Income Tax Appellate Tribunal - Ahmedabad
The Dcit, Circle-1(1), Now ... vs Gujarat Energy Transmission Corpn. ... on 31 January, 2020
आयकर अपील य अ धकरण, अहमदाबाद यायपीठ 'C' अहमदाबाद । IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SMT. MADHUMITA ROY, JUDICIAL MEMBER आयकर अपील सं./I.T.A. No. 3356/Ahd/2015 ( नधा रण वष / Assessment Year : 2012-13) The Dy.CIT बनाम/ Gujarat Energy Circle-1(1)(1), Vadodara Vs. Transmission Corp. Ltd.
(Old:- Circle 1(1), Baroda) Sardar Patel Vidyut 1 s t Floor, Aaykar Bhavan, Race Course Bhavan, Race Course Circle, Vadodara Circle, Vadodara - 390007
थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AABCG4029R (अपीलाथ /Appellant) .. ( यथ / Respondent) अपीलाथ ओर से /Appellant by : Shri Ritesh Parmar, CIT.D.R. यथ क ओर से / Shri Manish J. Shah, A.R. Respondent by :
सन ु वाई क तार ख / Date of 30/01/2020 Hearing घोषणा क तार ख /Date of 31/01/2020 Pronouncement आदे श/O R D E R PER PRADIP KUMAR KEDIA - AM:
The captioned appeal has been filed at the instance of the Revenue against the order of the Commissioner of Income Tax (Appeals)-1, Vadodeara ('CIT(A)' in short), dated 22.09.2015 arising in the assessment order dated 24.02.2015 passed b y the Assessing Officer (AO) under s. 143(3) of the Income Tax Act, 1961 (the Act) concerning AY 2012-13.
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2. The revised grounds of appeal raised b y the Revenue is reproduced hereunder:
"1. "On the facts and in the circumstances of the case and in law, the Ld.CIT(Appeals ) erred in deleting the addition of Rs.262.93 lakhs made on account of disallowance of claim of guarantee fees paid to Government of Gujarat disregarding the applicabl e statutory provisions contained under S 37 of Income tax Act,1961 which do not allow any expenditure of capital nature. The disallowance was made by disallowing the claim as revenue expenditure as it is of enduring nature in the assessee's business and hence capital in nature."
2. "On the facts and in the circumstances of the case and in law, the Ld.CIT(Appeals) erred in deleting the addition of Rs.42.86 lakhs made on account of disallowance of claim of cost of raising finance for specialized job as revenue expenditure. The ld.CIT(Appeals) erred in not appreciating the fact that as the result of this expendi ture, the assessee had derived benefit of enduring nature, hence the expenditure is of capital nature."
3. As pointed out on behalf of the assessee, both the aforesaid grounds are covered in favour of the assessee in its own case concerning AY 2008-09 in ITA No. 704/Ahd/2012 order dated 12.06.2015. The relevant para of the order of the Tribunal is reproduced hereunder:
"29. In the Revenue's appeal, the ground no.1 of the appeal is directed against the order of the CIT(A) in deleting the addition of Rs.50,90,96,000/- made on account of disallowance of claim of guarantee fees paid to Government of Gujar at.
30. Brief facts of the case are that the AO observed that the assessee paid guarantee fee of Rs.5,69,35,000/- to the Govt. of Gujarat in consideration of guar antee issued by it for repayment of unsecured loan. Further, the ass essee also claimed Rs.21,61,000/- on account of cost of raising finance under the head "cos t of raising finance" as per the profit & loss account.
31. In reply to show cause notice to the assessee, the assessee submitted that erstwhile GEB has raised various loans, guarant ee of which was given by Govt. of Gujar at, and for the guarantee gi ven by the Govt. of Gujarat, the GEB is required t o pay guarantee fees as per rules. After the split of the company, the said loan were still continued, which were guaranteed by the Govt. of Gujarat. Therefore, every year these guarantee fees become payable to Govt. of Gujarat on recurring basis. Regarding the cost of raising finance, the assessee submitted that the finance was r aised during the year , and accordingly, the cost incurred for raising finance was charged to current year's profit & l oss account. The AO did not accept the above explanation of the ass essee on the ground that the assessee did not furnish the details of the purpose for which the loans were taken for which the guarantee fees I T A N o . 3 3 5 6 / Ah d / 1 5 [ D C I T v s . Gu j a r a t E n e r g y T r a n s m i s s i o n C o r p . L t d . ] A. Y . 2 0 1 2 - 1 3 - 3 -
were claimed. Further , if the fees paid for loans facility in respect of fixed assets, nature of assets, the date of put-to-use has not been submitted. The assess ee also failed to furnish any agreement with the Govt. of Gujarat for charging guarantee fees and method of its computation against t he loan amounts. In the absence of these details it was not possible to entertain the assessee's claim. The AO further observed that the cost of raising the finance can also not be consi dered as revenue expenses f or want of details. He, accordingly, disallowed Rs.5,90,96,000/-.
