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M/s. Guajarat Guardian Ltd, 4-7/C, DDA Shopping Centre, New Friends Colony, New Delhi vs DCIT, Circle-12(1), (Now Circle-10(2), CR Building, IP Estate, New Delhi
August, 17th 2018

Subject: Dispute resolution panel and therefore he has filed an appeal before us.

Refferred Section:
Section 144C Of The Income Tax Act,
Section 14A of the Act
Sub-section (2)
Section 80IA of the Act,
Section 80IA(7) of the Act
Section 92CA
Section 14 A of the income tax act.
Section 80 IA(4) (IV)
Section 14A(2)
Section 14A(1)
Section 37(1) of the Act
Section 80IB of the Act

Referred Cases / Judgments
CIT vs. Paul Brothers reported
Direct Information Private Ltd. vs. ITO
CIT vs. Escorts Ltd
CIT vs. Delhi Press Patra Prakashan Ltd.
CIT vs. Tata Communications Internet Services Ltd
CIT vs. Excel Industries Ltd.:
Radhasoami Satsang v. CIT:
DIT (E) v. Apparel Export Promotion Council:
CIT v. Neo Polypack (P) Ltd:
CIT v. Dalmia Promoters Developers (P) Ltd:
DIT v. Escorts Cardiac Diseases Hospital:
CIT v. P. KhrishnaWarrier:
CIT v Harishchandra Gupta
CIT v. SewaBharti Haryana Pradesh:
CIT v. Rajasthan Breweries Limited.:
Investment Ltd. vs. CIT
Media Ltd. vs. PCIT
PCIT vs. U.K. Paints (India)
CIT Vs. Maxopp Investment Ltd.
CIT vs. Mahalakshmi Textile Mills
CIT v. Sarvana Spinning Mills P. Ltd. :
Comfort Living Hotels (P.) Ltd. vs. CIT:
CIT vs. Volga Restaurant:
CIT vs. Delhi Press Samachar Patra P. Ltd.:
CIT v. Bharat Cinema :
CIT & Anr. vs. Sagar Talkies :
Tuticorin Spinning Mills Ltd. vs. CIT :
CIT vs. Ooty Dasaprakash:
CIT vs Lake Palace Hotel and Motels P. Ltd.:
CIT v. Wolkem (P.) Ltd. Co.
CIT v. TVS Motors:
CIT vs. Sree Ayyanar Spinning
CIT v. Shri Rama Sugar Mills:
CIT v. Norinco (P.) Ltd.
Super Spinning Mills Ltd. v. ACIT
CIT v. Indian Woollen Textile Mills Pvt. Ltd.
CIT v. Shree Hari Industries
CIT v. Madras Spinners Ltd.
CIT v. Tea Estate Pvt. Ltd.
CIT v. Madras Spinners Ltd.
CIT v. Sree Bhagvathi Textiles Ltd.
CIT v. Co-operative Sugars Limited:
CIT v. Udaipur Distillary Co. Ltd.
CIT vs. Prabhu Spg. Mills (P) Ltd.
ACIT v. Shiva Texyarn Ltd.
Urban Infrastructure Venture Capital Ltd. v. DCIT: 150 ITD 502
M/s Singh Fab P Ltd Vs ITO : ITA
CIT vs. Paul Brothers reported
CIT vs. Escorts Ltd :
CIT vs. Delhi Press Patra Prakashan Ltd.
CIT vs. Tata Communications Internet Services Ltd.
CIT vs. Excel Industries Ltd.
Radhasoami Satsang v. CIT:
DIT (E) v. Apparel Export Promotion Council:
CIT v. Neo Polypack (P) Ltd:
CIT v. Dalmia Promoters Developers (P) Ltd:
DIT v. Escorts Cardiac Diseases Hospital:
CIT v. P. KhrishnaWarrier:
CIT v Harishchandra Gupta 132 ITR
CIT v. SewaBharti Haryana Pradesh:
CIT v. Rajasthan Breweries Limited.:
Empire Jute Co. Ltd. vs. CIT 124 ITR

                                                          Gujarat Guradian Limited V DCIT
                                                          DCIT V Gujarat Guradian Limited
                                                                              A Y 2010-11
                                                             ITA No 1106 & 973/Del/2015


                   INCOME TAX APPELLATE TRIBUNAL
                      DELHI BENCH "C": NEW DELHI
              BEFORE SHRI S.K.YADAV, JUDICIAL MEMBER
                                AND
           SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER

                              ITA No. 973/Del/2015
                            (Assessment Year: 210-11)
         M/s. Guajarat Guardian Ltd,    Vs.              DCIT,
        4-7/C, DDA Shopping Centre,            Circle-12(1), (Now Circle-
            New Friends Colony,                          10(2),
                 New Delhi                      CR Building, IP Estate,
            PAN: AAACG1622K                            New Delhi
                (Appellant)                           (Respondent)


                                  ITA No. 1106/Del/2015
                             (Assessment Year: 210-11)
                    DCIT,                Vs. M/s. Guajarat Guardian Ltd,
       Circle-12(1), (Now Circle-10(2),           4-7/C, DDA Shopping
            CR Building, IP Estate,                       Centre,
                  New Delhi                        New Friends Colony,
                                                        New Delhi
                                                  PAN: AAACG1622K
                 (Appellant)                           (Respondent)


                Assessee by :                  Shri Neeraj Jain, Adv
                                               Ms. Shaily Gupta, CA
                Revenue by:                   Smt Meeta Singh CIT DR
              Date of Hearing                       14/05/2018
           Date of pronouncement                    16/08/2018


                                    ORDER

PER PRASHANT MAHARISHI, A. M.

