Landmark Judgement : Section 145A vs. Valuation of inventory after exclusion of taxes and duties – Favourable judgment by Ahmedabad ITAT




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Landmark Judgement : Section 145A vs. Valuation of inventory after exclusion of taxes and duties – Favourable judgment by Ahmedabad ITAT

Overview :

Exclusive method of accounting postulates exclusion of tax, dues, etc. embedded in purchases of raw material as well as in corresponding sale. Such taxes are accounted for separately for the purposes of discharging liabilities. The effect of such accounting does not ultimately have any impact on the ultimate profitability when followed year after year. Accordingly, entire exercise was tax neutral and addition made by AO was deleted.

Assessee followed exclusive method of accounting for valuation of inventory. AO rejected this and held that element of excise duty Cenvat, etc., would represent part of closing stock of assessee in terms of section 145A.

It 8s held that exclusive method of accounting postulates exclusion of tax, dues, etc., embedded in purchases of raw material as well as in corresponding sale. Such taxes are accounted for separately for the purposes of discharging liabilities. The effect of such accounting does not ultimately have any impact on the ultimate profitability when followed year after year. Accordingly, entire exercise was tax neutral and addition made by AO was deleted.

Decision: In assessee’s favour.

IN THE ITAT, AHMEDABAD BENCH

PRADIP KUMAR KEDIA, A.M. & MAHAVIR PRASAD, J.M.

DCIT v. Adani Gas Ltd. & Vice-Versa

ITA Nos. 775/Ahd/2014, 2346 & 2797/Ahd/2015, 2775, 2776/Ahd/2016

ITA No. 2273/Ahd/2015, 2693 & 2694/Ahd/2016

CO No. 171/Ahd/2014 & 202/Ahd/2015

17 October, 2018

Appellant by: S.K. Dave, Sr . D.R. with Aparna Agarwal, Commissioner. D.R.

Respondent by: S.N. Soparkar with Vart ik Choksi, Authorised Representative

ORDER

Pradip Kumar Kedia, A.M.

The captioned bunch of appeals concerning assessment years 2009-10 & 2010-11 has been filed by the Revenue against the order of the Commissioner (Appeals)-III, Ahmedabad (‘Commissioner (Appeals)’ in short), dated 13-12-2013 arising in the assessment Order, dt. 28-12-2011 passed by the assessing officer (AO) under section 143(3) of the Income Tax Act, 1961 (the Act). The assessee has also moved cross objection captioned above in the Revenue’s appeal. Likewise, the assessee as well as the Revenue have filed cross appeals against the order of the Commissioner (Appeals)-1, Ahmedabad dated 15-5-2015 arising in the assessment Order, dt. 30-3-2013 passed by the assessing officer under section 143(3) of the Act concerning assessment year 2010-11.

  1. The captioned appeals were heard on two different dates i.e. 27-7-2018 and 2-8-2018. Since, all these appeals pertain to same assessee and on almost similar issues, hence they are being disposed of by common order for the sake of convenience.
  2. We shall first take up the appeal of the Revenue and Cross Objection of the assessee thereon concerning assessment year 2009-10 for adjudication purposes.

ITA No. 775/Ahd/2014-AY 2009-10-Revenue’s appeal

  1. The grounds of appeal raised by the Revenue in the captioned appeal concerning assessment year 2009-10 reads as under :–

“1. The Commissioner (Appeals) has erred in law and on facts in deleting the addition of Rs. 5.04 Crores being undervaluation of closing stock despite the fact that the assessee had followed exclusive method of accounting in contravention of the provisions of section 145A which mandates inclusive method for valuation of inventory.

