Income Tax Appellate Tribunal - Ahmedabad
Gujarat Urja Vikas Nigam Board., Baroda vs Assessee on 17 April, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL " A " BENCH, AHMEDABAD
(BEFORE SHRI MUKUL Kr. SHRAWAT, J.M. & SHRI ANIL CHATURVEDI, A.M.)
I.T. A. Nos.1087 to 1091 /AHD/2011 & 1109 & 1110/AHD/2011
(Assessment Year: 1999-2000 to 2005-06)
Gujarat Urja Vikas Nigam, V/S Asstt. Commissioner of
Ltd., Sardar Patel Vidyut Income Tax Circle 1(1),
Bhavan, Race Course Circle, Baroda
Baroda
(Appellant) (Respondent)
PAN: AAACG8540N
Appellant by : Shri J.P. Shah, A.R.
Respondent by : Shri Subhash Bains, CIT-DR
(आदे श)/ORDER
Date of hearing : 11-02-2015 Date of Pronouncement : 17 -04-2015 PER SHRI ANIL CHATURVEDI,A.M.
1. These appeals filed by the Assessee are against the order of CIT(A)-I, Baroda dated 16.02.2011, 18.02.2011, 23.02.2011, 24.02.2011, 28.02.2011 & 08.03.2011 for A.Ys. 1999-2000 to 2005-06 respectively.
2. Before us, ld. A.R. submitted that though the appeals of the assessee relates to different assessment years but facts and circumstances of all the cases are similar except for the assessment years and the amounts and further most of the grounds in the appeals are identical and therefore the submissions are also common for all the appeals and therefore all the appeals can be heard together. The ld. D.R. did not object to the aforesaid submission of ld. A.R. 2 ITA Nos. 1087 to 1091/A/11 1109&1110/A/11 . A.Ys. 1999-2000 to 2005-06 We therefore proceed to dispose of all the appeals together for the sake of convenience and thus proceed by referring to the facts for A.Y. 1999-2000 in ITA No. 1087/AHD/2011.
3. The relevant facts as culled out from the material on record are as under.
4. Assessee is a company stated to be engaged in the business of generation and distribution of electricity. Assessee filed its original return of income for A.Y. 1999-2000 on 28.12.1999 declaring total income at Rs. Nil after setting off of unabsorbed depreciation of earlier years. Subsequently, a revised return was filed on 01.09.2000 and the loss was revised at Rs. 340,36,33,232/-. The case was selected for scrutiny and thereafter the assessment was framed under section 143(3) vide order dated 28.03.2002 and the total loss was determined Rs. 246,31,70,566/-. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who vide order dated 16.02.2011 granted partial relief to the Assessee. Aggrieved by the aforesaid order of ld. CIT(A) Assessee is now in appeal before us and has raised the following grounds:-
1. The learned Commissioner of Income Tax (Appeals) erred in law and on facts has confirmed the disallowance of prior period expenses amounting to Rs. 51,04,89,092/-
without appreciating the fact that the entire expenditure was crystallized during the year.
1.1 The learned Commissioner (Appeals) ought to have appreciated that on exactly identical fact the Hon'ble ITAT in the appellant's own case for the Asst. Year 1997-98 has set aside the issue for re-verification.
2. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in setting aside the disallowance of Bad Debts of Rs 3,81,76,827/- despite the fact that all the facts necessary for deciding the issue were submitted at the time of hearing of the appeal.
3. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in setting aside the disallowance of Extra-ordinary items amounting to Rs. 21,91,00,234/- being the expenditure incurred on rehabilitation and restoration work as a result of cyclone.
3 ITA Nos. 1087 to 1091/A/11 1109&1110/A/11. A.Ys. 1999-2000 to 2005-06 The learned Commissioner (Appeals) has further erred in law/and on facts in not giving any findings on the additions of Rs. 10.00 crores made under the same head being the Grant received from the Government of Gujarat. The learned Commissioner (Appeals) failed to appreciate that the appellant has rightly offered the amount of Rs. 11,91,00,234/- as net expenditure on account of loss due to floods, cyclones etc. and hence the disallowance of expenditure of Rs. 21,91,00,234/- as well as the addition of Rs. 10.00 crores as income is totally arbitrary and unjustifiable and deserve to be deleted.
4.The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in setting aside the disallowance of Rs. 50,07,138/- on account of miscellaneous losses and write offs on the ground that only revenue loss shall be allowed as business loss.
5.The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the additions of Rs.9,28,00,000/- on account of the alleged understatement of income which was reported by the C&AG in its report without appreciating the fact that the C&AG had also reported overstatement of income in its Report.
6.The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in setting aside the disallowance of Rs. 10,05,543/- on account of unpaid bonus under section 43B of the I T Act despite the fact that all the facts necessary for deciding the issue were submitted at the time of hearing of the appeal.
5. Subsequently, vide letter dated 3rd July, 2014, Assessee has raised an additional ground which reads as under:-
The employees' cost of Rs.4,75,22,871/- ought to be allowed in Asst. Year 1999-2000 in view of the following finding of the Assessing Officer in his assessment order for the Asst. Year 1998-99:-
"As regards, the employees cost of Rs.4,75,22,871/-, on perusal of the General Standing Order No. 325 dated 3.6.1998, it is noted that the order is issued beyond the period of the previous year and the payment of arrears w.e.f. 1.1.1996 to the date of issue of the order will be paid by July, 1998, that too beyond the period of the previous year and thus, if at all the contention of the assessee is considered, the liability is crystallized in the subsequent year, i.e. in assessment year 1999-2000. As such, the claim of the assessee cannot be entertained and thus accordingly rejected."
6. The reason for taking up additional ground was stated that the AO while framing the assessment for A.Y. 1998-99 had disallowed the claim of expenses for the reason that according to him the claim arises in A.Y. 1999- 2000. The Ld. AR therefore submitted that the additional ground now raised be admitted. Ld. D.R. on the other hand did not seriously object to the 4 ITA Nos. 1087 to 1091/A/11 1109&1110/A/11 . A.Ys. 1999-2000 to 2005-06 submission of Ld. AR. In view of the aforesaid facts, the additional ground raised by Assessee is admitted for adjudication.
1st ground is with respect to disallowance of prior period expenditure.
7. During the course of assessment proceedings and on perusing the Profit and Loss account, A.O noticed that Assessee has claimed deduction of Rs. 100,77,79,806/- under the head "net prior period credit" which comprised of several items of income and expenditure which though pertained to prior period, but were claimed in the year under consideration. The Assessee was therefore asked to justify its claim and also prove the crystallization of the expenses in the year under consideration. A.O has noted that Assessee did not furnish the required details. He also noticed that though the Assessee has claimed expenditure of Rs. 132,66,70,955/- under the head "provision for power purchase" but evidence of expenses was produced only to the extent of Rs. 132,42,44,728/-. He therefore disallowed the difference amount of Rs.24,26,277/- on account of power purchase and the prior period expenditure of Rs. 50,80,62,865/- and thus made an aggregate disallowance of Rs. 51,04,89,092/-. Aggrieved by the order A.O, Assessee carried the matter before ld. CIT(A) who upheld the order of A.O by holding as under:-
5.3 I have carefully considered the facts of the case, the submissions, of the appellant and the assessment order. In respect to prior period items, the onus is upon the appellant to justify with proof that the expenses indeed pertain to earlier years and that these could not be claimed for genuine reasons and that liability in respect of these expenses crystallized during the year. However neither before AO nor in appellate proceedings such details could be furnished. The AO was justified in rejecting the claim of prior period expenses. Ground no.2 is dismissed.
8. Aggrieved by the order of ld. CIT(A), Assessee is now in appeal before us.
5 ITA Nos. 1087 to 1091/A/11 1109&1110/A/11. A.Ys. 1999-2000 to 2005-06
9. Before us, at the outset ld. A.R. submitted that on identical facts in the case of Assessee for A.Y. 1997-98 similar disallowances was made by A.O. against which the matter was carried before Tribunal. Hon'ble ITAT in its order dated 26.06.2009 restored the issue to the file of A.O. He therefore submitted that since the facts of the case in the year under consideration are identical to that of A.Y. 97-98, following the order of Hon'ble Tribunal for A.Y. 1997-98, the issue may be remitted to the file of A.O. He also placed reliance on the decision in the case of Saurashtra Cement & Chemical vs. CIT (1995) 213 ITR 523 (Guj.) Ld. D.R. on other hand pointed to the findings of A.O and submitted that the onus lies on the assessee to substantiate its claim and in the absence of details filed by the Assessee, A.O was fully justified in making a disallowance. He thus supported the order of A.O and ld. CIT(A).