  1.      Assessee has filed this appeal against the order passed by the Ld. Deputy
          Commissioner Of Income Tax, Circle 12 (1), New Delhi [The LD AO]
          dated 26 ­ 12 ­ 2014 passed under section 144C Of The Income Tax Act,
                                                                                 Page | 1
                                                             Gujarat Guradian Limited V DCIT
                                                             DCIT V Gujarat Guradian Limited
                                                                                 A Y 2010-11
                                                                ITA No 1106 & 973/Del/2015

           1961 [The Act] for assessment year 2010 ­ 11 pursuant to direction of the
           Ld. Dispute Resolution Panel ­iV, New Delhi [The Ld DRP] dated
           21/11/2014 under section 144 C (5) of the Act. The Ld. assessing officer is
           also aggrieved by the direction of the Ld. Dispute resolution panel and
           therefore he has filed an appeal before us.
2.         The assessee has raised the following grounds of appeal in ITA NO.
           973/Del/2015:-
     "1.     That the assessing officer erred on facts and in law in completing the
             assessment under section 144C of the Income-tax Act, 1961 (,,the Act) at
             an income of Rs.91,19,37,560/- as against the income of
             Rs.70,51,03,214/- returned by the appellant.
     2.      That the Dispute Resolution Panel (,,DRP) / assessing officer erred on
             facts and in law in disallowing expenses of Rs.90,44,496/- alleging the
             same to be incurred for earning exempt dividend income of
             Rs.7,10,41,503/- from investment in mutual funds, invoking provisions
             of section 14A of the Act read with Rule 8D of the Rules.
     2.1     That the DRP / assessing officer erred on facts and in law in holding that
             investment activity was not passive activity but was well informed and
             coordinated activity involving input from the various sources and acumen
             of senior management functionary and hence there was cost in-built into
             such investment activity.
     2.2     That the DRP / assessing officer erred on facts and in law in holding that,
             the appropriate cost of composite funds needed to be allocated towards
             earning of exempt income.
     2.3     That the DRP / assessing officer erred on facts and in law in not
             appreciating that apportionment of expenses is not allowed under section
             14A of the Act and only expenses having direct/ proximate nexus with
             earning of the dividend income could be disallowed.
     2.4     That the DRP / assessing officer erred on facts and in law in not
             appreciating that only expenses to the extent of Rs.3,17,216/- were
             incurred for earning the aforesaid dividend income from the investment
             made in mutual funds.
     2.5     That the DRP / assessing officer erred on facts and in law in holding that
             the onus to prove that the expenditure was incurred in the taxable
             business operations and not the exempt income is upon the assessee and
             not of the revenue.
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                                                        Gujarat Guradian Limited V DCIT
                                                        DCIT V Gujarat Guradian Limited
                                                                            A Y 2010-11
                                                           ITA No 1106 & 973/Del/2015

26    Without prejudice, that the      DRP / assessing officer erred on facts
      and in law in applying sub-section (2) of section 14A without recording
      his satisfaction about the correctness of the claim of the assessee in
      respect of the expenditure incurred for earning the said income.
3.    That the assessing officer erred on facts and in law in holding the
      expenditure to the extent of Rs.81,94,914/- out of total expenditure of
      Rs.5,85,35,098/- incurred on Cold Tank Repair, claimed as revenue
      expenditure by the appellant, as capital expenditure.
3.1   That the assessing officer erred on facts and in law in not appreciating that
      the said expenditure of Rs.81,94,914/- incurred on repair of cold tank was
      charged to revenue in line with the generally accepted accounting
      principles.
3.2   That the assessing officer erred on facts and in law in not appreciating
      that the payment of second installment of engineering fees in terms of
      agreement dated 06.09.2007 to M/s Guardian International Corp. Ltd.
      (,,Guardian) became due on acceptance of the detailed drawings and
      specifications provided by the Guardian.
3.3   That the assessing officer erred on facts and in law in holding that the
      ratio of 86:14 to apportion expenses into capital and revenue was made
      on estimate basis.
3.4   Without prejudice, that the DRP erred on facts in not appreciating that
      the objection raised before them was in respect with treatment of part of
      engineering fees paid to Guardian as revenue expenditure and not with
      respect to claim for depreciation @15% on the said expenditure.
4.    That the assessing officer erred on facts and in law in disallowing
      deduction of Rs. 18,35,10,396/- as claimed under section 80IA of the
      Act, on the ground that the appellant has neither maintained books of
      accounts nor complied with the requirement of audit as prescribed in
      section 80IA(7) of the Act in respect of the Windmill Undertakings.
4.1   That the assessing officer erred on facts and in law in not appreciating
      that proper books of accounts were maintained which were duly audited
      by an independent auditor and the report of auditor was filed before the
      assessing officer both in the assessment proceedings and the remand back
      proceedings.
4.2   That the assessing officer erred on facts and in law in not appreciating
      that books of accounts along with documents/ vouchers were produced
      before the assessing officer both during the assessment proceedings and
      the remand back proceedings.