  1. The Commissioner (Appeals) has erred in law and on facts in deleting the addition of Rs. 2.57 lacs under section 40(a)(ia) overlooking the fact that during assessment proceedings the same was claimed as paid to Adani Power Ltd. without furnishing any reason for non deduction of TDS.
  2. The Commissioner (Appeals) has erred in law and on facts in deleting the addition of Rs. 39.77 lacs being disallowance of amortization of lease hold land despite the fact that there is no provision in the Income Tax Act under which such deduction can be claimed.”
  3. When the matter was called for hearing, the learned Authorised Representative for the assessee in Revenue’s appeal submitted at the outset that controversy as per the ground no.1 of the Revenue’s appeal revolves around applicability of section 145A of the Act towards alleged under valuation of closing stock. The learned Authorised Representative submitted that the assessee has followed exclusive method of accounting and therefore, the closing stock has not been loaded with the taxes and dues as contemplated under section 145A of the Act. The learned Authorised Representative submitted that in view of the exclusive method of accounting consistently followed, the action of the assessee is revenue neutral. The learned Authorised Representative submitted that the exclusive method of accounting postulates exclusion of tax, dues etc. embedded in purchases of raw material as well as in corresponding sale. Such taxes are accounted for separately for the purposes of discharging liabilities. The effect of such accounting does not ultimately have any impact on the ultimate profitability when followed year after year. The learned Authorised Representative submitted that the issue is no longer res integraand covered in favour of the assessee by long line of judicial precedents, viz., CIT v. Bell Granito Ceremica Ltd. (Guj.) Tax Appeal No. 436-437 of 2011, Judgment, dt. 13-6-2011; Narmada Chematur Petrochemicals Ltd. (2010) 327 ITR 369 (Guj-HC) : 2010 TaxPub(DT) 1780 (Guj-HC) and General Motors India (P.) Ltd. v. Dy. CIT (2013) 37 taxmann.com 403 (Ahmedabad) : (2014) 146 ITD 559 (Ahmedabad – Trib.) to name a few. The learned Authorised Representative, thereafter, on facts, referred to the tabulated statement at the beginning of para no.2 of the assessment order and pointed out that as against Rs. 5.04 Crore unutilized CENVAT credits in controversy merely Rs. 9.19 Lakhs concerns raw material etc. and the remaining amount of CENVAT credit is attributable to capital goods item and input service which do not attract the provisions of section 145A of the Act in any event. The learned Authorised Representative accordingly submitted that the learned Commissioner (Appeals) has rightly concluded the issue in favour of the assessee after detailed analysis of facts and law prevailing in this regard and interference thereof is not called for.
  4. The learned Departmental Representative for the Revenue, on the other hand, relied upon the order of the assessing officer.
  5. We have carefully considered the rival submissions on the issue towards applicability of section 145A of the Act as well as perused the order of the lower authorities. While it is a case of the Revenue that the element of excise duty/CENVAT etc. would represent part of the closing stock of the assessee in terms of section 145A of the Act, it is the case of the assessee on the other hand that section 145A of the Act has no application to the facts of the case. It is further case of the assessee that assessee follows exclusive method of accounting for valuation of inventory and therefore, entire exercise would be tax neutral. The Commissioner (Appeals) has examined the issue on facts and binding judicial precedents and concluded the issue in favour of the assessee. In the absence of any impact on the profitability of the assessee per se due to method of accounting followed, we do not see any error in the conclusion drawn by the Commissioner (Appeals). In parity with judicial precedents cited, we decline to interfere with the order of the Commissioner (Appeals) on the issue.
  6. In the result, Ground no.1 of the Revenue’s appeal is dismissed.
  7. The Ground no.2 concerns addition of Rs. 2.57 Lakhs under section 40(a)(ia) of the Act on account of non deduction of TDS. As pointed out on behalf of the assessee, the aforesaid payment made to Adani Power Ltd. was on account of re-imbursement of actual expenses, the details of which are provided at page no. 226 of the paper book. In the absence of any income element in the payment made, the obligation to deduct tax at source on such payment do not arise and consequently, provisions of section 40(a)(ia) of the Act do not come into play in view of the decision of the Hon’ble Gujarat High Court in the case of CIT v. Gujarat Narmada Valley Fertilizers Co. Ltd. (2013) 35 taxmann.com638 (Guj-HC) : (2014) 361 ITR 192 (Guj-HC) : 2013 TaxPub(DT) 2222 (Guj-HC). The law that a mere reimbursement does not require to deduction was also followed in CIT v. ITD Cem India JV (2018) 405 ITR 533 (Bom-HC) : 2018 TaxPub(DT) 865 (Bom-HC)in respect of reimbursement of administrative expenses to a joint venture partner. Therefore, we do not find any error in the order of the Commissioner (Appeals) and consequently decline to interfere.
  8. In the result, Ground no.2 is dismissed.
  9. Ground no.3 of Revenue’s appeal concerns addition of Rs. 39.77 Lakhs towards amortization of lease hold land. In the scrutiny assessment, it was observed by the assessing officer that the assessee has amortized an amount of Rs. 39,77,765 on account of lease hold land. It was submitted on behalf of the assessee that lease hold land of longer period (generally tenure of lease is 99 years) is required to construct CNG stations the expenses of which are required to be amortized. The claim of the assessee was not accepted by the assessing officer on the ground that there is no provision of claim of the amount written off/amortized against the lease hold land in the Income Tax Act.
  10. Amortization is an accounting term that refers to the process of allocating the cost of an asset over a period of time and hence it is nothing else than depreciation. The allowability of costs towards amortization of lease hold land is in question. Having heard the rival submissions on the issue, we find that the Commissioner (Appeals) has rightly appreciated the facts in perspective and concluding the issue in favour of the assessee in the light of decision of Hon’ble Gujarat High Court in the case of DCIT v. Sun Pharmaceuticals Industries Ltd. (2009) 227 CTR 206 (Guj-HC) : 2010 TaxPub(DT) 420 (Guj-HC). We do not see any infirmity in the reasoning given by the Commissioner (Appeals) while deleting the aforesaid disallowance of amortization of lease hold lands. We thus decline to interfere.
  11. In the result, Ground no.3 of the Revenue’s appeal is dismissed.
  12. In the result, appeal of Revenue in ITA No. 775/Ahd/2014for assessment year 2009-10 is dismissed.

CO No. 171/Ahd/2014-AY 2009-10-Assessee’s appeal

  1. The grounds of appeal raised by the Revenue in the captioned cross objection concerning assessment year 2009-10 reads as under :–

“1. In law and in the facts and circumstances of the Respondent’s case, the learned Commissioner (Appeals) has grossly erred in upholding disallowance of the Respondent’s claim for deduction of Rs. 3,71,271 under section 80G merely because the Receipt for the donation in question was in the name of Adani Energy Ltd. whose Division which had paid the donation had been merged (under a Scheme of Demerger) with the Respondent and for which reason the donation had been accounted in the appellant’s Profit and Loss Account along with other expenditure and that therefore, the said Adani Energy Ltd. had not claimed deduction for the same.

  1. In law and in the facts and circumstances of the respondent’s case, the learned Commissioner (Appeals) has grossly erred in dismissing Ground No. 14 of the Respondent’s appeal before him challenging initiation of penalty proceedings under section 271(1)(c) on the ground that no appeal lay against initiation of penalty proceedings. He ought to have appreciated, inter alia, that in the peculiar facts and circumstances of the Respondent’s case, there being absolutely no warrant/justification for initiating the penalty proceedings, he ought to have ordered for their being dropped, thereby saving both the respondent and the Department from long drawn unnecessary litigation.
  2. On the facts and in the circumstances of the case, the learned Commissioner (Appeals) erred in confirming the disallowance of preliminary expenses amounting to Rs. 10,28,028 claimed under section 35D of the Income Tax Act, 1961, made by the assessing officer.”