10. We have heard the rival submissions and perused the material on record. In the present case, the expenses were disallowed by the AO for the reason that Assessee did not furnish the required details and justify the claim of expenses. We find that in A.Y. 97-98 similar issue of disallowance of prior period expenses was before the co-ordinate Bench of Tribunal. The co- ordinate Bench of Tribunal vide order dated 26.06.2009 had set aside the issue to AO by holding as under:-
2. The first ground is against the disallowance of the prior period expenses of Rs.91,70,76,125. The disallowance has been made on the ground that the expenses, under various heads and discussed in detail in the assessment order, pertain to the earlier years and the assessee which is following the mercantile system of accounting should have made provision for the expenses in those years and claimed them as deduction. The learned counsel for the assessee however states that the liability in respect of most of the expenses got crystallized in the accounting year relevant, to the year under appeal and the assessee would be in a position to prove the same if opportunity is given. We have considered the prayer and are inclined to grant the same. The assessee is a state government undertaking and therefore it cannot be postulated that there was any 6 ITA Nos. 1087 to 1091/A/11 1109&1110/A/11 . A.Ys. 1999-2000 to 2005-06 deliberateness in not furnishing the relevant details before the departmental authorities.
Some details filed in pages 22 to 37 of the paper book filed before us shows that some bills were received only in August 1996 but they relate to September to December 1994 and March 1995. We therefore set aside this issue to the file of the Assessing Officer who shall take a fresh decision in accordance with law after affording due opportunity to the assessee to substantiate, its claim. We direct accordingly. The ground is disposed of accordingly.
11. Before us, since both the parties have admitted that the facts of the case in the year under appeal are identical to that of A.Y. 97-98 and therefore in these circumstances, we are of the view that following the order of Co- ordinate Bench of Tribunal for A.Y. 1997-98 and with similar directions, it would be appropriate to restore the matter back to the AO for deciding the matter afresh in accordance with law and after considering the material produced by the Assessee and after giving a reasonable opportunity of hearing to the Assessee. Thus this ground of Assessee is allowed for statistical purposes.
Ground no. 2 is with respect to disallowance of bad debts.
12. During the course of assessment proceedings, A.O noticed that Assessee had claimed bad and doubtful debts of Rs. 3,81,76,827/-. He also noticed that the aforesaid debts have not actually been written off in the books of account but Assessee had merely made a provision. A.O was of the view that unless the debt is written off as bad and doubtful debts in the accounts of the Assessee, the claim of the assessee of bad debts cannot be allowed. He accordingly disallowed the claim of bad debts of Rs. 3,81,76,827/-. Aggrieved by the order A.O, Assessee carried the matter before ld. CIT(A) who decided the issue by holding as under:-
7 ITA Nos. 1087 to 1091/A/11 1109&1110/A/11. A.Ys. 1999-2000 to 2005-06
6. The third ground of appeal is against disallowance of Rs.3,81,76,827/- being bad debts.
6.1 AO mentions that assessee had claimed deduction of Rs. 2,71,31,732/- as actual bad and doubtful debts written off whereas actual write off works out to Rs 23,31,40,205/-. Further provision amounting to Rs. 3,81,76,827/- was not added to the computation of income and neither written off which was thus added as disallowable provision. 6.2 In appeal, it is submitted that the actual bad debts written off during the year was Rs. 30.94 crores (27.13+3.82). The opening provision was 97.17 crore and the closing provision was Rs. 93.36 crore and the provision during the year charged to P&L was Rs. 27.13 crore.
6.3 I have carefully considered the facts of the case, the submissions of the appellant and the assessment order. Prima facie the contention of appellant seems to be correct. The AO may verify the figures from the schedules and allow the loss actually written off in the books. Ground No.3 is allowed subject to verification by AO.
13. Aggrieved by the order of ld. CIT(A), Assessee is now in appeal before us.
14. Before us, ld. A.R. submitted that all the facts necessary for deciding the issue was submitted before ld. CIT(A) and therefore he should have decided the issue instead of setting aside the issue to the file of A.O. The ld. D.R. on the other hand supported the order of A.O.
15. We have heard the rival submissions and perused the material on record. We find that the claim of bad debts was disallowed by the A.O as he was of the view that the bad debts can only be allowed as deduction when the same are written off in the accounts. Before us, Assessee has not placed any material on record to demonstrate that all the necessary evidence was produced before Ld CIT(A). We further find that Ld. CIT(A) decided the ground of Assessee in its favour subject to verification by AO and further the decision of ld. CIT(A) on the issue to be cryptic. We also find that ld. CIT(A) had directed the A.O to verify the figures and thereafter allow the loss of the amount actually written off in the books. On the issue of setting aside by CIT(A), it is to be noted that the Finance Act, 2001 has w.e.f. 1st June, 2001 8 ITA Nos. 1087 to 1091/A/11 1109&1110/A/11 . A.Ys. 1999-2000 to 2005-06 withdrawn the power of CIT(A) to set aside the assessment and refer the case back to the AO for making a fresh assessment in accordance with the directions given by CIT(A). In view of the aforesaid amendment made by Finance Act 2001, we are of the view that Ld. CIT(A) does not have power to remand and therefore we do not approve the action of ld. CIT(A) in remitting the issue to the file of A.O. However at the same time, it is also a fact that before us, no details of the bad debts claimed have been filed by the assessee and therefore we are also unable to peruse the details and decide the issue at our end. Considering the aforesaid facts and in the interest of justice, we are of the view that the factual aspect needs re-examination at the end of A.O. We therefore set aside the issue to the file of A.O to decide the issue de novo after considering the submissions of the Assessee and in accordance with law. Needless to state that A.O shall grant adequate opportunity of hearing to the Assessee. We also direct the Assessee to co- operate with the Revenue authorities by promptly filing and submitting all the details called for by them. In case the details are not furnished by Assessee, then A.O shall be free to decide the issue based on the material on record. In the result, this ground of Assessee is allowed for statistical purposes.
Ground no. 3 is with respect to disallowance of expenditure incurred on rehabilitation and restoration work as a result of cyclone.
16. On perusing Schedule 16 of the annual statement of accounts, A.O noticed that Assessee had claimed loss of Rs. 21,91,00,234/- on account of flood, cyclone, fire etc and extraordinary credit of Rs. 10 crore under the head "subsidy against losses". A.O also noted that before him it was admitted that the losses claimed were based on the estimate and that Government of 9 ITA Nos. 1087 to 1091/A/11 1109&1110/A/11 . A.Ys. 1999-2000 to 2005-06 Gujarat had granted an amount of Rs. 10 crore against the losses. A.O in the order has noted that the Assessee did not produce anything to establish that the loss claimed by the Assessee were actual losses and were not merely an estimate and was therefore of the view that the losses on the basis of provision are not allowable. He accordingly disallowed the claim of loss. With respect to the grant of Rs. 10 crore received from Government, A.O was of the view that it was granted by the Government by way of adjustment of electricity duty payable by the Assessee to Government of Gujarat and accordingly the electricity duty payable has been waived and thus it was cessation of trading liability. He therefore considered Rs. 10 crore as income of the Assessee. Aggrieved by the order A.O, Assessee carried the matter before ld. CIT(A) who decided the issue by holding as under:-
7.3 I have carefully considered the facts of the case, the submissions of the appellant and the assessment order. Although it is claimed before me that the entire expenditure was revenue in nature complete item-wise details was not furnished. It is likely that the damage during natural calamities would affect the capital stock as well as the revenue items. With a system of block of assets any loss on capital item is allowed with reference to the opening WDV and the asset lost/discarded is not reduced from the opening WDV.
In effect the appellant is entitled to higher claim of depreciation instead of loss on assets. Any notional or actual scrap value or sale of assets is to be reduced from the opening WDV for purposes of depreciation. Further any subsidy received is also to be reduced from W.D.V. of blocks. It is also to be appreciated that in case a block is empty or has no WDV, no depreciation is admissible. Although it is emphasized before me that all the items are revenue in nature but in the absence of details, this fact could not be verified. The appellant is directed to provide necessary details to the AO and elaborate that none of the capital of the loss claimed and that the capital item has been suitably considered in the depreciation calculation and is not part of the loss claimed. However if there are capital items which are claimed as loss these would stand disallowed with corresponding higher depreciation as per provisions of sec. 32, 2(11), 43(1) and 43(6). The ground is allowed subject to verification and aforesaid directions.