32. On appeal, the CI T(A) observed that guarantee fee was an annual recurring expenditure incurred by the ass essee. Guarantee fee was payable to Govt. of Gujarat every year in r espect of loans taken by the assessee and guarant eed by the Govt. of Gujarat. As held by Hon'ble Supreme Court in the case of India Cements Ltd., 60 ITR 52 (SC), loan cannot be treated as asset or advantage resulting in enduring benefits. Guarantee fees paid t o Govt. of Gujarat was in connection with r aising of loans and enduring benefit or advantage could not be said to have resulted by taking such loans. Only if the assets acquired out of such loans were not put-to-use till the end of previous year i.e. 31.3.2008, the guarantee fees to such extent i.e. in r espect of such loans only could be capitalized as cost of such asset. The assessee has cer tified that no new project was started or commi ssioned during the year for which above guarantee was paid, and the guarantee fees was in respect of loans for acquisition of capital assets, which were already put-to-use prior to 1.4.2007. The guarantee fees of Rs.5,69,35,000/- is direct ed to be allowed as revenue expenditure, subject to verification by the AO of the certificate filed during the appellate pr oceedings i.e. there was no capital work-in-progr ess in respect of loans on which guarantee fees was paid.
33. Regar ding cost of raising finance of Rs .21.61 lakhs is concerned, the CIT(A) observed that the same was an allowable deduction and being revenue expendi ture, following the decision in the case of India Cements Ltd. (supra) disallowance of Rs.21,61,000/- was cancelled.
34. The DR supported the order of the AO, whereas , the AR of the assessee supported the order of the CIT(A) and submitted that the issue was now covered in favour of the assessee by the decision of this Tribunal in the case of assessee itself dated 8.5.2015 passed in ITA No.1931/Ahd/2010, 2974/Ahd/2010 and 3004/Ahd/2010.
35. We find that the Tribunal in its order dated 8.5.2015 cited supra has held as under:
"6. We have hea rd th e riva l subm ission s, perused the mate rial available on reco rd an d gone throug h the ord ers o f the autho rities below. We find tha t th e ld.CIT (A) de cide d th ese issues in p aras- 5.2 & 5.3 and 6.2 respe ctiv ely by obse rv ing as und er:-
"5.2. I h ave con sid ered the submission s o f the ld.AR and the fac ts o f the case. The issue re la ting to whe ther an item of expenditu re lies in th e capita l o r the reve nue fie ld ha s exerc ised the cou rts in numerous case s. F rom an ana lysis o f I T A N o . 3 3 5 6 / Ah d / 1 5 [ D C I T v s . Gu j a r a t E n e r g y T r a n s m i s s i o n C o r p . L t d . ] A. Y . 2 0 1 2 - 1 3 - 4 -
such cases a few gu id ing prin cip le s/tests can be iden tified . One of the impo rtan t tests fo r categ orizing a ny expenditu re as capital in natu re is whether the lay ing out of the impugned exp enditu re resu lts in the acqu isition of crea tion of any new a sse t. Where no such a sse t is crea ted, it wou ld be indicative o f an ex pend itu re whic h was not ca pita l in na ture. Another te st relate s to the p rinc ip le o f "end uring b ene fit".