Additional Ground

“1. On the facts and in the circumstances of the respondent’s case, and in view of learned assessing officer’s own contention while passing assessment order under section 143(3) for assessment year 2012-13, that depreciation on goodwill arising on demerger ought to have been claimed by respondent from appointed date 1-1-2007 i.e. assessment year 2007-08 as against effective date i.e. assessment year 2010-11 (year in which respondent has claimed depreciation), and in view of the fact that depreciation for subsequent years has been granted after computing notional depreciation for assessment year 2007-08, 2008-09 and 2009-10, respondent is entitled to depreciation of Rs. 5,57,63,315 while computing taxable income of current year.”

  1. Ground no.1 of the Cross Objection relates to denial of deduction of Rs. 3,71,271 under section 80G of the Act. In support of the aforesaid ground, it is the case on behalf of the assessee that receipt for the donation in question was in the name of Adani Energy Ltd. whose division had paid donation prior to its merger with the assessee under a scheme of Demerger. It is thus the case of the assessee that it is rightly entitled to claim deductions under section 80G of the Act for payments by the other company ultimately merged with it. On perusal of the orders of the assessing officer and Commissioner (Appeals), it is noticed that the Revenue has denied the deduction on the ground that only one of the division of Adani Engery Ltd. got merged with the assessee-company. The Adani Energy Ltd. continued to exist as a separate entity. We do not see any rational in such line of reasoning. Where donation has been paid by a division which was demerged from the other company and merged with assessee’s company, there is no warrant to deny the deduction in the hands of the resulting company (assessee). It shall however be open to the assessing officer to verify as to whether the demerged company (Adani Energy Ltd.) has already claimed deduction or not. Where the assessee proves to the satisfaction of the assessing officer that no deduction has been claimed under section 80G of the Act by the demerged company towards the amount in question, the assessing officer shall allow the deduction in the hands of the assessee-company after verifying the receipts etc. in accordance with law.
  2. In the result, Ground no.1 of assessee’s Cross Objection is allowed for statistical purposes.
  3. The Ground no.2 of the assessee’s Cross Objection is not pressed and accordingly dismissed.
  4. The Ground no.3 concerns disallowances of preliminary expenses amounting to Rs. 10,28,028 claimed under section 35D of the Act. It was pointed out that similar claim was made in the earlier year and similar controversy arose in the earlier year and adjudicated in favour of the assessee. For this purpose, the decision of the co-ordinate bench of the Tribunal concerning assessment year 2008-09 in assessee’s own case in ITA Nos. 2241 & 2516/Ahd/2011Order, dt. 18-1-2016 was referred. In view of the issue being covered in favour of the assessee by the order of the co-ordinate bench for earlier year, we find merit in the claim of the aforesaid amount under section 35D of the Act. The assessment order is thus directed to be modified in respect of the aforesaid issue.
  5. Ground No. 3 of the assessee’s Cross Objection is allowed.
  6. We shall now advert to the additional ground raised by assessee as adjunct to its Cross Objection. The learned Authorised Representative submitted that the additional ground raised by the assessee in its cross objection concerns eligibility of depreciation of goodwill arising on demerger. The learned Authorised Representative submitted that additional ground concerning the issue does not require any fresh investigation of facts and therefore urged for admission of the same in the light of the decision of Hon’ble Supreme Court in the case of National Thermal Power Company Ltd. v. CIT(1998) 229 ITR 383 (SC) : 1998 TaxPub(DT) 342 (SC): CIT v. Sinhgad Technical Education Society (2017) 84 taxmann.com 290 (SC) : (2017) 397 ITR 344 (SC) : 2017 TaxPub(DT) 3941 (SC). Elaborating further, the learned Authorised Representative referred para 7 of page no.33 to the assessment order passed under section 143(3) of the Act concerning assessment year 2012-13 and submitted that the controversy has arisen because the scheme of the demerger was sanctioned by the order of the Hon’ble Gujarat High Court vide its Order, dt. 9-12-2009 with effect from the appointed date of 1-1-2007 as mentioned in the draft scheme of demerger. The sanction was accorded by the Hon’ble High Court in financial year 2009-10 i.e. assessment year 2010-11. The assessee claimed depreciation on the goodwill arising on the demerger in the assessment year 2010-11 as the order was received in financial year 2009-10 relevant to assessment year 2010-11, the assessing officer however complied depreciation on goodwill generated as a result of the demerger (Rs. 33.98 Crore) with effect from financial year 2006-07 i.e. assessment year 2007-08 and consequently, calculated the WDV of the goodwill generated notionally after reducing the depreciation of the each year starting from assessment year 2006-07. Thus, whereas the assessee has claimed depreciation for the first time in financial year 2009-10 relevant to assessment year 2010-11 on the amount of goodwill generated, the assessing officer allowed the depreciation after reducing the depreciation for assessment year 2006-07 and 2007-08. Consequently, the depreciation on goodwill was allowed at Rs. 5,57,63,315 as against claim of depreciation of Rs. 8,80,01,481 claimed by the assessee, the assessing officer thereby disallowed the remaining claim of goodwill amount of Rs. 3,22,38,166 by revising the amount of goodwill carried forward owing to notional depreciation in assessment year 2006-07 and 2007-08. The learned Authorised Representative referred to the tabulated statement worked out by the assessing officer as reproduced in the assessment order concerning assessment year 2012-13 which is reproduced hereunder for easy reference and understanding of the subject: Particulars financial year 2006-07 financial year 2007-08 financial year 2008-09 financial year 2009-10 financial year 2010-11 financial year 2011-12 Goodwill generated 339,890,680 297,404,345 223,053,259 167,289,944 125,467,458 94,100,594 Depreciation 42,486,335 74,351,086 55,763,315 41,822,486 31,366,865 23,525,148 Closing WDV 297,404,345 223,053,259 167,289,944 125,467,458 94,100,594 70,575,445
Particulars FY 2006-07 FY 2007-08 FY 2008-09 FY 2009-10 FY 2010-11 FY 2011-12
Goodwill generated 339,890,680 297,404,345 223,053,259 167,289,944 125,467,458 94,100,594
Depreciation 42,486,335 74,351,086 55,763,315 41,822,486 31,366,865 23,525,148
Closing WDV  297,404,345 223,053,259 167,289,944 125,467,458 94,100,594 70,575,445