                                                                               Page | 3
                                                              Gujarat Guradian Limited V DCIT
                                                              DCIT V Gujarat Guradian Limited
                                                                                  A Y 2010-11
                                                                 ITA No 1106 & 973/Del/2015

     4.3     That the assessing officer erred on facts and in law in not appreciating the
             process of generation and transmission of power vis-a-vis recognition of
             revenue by the appellant in respect of the Windmill undertakings.
     4.4     That the assessing officer erred on facts and in law in not appreciating
             that there is no requirement in the Act which makes it mandatory for the
             appellant to recognize revenue on the basis of a sales invoice and not on
             the basis of a credit note which was issued by a third party viz. Gujarat
             Electricity Board (,,GEB) being the nodal agency of Gujarat
             Government."
3.         The revenue has raised the following grounds of appeal:-
     "1.     Whether Honble DRP was correct on facts and circumstances of the case
             and in law in deleting the addition of Rs. 4425571/- made by the AO on
             account of disallowance of claim towards deduction under section 80IA
             of the draft order.
     2.      Whether the Honble DRP is right directing the Assessing Officer to
             delete the disallowance made out of misc expenditure being horticulture
             expenditure, Horticulture expenditure colony, Computer Supply
             (peripherals), software purchase expenditure and security services
             colony."

4.         The brief facts of the case is that assessee is a company who filed its return
           of income declaring total income of Rs. 70,51,03,245/­ on 13/10/2010
           which was subsequently revised on 27/11/2011 declaring total income of
           Rs. 71,11,87,750/­. The assessee is engaged in the business of
           manufacturing and selling of float glass. The draft assessment order was
           passed by the Ld. assessing officer on 28/2/2014. As assessee has entered
           into international transactions, The Ld. transfer pricing officer has also
           passed an order under section 92CA (3) on 22/12/2013             and made an
           adjustment of Rs. 5,85,35,098/­ as shortfall/adjustment on account of ALP
           of International Transactions. The Ld. assessing officer further disallowed
           Rs. 90,44,496 under section 14 A of the income tax act. Disallowance out
           of advertisement expenses of Rs. 94,96,286 was also made. Out of the
           various miscellaneous expenses debited by the company a sum of Rs. 87,

                                                                                     Page | 4
                                                         Gujarat Guradian Limited V DCIT
                                                         DCIT V Gujarat Guradian Limited
                                                                             A Y 2010-11
                                                            ITA No 1106 & 973/Del/2015

     87, 174 was disallowed. Certain other disallowances were also made with
     respect to the claim of the assessee under section 80 IA of the income tax
     act and deduction under that        section was disallowed. Consequently the
     draft assessment order was passed by the Ld. assessing officer at a total
     income of Rs. 103,30,11,907 against the returned income of the assessee of
     Rs. 71,11,87,750/­. The assessee preferred an objection before the Ld.
     Dispute resolution panel, which passed its direction on 21/11/2014.
     Consequently the final assessment order was passed by the Ld. assessing
     officer on 26/12/2014 at an income of Rs. 91,19,37,556/ ­ against the
     returned income filed by the assessee of Rs. 71,11,87,750/­. Now disputes
     that remains to be adjudicated are
     a. Disallowance under section 14 A of Rs. 90,44,496/­
     b. Disallowance of engineering fees of Rs. 81,94,914/­.
     c. Disallowance under section 80 IA(4) (IV) made by the Ld. assessing
        officer of Rs. 18,35,10,396/­.
5.   Therefore, assessee aggrieved by the order of the Ld. assessing officer and
     the Ld. AO aggrieved by the direction of the dispute resolution panel has
     preferred these appeals before us.
6.   Now we 1st take up the appeal of the assessee. The first ground of appeal is
     challenging the composite order of the Ld. assessing officer. Therefore, this
     ground is general in nature and no specific arguments were raised before us.
     In view of this, we dismiss the same.
7.   The 2nd ground of appeal divided into 6 segments with respect to the
     disallowance under section 14 A of the income tax act. During the year the
     assessee has earned dividend income of Rs. 7,10,41,503/­ . During the
     course of assessment proceedings, the assessee was asked to file the details
     of the expenditure incurred for earning dividend income and applicability of
     the provisions of section 14 A as well as rule 8D. The assessee submitted
                                                                                Page | 5
                                                        Gujarat Guradian Limited V DCIT
                                                        DCIT V Gujarat Guradian Limited
                                                                            A Y 2010-11
                                                           ITA No 1106 & 973/Del/2015

     that it had made investment only in Debt mutual funds to earn income by
     way of dividend. It was further stated that assessee has no borrowings and
     investments in mutual funds were made out of own funds. The assessee
     further suo Motu disallowed Rs. 3,17, 216/­ being 20% of the salary of one
     accounting person along with 5% remuneration of the finance director. The
     assessee further submitted the working of the aforesaid disallowance made.
     The Ld. assessing officer rejected the explanation of the assessee and stated
     that disallowance is to be made according to the provisions of section 14 A
     read with rule 8 D of the income tax rules. Consequent to that the Ld.
     assessing officer worked out the total disallowance of Rs. 93, 61, 712 and
     as assessee has disallowed on its own Rs. 3, 17, 216/­ made the          further
     disallowance of Rs. 90,44, 496/­. The Ld. Dispute resolution panel on
     objection filed by the assessee confirmed the above disallowance and
     therefore the Ld. assessing officer incorporated the same in the final
     assessment order. The assessee is aggrieved by that disallowance.
     Therefore, it is contested by ground No. 2 of the appeal.
8.   The Ld. authorized representative submitted a detailed chart of issues and
     with respect to the above ground submitted that The provisions of section
     14A of the Act are, it is respectfully submitted, not applicable in the facts
     and circumstances of the present case for the reasons stated that Investment
     in mutual fund was made out of own surplus fund, from which exempt
     dividend income of Rs.7,10,41,503 was earned. The appellant company is a
     "zero-debt" company and has no borrowing or loans. The appellant has
     made investment only in Mutual Funds and has earned income by way of
     dividends. No investment has been made by the appellant in equity-oriented
     mutual funds. Mutual Funds are required to pay dividend distribution tax on
     dividends distributed in debt-funds and only net income (after payment of
     dividend distribution tax) has been received as dividends by the appellant.
                                                                               Page | 6
                                                  Gujarat Guradian Limited V DCIT
                                                  DCIT V Gujarat Guradian Limited
                                                                      A Y 2010-11
                                                     ITA No 1106 & 973/Del/2015

