on facts and law in confirming the disallowance of Rs.1,57,47,347/- on account of depreciation relatable to capital grant in aid received.
The addition is unjustified has been made without considering the facts of the case correctly and deserves to be deleted.
It is preyed that addition of Rs. 1,57,47,347/- may kindly be ordered to be deleted.
3] That the appellant craves to add, delete, concede, modify any or all the grounds of appeal at the time of hearing of appeal."
24. The only issue in the present appeal relates to the disallowance made on account of depreciation relatable to capital-grant-in-aid received by the assessee amounting to Rs.1,57,47,347/-.
25. Brief facts relating to the case are that the Assessing Officer observed, during the course of assessment proceedings, that the assessee had shown capital-grant-in-aid in the Balance Sheet as one of the source of fund. The assessee explained that this aid was given by the Government to partly meet expenditure relating to fixed assets. The Assessing Officer asked the assessee to explain as to why this amount may not be reduced from the original cost of the assets. The assessee placed reliance on the decision in the case of CIT Vs. P.J. Chemical Limited, 210 ITR 830 to state that it was a 12 capital receipt. The Assessing Officer held that in view of the amendment to section 43(1) by way of insertion of Explanation 10 to the same, subsidy or grant in the nature of capital grant would reduce the actual cost of the assets eligible for depreciation and, therefore, the decision relied upon by the assessee was no longer relevant. The Assessing Officer thereafter reduced the grant received from the written down value of assets from plant & machinery and thus as a consequence reduced the depreciation allowable to the assessee by Rs,.1,57,47,347/-.
26. During the appellate proceedings the assessee submitted that out of total grant of Rs.6,29,89,387/- received, only a part of it i.e. Rs.1,17,44,719/- had been utilized and reduced from the cost of the assets and no depreciation had been claimed on the same. The remaining amount of Rs.5,12,44,668/-, the assessee stated, had been transferred to other liabilities and provisions having been received for capital works which had not been initiated by the end of the relevant previous year i.e. 31.3.2005. The learned CIT (Appeals) rejected the contention of the assessee and held that in view of the Explanation 10 to section 43(1) of the Act, the Assessing Officer had rightly disallowed depreciation corresponding to the entire amount of the capital-grant-in-aid and, therefore, upheld the disallowance made by the Assessing Officer.
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27. Before us, the learned counsel for the assessee, reiterated the contentions made before the CIT (Appeals) and stated that the entire grant-in-aid received had not been utilized for purchase of asset and to that extent Explanation-10 to section 43(1) was not attracted. The learned counsel for the assessee further stated that on the grant-in-aid utilized to the extent of Rs.1,17,44,719/- the assessee had itself not claimed depreciation to that extent having reduced the same from the cost of the asset.
28. The Ld. DR, on the other hand,, relied upon the order of the lower authorities and stated that Explanation-10 to section 43 of the Act was in any case attracted as the utilization of the aid was towards capital assets only and on account of the express provisions of the Act, the disallowance of depreciation had been rightly made.