21.1 As stated on behalf of the assessee, the assessee-company was formed as a resultant company out of the demerger of Adani Energy Ltd. The order under section 394 of the Companies Act, 1956 was passed by the hon’ble Gujarat High Court on December 9, 2009 while the appointed date was fixed at 1-1-2007 as per the draft scheme of demerger. As a result of demerger, the assessee-company has paid certain excess consideration to the demerged company over and above the assets acquired. Such excess consideration amounting to Rs. 33,98,90,680 was treated in the nature of goodwill by the assessee as a capital right. The assessee claimed depreciation thereon for the first time in assessment year 2010-11 being the year in which the order of the Hon’ble Gujarat High Court was received. Consequently, the 775/Ahd/14 & 9 Ors. (Adani Gas Ltd.) assessment year 2009-10 to 2013-14–11–depreciation of Rs. 4,24,86,335 (being 12.5% of the value of goodwill and demerger of Rs. 33.98 Crore) was claimed in assessment year 2010-11. In the course of scrutiny assessment, however, the assessing officer took a view that depreciation was allowable to the assessee on such goodwill from the date of sanction of the demerger scheme falling in assessment year 2007-08. The assessing officer accordingly re-determined the gross block and WDV pertaining to depreciation of goodwill as a result the depreciation for assessment year 2007-08, 2008-09 and 2009-10 was artificially applied which was not claimed by the assessee at all in these years. The assessing officer accordingly re-worked the WDV of the various financial year’s as tabulated above.

21.2 We are concerned with assessment year 2009-10 in question. The assessing officer has assumed depreciation of Rs. 5,57,63,315 pertaining to the aforesaid assessment year while re-determining the quantum of eligible depreciation in assessment years 2010-11, 2011-12. 2012-13 & 2013-14. As a result of such re-determination of quantum of goodwill, the following position emerges:

Assessment year Depreciation claimed by respondent Depreciation computed by AO
2007-08 4,24,86,335 (Being 12.5% of value of goodwill on demerger i.e. Rs. 33,98,90,680)
2008-09 – 7,43,51,086
2009-10 – 5,57,63,315
2010-11 4,24,86,335 (Being 12.5% of value of goodwill on demerger i.e. Rs. 33,98,90,680) 4,18,22,486
2011-12 7,43,51,086 3,13,66,865
2012-13 5,57,63,315 2,35,25,148
2013-14 4,18,22,486 1,76,43,861

21.3 The assessee in the captioned assessment year 2009-10 seeks claim of depreciation on goodwill amounting to Rs. 5,57,63,315 based on the working of the assessing officer although not made any claim towards such depreciation on goodwill in this year. It is the case of the assessee by way of additional ground that the eligibility of depreciation on goodwill is not in dispute. The assessing officer has simply disputed the quantification of eligible depreciation spanning over various financial years on the ground that depreciation is eligible from the appointed date as sanctioned by the Hon’ble Gujarat High Court. Thus, on account of such re-working, the assessee has presented a new claim towards depreciation on goodwill in the impugned assessment year 2009-10 on the ground that all the relevant facts are available on record which are duly admitted by the Revenue. Therefore, the assessee cannot be deprived of the eligible depreciation as computed by the assessing officer himself concerning assessment year 2009-10.

21.4 A legal issue also cropped up in the course of hearing as to whether additional ground could be raised in a cross objection filed by the assessee under section 253(4) of the Act. On being enquired on this aspect of the matter, it was submitted on behalf of the assessee that there is no perceptible distinction between the position of law qua cross objection in the matter of filing additional ground. It was submitted that a cross objection has all the trappings of a regular appeal more so in the light of language employed under section 253(4) of the Act.

21.5 We find ourselves in agreement with the propositions made on behalf of the assessee that in a cross objection, there is no bar to raise legal issues for the first time before ITAT. A cross objection is like an appeal. It has all the trappings of an appeal. It is filed in the form of memorandum and it is required to be disposed in same manner as an appeal. Even where the appeal is withdrawn or dismissed for default, cross objection may nevertheless be heard and determined. Cross objection is nothing but an appeal, a cross appeal at that. This apart, raising of additional ground would only enable the authority concern to correctly assess the tax liability of the assessee. Similar view has been expressed by the co-ordinate bench in the case of ITO v. Jasjit Singh (Del) in Cross Objection Nos. 138 to 142/Del/2014 interim Order, dt. 23-9-2014. We thus do not see any impediment in entertaining the additional grounds. The relevant facts are available on record.

21.6 In so far as the merits of the claim made in additional ground is concerned, we observe that where the assessing officer has readjusted the quantum of depreciation in the subsequent assessment year, the assessee is within its legitimate rights to be granted depreciation in assessment year 2009-10 as per the figures worked by the assessing officer himself. We do not see any perceptible reason for not admitting such claim of the assessee. We also find bona fides in the plea of the assessee for raising new claim on account of depreciation by way of additional ground at this belated stage. The order for the assessment year 2012-13 was passed on 29-3-2015. By virtue of this order, the assessee came to know about the revision in the claim of depreciation concerning assessment year 2012-13. By that time, the order of the Commissioner (Appeals) dated 13-12-2013 was already passed. Therefore, the assessee was incapacitated to put forward such new claim towards depreciation on goodwill amounting to Rs. 5,57,63,315 for which relevant facts are duly available on record in the light of the decision of Hon’ble Supreme court in the case of Goetze (India) Ltd. v. CIT (2006) 284 ITR 323 (SC) : 2006 TaxPub(DT) 1528 (SC) & NTPC v. CIT (1998) 229 ITR 383 (SC) : 1998 TaxPub(DT) 342 (SC).