17. Aggrieved by the order of ld. CIT(A), Assessee is now in appeal before us.
18. Before us, ld. A.R. reiterated the submissions made before lower authorities. With respect to the addition of Rs. 10 crore on account of grant received 10ITA Nos. 1087 to 1091/A/11 1109&1110/A/11 . A.Ys. 1999-2000 to 2005-06 from Government of Gujarat, he submitted that there is no finding of ld. CIT(A) and therefore the matter may be remitted back to ld. CIT(A). The ld. D.R. on the other hand supported the order of AO.
19. We have heard the rival submissions and perused the material on record. We find that the grant of Rs. 10 crore received by the Assessee from Government of Gujarat was considered by the A.O to be cessation of trading liability and therefore taxable under heads of "profit and gains of business". We find that this issue has not been decided by ld. CIT(A). With respect to the disallowance of Rs. 21,91,00,234/- on account of flood, cyclone etc, we find that CIT(A) has remitted the issue to be file of AO and further the decision of ld. CIT(A) on the issue to be cryptic. On the issue of setting aside by CIT(A), it is to be noted that the Finance Act, 2001 has w.e.f. 1st June, 2001 withdrawn the power of CIT(A) to set aside the assessment and refer the case back to the AO for making a fresh assessment in accordance with the directions given by CIT(A). In view of the aforesaid amendment made by Finance Act 2001, we are of the view that Ld. CIT(A) does not have power to remand and therefore we do not approve the action of ld. CIT(A) in remitting the issue to the file of A.O. However at the same time, it is also a fact that before us, no details of the loss claimed have been filed by the assessee and therefore we are also unable to peruse the details and decide the issue at our end. Considering the aforesaid facts and in the interest of justice, we are of the view that the factual aspect needs re- examination at the end of A.O. We therefore set aside the issue to the file of A.O to decide the issue de novo after considering the submissions of the Assessee and in accordance with law. Needless to state that A.O shall grant adequate opportunity of hearing to the Assessee. We also direct the Assessee 11ITA Nos. 1087 to 1091/A/11 1109&1110/A/11 . A.Ys. 1999-2000 to 2005-06 to co-operate with the Revenue authorities by promptly filing and submitting all the details called for by them. In case the details are not furnished by Assessee, then A.O shall be free to decide the issue based on the material on record. In the result, this ground of Assessee is allowed for statistical purposes.
Ground no. 4 is with respect to disallowance on account of miscellaneous losses.
20. A.O noticed that Assessee has claimed Rs. 5,00,71,380/- as miscellaneous losses and "write off" and for which, when the Assessee was asked to furnish the break up, AO has noted that the details were not furnished by Assessee and therefore in the absence of details, the exact nature and liability of the expenditure could not be determined. He therefore considered 1/10th of the expenditure as not allowable and accordingly disallowed Rs. 50,07,138/-. Aggrieved by the order A.O, Assessee carried the matter before ld. CIT(A) who decided the issue by holding as under:-
8.3 I have carefully considered the facts of the case, the submissions of the appellant and the assessment order. I am in agreement with appellant that loss of stock, consumables etc is revenue in nature. The appellant is directed to provide complete details of such revenue items. The rest of loss on capital items is to be adjusted through the block of assets. The ground is allowed subject to verification and aforesaid directions.
21. Aggrieved by the order of ld. CIT(A), Assessee is now in appeal before us.
22. Before us, ld. A.R. reiterated the submissions made before ld. CIT(A) and submitted that the entire loss claimed by the Assessee should have been allowed. The ld. D.R. on the other hand supported the order of A.O. in view of the fact that the details were not furnished by the Assessee.
12ITA Nos. 1087 to 1091/A/11 1109&1110/A/11 . A.Ys. 1999-2000 to 2005-06
23. We have heard the rival submissions and perused the material on record. We find that A.O while disallowing the claim has noted that in the absence of details, the nature and liability of the expenses could not be ascertained and determined and therefore he disallowed 10% of the expenses. We also find that the decision of ld. CIT(A) on the issue to be cryptic and further the matter was allowed subject to verification by A.O. On the issue of setting aside by CIT(A), it is to be noted that the Finance Act, 2001 has w.e.f. 1st June, 2001 withdrawn the power of CIT(A) to set aside the assessment and refer the case back to the AO for making a fresh assessment in accordance with the directions given by CIT(A). In view of the aforesaid amendment made by Finance Act 2001, we are of the view that Ld. CIT(A) does not have power to remand and therefore we do not approve the action of ld. CIT(A) in remitting the issue to the file of A.O. However at the same time, it is also a fact that before us, no details of the losses and its nature have been filed by the assessee and therefore we are also unable to peruse the details and decide the issue at our end. Considering the aforesaid facts and in the interest of justice, we are of the view that the factual needs re- examination at the end of A.O. We therefore set aside the issue to the file of A.O to decide the issue de novo after considering the submissions of the Assessee and in accordance with law. Needless to state that A.O shall grant adequate opportunity of hearing to the Assessee. We also direct the Assessee to co-operate with the Revenue authorities by promptly filing and submitting all the details called for by them. We also direct the Assessee to co-operate with the Revenue authorities by promptly filing and submitting all the details called for by them. In case the details are not furnished by Assessee, then A.O shall be free to decide the issue based on the material on record. In the result, this ground of Assessee is allowed for statistical purposes.
13ITA Nos. 1087 to 1091/A/11 1109&1110/A/11 . A.Ys. 1999-2000 to 2005-06 Ground no. 5 is with respect to addition of Rs. 9,28,00,000/- on account of under statement of income determined by C & AG.
24. A.O on perusing the annual accounts of the Assessee noted that while auditing the accounts of the Assessee, Principal Accountant General (C &AG) in the audit report has pointed instances of under statement of income as well as expenditure. Assessee was asked to furnish explanation on the observations made by the auditor but the submission and explanation of the Assessee was not found acceptable to the A.O. He therefore considered aggregate amount of Rs. 9,28,00,000/- under the various heads listed at page 11 of his order, as income of the Assessee. Aggrieved by the order A.O, Assessee carried the matter before ld. CIT(A) who decided the issue by holding as under:-
9. The sixth ground of appeal is against the disallowance of Rs.9,28,00,000/- on account of understatement of income due to variation in accounting policies. 9.1 The A.O. has mentioned that in the C & A G Audit of the assessee certain instances of understatement of incomes were pointed out. The first related to under recovery of revenue of Rs. 0.58 crores from Mansa and Vizapur Nagarpalika. The assessee stated that as per electricity supply rules 1985 the amount would be recognized on cash basis.
The A.O was of the view that Section 145 of the Act does not allow hybrid system of accounts and that income of Rs. 0.58 crore had accrued. Further the expenditure of Rs. 0.29 crores was in relation to employees of GSECL and is thus does not allowable. In addition the provision of doubtful debt of Rs.0.25 crore is merely a provision and cannot be allowed. The A.O. also mentioned that Rs. 8.16 crores of miscellaneous receipts was not accounted for though services were rendered in execution of works. Thus Rs. 9.28 crore was added to the total income.
9.2 In appeal it is submitted that alleged understatement of profit is only due to the accounting entries made in the books of accounts and that there is no question of adding back the amount to the profit. It is also contended that necessary effect of the understatement of entries have been given in assessment year 2000-01 and that if the addition is confirmed in the instant year the same should be deleted in A.Y. 2000-01. 9.3 I have carefully considered the facts of the case, the submissions of the appellant and the assessment order. The rationale and the basis for various additions/disallowances by A.O. on issues raised by C & A G is perfectly in order as the assessee is following mercantile system of accounting. Addition of Rs. 9.28 crore is thus confirmed. However, the alternate plea of the appellant is acceptable and the A.O. may delete the same amount, if it is shown to be offered for tax in assessment year 2000-01. Ground no. 6 is dismissed.