Mutual funds are governed by SEBI regulations. The Mutual Funds charge
fund management charges, as permitted by SEBI under the scheme. Out of
the income earned by the Fund, fund management charges are deducted
and net income is available for distribution to unit holders. During the year
under consideration, only the net income of Rs.7,10,41,503 (after
deduction of fund management charges) was received by the appellant.
It was further stated that No effort or time, etc., was utilized in receiving
the dividend income. The investment activity only requires filling-in of
Mutual Funds standard printed requisition forms/ slips and issue of
cheque or debit instructions to the bank. The dividends/ maturity proceeds
are directly credited to appellants bank account and accounting is done on
the basis of computerized statements received from Mutual fund. The
appellant is not having any separate department or persons exclusively
engaged in investment activity and the same is being carried out by
Accounts Department as integral part of the day-to-day accounting &
finance activity. In this background, the appellant offered to disallow
amount of Rs.3,17,216, being 20% of the salary of one accountant and 5%
remuneration of the Finance Director, which could be said to have been
incurred for earning such dividend income. Interest expenditure of
Rs.27,07,351 was on dealers deposit and Rs.67,267 was on loan obtained
from bank towards working capital requirement. No part of the interest
expenditure relates directly/ indirectly to the investments made in various
mutual funds. Tax Auditor has certified/ quantified the disallowance under
section 14A of the Act at Rs.3,17,126/- as referred above. Coming to other
expenses, it will kindly be noticed that the assessee had on a reasonable
basis apportioned the salary cost of employee and finance director looking
after investment positions towards earning of dividend income and
disallowed the same. The balance expenses were incurred in relation to
                                                                         Page | 7
                                                   Gujarat Guradian Limited V DCIT
                                                   DCIT V Gujarat Guradian Limited
                                                                       A Y 2010-11
                                                      ITA No 1106 & 973/Del/2015

other business functions carried on by the appellant and no portion thereof
can be attributed towards the earning of dividend income. Reliance in this
regard is placed on the decision of Delhi High Court in the case of Maxopp
Investment Ltd. vs. CIT: 347 ITR 272 wherein the High Court has
analyzed the scope of provisions of section 14A and the powers vested
with the assessing officer before invoking the same. The High Court held,
that the expression "expenditure incurred" refers to actual expenditure and
not to some imagined expenditure. It was held, that the provisions of sub-
section (2)/ (3) of section 14A read with Rule 8D of the Rules can be
applied from assessment year 2008-09 and onwards, only if the assessing
officer "returns a finding that he is not satisfied with the correctness of the
claim of the assessee in respect of such expenditure". Meaning thereby,
that the AO must first reject the claim of the assessee of either having not
incurred any expenditure in relation to earning of exempt income and/ or
the quantum of such expenditure, with cogent reasons. In other words, the
onus is on the assessing officer to establish nexus of expenses with exempt
income, before rejecting the claim of assessee and computing disallowance
under section 14A as per Rule 8D of the Rules. Reference is further made
to the decision of the Delhi High Court in the case of H.T. Media Ltd. vs.
PCIT: [2017] 399 ITR 576 (Delhi) wherein the Court placed reliance on
the decision of the Apex Court in Godrej & Boyce Manufacturing Co. Ltd.
v. DCIT (supra) and held that where there was a failure by Assessing
Officer to comply with mandatory requirement of section 14A(2) read with
rule 8D(1)(a) and record his satisfaction as required there under, question
of applying rule 8D(2)(iii) did not arise. Further attention in this regard is
invited to the decision of Delhi High Court in the case of PCIT vs. U.K.
Paints (India) (P.) Ltd. [2017] 392 ITR 552 (Delhi) wherein the court held
that the assessing officer cannot re-compute disallowance under section
                                                                          Page | 8
                                                 Gujarat Guradian Limited V DCIT
                                                 DCIT V Gujarat Guradian Limited
                                                                     A Y 2010-11
                                                    ITA No 1106 & 973/Del/2015

14A by invoking rule 8D without elucidating and explaining why
assessee's voluntary disallowance is unreasonable and unsatisfactory. It
would be pertinent to mention that the above issue has been decided in
favour of the appellant by the Tribunal in assessment year 2009-10 in ITA
No.3554/Del/2014 and 3596 & 3595/Del/2014. The relevant extracts of the
decision were read out by him , which is as under :