  1. In the result, additional ground raised by the assessee is allowed.
  2. In the result, assessee’s cross objection is partly allowed.
  3. We shall now advert to cross appeals of assessee and Revenue concerning assessment year 2010-11.

ITA No. 2273/Ahd/2015-AY 2010-11-Assessee’s appeal

  1. The grounds of appeal raised by the assessee in the captioned appeal concerning assessment year 2010-11 reads as under :–

“1. In law and in the facts and circumstances of the appellant’s case, the learned Commissioner (Appeals) has grossly erred in rejecting additional claim made by the appellant for claiming depreciation on goodwill arising on demerger of Adani Energy Ltd. from Adani Gas Ltd. to the tune of Rs. 4,24,86,335 on the ground that same was not claimed through revised return of income but claimed during the course of assessment proceedings.

  1. In law and on facts and circumstances of the appellant’s case, the learned Commissioner (Appeals) has grossly erred by rejecting the additional claim of depreciation on goodwill contending that the said claim is not duly supported by Tax Auditor’s report but has failed to appreciate the fact that such claim is duly covered by decision of Hon’ble Supreme Court in case of CIT v. Smifs Securities Limited (2012) 24 taxman.com222 : (2012) 348 ITR 302 (SC) : 2012 TaxPub(DT) 2430 (SC)and identical claim is already allowed by assessing officer while passing the assessment order.

1.2 In law and in facts and circumstances of the appellant’s case, the learned Commissioner (Appeals) has grossly erred in denying additional claim of depreciation by contending that the appellant ought to have claimed depreciation on goodwill from appointed date i.e. 1-1-2007 as against effective date i.e. assessment year 2010-11 without appreciating the fact that Appellant Company is being assessed at maximum marginal rate and therefore the entire exercise of disallowance/rejection of claim of depreciation on goodwill is tax neutral and hence, uncalled for.

1.3 In law and facts and circumstances of the appellant’s case, the learned Commissioner (Appeals) ought to have appreciated that even as per his own contention of allowing depreciation on goodwill from appointed date that is 1-1-2007 as against the effective date, he ought to have allowed depreciation on revised WDV computed after considering the capitalisation since assessment year 2007-2008.

2 In law and in facts and circumstances of the appellant’s case, the learned Commissioner (Appeals) has grossly erred in upholding disallowance under section 35D for Rs. 10,02,818 when no such disallowance is called for. It may be deleted.”

  1. Ground No. 1 concerns claim on account of depreciation on goodwill arising on demerger of Adani Energy Ltd. As stated, the assessee did not claim the depreciation on goodwill in its return of income for the assessment year 2010-11. However, the eligibility of claim was brought to the notice of the assessing officer in the course of the assessment proceedings in the light of the decision of the Hon’ble Supreme Court in the case of CIT v. Smifs Securities Ltd. (2012) 24 taxmann.com222 (SC) : (2012) 348 ITR 302 (SC) : 2012 TaxPub(DT) 2430 (SC). It is a case of the assessee that the assessing officer did not entertain the aforesaid claim at all. The claim was again asserted before the Commissioner (Appeals). The Commissioner (Appeals) however also declined to grant any relief on this score.
  2. Aggrieved, the assessee has raised the issue before us. In the light of decision of Hon’ble Supreme Court in the case of Goetze (India) Ltd.(supra) followed in Pruthvi Brokers & Shareholders (supra), it is well settled that the additional claim of such nature can be raised before the appellate authorities despite not having included the same in the return of income. As a corollary, the claim of the assessee on account of depreciation on goodwill is required to be allowed in accordance with law in parity with the conclusion drawn in favour of the assessee relevant to assessment year 2009-10 as per para Nos. 21 & 22 of this order.
  3. In the result, Ground No. 1 of the assessee’s appeal is allowed.
  4. Ground No. 2 of the assessee’s appeal concerns disallowance of preliminary expenses under section 35D of the Act amounting to Rs. 10,02,818. The identical issue arose in assessment year 2009-10 and adjudicated in favour of the assessee as per para no.19 of this order. In consonance thereof, the assessee would be entitled to benefit under section 35D of the Act for the aforesaid amount. 775/Ahd/14 & 9 Ors. (Adani Gas Ltd.)assessment year 2009-10 to 2013-14–16 —
  5. In the result, Ground No. 2 of the assessee’s appeal is allowed.
  6. In the result, appeal of the assessee for assessment year 2010-11 is allowed.

ITA No. 2346/Ahd/2015-AY 2010-11-Revenue’s appeal

  1. Now, we advert to the Revenue’s appeal concerning assessment year 2010-11.
  2. The grounds of appeal raised by the Revenue in the captioned appeal concerning assessment year 2010-11 reads as under :–

“1. The Commissioner (Appeals) has erred in law and on facts in deleting the addition made of Rs. 2,66,56,242 on account of unutilized CENVAT credit under section 145A of the Act.

  1. The Commissioner (Appeals) has erred in law and on facts in deleting the disallowance of Rs. 38,30,834 being amortization of lease charges.
  2. Ground No. 1 concerns addition of Rs. 2,66,56,242 on account of unutilized CENVAT credit under section 145A of the Act. There being no change in the facts pointed out on behalf of the Revenue, the addition made under section 145A is not sustainable in view of the exclusive method of accounting followed by the assessee resulting in tax neutrality as held in appeal concerning assessment year 2009-10 as per para Nos. 4 8 of this order. We, thus, decline to interfere with the order of the Commissioner (Appeals).
  3. In the result, Ground No. 1 of the Revenue’s appeal is dismissed.
  4. Ground No. 2 concerns disallowance of amortization of lease charges. Identical issue has been dealt with in assessment year 2009-10 and answered in favour of the assessee as per para Nos. 11-13 of this order. We, thus, decline to interfere with the order of the Commissioner (Appeals).
  5. In the result, Ground No. 2 of the Revenue’s appeal is dismissed.
  6. In the result, appeal of Revenue for assessment year 2010-11 is dismissed.