29. Having heard the rival contentions, we find that there is no case at all for making any disallowance of depreciation. The contentions of the assessee before the Ld. CIT (Appeals) that it had used only a part of the grant- in-aid for acquiring assets, which was set off from the value of the assets, while the balance, which was not utilized, was reflected as liability in the Balance Sheet, has remained uncontroverted. Even before us, the Revenue has not controverted this assertion of the learned counsel for the assessee. In fact, the learned counsel for the assessee established this fact before us by drawing 14 our attention to the Schedule of Reserves and Surplus in the Balance Sheet of the assessee for the year reflecting the grants-in-aid account and showing therein the total grants-in-aid as on 31.3.2004 of Rs.6,29,89,387/- being the sum of the opening balance of Rs.5,92,00,000/- and receipts during the year of Rs.37,89,387/-. Thereafter, the learned counsel for the assessee drew our attention to the amount utilized shown at Rs.1,17,44,719/- and transferred to deposits as Rs.5,12,44,668/-. The Schedule-2 of the Balance Sheet, i.e Reserves and Surplus, reflected grants-in-aid as follows :
SCHEDULE-2: RESERVES & SURPLUS Particulars Account As at March As at March Code 31st 2005 31st 2004 Capital Reserve 62.4 - -
Capital Reserve as - -
at the beginning of
the year
Gain on sale of
fixed assets
Sub Total
Sub total towards
cost of the capital 55.2
assets as at the - -
beginning of the
year
Add: Received
during the year
Sub Total
Grants towards
cost of the capital
assets as at the 59,200.00
beginning of the
year 55.2 1,923.035 3,789.387
Add : Received
during the year 1,923.035 11,744,719
Less: Utilised 55.3
Less : Transferred 51,244,668
to deposits
Sub Total - -
Grand Total - -
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30. It is, therefore, clear that the assessee had
utilized only a portion of the grant-in-aid for acquiring assets on which it had also not claimed depreciation. To this extent, we hold that the depreciation disallowed is incorrect and only tantamounts to denial of depreciation twice, once by the assessee itself when it reduced the grant-in-aid from the cost of the asset and the second time by the Revenue by applying Explanation-10 to section 43(1) on the same. This is totally unwarranted and denial of depreciation to this extent is, therefore, deleted.
31. As for the claim of the assessee that the balance amount was not utilized by it for purchasing any asset but was reflected as a liability in the Balance Sheet, we find that this also remains uncontroverted both by the CIT (Appeals) and also before us, while the assessee has clearly demonstrated the same reflecting the balance as transferred to deposits in the Schedule of Reserves and Surplus, reproduced above. The Ld. CIT (Appeals) has merely stated that the utilization of the grants-in-aid is towards acquiring of capital assets, without pointing out how, when the assessee had categorically stated that the same had been reflected as liability in the Balance Sheet, meaning thereby that it has not been reduced from the cost of any asset since none was acquired. Thus, it remains an uncontroverted fact that the balance grant-in-
aid was not utilized for acquiring any asset. In such circumstances, we hold that Explanation-10 to section 16 43(1) of the Act, is not attracted since it clearly states that where a part of the asset is acquired directly or indirectly through grant or subsidy, the cost of the asset is to be reduced from the same. Explanation-10 to section 43(1) of the Act reads as under:
"Explanation 10.--Where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee"
32. It is evident from a plain reading of the above that acquiring of an asset out of the grant received is a sine qua non for applying Explanation-10 to section 43(1) and logically also since the purpose of the Explanation is to reflect the actual cost of the asset to the purchaser only, reducing the cost contributed by any other person therefrom. We, therefore, hold that Explanation-10 to section 43(1) is not attracted on the portion of the grants- in-aid not utilized for acquiring capital asset and the same will not go to reduce the cost of assets acquired by the assessee. Explanation-10 to section 43(1) is not automatically attracted the moment grants-in-aid are received. It is only when they are utilized for acquiring assets that the Explanation gets attracted in. In view of the same, we hold, that to the extent of grant-in-aid is not utilized for acquiring capital assets, the same will not be 17 adjusted against cost of assets of the assessee and the denial of depreciation to this extent also is deleted.
33. In view of the above, we delete the disallowance of depreciation on the grants-in-aid received and allow the ground raised by the assessee.
34. The appeal of the assessee, therefore, stands allowed.
ITA No.398/Chd/2010 : (Revenue's Appeal):
35. Ground Nos.(a) and (b) raised by the Revenue read as under :
"(a) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the deletion of addition of Rs. 13,92,00,000/- made by the AO u/s 40(a)(ia) on account of transport charges ignoring the substance of the transaction which is essentially a payment for the transport changes and not a payment for the purchase of goods ?
(b) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the deletion of addition of Rs.13,92,00,000/- made by the AO u/s 40(a)(ia) ignoring the fact that the inclusion of transportation charges in the sales bill does not change the nature of payment being for the purpose of transportation especially when from the bills it is clear that the assessee made the payment specifically for the purpose of transportation."