   "17 Considering the above undisputed facts material to the issue of
   validity of disallowance made u/s.14A read with Rules 8D, we are of
   the view that the learned CIT (Appeals) following the ratio laid down
   by the Honble Jurisdictional High Court of Delhi in the case of
   Maxopp Investments Ltd. (supra) was justified in holding that the
   Assessing Officer was not right in rejecting the claim of the assessee in
   a summary manner without verifying the reasonableness of
   disallowance of Rs.3,04,866/- made by the assessee itself towards the
   expenses incurred in the form of administrative cost, in the form of any
   fraction of the salary of the concerned employees were also performing
   other duties in the finance section and whose job was not exclusively
   to make investments, keep finance section and whose job was not
   exclusively to make investments, keep record of it and deposit the
   income in the bank as well as the important aspect that the dividend
   received in the mutual funds were deposited in the bank account of the
   assessee through ECS facility. The view taken by the CIT (Appeals) is
   well supported by several decision cited by the learned AR
   hereinabove including the decision of Honble Jurisdictional High
   Court of Delhi in the case of Maxopp Investment Ltd. (supra) holding
   that the lack of satisfaction of the Assessing officer should of cogent
   reasons. In the present case before invoking Rule 8D the Assessing
   Officer has failed in his duty as per the provisions laid down under
   section 14A read with Rule 8D to point out any discrepancy in the
   claim made by the assessee having regard to its accounts. It was the
   case of the assessee that the dividend income earned by it was with
   respect to certain investments of its surplus funds in the mutual funds
   in respect of which the concerned mutual fund charges fund
   management charges as permitted by SEBI. It was submitted that in
                                                                        Page | 9
                                                           Gujarat Guradian Limited V DCIT
                                                           DCIT V Gujarat Guradian Limited
                                                                               A Y 2010-11
                                                              ITA No 1106 & 973/Del/2015

             case of assesse, an amount of Rs.46,00,000/- was charged by the
             mutual fund which were effectively in the nature of directly related
             administrative expenses in respect of such investment. The assessee
             explained that other than this it had only to fill up mutual funds
             standard printed requisition form and issue cheque. It was submitted
             that assessee does not have particular persons exclusively engaged in
             the investment activity and personnel from the accounts department do
             the same as integral part of the day to day accounting work. Since the
             first appellate order on the issue is reasoned one and supported with the
             ratio laid down by the Honble Jurisdictional High Court of Delhi in
             the case of CIT Vs. Maxopp Investment Ltd. (supra), we are not
             inclined to interfere therewith. The same is upheld. The ground no. 1
             of the appeal (ITA No. 3595) and the ground of the appeal (ITA
             No.3596) of the revenue are accordingly rejected."

      In view of the foregoing, it is respectfully submitted that on the issue
      which has been decided in favor of assessee (discussed supra), the
      disallowance made by the assessing officer calls for being deleted






9.    The Ld. departmental representative vehemently relied upon the orders of
      the Ld. assessing officer.
10.   We have carefully considered the rival contentions. The first contention of
      the assessee is that assessee has suo moto disallowance of certain expenses,
      given reason for that and without examining the claim of the assessee, ld
      AO has applied the provision of rule 8D of the act. His main submission is
      that    disallowance cannot be made by invoking Rule 8D without recording
      satisfaction how the claim of the assessee is not correct. He relied up on
      plethora of decisions including the decision of coordinate bench in
      assessees own case on identical facts and circumstances . Further In
      computation      of disallowance made by the Ld. assessing officer has also
      worked out the disallowance of interest of Rs. 992176/­ and amount of
      expenditure at the rate of 0.5% of the average value of investment of Rs.

                                                                                Page | 10
                                                    Gujarat Guradian Limited V DCIT
                                                    DCIT V Gujarat Guradian Limited
                                                                        A Y 2010-11
                                                       ITA No 1106 & 973/Del/2015