ITA No. 2797/Ahd/2015-AY 2011-12-Revenue’s appeal

  1. The grounds of appeal raised by the Revenue in the captioned appeal concerning assessment year 2011-12 reads as under :–

“1. The learned Commissioner (Appeals) has erred in law and on facts in deleting the disallowance made on account of leasehold land amortization/depreciation of Rs. 45,60,365.

  1. The learned Commissioner (Appeals) has erred in law and on facts in allowing the appeal of the assessee against the action of the assessing officer in excluding Rs. 51,00,000 form the closing WDV and consequential disallowance of depreciation of Rs. 51,00,000 (correct figure is Rs. 5,10,000).”
  2. At the time of hearing, it was submitted by the learned Authorised Representative for the assessee that the appeal filed by the Revenue is hit by recently issued CBDT Circular No. 3 of 2018, dt. 11-7-2018revising the previous thresholds pertaining to tax effects. As per aforesaid Circular, all pending appeals filed by Revenue are liable to be dismissed as a measure for reducing litigation where the tax effect does not exceed the prescribed monetary limit which is now revised at Rs. 20 Lakhs. In the instant case, the tax effect on the disputed issues raised by the Revenue is stated to be not exceeding Rs. 20 lakhs and therefore appeal of the Revenue is required to be dismissed in limine.
  3. The learned Departmental Representative for the Revenue fairly admitted the applicability of the CBDT Circular No. 3 of 2018. Accordingly, appeal of the Revenue is dismissed as not maintainable. However, it will be open to the Revenue to seek restoration of its appeal on showing inapplicability of the aforesaid CBDT Circular in any manner.
  4. In the result, the appeal of the Revenue is dismissed.

Assessee’s Cross Objection No. 202/Ahd/2015-AY 2011-12

  1. The grounds of appeal raised by the assessee in the captioned cross objection concerning assessment year 2011-12 reads as under :–

“1. In law and in the facts and circumstances of the respondent’s case, the learned Commissioner (Appeals) has grossly erred in not adjudicating upon Ground No. 1 of the respondent’s appeal challenging the validity of the assessment order impugned before him, on the ground that it was general in nature.

  1. In law and in the facts and circumstances of the respondent’s case, the learned Commissioner (Appeals) has grossly erred in upholding the disallowance of the respondent’s claim for deduction for preliminary expenses of Rs. 5,02,818 under section 35D after following his predecessors upholding similar disallowances in earlier assessment years. He ought to have appreciated, inter alia, that the decisions of the Supreme Court in Brooke Bond India Limited (1997) 225 ITR 798 (SC) : 1997 TaxPub(DT) 1116 (SC)and of the Gujarat High Court in Vareli Textiles Limited (2006) 284 ITR 238 : 2006 TaxPub(DT) 1314 (Guj-HC)holding that share issue expenses were capital in nature and, therefore, not deductible as revenue expenses as claimed by the assesses in those cases, were not relevant on the issue of their deductibility under section 35D (which made provision for deduction of expenses on amortization basis even if they be capital in nature) which was required to be decided in the respondent’s present case and that the decision of the Rajasthan High Court in CIT v. Multi Metals Ltd. (1991) 188 ITR 151 (Raj-HC) : 1991 TaxPub(DT) 685 (Raj-HC) on which the respondent had relied was directly on the issue and in favour of the assessee. He ought, accordingly, to have ordered for the deletion of the disallowance following the said decision of the Rajasthan High Court.
  2. In law and in the facts and circumstances of the respondent’s case, the learned Commissioner (Appeals) has grossly erred in upholding the disallowance of Rs. 4,442 in respect of employees’ contribution to Provident Fund.”
  3. Ground No. 1 is general in nature does not require separate adjudication.
  4. Ground No. 2 of the CO is covered in favour of the assessee in assessee’s own case in assessment year 2008-09 in ITA No. 2516/Ahd/2011. Similarly, the matter has been adjudicated in favour of the assessee in concerning assessment year 2010-11 also as per para no.29 of this order. In parity, a deduction for preliminary expenses of Rs. 5,02,818 under section 35D of the Act is allowed.
  5. In the result, Ground No. 2 of the Cross Objection filed by the assessee is allowed.
  6. Ground No. 3 of the CO concerns disallowance in respect of employees’ contribution to Provident Fund. In view of the decision of the Hon’ble Jurisdictional High Court in the case of CIT v. GSRTC(2014) 366 ITR 170 (Guj-HC) : 2014 TaxPub(DT) 1235 (Guj-HC), the issue is decided against the assessee.
  7. In the result, Cross Objection of the assessee concerning assessment year 2011-12 is partly allowed.

ITA No. 2693/Ahd/2016-AY 2012-13-Assessee’s appeal

  1. The grounds of appeal raised by the assessee in the captioned appeal concerning assessment year 2012-13 reads as under :–

“1. In law and in facts and circumstances of the appellant’s case, the learned Commissioner (Appeals) has grossly erred in upholding disallowance under section 35D for Rs. 5,02,818 when no such disallowance is called for. It may kindly be deleted.