14ITA Nos. 1087 to 1091/A/11 1109&1110/A/11 . A.Ys. 1999-2000 to 2005-06
25. Aggrieved by the order of ld. CIT(A), Assessee is now in appeal before us.
26. Before us, ld. A.R. reiterated the submissions made before A.O and ld. CIT(A) and further submitted that C & AG had in fact also reported over statement of income but the AO has only considered a part of the report. Ld. A.R. also pointed to page 77 of the paper book which contained the financial impact of the various comments made by the auditor of C & AG. He therefore submitted that the addition made on the basis of report of C & AG is uncalled for. Ld. A.R. further submitted that in A.Y. 01-02 similar additions/disallowances were made and the issue was remitted back by ld. CIT(A). He also placed on record the copy of the aforesaid order. He therefore submitted the matter may be set aside. Ld. D.R. on the other hand supported the order of A.O.
27. We have heard the rival submissions and perused the material on record. We find that A.O had made disallowance on the basis of observations made by auditors of C & AG. We further find that ld. CIT(A) by cryptic order decided the issue. On perusing page 77 of the paper book which is a part of the annual accounts of the Assessee, we find that the impact of various observations of C & AG have been listed out. Before us, neither of the parties could reconcile the impact as shown by C & AG & that considered by AO for disallowance. On the issue of setting aside by CIT(A), it is to be noted that the Finance Act, 2001 has w.e.f. 1st June, 2001 withdrawn the power of CIT(A) to set aside the assessment and refer the case back to the AO for making a fresh assessment in accordance with the directions given by CIT(A). In view of the aforesaid amendment made by Finance Act 2001, we are of the view that Ld. CIT(A) does not have power to remand and 15ITA Nos. 1087 to 1091/A/11 1109&1110/A/11 . A.Ys. 1999-2000 to 2005-06 therefore we do not approve the action of ld. CIT(A) in remitting the issue to the file of A.O. Considering the aforesaid facts and in the interest of justice, we are of the view that the factual aspect needs re-examination at the end of A.O. We therefore set aside the issue to the file of A.O to decide the issue de novo after considering the submissions of the Assessee and in accordance with law. Needless to state that A.O shall grant adequate opportunity of hearing to the Assessee. We also direct the Assessee to co-operate with the Revenue authorities by promptly filing and submitting all the details called for by them. In case the details are not furnished by Assessee, then A.O shall be free to decide the issue based on the material on record. In the result, this ground of Assessee is allowed for statistical purposes.
Ground no. 6 is with respect to disallowance u/s. 43B.
28. A.O noticed that Assessee has claimed payment of bonus as an expense. He also noticed that company had paid bonus of Rs. 1,18,18,588/- but in the computation of income had claimed deduction of Rs. 1,28,24,131/-. The Assessee was asked to furnish the evidence in respect of excess amount claimed in the computation of income on account of bonus payment. A.O noted that since the Assessee did not furnish any evidence, the excess payment of Rs. 10,05,543/- was disallowed u/s. 43B of the Act. Aggrieved by the order A.O, Assessee carried the matter before ld. CIT(A) who decided the issue by holding as under:-
10.3 I have carefully considered the facts of the case, the submissions of the appellant and the assessment order, The appellant is directed to submit all details to AO and AO is directed to verify the figures vis a vis last year details and allow the claim in terms of section 43B. The ground is allowed subject to verification and aforesaid directions.
29. Aggrieved by the order of ld. CIT(A), Assessee is now in appeal before us.
16ITA Nos. 1087 to 1091/A/11 1109&1110/A/11 . A.Ys. 1999-2000 to 2005-06
30. Before us, ld. A.R. reiterated the submissions made before A.O and ld. CIT(A). On the other hand ld. D.R. supported the order of A.O.
31. We have heard the rival submissions and perused the material on record. We find that while disallowing the expenses A.O has noted that in the absence of details, the excess payment was disallowed. We also find that the decision of ld. CIT(A) on the issue to be cryptic apart from the fact that he had set aside the issue to the file of A.O for verification and deciding it. On the issue of setting aside by CIT(A), it is to be noted that the Finance Act, 2001 has w.e.f. 1st June, 2001 withdrawn the power of CIT(A) to set aside the assessment and refer the case back to the AO for making a fresh assessment in accordance with the directions given by CIT(A). In view of the aforesaid amendment made by Finance Act 2001, we are of the view that Ld. CIT(A) does not have power to remand and therefore we do not approve the action of ld. CIT(A) in remitting the issue to the file of A.O. At the same time it is also a fact that before us, no details of the excess amount paid or the reconciliation between the amount claimed and accounted for in the accounts have been filed by the assessee and therefore we are also unable to peruse the details and decide the issue at our end. Considering the aforesaid facts and in the interest of justice, we are of the view that the factual aspect needs re-examination at the end of A.O. We therefore set aside the issue to the file of A.O to decide the issue de novo after considering the submissions of the Assessee and in accordance with law. Needless to state that A.O shall grant adequate opportunity of hearing to the Assessee. We also direct the Assessee to co-operate with the Revenue authorities by promptly filing and submitting all the details called for by them. In case the details are not 17ITA Nos. 1087 to 1091/A/11 1109&1110/A/11 . A.Ys. 1999-2000 to 2005-06 furnished by Assessee, then A.O shall be free to decide the issue based on the material on record. In the result, this ground of Assessee is allowed for statistical purposes.
32. The additional ground taken by the Assessee reads as under:-
The employees' cost of Rs.4,75,22,871/- ought to be allowed in Asst. Year 1999-2000 in view of the following finding of the Assessing Officer in his assessment order for the Asst. Year 1998-99:-
"As regards, the employees cost of Rs.4,75,22,871/-, on perusal of the General Standing Order No. 325 dated 3.6.1998, it is noted that the order is issued beyond the period of the previous year and the payment of arrears w.e.f. 1.1.1996 to the date of issue of the order will be paid by July, 1998, that too beyond the period of the previous year and thus, if at all the contention of the assessee is considered, the liability is crystallized in the subsequent year, i.e. in assessment year 1999-2000. As such, the claim of the assessee cannot be entertained and thus accordingly rejected."
33. Before us, ld. A.R. has submitted that the additional ground be adjudicated, in view of the fact that its claim in earlier year 98-99 came to be disallowed only for the reason that according to A.O it arose in A.Y. 1999-2000. Before us, ld. A.R. has also given an undertaking that the Assessee will not press the additional ground now taken in assessment year 1998-99.
34. We find that A.O while deciding the issue in A.Y. 1998-99 has held as under:-
"As regards, the employees cost of Rs.4,75,22,871/-, on perusal of the General Standing Order No. 325 dated 3.6.1998, it is noted that the order is issued beyond the period of the previous year and the payment of arrears w.e.f. 1.1.1996 to the date of issue of the order will be paid by July, 1998, that too beyond the period of the previous year and thus, if at all the contention of the assessee is considered, the liability is crystallized in the subsequent year, i.e. in assessment year 1999-2000. As such, the claim of the assessee cannot be entertained and thus accordingly rejected."
35. We find that this ground was not taken by the Assessee before ld. CIT(A) but it arises out of the order of A.O for A.Y. 98-99. Considering the fact that 18ITA Nos. 1087 to 1091/A/11 1109&1110/A/11 . A.Ys. 1999-2000 to 2005-06 A.O has disallowed the claim in A.Y. 1998-99 for the reason that liability has crystallized in A.Y. 1999-2000, we are of the view that the issue needs to be re-examined at the end of A.O. We therefore set aside this ground to the file of A.O to decide it afresh and in accordance with law and after considering the submissions made by the Assessee, it is also a fact that before us, no details of the employees cost have been filed by the assessee and therefore we are also unable to peruse the details and decide the issue at our end. Considering the aforesaid facts and in the interest of justice, we are of the view that the factual aspect needs re-examination at the end of A.O. We therefore set aside the issue to the file of A.O to decide the issue de novo after considering the submissions of the Assessee and in accordance with law. Needless to state that A.O shall grant adequate opportunity of hearing to the Assessee. We also direct the Assessee to co-operate with the Revenue authorities by promptly filing and submitting all the details called for by them. In case the details are not furnished by Assessee, then A.O shall be free to decide the issue based on the material on record. In the result, this ground of Assessee is allowed for statistical purposes.
36. In the result, the appeal of Assessee in ITA No 1087/A/2011 for AY 1999-2000 is allowed for statistical purposes.
ITA Nos. 1088, 1089, 1090, 1091, 1109 & 1110/AHD/2011( for A.Ys.2000- 01 to 2005-06).