8369536/­. The total disallowance were worked by the Ld. assessing officer
applying the provisions of rule 8D was Rs. 9 361712/ ­. The main claim of
the assessee is that it has the surplus fund amounting to Rs. 4, 24, 06, 75,
537/­ in the form of share capital and reserve and surplus and the total
investment made by the assessee is only of Rs. 1, 67, 84, 06, 403/ ­.
Therefore, there cannot be any disallowance on account of interest
expenses. It was further the contention of the assessee that it has been
investing surplus fund in the date mutual funds on which dividend income
was on an during the year the assessee has earned dividend of Rs. 7, 10, 41,
503/­ from the investment in surplus funds in mutual funds which is
exempt and not chargeable to income tax act. The first contention of the
assessee is that the Ld. assessing officer has not recorded the satisfaction to
show that why the working shown by the assessee for the disallowance
under section 14 a is erroneous. It was further stated that identical issue
arose in the case of the assessee for assessment year 2009 ­ 10 in ITA No.
3554/del/2014 and 3596 and 3595/del 2014. The coordinate bench in the
assessees own case is held that that the Ld. CIT ­ A in that particular case
has held that the Ld. assessing officer was not right in rejecting the claim of
the assessee in summary manner without verifying the reasonableness of
the disallowance made by the assessee on its own. The facts of the case are
similar to the facts in the case for assessment year 2009 ­ 10. In the present
case also the assessee has made disallowance of Rs. 3, 17, 216/­ holding
that 20% of the salary of 1 accountant and 5% remuneration of the finance
director has been worked out as expenditure disallowable under section 14
A of the income tax act. The coordinate bench in para No. 17 for
assessment year 2009 ­ 10 is considered the whole issue and upheld the
order of the Ld. CIT ­ A where in the        disallowance u/s 14A over and
above the offered disallowance of assessee was deleted as ld AO failed to
                                                                         Page | 11
                                                          Gujarat Guradian Limited V DCIT
                                                          DCIT V Gujarat Guradian Limited
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      record the requisite satisfaction. The coordinate bench was further of the
      view that before invoking the provisions of rule 8D the Ld. assessing officer
      has failed in his duty as per the provisions laid out under section 14 A read
      with rule 8D to point out any discrepancy in the claim made by the assessee
      having regard to its accounts. It is further the fact that investment of the
      assessee in the mutual fund is out of this para surplus funds. The Ld.
      departmental representative could not point out any reason to deviate from
      the order of the coordinate bench in assessees own case for assessment
      year 2009 ­ 10. In view of this to delete the disallowance made of Rs. 9
      044496/­ under section 14 A of the income tax act. In the result ground No.
      2 of the appeal of the assessee is allowed.
11.   The ground No. 3 of the appeal of the assessee is against the disallowance
      of Rs. 81,94,914/­ out of the total expenditure of Rs. 5,85, 35,098/­ made
      by the assessee on old tank repair claimed as revenue expenditure by the
      appellant but held to be capital expenditure by the Ld. assessing officer.
      The brief facts of the issue is that appellant is an original return had claimed
      deduction of Rs. 5, 85, 35, 098/­ being the 2nd installment of engineering
      fees paid to bludgeon international Corporation USA for old tank repair.
      The appellant had revised the return of income before the assessing officer
      wide letter dated 27/11/2011 claiming only Rs. 8 1, 94, 914/­ as revenue
      expenditure and suo Moto capitalizing the balance amount of Rs. 5, 03, 40,
      184/­. In the assessment order, the Ld. assessing officer disallowed the
      same treating the same as capital expenditure. The Ld. DRP also held that
      entire amount of Rs. 5 853 5098 to be capital in nature and observed that
      the appellant had claimed depreciation at the rate of 15% amounting to Rs.
      81,94,914/­ on the said expenditure. The Ld. DRP did not noticed that
      assessee had bifurcated the said expenditure being 14% of engineering fees
      amounting to Rs. 8 194914/­ is revenue in nature and balance amount as
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      capital expenditure. Therefore the claim of the assessee as that engineering
      fees paid of Rs. 8 1, 94, 914/­ is revenue in nature.
12.   The Ld. authorized representative submitted that the appellant company
      commenced commercial production in March 1993. It is a leading glass
      producer and has a manufacturing facility at Ankleshwar, Gujarat. One of
      the most important sections of float glass manufacturing line is the melting
      furnace. The potential life of a float glass furnace is about 15 years.
      Thereafter it becomes necessary to rebuild the furnace and repair / replace /
      renovate other sections of the plant. Such major repairs to the plant are
      termed as "Cold Repair" in float glass industry. This activity typ ically
      requires the planning to start about 2-3 years in advance to carry out
      engineering and procurement activities and be fully ready to carry out the
      repair at the appropriate time. When actual cold repair takes place, the same
      requires plant shut down of about 100 days. Cold Repair of a float glass
      plant requires comprehensive engineering, procurement, and supervision
      activities, which are quite similar to setting up a new float glass plant. In the
      financial year 2007-08, the appellant completed 13 years of operations. As a
      result, the appellant started planning for cold repairs in 2007-08 for which it
      took necessary steps to prepare itself for undertaking the Cold Repair. As a
      first step, the appellant entered into agreement with Guardian International
      Corp. USA (Guardian) in September 2007 for Engineering Services for
      Cold Repair. The services provided by Guardian, it would be pertinent to
      mention, were in connection with preparing the appellant to carry out cold
      tank repair and were not aimed in assisting the applicant in carrying out
      actual repair (which was undertaken by the appellant in financial year 2010-
      11). For the services to be provided by Guardian for Cold Tank Repair
      project, the appellant agreed to the said fee of USD 5 Million payable in
      four equal installments. Out of USD 5 Million fee, 1 st installment of USD
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   1.25 Million was paid in financial year 2007-08 and in financial year 2009-
   10 (the assessment year under consideration) 2nd installment of USD 1.25
   Million (Rs.5,85,35,098/-) was paid towards the services rendered by
   Guardian relating to engineering and procurement activities. This amount
   was accounted for and charged to Profit and Loss account as plant repair
   expenses. The disclosure about the said expense was also made in Schedule
   18 ­ Note 14(B) of the Audited Accounts as transaction with related party.
   The payment made to Guardian was not linked with undertaking actual cold
   tank repair. In fact, the amount of USD 5 million was agreed for services to
   be rendered by Guardian in relation to following services as per Article 2.1
   of the Agreement:
      a) Engineering design services
      b) Equipment supply services
      c) Project financial control services
      d) Purchasing services
      e) Heat up services


The detail of work done under the aforesaid services is explained in the
Agreement, which was submitted during the assessment proceedings. These
services were rendered to prepare the appellant to undertake cold tank repair in
the subsequent year. Further, Article 3.2 of the Agreement provides the
milestones for making payment of the agreed engineering fees, as under:

   a) First installment [USD 1.25 million] ­ after signing of the Agreement;
   b) Second installment [USD 1.25 million] ­ after Guardian has delivered
      and the appellant has accepted the detailed drawings and specifications;
   c) Third installment [USD 1.25 million] ­ after commercial production
      commences;

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   d) Fourth installment [USD 1.25 million] ­ after the completion of the
      performance test.