  1. In law and in facts and circumstances of the appellant’s case, the learned Commissioner (Appeals) has grossly erred in upholding disallowance for Rs. 6,770 being employees’ contribution to ESI, when no such disallowance is called for. It may kindly be deleted.
  2. In law and in facts and circumstances of the appellant’s case, the learned Commissioner (Appeals) has grossly erred in upholding disallowance of Rs. 3,22,38,166 on account of depreciation on goodwill arising on demerger of Adani Energy Ltd. from appellant on the ground that since as per order of Hon’ble Gujarat High Court dated 9-12-2009, appointed date of demerger is 1-1-2007, depreciation on goodwill ought to have been claimed from appointed date i.e. assessment year 2007-08 and not from effective date i.e. 2010-11. The learned assessing officer may be directed to allow full depreciation on goodwill amounting to Rs. 5,57,63,315 as claimed in return of income.

3.1 In law and in facts and circumstances of the appellant’s case, the learned Commissioner (Appeals) has grossly erred in upholding the disallowance of depreciation on goodwill without appreciating the fact that Appellant Company is being assessed at maximum marginal rate and even if it is held that appellant is entitled for depreciation from assessment year 2007-08 and not assessment year 2010-11, entire exercise of disallowance of depreciation on goodwill is tax neutral and hence, uncalled for.”

  1. Ground No. 1 concerns disallowance of preliminary expenses under section 35D of the Act. The issue is squarely covered in favour of the assessee by earlier assessment years 2009-10, 2010-11 & 2011-12 as per para 19 of this order. Accordingly, the disallowance made on this score is deleted.
  2. In the result, Ground No. 1 of the assessee’s appeal is allowed.
  3. Ground No. 2 concerns disallowance of employees’ contribution to ESI. The issue is covered against the assessee by the decision of the Hon’ble Jurisdictional High Court in the case of CIT v. GSRTC(supra) as discussed in para 47 of this order.
  4. In the result, Ground No. 2 of the assessee’s appeal is dismissed.
  5. Ground No. 3 concerns disallowance of Rs. 3,22,38,166 on account of depreciation on goodwill arising on demerger. The issue has been discussed in length in CO No. 171/Ahd/2014filed by the assessee (supra). As per discussion in para Nos. 16-23 of this order, the issue requires to be decided in favour of the assessee on first principles. Therefore, the assessee will be entitled to depreciation on goodwill which is worked out to Rs. 2,35,25,148 only as the claim of the depreciation of the assessee for the earlier years in appeal has been accepted. Therefore, Ground No. 3 of the assessee’s appeal which represents excess difference in the depreciation computed by the assessee on premise of allowability of depreciation from the year of actual sanction accorded by the Hon’ble Gujarat High Court becomes infructuous.
  6. In the result, Ground No. 3 of the assessee’s appeal is accordingly dismissed.
  7. In the result, appeal of the assessee concerning assessment year 2012-13 is partly allowed.

ITA No. 2775/Ahd/2016-AY 2012-13-Revenue’s appeal

  1. The grounds of appeal raised by the Revenue in the captioned appeal concerning assessment year 2012-13 reads as under :–

“1. That the learned Commissioner (Appeals) erred in law and on facts in deleting the addition of Rs. 46,75,548 made on account of disallowance of amortization/depreciation of lease hold land.

  1. That the learned Commissioner (Appeals) erred in law and on facts in deleting the addition of Rs. 1,55,814 made under section 41(1) of the Act being cessation of liability.
  2. That the learned Commissioner (Appeals) erred in law and on facts in deleting the addition of Rs. 83,82,631 made on account of disallowance under section 145A of the Act being unutilized CENVAT credit.”
  3. Ground No. 1 concerns amortization of lease charges of leasehold land. The issue has been answered in favour of the assessee in the preceding assessment years as per para Nos. 11-13 of this order. Therefore, we find no infirmity in the order of the Commissioner (Appeals). In consonance therewith Ground No. 1 of the Revenue’s appeal is dismissed.
  4. Ground No. 2 concerns addition of Rs. 1,55,814 made under section 41(1) of the Act towards cessation of liability. In the absence of onus discharged by the Revenue towards cessation of liability, we find no infirmity in the order of the Commissioner (Appeals) on this score. Ground No. 2 of the Revenue’s appeal is thus dismissed.
  5. Ground No. 3 concerns enhancement of closing stock under section 145A of the Act towards unutilized CENVAT credit and consequent increase in the assessed income to this extent. The issue has been deliberated in length in ITA No. 775/Ahd/2014relevant to assessment year 2009-10 as per para Nos. 4-8 of this order. Thus, we are of the view that Commissioner (Appeals) has appreciated the facts in perspective and deleted the addition made under section 145A of the Act in the facts and circumstances of the case. Thus, we decline to interfere with the order of the Commissioner (Appeals).
  6. Thus, Ground No. 3 of the Revenue’s appeal is dismissed.
  7. In the result, Revenue’s appeal for assessment year 2012-13 is dismissed.

ITA No. 2694/Ahd/2016-AY 2013-14-Assessee’s appeal

  1. The grounds of appeal raised by the assessee in the captioned appeal concerning assessment year 2013-14 reads as under :–

“1. In law and in facts and circumstances of the appellant’s case, the learned Commissioner (Appeals) has grossly erred in upholding disallowance under section 35D for Rs. 5,02,818 when no such disallowance is called for. It may kindly be deleted.

  1. In law and in facts and circumstances of the appellant’s case, the learned Commissioner (Appeals) has grossly erred in upholding disallowance for Rs. 7,994 being employees’ contribution to ESI, when no such disallowance is called for. It may kindly be deleted.
  2. In law and in facts and circumstances of the appellant’s case, the learned Commissioner (Appeals) has grossly erred in upholding disallowance of Rs. 2,41,78,625 on account of depreciation on goodwill arising on demerger of Adani Energy Ltd. from appellant on the ground that since as per order of Hon’ble Gujarat High Court dated 9-12-2009, appointed date of demerger is 1-1-2007, depreciation on goodwill ought to have been claimed from appointed date i.e. assessment year 2007-08 and not from effective date i.e. 2010-11. The learned assessing officer may be directed to allow full depreciation on goodwill amounting to Rs. 4,18,22,486 as claimed in return of income.