36. Both the above grounds are against the action of the Ld. CIT (Appeals) in deleting the addition of Rs.13.92 18 crores made by the Assessing Officer under section 40(a)(ia) of the Income Tax Act, 1961 (in short 'the Act') on account of non-deduction of TDS on payment of transportation charges by the assessee.
37. Brief facts relating to the issue are that during the assessment proceedings, the Assessing Officer observed that the assessee was purchasing coal primarily from Central Coal Fields Limited and Coal India Limited and the purchase invoice of the colliery indicated that transportation charges were also being paid by the assessee on purchase of coal and were included as a separate head in the bill. The Assessing Officer also observed that while making the payment of the charges no TDS was deducted by the assessee on transportation charges. On being asked to explain the same, the assessee stated that its contract with Coal India was not a transport contract of sale and, therefore, it was not required to deduct any TDS. The Assessing Officer did not accept the argument of the assessee and held that since the bills specified the purpose f payment on account of transportation charges, TDS was required to be deducted on the same in accordance with the provisions of section 194C of the Act. The Assessing Officer held that inclusion of transportation charges in the bill did not change the nature of payment being for the purpose of transportation. He, therefore, made an addition of Rs.13.92 crores under 19 section 40(a)(ia) of the Act on account of non-deduction of TDS on transportation charges paid.
38. During appellate order proceedings the assessee reiterated the submissions made before the Assessing Officer and stated that the transportation of coal from colliery to the site was undertaken by Central Coal Fields Limited and Coal India Limited on their own and was part of the coal supplied and CST was being charged on the same by the supplier. The assessee submitted that the contract with Central Coal Fields Limited was, therefore, a contract for sale of goods not a work contract. The assessee further submitted that it was the liability of Central Coal Fields Limited and Coal India Limited to deduct TDS on the transportation charges incurred by them which was duly complied with by them and the assessee further annexed a letter to this effect from them. The assessee submitted that it had not entered into any contract with transporter nor made any payment to them nor received any bills from them and, therefore, the payment made on account of transportation charges could not be termed to be on account of any work contract for transportation of the goods liable to deduction of TDS under section 194C of the Act. The assessee further relied upon decision of the I.T.A.T., Chandigarh Bench in the case of Haryana Tourism Corporation Ltd. in ITA No.1056/Chd/2008, wherein the Hon'ble I.T.A.T. vide its order dated 25.3.2009 for assessment year 2005-06 had 20 decided an identical issue in favour of the assessee. The Ld. CIT (Appeals) after considering the assessee's submissions held that the contract of the assessee with Coal India Limited and Central Coal Fields Limited was contract for sale of goods and not contract of work. Relying upon the decision of the I.T.A.T., Chandigarh Bench in the case of Haryana Tourism Corporation Limited (supra) held that where transportation charges are made part of sale invoice the provisions of section 40(a)(ia) of the Act are not attracted. The Ld. CIT (Appeals), therefore, deleted the disallowance made by th Assessing Officer of transportation charges of Rs.13.92 crores under section 40(a)(ia) of the Act.
39. Before us the Ld. DR relied upon the order of the Assessing Officer and stated that since the bill for purchase of coal separately showed transportation charges and collected the same from the assessee, the payment made on account of the same was to be treated as for the purpose of transportation of coal attracting the provisions of section 194C of the Act on the same.
40. The learned counsel for the assessee, on the other hand, relied upon the order of the Ld. CIT (Appeals) and on the decision of the I.T.A.T., Chandigarh Bench in the case of Haryana Tourism Corporation Limited (supra) in this regard.