It was the endeavor of the company to take maximum life from the existing
furnace and best efforts were made to operate the furnace to the extent
technically advisable. During the financial year 2010-11, it was decided to
carry out actual Cold Repair. The activity commenced on August 29, 2010 and
the whole process took 97 days, during which the float production facility was
closed. Consequently, the production re-commenced on December 4, 2010.
During the Cold Repair process, glass-melting furnace was fully dismantled
and rebuilt and other sections of the plant were suitable repaired, renovated, or
modernized. In other sections the equipment were repaired/ replaced or
renovated/ refurbished as per technical advice. In terms of melting capacity of
the furnace, there was no change in the production capacity of the plant.
During the financial year 2010-11, the expenditure incurred on Cold Repair
has been capitalized/ charged to revenue, as appropriate, in line with the
Generally Accepted Accounting Principles. In case, the plant or machinery has
been fully replaced, the same was capitalized and in case the activity was of
the nature of repairs and maintenance, the same has been expensed out. After
analyzing each expense and considering the nature of the same, out of total
Cold Repair expense of Rs.196.54 crores, Rs.169.77 crores (about 86%
approx.) were capitalized and Rs.26.77 crores (about 14% approx.) were
charged as repairs expense in the financial year 2010-11. In view of the
aforesaid, the appellant revised its return of income for the relevant year, which
was filed before the assessing officer (since it could not be revised online). The
amount paid as 2nd installment of Rs.5,85,35,098/- to Guardian towards
engineering fees, which was claimed as revenue expenditure in the original
return of income filed, was later on revised and only Rs.81,94,914/- (approx
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14% of the total amount paid) of the engineering fees paid to Guardian was
claimed as revenue expenditure under section 37(1) of the Act and the balance
amount of Rs.5,03,40,184/- (approx 84% of the total amount paid) was
capitalized in the books of accounts. It would be pertinent to mention that the
assessing officer, during the assessment proceedings for the assessment year
2011-12, has accepted the bifurcation of total expenditure incurred on cold
tank repair as Rs.26.77 crores being revenue in nature and Rs.169.77 crores as
capital in nature. Accordingly, the assessing officer ought to accept the
bifurcation of the engineering fees, which has, was based on the same
principle. Reliance, in this regard, is placed on Para-12 of Accounting
Standard-10 "Accounting for Fixed Assets" issued by the Institute of Chartered
Accountants of India, the premier accounting body of India, which deals with
the accounting treatment of ,,improvements and repairs carried out with
respect to Fixed Assets. As per para 12.1 thereof, only expenditure that
increases the future benefits from the existing asset beyond its previously
assessed standard of performance is included in the gross book value, e.g. an
increase in capacity. AR further placed reliance in this regard on the following
decisions:

              Empire Jute Co. Ltd. v. CIT: 124 ITR 1 (SC)
              CIT vs. Mahalakshmi Textile Mills 66 ITR 710 (SC)
              CIT v. Sarvana Spinning Mills P. Ltd. : 293 ITR 201 (SC)
              Comfort Living Hotels (P.) Ltd. vs. CIT: 363 ITR 182 (Del)
              CIT vs. Volga Restaurant: 253 ITR 405 (Del)
              CIT vs. Delhi Press Samachar Patra P. Ltd.: 322 ITR 590
              CIT v. Bharat Cinema : 121 ITR 165 (HC) (P&H)
              CIT & Anr. vs. Sagar Talkies : 217 CTR 74 (HC) (Kar)
              Tuticorin Spinning Mills Ltd. vs. CIT : 261 ITR 291 (HC) (Mad)
              CIT vs. Ooty Dasaprakash: 237 ITR 902 (HC) (Mad)
              CIT vs Lake Palace Hotel and Motels P. Ltd.: 258 ITR 562 (HC)
              (Raj)
              CIT v. Wolkem (P.) Ltd. Co. : 258 ITR 350 (Raj) (HC)
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         CIT vs. Karnataka State Road Transport Corporation Ltd. [224
         Taxman 188 (Kar ­ Mag)] [2014]
         CIT vs. Nizam Sugar Factory 116 ITR 706 (AP)
         ACIT vs. Dyers Stone Lime Co 136 ITR 8 (Del)
         CIT vs. Serikella Glass Works: 157 ITR 584 (Pat)
         Messrs Dehri Rohtas Light Railway Co. Ltd vs. CIT 46 ITR 533
         (Pat)
         Rhodesia Railways vs. ITC 1 ITR 227 (PC)
         Bansilal Abirchand vs. CIT 31 ITR 427 (Nag)
         South Eastern Coalfields Ltd. vs. JCIT: 85 ITD 608 (Nag),
         DCIT v. Eicher Motors Ltd.: 67 SOT 306 (Del ­ Trib)
         CIT v. TVS Motors: 364 ITR 1 (HC)(Mad)
         CIT vs. Sree Ayyanar Spinning and Weaving Mills Ltd.: 211
         Taxmann 534 (SC)
         CIT v. Shri Rama Sugar Mills: 21 ITR 191 (Mad.)
         CIT v. Norinco (P.) Ltd.: ITA No. 622 of 2014 (Cal)
         Super Spinning Mills Ltd. v. ACIT: 357 ITR 720 (Mad)
         CIT v. Indian Woollen Textile Mills Pvt. Ltd.: 112 ITR 441
         (P&H)
         CIT v. Shree Hari Industries: 161 ITR 249 (Raj.)
         CIT v. Madras Spinners Ltd.: 177 ITR 498 (Ker.)
         CIT v. Tea Estate Pvt. Ltd.: 198 ITR 535 (Cal.)
         CIT v. Madras Spinners Ltd.: 207 ITR 35 (Ker.)
         CIT v. Sree Bhagvathi Textiles Ltd.: 207 ITR 826 (Ker.)
         CIT v. Co-operative Sugars Limited: 235 ITR 343 (Ker.)
         CIT v. Udaipur Distillary Co. Ltd.: 268 ITR 451 (Raj.)
         CIT vs. Prabhu Spg. Mills (P) Ltd.: 113 TTJ 372 (ITAT)
         (Chennai)
         ACIT v. Shiva Texyarn Ltd.: ITA No. 2231/Mds/2014
         (Chennai)
         Urban Infrastructure Venture Capital Ltd. v. DCIT: 150 ITD 502
         (Mum)
         M/s Singh Fab P Ltd Vs ITO : ITA No. 5314/Del/2004, (Trib)
         (Del)


In the light of the aforesaid discussion, it is respectfully submitted that there
is no warrant to make any disallowance of the revenue portion of
engineering services, since there can be no doubt or ambiguity about
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      rendering of the services before 31.3.2010 and accordingly, 14% of the
      expenditure should be allowed as revenue expenditure.