"Enduring bene fit" may be in the fo rm of long lasting u se o f an asse t or the a cquisitio n of a rig ht to e xplo it c ertain commercial proce sse s, etc. In the instan t case , the a sse ssee did not acqu ire any rig ht to exp lo it a commercia l techno logy or process, and ne ith er was the benefit "enduring", since the payment of guarante e commission was an annual charge. The bene fit derived from payment o f such c ommission th us lasted for e xactly on e year on ly. Suc h sho rtlived bene fit cannot be ca tego rized as "endu ring ". Hence, I am inclined to the v iew tha t the pa yment o f gua rantee co mmission was a revenue exp enditure. 5 .3. Furthe r, the jurisd ictiona l Bench of ITAT had occasio n to con sid er the a llowab ility o f guarantee commission paid to a Directo r of the company in respec t of loans tak en from the bank. In the case o f Himalaya Ma chin ery Pvt.L td. (ITA No.738/Ah d/2009 ) for AY 2006-07, the Tribun al he ld, v ide orde r dt.5.6. 2009, following the d ecision of the Ra jasthan High Court in C IT v. Meta lising Equipmen t Co.Pvt.Ltd ., 8 DTR 12, tha t the payment o f commission for guara nte eing repa yment o f loan was allowable as rev e nue expen se. In the in stan t ca se, the loan has be en guaran teed by the Governme nt of Guja ra t. Hence, qu ite apart fro m the o the r so und reasons for treating the e xpend itu re a s rev enue, it would be un realistic to say that the appe llan t company could d eriv e any undue advantag e or colla tera l bene fit by making su ch payment to the GOG. In view of the tota lity o f the c ircu mstances, I am of the op inion tha t the AO was not ju stified in trea tin g the payment o f gu aran te e commission (Rs.8 ,3 9,04,550 /-) as capital in natu re. The addition is direc ted to be dele ted. 6.2. I have conside red the submissions of the ld.A R and the fac ts of the case. The jurisd ictional Bench o f ITAT has held in the case of Shri Rama Multi Tech v s. ACIT, 92 TTJ 568, that in determ inin g the natu re of expen diture incu rred for ob ta inin g loan, it is irre leva nt to consider the p urpose of loan. Th e amount spe nt on stamp duty, lawy er fee s, e tc. for obtain ing loan secu red by cha rge on its fixed assets is a revenu e expenditu re, b ecause the tra nsac tions we re entered in to direc tly to facilita te the busin ess o f the company and payment o f consu ltanc y charg es wa s made on ground o f commercial e xped iency . In Ind ia Cements L td. vs. CIT, 60 ITR 52, the Sup reme Court had also held that the expenditu re incurred for secu rin g th e use o f money for a certa in period wa s re v enue expe nditure. In th e in stan t case, the assessee has secu red the loan b y crea ting a charge (hypo theca tio n o f its a sse ts). Hence the ra tio of the a bove mentione d two case s w ould square ly apply. Ac cordin gly , it is held that the AO was not justified in making th e disa llowance of Rs.45 ,24,582 /-, which is direc ted to be dele ted."
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6.1 The ld.CIT (A) has followed the dec ision o f the Tribuna l passed in ITA No.738 /Ahd /20 09 for AY 2006-07 in the ca se o f Himalaya Machine ry Pv t.L td., da ted 5 .6.2009 and in th e case of Shri Rama Multi T ech v s. ACIT re ported at 92 TTJ 5 68.
6.2. The ld.C IT-DR c ould no t d istingu ish the fac ts o f the ca se, there fo re we do not se e any reason to in terfere with the orde r o f the ld.CIT (A), same is hereb y uphe ld. Thu s, th ese two ground s raised in the Reven ue's appeal are re jec ted."
36. DR could not point out any good reason as to why the above quoted order of the Tribunal should not be followed for the year under consideration. In the absence of distinguishing features being pointed out by the DR, and the facts being identical, respectfully following the above quoted decision of the Tribunal, we confirm the order of the CIT(A), and dis miss this ground of appeal of the Revenue."
4. In parit y with the order of the Tribunal, we are of the opinion that CIT(A) has rightl y adjudicated the issue in favour of the assessee. We thus decline to interfere with the order of the C IT(A).
5. In the result, appeal of the Revenue is dismissed.
This Order pronounced in Open Court on 31/01/2020 Sd/- Sd/-
(MADHUMITA ROY) (PRADIP KUMAR KEDIA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad: Dated 31/01/2020
True Copy
S. K. SINHA
आदे श क त!ल"प अ#े"षत / Copy of Order Forwarded to:-
1. राज व / Revenue
2. आवेदक / Assessee
3. संबं*धत आयकर आयु,त / Concerned CIT
4. आयकर आय,
ु त- अपील / CIT (A)
5. 0वभागीय 3त3न*ध, आयकर अपील य अ*धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड9 फाइल / Guard file.
By order/आदे श से, उप/सहायक पंजीकार आयकर अपील य अ*धकरण, अहमदाबाद ।