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41. We have heard the rival contentions. We find no infirmity in the order of the CIT (Appeals) deleting the addition made under section 40(a)(ia) of the Act. It is not disputed that the transportation charges were paid to the suppliers of coal who included the same in the bill relating to supply of coal raised by them. It is also not disputed that the contract between the assessee and suppliers of coal related to supply of goods/coal. The fact that the transportation was to be undertaken by the supplier of goods as part of the contract for sale of goods, as stated by the assessee before the lower authorities, has also not been controverted by the Ld. CIT (Appeals), nor by the Ld. DR before us. In view of the above facts, the conclusion drawn by the Ld. CIT (Appeals) that there was no contract for transportation of goods between the assessee and the supplier of coal is correct. Merely because the supplier of coal added transportation charges to the cost of goods, it cannot be inferred that the assessee had paid certain amount on account of those services separately. It was not evident from the bills that the expenses so incurred by the suppliers of coal was on behalf of the assessee. In fact, inclusion of the same in the bills of the supplier only pointed to the fact that it was part of the cost of the goods sold. The Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Assistant Manager (Accounts) Food Corporation of India (2010) 326 ITR 106, on identical set of facts held that there was no work contract between the assessee and 22 supplier of goods, but only contract for sale of goods and transport cost included in the bills was part of the cost of the commodity sold and thus no liability to deduct tax under section 194C of the Act. The Hon'ble High Court in the case of Assistant Manager (Accounts) Food Corporation of India (supra) held at paras 2 and 3 of its order as follows :
2. The assessee in the present case is Food Corporation of India which is engaged in procurement of food grains for the Central pool. The food grains is procured through the State agencies and directly as well.
Proceedings were initiated under s. 201 of the IT Act, 1961, with the allegations that the assessee had failed to deduct tax at source on the interest, rent and transportation charges paid by it to various agencies. The order came to be passed by the ITO (TDS) on 25th Feb., 2005, raising a demand of Rs. 12,34,814. The order was upheld by the CIT(A). In further appeal before the Tribunal, the plea set up by the assessee was accepted. It was noticed that in the invoices raised by various State agencies who procured food grains on behalf of the assessee, the cost of wheat has been shown apart from the cost on account of other incidental expenses incurred by the procurement agencies. VAT had also been charged. It was not evident from there that the expenses so incurred by the procurement agencies were on behalf of the assessee rather it was found to be part of the cost at which the food grains were to be transferred by the procurement agencies to the assessee. With these facts, it was found that as the assessee had not paid any amount to the procurement agencies on account of transportation, interest or storage charges as such, accordingly, there was no liability for deduction of tax.
3. The contention of learned counsel for the Revenue that in fact all these factors had been taken care of while fixing the price at which the food grain was to be billed to the assessee, carries no weight. If expenses incurred by a person on account of transportation, interest, storage, etc., are added to the cost of the goods, it cannot be inferred that the person who is billed had paid certain amount on account of those services separately as the same becomes part of the commodity so sold. 23
For the reasons mentioned above, we do not find any substantial question of law arises in the present appeal. The same is accordingly dismissed."
42. In view of the above, we hold that, there was no work contract between the assessee and the supplier of coal and hence the Ld. CIT (Appeals) has rightly held that the liability of the assessee to deduct tax under the provisions of section 194C of the Act did not arise in the present case. The Ld. CIT (Appeals), therefore, has correctly deleted the disallowance made under section 40(a)(ia) of the Act on account of non-deduction of TDS on transportation charges of Rs.13.92 crores. Ground Nos.(a) and (b) of the Revenue are, therefore, dismissed.
43. Ground Nos.(c), (d), (e) and (f) raised by the Revenue read as under :
"(c) Whether on the facts and in the circumstances of the case, the Ld.CIT(A) was justified in deleting the addition of Rs.2,01,88,372/- despite the fact that the details filed by the assessee before the CIT(A) were never filed before the AO and the CIT(A) also did not afford the AO an opportunity to rebut/verify these details filed by the assessee for the first time before the Ld. CIT(A).
(d) Whether on the facts and in the circumstances of the case, the Ld.CIT(A) was justified in deleting the addition of Rs. 2,01,88,372/- despite the fact that the expenses incurred and claimed by the assessee on account of modernization and renovation of project are capital nature since it gives the assessee a long benefit spread over a number of years.24
(e) Whether on the facts and in the circumstances of the case, the Ld.CIT(A) was justified in deleting the addition of Rs. 68,45,000/- (out of Rs.2,01,88,372/-) despite the fact that there is no mention in the schedule 22/notes on account attached to the balance sheet of the assessee that Rs. 68,45,000/- has been capitalized on account of renovation and modernization of the project under APDRP Scheme, Faridabad.