3.1 In law and in facts and circumstances of the appellant’s case, the learned Commissioner (Appeals) has grossly erred in upholding the disallowance of depreciation on goodwill without appreciating the fact that Appellant Company is being assessed at maximum marginal rate and even if it is held that appellant is entitled for depreciation from assessment year 2007-08 and not assessment year 2010-11, entire exercise of disallowance of depreciation on goodwill is tax neutral and hence, uncalled for.

  1. In law and in facts and circumstances of the appellant’s case, the learned Commissioner (Appeals) has grossly erred in upholding disallowance under section 14A read with rule 8D to the tune of Rs. 70,125 when no such disallowance is called for. The same may kindly be deleted.”
  2. Ground No. 1 concerns disallowance of preliminary expenses under section 35D of the Act. The issue is squarely covered in favour of the assessee by earlier assessment years 2009-10, 2010-11, 2011-12 & 2012-13 as per para 19 of this order. Accordingly, the disallowance made on this score is deleted.
  3. In the result, Ground No. 1 of the assessee’s appeal is allowed.
  4. Ground No. 2 concerns disallowance of employees’ contribution to ESI. The issue is covered against the assessee by the decision of the Hon’ble Jurisdictional High Court in the case of CIT v. GSRTC(supra) as discussed in para 47 of this order.
  5. In the result, Ground No. 2 of the assessee’s appeal is dismissed.
  6. Ground No. 3 being consequential having regard to the decision in the earlier years is rendered infructuous owing to relief granted in the earlier years as claimed. Accordingly, Ground No. 3 of the assessee’s appeal is dismissed.
  7. Ground No. 4 concerns disallowance made under section 14A read with rule 8D for Rs. 70,125. The assessee has earned exempt income by way of dividend income amounting to Rs. 91,04,212 on investment to the tune of Rs. 10,00,50,000. The assessing officer invoked Section 14A of the Act and computed disallowance as per statutory formula provided in the rule 8D whereby disallowance of Rs. 16,75,809 was computed by the assessing officer. After taking into account, the suo motudisallowance of Rs. 1,80,000 on this count, the assessing officer disallowed the remaining amount of Rs. 14,95,809 and added to the total income of the assessee.
  8. In the first appeal, the Commissioner (Appeals) deleted the disallowance of Rs. 14,25,684 made towards proportionate interest expenditure as per rule 8D(2)(ii) of the Act and upheld the disallowance of Rs. 70,125 towards administrative expenditure as per statutory formula over and above the disallowance made by the assessee in terms of rule 8D(2)(iii) of the rules.
  9. Before us, the assessee has agitated the disallowance of administrative expenses of Rs. 70,125 confirmed by the Commissioner (Appeals) whereas Revenue has challenged the action of the Commissioner (Appeals) for deleting disallowance of Rs. 14,25,684 made on account of proportionate interest expenditure in terms of rule 8D(2)(ii) of the rules.
  10. After perusal of the order of the Commissioner (Appeals), we find that the Commissioner (Appeals) has deleted the disallowance of interest expenditure after taking account the interest free capital available at the disposal of the assessee by way of own funds as well as set off available on account of interest income available at the disposal of the assessee. We find that the action of the Commissioner (Appeals) is on sound footing in tune with binding judicial precedents including the decision of the Hon’ble Gujarat High Court rendered in Nirma Credit Capital (P) Ltd. 85 taxmann.com72 (Guj.) : (2018) 300 CTR 286 (Guj-HC) : 2017 TaxPub(DT) 4021 (Guj-HC). Thus, the action of the Commissioner (Appeals) cannot be assailed on this score. The Commissioner (Appeals) on the other hand upheld the disallowance of administrative expenditure as quantified in terms of rule 8D(2)(iii) of the rules. The assessee has failed to provide any justification for interference with the order of the Commissioner (Appeals). Thus, Ground No. 2 of the Revenue’s appeal as well as Ground no.4 of the assessee’s appeal on this count requires to be dismissed.
  11. In the result, Ground No. 4 of the assessee’s appeal is dismissed.
  12. In the result, appeal of the assessee concerning assessment year 2012-13 is partly allowed.

ITA No. 2776/Ahd/2016-AY 2013-14-Revenue’s appeal

  1. The grounds of appeal raised by the Revenue in the captioned appeal concerning assessment year 2013-14 reads as under :–

“1. That the learned Commissioner (Appeals) erred in law and on facts in deleting the addition of Rs. 48,09,250 made on account of disallowance of amortization/depreciation of lease hold land.

  1. That the learned Commissioner (Appeals) erred in law and on facts in deleting the addition of Rs. 14,25,684 made under section 14A read with rule 8D of the Act.”
  2. Ground No. 1 concerns amortization of lease charges of leasehold land. The issue has been answered in favour of the assessee in the preceding assessment years as per para Nos. 11-13 of this order. Therefore, we find no infirmity in the order of the Commissioner (Appeals). In consonance therewith Ground No. 1 of the Revenue’s appeal is dismissed.
  3. Ground No. 2 of Revenue’s appeal has been discussed in assessee’s appeal for assessment year 2013-14 in para Nos. 69-72 of this order.
  4. In the result, Ground No. 2 of the Revenue’s appeal is dismissed.
  5. In the result, Revenue’s appeal for assessment year 2013-14 is dismissed.
  6. In the combined result, all five Revenue’s appeals are dismissed whereas assessee’s cross objections in assessment year 2009-10 & 2011-12 and appeals in assessment year 2012-13 & 2013-14 are partly allowed and appeal in assessment year 2010-11 is allowed.




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