37. The grounds raised by Assessee in A.Y. 2000-01 (ITA No. 1088/Ahd/2011) reads as under:-
19ITA Nos. 1087 to 1091/A/11 1109&1110/A/11 . A.Ys. 1999-2000 to 2005-06
1. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in setting aside the disallowance of Bad Debts of Rs.14,95,34,791/- despite the fact that all the facts necessary for deciding the issue were submitted at the time of hearing of the appeal.
2. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in setting aside the issue relating to the disallowance of Rs.1,34,882/- being purchase of small and low value items below Rs. 500/-without assigning any cogent reasons whatsoever.
3. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in setting aside the issue relating to the disallowance of Rs. 49,04,039/- being amount of shortages on physical verification of stock and pilferage of stock on the ground that details justifying that the same are revenue in nature may be filed before the Assessing Officer.
4. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in setting aside the disallowance of Rs. 4,44,69,750/- being loss on account of fixed assets destructed due to floods, cyclone etc., on the ground that the necessary details may be provided to the Assessing Officer.
5. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the additions of Rs. 9,96,00,000/- on account of the alleged understatement of income which was reported by the C&AG in its report without appreciating the fact that the C&AG had also reported overstatement of income to the extent of Rs. 1044.28 crores in its Report and has thereby ignored the net overstatement of income (or understatement of deficit) of Rs.1027.79 crores.
38. The grounds raised by Assessee in A.Y. 2001-02 (ITA No. 1089/AHD/2011) reads as under:-
1. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in setting aside the disallowance of Bad Debts of Rs.10,32,21,009/- despite the fact that all the facts necessary for deciding the issue were submitted at the time of hearing of the appeal.
2. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in setting aside the issue relating to the disallowance of Rs.1,27,263/- being purchase of small and low value items below Rs. 500/-without assigning any cogent reasons whatsoever.
3. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in setting aside the issue relating to the disallowance of Rs. 1,10,28,621/- being amount of shortages on physical verification of stock and pilferage of stock on the ground that details justifying that the same are revenue in nature may be filed before the Assessing Officer.
4. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in setting aside the disallowance of Rs. 11,62,82,783/- being loss on account of fixed assets destructed due to floods, cyclone etc., on the ground that the necessary details may be provided to the Assessing Officer.
5. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in setting aside the issue relating to the disallowance of an amount of Rs.15,81,825/- being the capital expenditure written off and loss on obsolescence of fixed assets and stores aggregating to Rs. 1,20,765/- on the ground that the necessary details may be provided to the Assessing Officer.
6. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in setting aside the issue relating to the disallowance of an amount of Rs. 75,96,145/- being the loss on sale of fixed assets on the ground that the necessary details may be provided to the Assessing Officer.
20ITA Nos. 1087 to 1091/A/11 1109&1110/A/11 . A.Ys. 1999-2000 to 2005-06
7. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in setting aside the issue relating to the additions of Rs. 104,97,00,000/- on account of the alleged understatement of income which was reported by the C&AG in its report despite the fact all the facts necessary for deciding the issue were submitted before the learned Commissioner (Appeals).
39. The grounds raised by Assessee in A.Y. 2002-03 (ITA No. 1090/AHD/2011) reads as under:-
1. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in setting aside the disallowance of Bad Debts of Rs.8,,44,02,003/- despite the fact that all the facts necessary for deciding the issue were submitted at the time of hearing of the appeal.
2. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in setting aside the disallowance of Rs. 8,85,75,392/- being loss on account of loss of fixed assets destructed due to floods, cyclones etc., debited under the head Extra-ordinary Items on the ground that the necessary details may be provided to the Assessing Officer.
3. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the disallowance of Loss on Exchange Rate Variation amounting to Rs.3,00,64,200/- treating the same as capital loss.
4. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in setting aside the issue relating to the disallowance of an amount of Rs. 54,74,000/- being the loss on sale of scrap on the ground that the necessary details may be provided to the Assessing Officer.
5. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in setting aside the issue relating to the additions of Rs. 158,90,00,000/- on account of the alleged understatement of income which was reported by the C&AG in its report despite the fact all the facts necessary for deciding the issue were submitted before the learned Commissioner (Appeals).
40. The grounds raised by Assessee in A.Y 2003-04 (ITA No. 1091/AHD/2011) reads as under:-
1. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in setting aside the disallowance of Rs. 2,94,24,149/- being loss on account of fixed assets destructed due to floods, cyclones etc., debited under the head Extra-ordinary Items on the ground that the necessary details may be provided to the Assessing Officer.
2. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the disallowance of Loss on obsolescence of fixed assets amounting to Rs. 84,428/- treating the same as capital loss.
3. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in setting aside the issue relating to the disallowance of an amount of Rs. 54,41,000/- being the loss on sale of scrap on the ground that the necessary details may be provided to the Assessing Officer 21ITA Nos. 1087 to 1091/A/11 1109&1110/A/11 . A.Ys. 1999-2000 to 2005-06
41. The grounds raised by Assessee in A.Y. 2004-05 (ITA No.1109/AHD/2011) reads as under:-
1. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in setting aside the disallowance of Rs. 5,25,95,389/- being loss on account of fixed assets destructed due to floods, cyclones etc., debited under the head Extra-ordinary Items on the ground that the necessary details may be provided to the Assessing Officer.
2. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the disallowance of Loss on obsolescence of fixed assets amounting to Rs.
70,344/- treating the same as capital loss.
3. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in setting aside the issue relating to the disallowance of cost of raising finance amounting to Rs. 2,12,86,344/- on the ground that the appellant may furnish details to the Assessing Officer as to whether the expenditure was of capital nature or revenue nature.
4. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in setting aside the issue relating to the disallowance of an amount of Rs.38,28,000/- being the loss on sale of scrap on the ground that the necessary details may be provided to the Assessing Officer.
5. The learned Commissioner of Income Tax (Appeals) erred in law and on facts has confirmed the disallowance of Rs.22,56,000/- being the waiver of HBA Loans allowed to the employees on the death of the employees while in service on the ground that the same is a capital loss.
6. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in setting aside the disallowance of Rs. 5,95,48,269/- being loss on sale of fixed assets on the ground that the necessary details may be provided to the Assessing Officer.
7. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in setting aside the issue relating to the disallowance of Rs.4,38,24,995/- being amount of shortages on physical verification of stock and pilferage of stock on the ground that details justifying that the same are revenue in nature may be filed before the Assessing Officer.
42. The grounds raised by Assessee in A.Y 2005-06 (ITA N0. 1110/AHD/2011) reads as under:-
1. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in setting aside the disallowance of Rs.1,42,49,043/- being loss on account of fixed assets destructed due to floods, cyclones etc., debited under the head Extra-ordinary Items on the ground that the necessary details may be provided to the Assessing Officer.
2. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in setting aside the disallowance of Loss on obsolescence of fixed assets amounting to Rs. 1,54,158/- on the ground that the necessary details may be provided to the Assessing Officer.
22ITA Nos. 1087 to 1091/A/11 1109&1110/A/11 . A.Ys. 1999-2000 to 2005-06
3. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in setting aside the issue relating to the disallowance of an amount of Rs. 10,08,000/- being the loss on sale of scrap on the ground that the necessary details may be provided to the Assessing Officer.
4. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in setting aside the disallowance of Rs. 4,04,451/- being loss on sale of fixed assets on the ground that the necessary details may be provided to the Assessing Officer.
5. The learned Commissioner of Income Tax (Appeals) erred in law and on facts has confirmed the disallowance of Rs. 33,77,206/- being the waival of HBA Loans allowed to the employees on the death of the employees while in service on the ground that the same is a capital loss.
6. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in setting aside the issue relating to the disallowance of cost of raising finance amounting to Rs. 3,82,56,286/- on the ground that the appellant may furnish details to the Assessing Officer as to whether the expenditure was of capital nature or revenue nature.
7. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in setting aside the issue relating to the disallowance of Rs.6,70,09,792/- being amount of shortages on physical verification of stock and pilferage of stock on the ground that details justifying that the same are revenue in nature may be filed before the Assessing Officer.