(f) Whether on the facts and circumstances of the case, the CIT(A) was justified in deleting the addition of Rs. l,31,58,372/-(out of Rs. 2,01,88,372/)- despite the fact that there is nothing on record to show that these expenses relate to completed projects and not to the capital work-in-progress."
44. In the above grounds, we find that the Revenue has challenged deletion of addition of Rs.2,01,88,372/- on account of modernization and renovation of project holding the same to be capital in nature.
45. Brief facts relating to the issue are that the Assessing Officer had found that the assessee had claimed an amount of Rs.2,01,88,372/- on account of interest on renovation and modernization of project and disallowed the same holding it to be capital in nature since it gave the assessee a long benefit spread over a number of years.
46. In the appellate proceedings, the assessee contended that it had actual incurred an amount of Rs.2,00,03,372/- as interest on account of renovation and modernization of project instead of Rs.2,01,88,372/- which pertained to financial year 2003-04 relating to 25 assessment year 2004-05. Further, the assessee stated that out of the impugned amount of Rs.2,01,88,272/- a sum of Rs.68,45,000/- had been capitalized by the assessee itself against renovation and modernization undertaken under APDRP scheme Faridabad. The assessee submitted detail of interest capitalized during the year which reflected the above sum of Rs.68,45,000/-. The assessee further stated that the balance amount of interest pertained to incremental amount of loan under central assistance for renovation and miscellaneous taken by HSEB during the year 1989-90 and transferred to the assessee vide Haryana Government Notification dated 13.8.1999 against completed schemes/works and, therefore, had been correctly charged to the Profit & Loss Account. The Ld. CIT (Appeals) after considering assessee's submissions allowed assessee's appeal and deleted the disallowance made.
47. Before us, the Ld. DR relied upon the order of the Assessing Officer and further stated that the Ld. CIT (Appeals) erred in accepting the explanation of the assessee without any corroborating evidence, while the learned counsel for the assessee relied upon the order of the Ld. CIT (Appeals) as also submissions made before him.
48. We have heard the rival contentions. The Ld. CIT (Appeals), we find, has after going through the details filed by the assessee held that out of the total interest 26 claimed by the assessee an amount of Rs.68,45,000/- had already been capitalized by the assessee and it was reflected in Schedule-22 of the Balance Sheet of the assessee. Further, the Ld. CIT (Appeals) has given a finding that the balance interest of Rs.1,31,58,372/- pertained to loan taken by HSEB for renovation and modernization during the financial year 1985-86 to 1987- 88, which was put to use in March, 1991 and, therefore, the interest expenditure of the impugned year relating to assets already put to use was to be treated as revenue expenditure. The Ld. DR has countered by stating that neither was the interest capitalized and reflected in Schedule-22 of the Balance Sheet, nor any evidence brought on record and referred to by the CIT (Appeals) to prove that the remaining interest was incurred on account of completed projects.
49. We find merit in the contentions of the Ld. DR that the Ld. CIT (Appeals) has deleted the disallowance by simply accepting the contentions of the assessee without any corroborating evidence relating to the same. Neither the capitalization of interest to the extent of Rs.68,45,000/- allegedly reflected in Schedule-22 of the Balance Sheet was shown to us, nor any evidence filed before us to prove that the balance interest paid pertained to loans which had been utilized to acquire assets in earlier years. Further, we find that even the Ld. CIT (Appeals) has made no reference to any evidence proving 27 the same except for Schedule-22 of the Balance Sheet, which the Ld. DR has controverted. But in the absence of production of the said Schedule-22 before us, by either of the parties, the aforestated fact remains unverified. In view of the non-speaking order passed by the Ld. CIT (Appeals), we consider it fit to restore the issue back to the file of the Ld. CIT (Appeals) to consider the matter afresh after giving due opportunity of hearing to the assessee and pass a reasoned order after deciding the issues in accordance with law.
50. Ground Nos.(c), (d), (e) and (f) raised by the Revenue are, therefore, allowed for statistical purposes.
51. In effect, the appeal of the Revenue is partly allowed for statistical purposes.
ITA No.1048/Chd/2010 : (Revenue's Appeal):
52. In this appeal the Revenue has raised the following grounds of appeal :
"(a) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 19.94 crores made by the AO u/s 40(a)(ia) on account of transport charges ignoring the substance of the transaction which is essentially a payment for the transport changes and not a payment for the purchase of goods ?
(b) Whether on the facts and in the circumstances of the case, the Ld. CIT (A) has erred in deleting the addition of Rs. 19.94 crores made by the AO u/s 4()(a)(ia) ignoring the fact that the inclusion of transportation charges in the sales bill does not change the nature of payment being for the purpose of transportation especially when from the bills it is clear that 28 the assessee made the payment specifically for the purpose of transportation?
(c) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in deleting the addition of Rs.1.98.18.372/-
despite the fact that the expenses incurred and claimed by the assessee on account of modernization and renovation of the project are capital nature since it gives the assessee a long benefit spread over a number of years ?
(d) The appellant craves for leave to add or amend the ground of appeal before the appeal is heard and disposed off.
(e) It is prayed that the order of Ld. CIT(A) be set aside and that of the AO be Restored."
53. It is relevant to observe here that it was admitted by both the parties that the issue raised in the present appeal as also the facts and circumstances of this case are similar to that in ITA No.398/Chd/2010. We, therefore, hold that the findings given in ITA No.398/Chd/2010,vis-a-vis disallowance of transportation charges u/s 40(a)(ia) of the Act given at para 41 &42 of the order and vis-à-vis disallowance of interest on modernization and renovation of projects ,given at para 48-50 of the order, shall apply to this case also with equal force.
54. The appeal of the Revenue is therefore partly allowed for statistical purposes.
ITA No.19/Chd/2011 : (Revenue's Appeal): 29
55. In this appeal the Revenue has raised the following grounds of appeal :
"1. On the basis of the facts and in the circumstances of the case, the Ld. C.I.T.(A)is not justified in deleting the addition of Rs.23,03,69,578/- made under section 40(a)(ia)of the I.T.A.T. on account of transport charges ignoring the substance of the transaction which is essentially a payment for transport charges and not a payment for the purchase of goods and further ignoring the fact that the inclusion of transport charges with the sale bill does not change the nature of payment and the sum being paid for the purpose of transport.
2. On the basis of the facts and in the circumstances of the case, the Ld. C.I.T.(A) is not justified in deleting the addition of Rs.1,96,33,372/- on account of interest on renovation and modernization of the project despite the fact that the expenses incurred and claimed by the assessee on account of modernization and renovation of the project are of capital nature since it gave the assessee a long benefit spread over a number of years.
3. The appellant craves leave to add or amend the grounds of appeal before the appeal is heard and disposed off.
4. It is prayed that the order of the Ld. CIT (A) be set aside and that of AO restored."
56. It is relevant to observe here that it was admitted by both the parties that the issue raised in the present appeal as also the facts and circumstances of this case are similar to that in ITA No.398/Chd/2010. We, therefore, hold that the findings given in ITA No.398/Chd/2010,vis-a-vis disallowance of transportation charges u/s 40(a)(ia) of the Act given at para 41 &42 of the order and vis-à-vis disallowance of interest on modernization and renovation of projects ,given at para 30 48-50 of the order, shall apply to this case also with equal force.
57. The appeal of the Revenue is therefore partly allowed for statistical purposes.
ITA No.26/Chd/2011 : (Assessee's Appeal):
58. In this appeal the assessee has raised the following grounds of appeal :
"l. That the order passed by the CIT(A) in confirming the additions made by the AO are illegal, arbitrary, have been passed in a haste and have ignored basic aspects and facts thus causing undue hardship to the Appellant.