43. Before us, ld. A.R. submitted that grounds No. 1, 4 & 5 in ITA No. 1088/AHD/2011 for A.Y. 2000-01, grounds No. 1, 4, & 7 in ITA No 1089/AHD/2011. for A.Y 2001-02, Grounds No. 1, 2 & 5 in ITA No. 1090/AHD/2011 for A.Y. 2002-03, grounds No. 1 in ITA NO. 1091/AHD/2011 for AY 2003-04, ground No 1 in ITA No 1109/Ahd/2011 for AY 2004-05 and ground No. 1 in ITA No. 1110/AHD/2011 for AY 2005-06 are identical and similar to the grounds raised in ITA NO. 1087/AHD/2011 for A.Y. 1999-2000 except for the amounts and therefore the submissions made by him are also applicable to the aforesaid grounds. The aforesaid submissions of ld. A.R. were not objected to by ld. D.R. In view of the aforesaid facts, and for the reasons given while disposing the appeal for A.Y. 1999-2000 hereinabove and for similar reasons and with similar directions, we allow the aforesaid grounds raised in different assessment years for statistical purposes.
Now we take up remaining grounds in ITA NO. 1088/A/2011 for A.Y. 2000-01.
23ITA Nos. 1087 to 1091/A/11 1109&1110/A/11 . A.Ys. 1999-2000 to 2005-06 Ground no. 2 is with respect to disallowance of small items and ground no. 3 is with respect to write off of shortage on account of stock and its pilferage loss.
44. During the course of assessment proceedings, A.O noticed that Assessee has claimed deduction on account of purchase of small and low value items below Rs. 500/- aggregating to Rs. 1,34,882/-. Assessee was asked to justify its claim to which Assessee interalia submitted that it has written off the cost of small and low value assets each costing Rs. 500/- and not included the same in fixed assets nor claimed depreciation on it. The submission of the Assessee was not found acceptable to the A.O as he was of the view that in the absence of any provision in Section 32, the writing off of the assets of small value cannot be allowed and he accordingly disallowed the expenses. AO also noticed that assessee had claimed shortage of physical verification of materials (Rs 30,50,883/-) and loss of material by pilferage (Rs 18,53,156/-). AO noted that assessee did not adduce any evidence to justify the aforesaid claims and therefore the claim of assessee was disallowed. Aggrieved by the order of A.O, Assessee carried the matter before CIT(A) who decided the issue by holding as under:-
6.5 I have carefully considered the facts of the case, the submissions of the appellant and the assessment order. I am in agreement with appellant that loss of stock, consumables etc is revenue in nature. The appellant is directed to provide complete details of such revenue items. The rest of loss on capital items is to be adjusted through the block of assets. It is a fact that in the P & L A/c., the loss out of extraordinary items, loss on pilferage, loss of small items etc. are claimed. The appellant was specifically requested to explain the various journal entries in this regard and also treatment of such loss for purposes of income-tax but these were not furnished. Further it is likely that miscellaneous losses and write offs loss due to natural calamities etc. would affect the capital stock as well as the revenue items.
With a system of block of assets any loss on capital item is allowed with reference to the opening WDV and the asset lost/discarded is not reduced from the opening WDV. In effect the appellant is entitled to higher claim of depreciation instead of loss on 24ITA Nos. 1087 to 1091/A/11 1109&1110/A/11 . A.Ys. 1999-2000 to 2005-06 assets. Any notional or actual scrap value or sale of assets is to be reduced from the opening WDV for purposes of depreciation. It is also to be appreciated that in case a block is empty or has no WDV, no depreciation is admissible. Although it is emphasized before me that all the items are revenue in nature but in the absence of details, this fact could not be verified. The appellant is directed to provide necessary details to the AO and elaborate that none of the capital items is part of the loss claimed and that the capital items have been suitably considered in the depreciation calculation and is not part of the loss claimed. However if there are capital items which are claimed as loss these would stand disallowed with corresponding higher depreciation as per provisions of sec.32, 2(11), 43(1) and 43(6). The ground is allowed subject to verification and aforesaid directions. Grounds No. 3, 4 and 5 are allowed subject to verification and aforesaid directions.
45. Aggrieved by the order of CIT(A), Assessee is now in appeal before us.
46. Before us, ld. A.R. reiterated the submissions made before A.O and CIT(A). Ld. D.R. on the other hand submitted that in the absence of details, A.O was justified in disallowing the expenses. He thus supported the order of A.O.
47. We have heard the rival submissions and perused the material on record. We find that A.O has noted that the details were not submitted before him nor were the details available before CIT(A). We also find that CIT(A) has remitted the matter to A.O. On the issue of setting aside by CIT(A), it is to be noted that the Finance Act, 2001 has w.e.f. 1st June, 2001 withdrawn the power of CIT(A) to set aside the assessment and refer the case back to the AO for making a fresh assessment in accordance with the directions given by CIT(A). In view of the aforesaid amendment made by Finance Act 2001, we are of the view that Ld. CIT(A) does not have power to remand and therefore we do not approve the action of ld. CIT(A) in remitting the issue to the file of A.O. However at the same time, it is also a fact that, no details of the expenses claimed have been filed by the assessee either before the lower authorities or before us and therefore we are also unable to peruse the details and decide the issue at our end. Considering the aforesaid facts and in the 25ITA Nos. 1087 to 1091/A/11 1109&1110/A/11 . A.Ys. 1999-2000 to 2005-06 interest of justice, we are of the view that the factual aspect needs re- examination at the end of A.O. We therefore set aside the issue to the file of A.O to decide the issue de novo after considering the submissions of the Assessee and in accordance with law. Needless to state that A.O shall grant adequate opportunity of hearing to the Assessee. We also direct the Assessee to co-operate with the Revenue authorities by promptly filing and submitting all the details called for by them. In case the details are not furnished by Assessee, then A.O shall be free to decide the issue based on the material on record. In the result, these grounds of Assessee are allowed for statistical purposes.
48. In the result, the appeal of Assessee in ITA No 1088/A/2011 for AY 2000-01 is allowed for statistical purposes.
ITA No. 1089/AHD/2011 ( for A.Y. 2001-02)Now we take up remaining grounds of A.Y. 01-02 being ground no. 2 & 3, 5 & 6.
49. Before us, both the parties submitted that ground no. 2 & 3 of the present appeal are identical to ground no. 2 & 3 raised by Assessee in A.Y. 2000-01 and the submissions made by them while arguing the case for A.Y. 2000-01 are also applicable to the present grounds.
50. We have heard the rival submissions and perused the material on record. Before us, since both the parties have submitted that the issue raised in the present grounds being identical to the grounds raised in A.Y. 2000-01, we therefore for the reasons stated herein while disposing of ground no. 2 and 3 for A.Y. 2000-01 and for similar reasons and directions allow the grounds for statistical purposes.
26ITA Nos. 1087 to 1091/A/11 1109&1110/A/11 . A.Ys. 1999-2000 to 2005-06 Now we take up ground No 5 & 6 which are considered together.
51. A.O noticed that Assessee has claimed infructuous capital expenses written off of Rs. 15,81,825/- and loss of obsolesce of fixed assets of Rs. 1,20,965/-. A.O was of the view that the expenses being capital in nature was not allowable and accordingly disallowed the same. A.O also noted that Assessee had claimed loss on sale of fixed assets of Rs. 75,96,145/-. A.O was of the view that the same was also not allowable as being capital in nature and accordingly disallowed the claim. Aggrieved by the order of A.O, Assessee carried the matter before CIT(A) who upheld the order of A.O by holding as under:-
6.6 I have carefully considered the facts of the case, the submissions of the appellant and the assessment order. I arm in agreement with appellant that loss of stock, consumables etc. is revenue in nature. The appellant is directed to provide complete details of such revenue items. The rest of loss on capital items is to be adjusted through the block of assets. It is a fact that in the P & L A/c., the loss on obsolescence, loss on sale and loss on sale of scrap of fixed assets, loss on pilferage, loss of small items etc. are claimed. The appellant was specifically requested to explain the various journal entries in this regard and also treatment of such loss for purposes of income-tax but these were not furnished.
Further it is likely that miscellaneous losses and write off, loss due to natural calamities etc. would affect the capital stock as well as the revenue items. With a system of block of assets any loss on capital item is allowed with reference to the opening WDV and the asset lost/discarded is not reduced from the opening WDV. In effect the appellant is entitled to higher claim of depreciation instead of loss on assets. Any notional or actual scrap value or sale of assets is to be reduced from the opening WDV for purposes of depreciation. It is also to be appreciated that in case a block is empty or has no WDV, no depreciation is admissible. Although it is emphasized before me that all the items are revenue in nature but in the absence of details, this fact could not be verified. The appellant is directed to provide necessary details to the AO and elaborate that none of the capital items is part of the loss claimed and that the capital items have been suitably considered in the depreciation calculation and is not part of the loss claimed. However if there are capital items which are claimed as loss these would stand disallowed with corresponding higher depreciation as per provisions of sec.32, 2(11), 43(1) and 43(6). The ground is allowed subject to verification and aforesaid directions. Grounds No. 3,4,5,7 & 8 are allowed subject to verification and aforesaid directions.
52. Aggrieved by the order of CIT(A), Assessee is now in appeal before us.
27ITA Nos. 1087 to 1091/A/11 1109&1110/A/11 . A.Ys. 1999-2000 to 2005-06
53. Before us, ld. A.R. reiterated the submissions made before A.O and CIT(A) and on the other hand ld. D.R. supported the order of CIT(A).
54. We have heard the rival submissions and perused the material on record. We find that the claim of expenses was disallowed by the A.O as he was of the view that the expenses were of capital in nature. We also find that Ld. CIT(A) decided the ground of Assessee in its favour subject to verification by AO. We also find that the decision of ld. CIT(A) on the issue to be cryptic and he had directed the A.O to verify the figures and thereafter allow the claim of loss. On the issue of setting aside by CIT(A), it is to be noted that the Finance Act, 2001 has w.e.f. 1st June, 2001 withdrawn the power of CIT(A) to set aside the assessment and refer the case back to the AO for making a fresh assessment in accordance with the directions given by CIT(A). In view of the aforesaid amendment made by Finance Act 2001, we are of the view that Ld. CIT(A) does not have power to remand and therefore we do not approve the action of ld. CIT(A) in remitting the issue to the file of A.O. However at the same time, it is also a fact that before us, no details of the expenses claimed have been filed by the assessee and therefore we are also unable to peruse the details and decide the issue at our end. Considering the aforesaid facts and in the interest of justice, we are of the view that the factual aspect needs re-examination at the end of A.O. We therefore set aside the issue to the file of A.O to decide the issue de novo after considering the submissions of the Assessee and in accordance with law. Needless to state that A.O shall grant adequate opportunity of hearing to the Assessee. We also direct the Assessee to co-operate with the Revenue authorities by promptly filing and submitting all the details called for by them. In case the details are not furnished by Assessee, then A.O shall be 28ITA Nos. 1087 to 1091/A/11 1109&1110/A/11 . A.Ys. 1999-2000 to 2005-06 free to decide the issue based on the material on record. In the result, this ground of Assessee is allowed for statistical purposes.
55. In the result, the appeal of Assessee in ITA No 1089/A/2011 for AY 2001-02 is allowed for statistical purposes.
ITA No. 1090/AHD/2011 ( for A.Y. 2002-03)Now we take up remaining grounds of ITA No. 1090/AHD/2011 for A.Y. 2002-03.
Ground No. 3 is with respect to disallowance of loss on Exchange rate variation.
56. A.O noticed that assessee has claimed as revenue expense the loss on exchange rate variation towards credit facility in foreign exchange given by a supplier for K.L.T.P.S project. A.O was of the view that the expenses being capital in nature, not allowable and accordingly disallowed the expenses. Aggrieved by the order of A.O, Assessee carried the matter before Ld. CIT(A) who upheld the order of A.O by holding as under:-
8.3 I have carefully considered the facts of the case, the submissions of the appellant and the assessment order. The finances have been raised by the appellant and finance charges/fees, discounting charges, trustees' fees and have been paid in connection with garnering the funds. It is immaterial whether the funds are borrowed for capital or revenue purposes and as long as these are not for expansion of business for which the expenses need to be capitalized and allowable as part of depreciation after commencement of business, the expenditure otherwise is in revenue fold. Such was ratio of judgment in the case of DCIT vs Core Health Care Ltd. 298 ITR 194 (SC). The Hon'ble apex court have also mentioned that proviso to section-36(1)(iii) relating to capitalization of interest for pre-commencement period in the case of expansion of business is prospective i.e. applicable from Assessment Year 04-05 onwards though it is claimed before me that the funds were raised for existing business, no details could be furnished to establish this fact. The appellant is directed to provide details in this regard to A.O and if found true, ground would stand allowed otherwise the expenses related to expansion of business would need to be capitalized and allowed as depreciation from the 29ITA Nos. 1087 to 1091/A/11 1109&1110/A/11 . A.Ys. 1999-2000 to 2005-06 year in which assets were first put to use. Ground no. 8 is allowed subject to verification and aforesaid directions.
57. Aggrieved by the order of Ld.CIT(A), Assessee is now in appeal before us.
58. Before us, at the outset, ld. A.R. fairly conceded that the issue is now covered against Assessee by the decision of Apex Court in the case of ACIT vs. Elecon Engg. Co. Ltd. 322 ITR 20 (SC) and therefore the issue has to be decided against the Assessee.
59. We have heard ld. A.R. In view of the submission of ld. A.R. that the issue is covered against the assessee by the decision of H'ble Apex Court. In view of the aforesaid facts, we dismiss the ground of assessee and thus this ground is dismissed.
Ground no. 4 is with respect to disallowance of loss of sale of scrap.
60. A.O noticed that Assessee has claimed loss of Rs. 54.74 lacs on account of loss of sale of scrap. He was of the view that there cannot be loss on sale of scrap in view of the fact that the initial value of scrap is Rs. Nil. In response to the query of A.O, Assessee submitted that it had the practice of transferring residual value of 10% of total cost of assets to scrap and further the materials declared as scrap by stores department are booked at standard rate after reducing the repairs and maintenance cost to that extent. The submissions of the Assessee was not found acceptable and accordingly A.O disallowed the loss. Aggrieved by the order of A.O, Assessee carried the matter before CIT(A) who decided the issue by holding as under:-
9.3 I have carefully considered the facts of the case, the submissions of the appellant and the assessment order. The appellant is directed to provide complete details to the AO to explain that the sale price/scrap value as per books/WDV of assets discarded are reduced from the opening WDV of the relevant block for purposes of depreciation. If these entries 30ITA Nos. 1087 to 1091/A/11 1109&1110/A/11 . A.Ys. 1999-2000 to 2005-06 are accounted for as stipulated above, the ground would stand allowed otherwise to the extent the appellant is not able to establish with documents the addition would stand confirmed. Ground No.6 is allowed subject to verification and aforesaid directions.
61. Aggrieved by the order of CIT(A), Assessee is now in appeal before us.
62. Before us, ld. A.R. reiterated the submissions made before lower authorities and on the other hand ld. D.R. supported the order of A.O.
63. We have heard the rival submissions and perused the material on record. We find that the decision of ld. CIT(A) on the issue to be cryptic apart from the fact that he had set aside the issue to the file of A.O for verification and deciding it. On the issue of setting aside by CIT(A), it is to be noted that the Finance Act, 2001 has w.e.f. 1st June, 2001 withdrawn the power of CIT(A) to set aside the assessment and refer the case back to the AO for making a fresh assessment in accordance with the directions given by CIT(A). In view of the aforesaid amendment made by Finance Act 2001, we are of the view that Ld. CIT(A) does not have power to remand and therefore we do not approve the action of ld. CIT(A) in remitting the issue to the file of A.O. At the same time it is also a fact that before us, apart from oral submissions, no details have been filed by the assessee and therefore we are also unable to peruse the details and decide the issue at our end. Considering the aforesaid facts and in the interest of justice, we are of the view that the factual aspect needs re-examination at the end of A.O. We therefore set aside the issue to the file of A.O to decide the issue de novo after considering the submissions of the Assessee and in accordance with law. Needless to state that A.O shall grant adequate opportunity of hearing to the Assessee. We also direct the Assessee to co-operate with the Revenue authorities by promptly filing and submitting all the details called for by 31ITA Nos. 1087 to 1091/A/11 1109&1110/A/11 . A.Ys. 1999-2000 to 2005-06 them. In case the details are not furnished by Assessee, then A.O shall be free to decide the issue based on the material on record. In the result, this ground of Assessee is allowed for statistical purposes.
64. In the result, the appeal of Assessee in ITA No 1090/A/2011 for AY 2002-03 is partly allowed for statistical purposes.