2.That the CIT(A) has erred both on facts and law in confirming the disallowance of Rs.2705917.00 on account of "Guarantee Commission"
by holding that the same is in the nature of capital expenditure. The addition is unjust, illegal and deserves to be quashed. It is prayed that addition of Rs.2705917.00 may kindly be ordered to be deleted.
3. That the CIT (A) has erred both on facts and law in confirming the disallowance of Rs.694164.00 on account of "Commitment Charges" by holding that the same is in the nature of capital expenditure.
The addition is unjust, illegal and deserves to be quashed. It is prayed that addition of Rs.694164.00 may kindly be ordered to be deleted.
4.That the appellant craves to add, delete, concede, modify and alter any or all the grounds of appeal at the time of hearing."
31
59. The assessee in the present appeal has challenged the disallowance made of guarantee commission expenses amounting to Rs.27,05,917/- and commitment charges of Rs.6,94,164/- made by holding the same to be in the nature of capital expenditure.
60. Briefly stated, the facts relating to the issue are that the Assessing Officer made the impugned disallowances by holding the same to be capital in nature and by following his orders in the previous years. The Ld. CIT (Appeals) upheld the disallowance following the order passed by the CIT (Appeals) in preceding year in the case of the assessee. The Ld. CIT (Appeals) upheld the disallowance by holding at paras 6 and 7 of his order as follows :
"6. This ground of appeal is regarding addition of Rs.27,05,917/- on account of Guarantee commission by treating the same as capital expenditure. The AO has mentioned that this expenditure is capital in nature. The counsel on the other hand argued that this amount have been paid to the Haryana Govt. for borrowing money for funding working capital requirement. My predecessor while deciding similar ground of appeal in the earlier year observed as under :-
"I do not find any merit in the argument of the counsel. The counsel has not furnished any evidence in support of his contention that the guarantee charges have been paid for working capital borrowings and not for financing of capital projects. The AO has rightly treated this expenditure as capital in nature in the absence of any evidence. The addition made by the A O is justified and is upheld. This ground of appeal is rejected. "32
Agreeing with my predecessor, the addition of Rs. 27,05,917/- made by the AO on account of guarantee charges is upheld. This ground of appeal is dismissed.
This ground of appeal is regarding addition of Rs.6,94,164/- relating to the commitment charges. The AO has treated this expenditure as capital expenditure. The counsel on the other hand argued that this amount have been paid to the Haryana Govt. for borrowing money for funding working capital requirement. My predecessor while deciding similar ground of appeal in the earlier year observed as under :-
"I do not find any merit in the argument of the counsel. The counsel has not furnished any evidence in support of his contention that the commitment charges have been paid for working capital borrowing and not for financing of capital projects. The AO has rightly treated this expenditure as capital in nature in the absence of any evidence. The addition made by the AO is justified and is upheld. This ground of appeal is rejected."
61. Before us, the Ld. DR argued that identical disallowance made in the preceding years i.e AY 2006-07 & 2004-05, which had been upheld by the CIT (Appeals), had been accepted by the assessee, as no ground was raised against the same in the appeal filed for those years before the I.T.A.T. The Ld. DR further stated that no evidence had been produced by the assessee in support of its claim in the impugned year also. The Ld. DR, therefore, stated that the CIT (Appeals) had rightly upheld the disallowance.
33
62. The learned counsel for the assessee, however, reiterated its submissions made before the lower authorities that the expenses had been incurred for borrowing funds for working capital requirement and were, therefore, revenue in nature.