ITA No. 1109/AHD/2011 ( for A.Y. 2004-05)Now we take up remaining grounds of ITA No. 1109/AHD/2011 for A.Y. 2004-05
65. Before us, both the parties submitted that ground no. 2 to 6 for the year under appeal are similar to grounds for A.Y. 05-06 and therefore the submissions made by them in AY 05-06 would be applicable to the present grounds.
66. We have heard the rival submissions and perused the material on record. Before us, since both the parties have submitted that the issue being identical to the ground raised in A.Y. 2005-06, we therefore for the reasons stated while disposing of grounds in AY 05-06 herein-below and for similar reasons and directions allow the grounds for statistical purposes.
Now we take up remaining grounds of ITA No. 1091/AHD/2011 (A.Y. 03-
04) & ITA NO. 1110/AHD/ for A.Y. 2005-06.
67. Before us, both the parties submitted that ground no. 2 & 3 for A.Y. 2003-04 and ground no. 2 to 4 & 7 for A.Y. 2004-05 are similar to grounds for A.Y. 01-02 and A.Y. 02-03 and therefore the submissions made by them in AY 01-02 & AY 02-03 would be applicable to the present grounds.
32ITA Nos. 1087 to 1091/A/11 1109&1110/A/11 . A.Ys. 1999-2000 to 2005-06
68. We have heard the rival submissions and perused the material on record. Before us, since both the parties have submitted that the issue being identical to the ground raised in A.Y. 2000-01 and AY 2002-03, we therefore for the reasons stated while disposing of grounds in AY 01-02 and 02-03 hereinabove and for similar reasons and directions allow the grounds for statistical purposes.
Now we take up remaining grounds no. 5 & 6 in ITA No. 1110/AHD/2011 for A.Y. 2005-06.
Ground no. 5 is with respect disallowance of waiver of HBA loans
69. Assessee had claimed Rs. 33,77,206/- on account of waiver of HBA loan and interest. A.O was of the view that the same is not allowable and accordingly disallowed the claim of Assessee. Aggrieved by the order of A.O, Assessee carried the matter before CIT(A) who upheld the order of A.O by holding as under:-
7.3 I have carefully considered the facts of the case, the submissions of the appellant and the assessment order. The facts stated by the appellant are not disputed. The principles for allowing the claim for deduction of such capital amounts in computing business income are well settled. It was held by the Supreme Court in Badridas Daga v. CIT [1958] 34 ITR 10:
"When a claim is made for deduction for which there is no specific provision under section 10(2), whether it is admissible or not will depend on whether, having regard to the accepted commercial practice and trading principles, it can be said to arise out of the carrying on of the business and be incidental to it. The loss for which a deduction is claimed must be one that springs directly from the carrying on of the business and is incidental to it, and not any loss sustained by the assessee even if it has some connection with his business. If that is established, then the deduction must be allowed, provided that there is no provision against it, express or implied, in the Act."
7.3.1 This principle was followed by the Supreme Court in the case of Indore Malwa United Mills Ltd. The key issue is whether the loss claimed arises directly from the carrying on the business or it has some connection with the business. It 33ITA Nos. 1087 to 1091/A/11 1109&1110/A/11 . A.Ys. 1999-2000 to 2005-06 is submitted before me that the housing loans are disbursed to the employees at interest as a facility and to earn their loyalties and thus the expenditure is for business purposes. The Appellant is in the business of generation and in distribution of power and the advances are not in the course of the carrying on of the business but these are only having some connection with operational efficiency of the business. In my humble opinion the loss claimed is plain and simple capital loss which is not allowable. Ground No. 7 is dismissed.
70. Aggrieved by the order of CIT(A), Assessee is now in appeal before us.
71. Before us, ld. A.R. reiterated the submissions made before A.O and CIT(A) and submitted that the claim of Assessee be allowed. On the other hand, ld. D.R. supported the order of A.O and CIT(A).
72. We have heard the rival submissions and perused the material on record. We find that CIT(A) while upholding the order of A.O had relied on the decision of Apex Court in the case of Badridas vs. CIT (1958) 34 ITR 10 (SC). Before us, ld. A.R. has not brought any contrary binding decision in its support. We therefore find no reason to interfere with the order of CIT(A) and thus this ground of is dismissed.
Ground no. 6. is with respect to disallowance of cost of raising finance.
73. A.O noticed that Assessee has claimed Rs. 3,82,56,286/- being on account of expenses incurred towards raising finance. A.O noted that similar disallowance was made in earlier years and accordingly disallowed the expenses. Aggrieved by the order of A.O, Assessee carried the matter before CIT(A) who upheld the order of CIT(A) by holding as under:-
8.3 I have carefully considered the facts of the case, the submissions of the appellant and the assessment order. The finances have been raised by the appellant and finance charges/fees, discounting charges, trustees' fees and have been paid in connection with garnering the funds. It is immaterial whether the funds are borrowed for capital or revenue purposes and as long as these are not for expansion of business for which the expenses need to be capitalized and allowable as part of depreciation after 34ITA Nos. 1087 to 1091/A/11 1109&1110/A/11 . A.Ys. 1999-2000 to 2005-06 commencement of business, the expenditure otherwise is in revenue fold. Such was ratio of judgment in the case of DCIT vs Core Health Care Ltd. 298 ITR 194 (SC). The Hon'ble apex court have also mentioned that proviso to section-36(1)(iii) relating to capitalization of interest for pre-commencement period in the case of expansion of business is prospective i.e. applicable from assessment year 04-05 onwards though it is claimed before me that the funds were raised for existing business, no details could be furnished to establish this fact. The appellant is directed to provide details in this regard to A.O and if found true, ground would stand allowed otherwise the expenses related to expansion of business would need to be capitalized and allowed as depreciation from the year in which assets were first put to use. Ground no. 8 is allowed subject to verification and aforesaid directions.
74. Aggrieved by the order of CIT(A), Assessee is now in appeal before us.
75. We have heard the rival submissions and perused the material on record. We find that the claim of expenses incurred for raising finance was disallowed by the A.O as he was of the view that the expenses were capital in nature. We also find that Ld. CIT(A) decided the ground of Assessee in its favour subject to verification by AO. We also find that the decision of ld. CIT(A) on the issue to be cryptic. We also find that ld. CIT(A) had directed the A.O to verify the details and thereafter decide the issue. On the issue of setting aside by CIT(A), it is to be noted that the Finance Act, 2001 has w.e.f. 1st June, 2001 withdrawn the power of CIT(A) to set aside the assessment and refer the case back to the AO for making a fresh assessment in accordance with the directions given by CIT(A). In view of the aforesaid amendment made by Finance Act 2001, we are of the view that Ld. CIT(A) does not have power to remand and therefore we do not approve the action of ld. CIT(A) in remitting the issue to the file of A.O. However at the same time, it is also a fact that before us, no details of the expenses have been filed by the assessee before us and therefore we are also unable to peruse the details and decide the issue at our end. Considering the aforesaid facts and in the interest of justice, we are of the view that the factual aspect needs re-
35ITA Nos. 1087 to 1091/A/11 1109&1110/A/11 . A.Ys. 1999-2000 to 2005-06 examination at the end of A.O. We therefore set aside the issue to the file of A.O to decide the issue de novo after considering the submissions of the Assessee and in accordance with law. Needless to state that A.O shall grant adequate opportunity of hearing to the Assessee. We also direct the Assessee to co-operate with the Revenue authorities by promptly filing and submitting all the details called for by them. In case the details are not furnished by Assessee, then A.O shall be free to decide the issue based on the material on record. In the result, this ground of Assessee is allowed for statistical purposes.
76. In the result, the appeal of Assessee is partly allowed for statistical purposes.
77. In the result, the appeals of ITA Nos. 1087, 1088, 1089 & 1109/AHD/2011 are allowed for statistical purposes and ITA Nos. 1090 & 1110/AHD/2011 are partly allowed for statistical purposes.
Order pronounced in Open Court on 17 - 04 - 2015.
Sd/ Sd/-
(MUKUL Kr. SHRAWAT) (ANIL CHATURVEDI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad. TRUE COPY
Rajesh
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT (Appeals) -
4. The CIT concerned.
5. The DR., ITAT, Ahmedabad.
6. Guard File.
By ORDER
Deputy/Asstt.Registrar
ITAT,Ahmedabad