63. Having heard the rival contentions, we find no merit in the assessee's contentions. Undisputedly, identical disallowances were made in assessment year 2004-05 and 2006-07, which, in assessment year 2006- 07,were upheld by the CIT (Appeals) and not further challenged by the assessee before the I.T.A.T. while in assessment year 2004-05,the addition was not challenged before the CIT(A), thus implying that the assessee has accepted that the nature of the guarantee commission and commitment charges paid was capital. Further, before us, no distinguishing facts have been brought to show how the facts in the present case are different from that in the preceding years, nor any evidence adduced to show that the impugned expenses were incurred for availing working capital funds and hence were revenue in nature. We, therefore, find no reason to differ from the order of the Ld. CIT (Appeals) and uphold the disallowance of guarantee commission of Rs.27,05,917/- and commitment charges of Rs.6,94,164/-. In view of the above, both the grounds of the assessee are dismissed.
64. The appeal of the assessee, therefore, stands dismissed.
34ITA No.698/Chd/2012 : (Assessee's Appeal):
65. In this appeal, the assessee has raised the following grounds of appeal :
"2. That the CIT (A) has erred both on facts and law in confirming the addition of Rs.271034982 being disallowance under Section 40 (a) (ia) of Income tax Act being payment made to transporters without deduction of tax at source.
The additions is untenable, illegal and is not based upon correct appreciation of provisions of law and has been confirmed by CIT(A)without considering the past history of the appellant and therefore the same deserves to be deleted.
It is prayed that addition of Rs.271034982 may kindly be ordered to be deleted.
3. That the CIT (A)has erred both on facts and law in confirming the addition of Rs.19448372 being expenditure incurred on renovation and modernization of projects.
The additions is untenable, illegal and is not based upon correct appreciation of provisions of law and has been confirmed by CIT(A) without considering the past history of the appellant and therefore the same deserves to be deleted.
It is prayed that addition of Rs.19448372 may kindly be ordered to be deleted.
4. That the CIT (A) has erred both on facts and law in confirming the addition of Rs.3216500 on account of guarantee charges.
The addition is unjust, illegal and deserves to be quashed.
It is prayed that addition of Rs.3216500 may kindly be ordered to be deleted.35
5. That the CIT (A) has erred both on facts and law for initiating proceedings u/s 201 of Income tax Act for non deduction of TDS on interest. The proceedings have been initiated by the CIT(A) without any cogent reasons and without any material available on record.
The proceedings initiated by the CIT (A) under section 201 therefore are illegal and thus deserves to be quashed."
66. It is relevant to observe here that it was conceded by both the parties that the ground Nos.2 and 3 raised in this appeal are similar to the grounds raised in ITA No.398/Chd/2010. We, therefore, hold that the findings given in ITA No.398/Chd/2010,vis-a-vis disallowance of transportation charges u/s 40(a)(ia) of the Act given at para 41 &42 of the order and vis-à-vis disallowance of interest on modernization and renovation of projects ,given at para 48-50 of the order, shall apply to these two grounds also with equal force.
67. Further, ground No.4 raised in this appeal, it was conceded by both the parties, is similar to ground No.2 in ITA No.26/Chd/2011 and the findings given in ITA No.26/Chd/2011 shall apply mutatis mutandis to this ground also.
68. The appeal of the assessee is partly allowed for statistical purposes.
69. In the result, 36
i) The appeal of the Revenue in ITA No.454/Chd/2010 is allowed for statistical purposes.
ii) The appeal of the assessee in ITA
No.453/Chd/2010 is allowed.
iii) The appeal of the Revenue in ITA
No.398/Chd/2010 is partly allowed for
statistical purposes.
iv) The appeal of the Revenue in ITA
No.1048/Chd/2010 is partly allowed for
statistical purposes.
v) The appeal of the Revenue in ITA
No.19/Chd/2011 is partly allowed for
statistical purposes.
vi) The appeal of the assessee in ITA
No.26/Chd/2010 is dismissed.
vii) The appeal of the assessee in ITA
No.698/Chd/2012 is partly allowed for
statistical purposes.
Order pronounced in the open court.
Sd/- Sd/-
(SANJAY GARG) (ANNAPURNA GUPTA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 21 s t November, 2016
*Rati*
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A)
4. The CIT
5. The DR
Assistant Registrar,
ITAT, Chandigarh