13.   The Ld. departmental representative relied upon the orders of the lower
      authority and submitted that disallowance has correctly been made by the
      Ld. assessing officer.
14.   We have carefully considered the rival contentions and find that for
      assessment year 2009 ­ 10 the identical issue arose in the case of the
      assessee in ITA No. 3554/del/2014 wherein wide para No. 21 the
      coordinate bench is set aside the whole issue back to the file of the Ld.
      assessing officer as under:-


        "21. Having gone through the orders of the authorities below, we find
        that the Ld. CIT (A) has decided the issue of disallowance of the portion
        of engineering fees claimed as revenue expenditure to the extent of Rs. 6
        9, 04, 582/­ under factual premises, besides other that the assessee had
        not received drawings and specifications, and, therefore 2 nd installment of
        payment of US dollar 1.2 5,000,000 to the Guardian had not become due.
        The factual observation of the Ld. CIT ­ A is disputed by the Ld.
        authorized representative is incorrect that the submission that the claim of
        the assessee that the above amount was revenue in nature is supported by
        the evidence that the invoice for 2nd installment was raised on 1/12/2009
        and the expenditure was charged to the profit and loss account in the
        subsequent financial year 2009 ­ 10 only i.e.              the year under
        consideration. The same therefore has no impact on the allowability of
        the first internal installment of engineering fees. The further contention
        of the Ld. AR remained that there cannot be doubt or ambiguity about
        rendering of engineering services before 31st March, 2009 and
        accordingly 15% of the expenditure has been rightly allowed by the AO
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        as revenue expenditure. Since, as discussed above, the material facts of
        the issue is in dispute and needs verification, the matter is set aside to the
        file of the Ld. assessing officer to decide the issue afresh in view of the
        above discussion after affording opportunity of being heard to the
        assessing."
15.   As the identical issue arose in assessment year 2009 ­ 10 which has been
      set aside by the coordinate bench to the file of the Ld. assessing officer and
      the issue involved is also similar except the change in the assessment year.
      The Ld. departmental representative also fairly agreed that the issue has
      already been sent back to the file of the Ld. assessing officer for assessment
      year 2009 ­ 10 therefore there is no reason to not to set aside this ground of
      appeal of the assessee back to the file of the assessing officer. We have also
      considered the above arguments of the both the parties and find that if we
      decide this issue now it will influence the decision of the Ld. assessing
      officer for assessment year 2009 ­ 10 where the assessee deserves be
      given a fair opportunity of hearing as directed by the coordinate bench.
      There is no reason that this ground of the appeal for this year should also
      not go back to the assessing officer with similar direction. In view of this,
      we set aside this ground of appeal back to the file of the Ld. assessing
      officer with similar directions. Accordingly, ground No. 3 of the appeal of
      the assessee is allowed with above direction.
16.   The ground No. 4 of the appeal of the assessee with is with respect to the
      disallowance of the deduction under section 80 IA of the income tax act of
      Rs. 1 8, 35, 10, 396/­ as the assessee has allegedly not maintained the
      separate books of accounts, not complied with the requirement of the audit
      as prescribed under section 80 IA (7) of the act in respect of the windmill
      undertakings. The brief facts of the issue is that during the year under
      consideration the appellant had claimed deduction under section 80 IA (4)
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(iv) of the act being an undertaking which is set up for the generation of the
power that had begun to generate power from assessment year 2004 ­ 05
onwards. Admittedly, the assessee has two windmill projects project No. 1
and project No. 2. In the case of the assessee it has set up windfarm
situated about 355 km away from the manufacturing facility for
transmission of electricity to its manufacturing facility located at Bharuch .
For this purpose, the assessee company entered into               wheeling of
electricity agreement with the Gujarat energy transmission Corporation Ltd.
The Ld. assessing officer based on the agreement noted that Assessee
Company is using banking facility only for consumption of electricity for
its own manufacturing activities. Revenue is booked only on the basis of the
credit notes of units issued by GETCO. Since the company according to
the AO is not deriving any profits and gains from the so-called windmill
undertaking or enterprise the assessee company was required to show cause
as to why the deduction claimed under section 80 IA of Rs. 1 8351 0398
been disallowed. The assessee submitted that that it is maintaining separate
books of accounts for both the units, which are duly audited by a chartered
accountant in form No. 10 CCB. In addition, it is further stated that
deduction is allowable to the assessee. The Ld. assessing officer was of the
view that Assessee Company is not deriving any profit gain from the
enterprise to claim deduction. It was further held by him that as the assessee
company generated power for its own consumption and for this purpose
entered into an agreement with the Gujarat energy transmission Corporation
Ltd. The assessee was also required to produce the books of account and
sales bills based on which the auditor of the company submitted the audit
report in form No. 10 CCB. The assessee submitted that assessee is not
issuing any bill and form No. 10 CCB was prepared based on the credit not
issued by the Gujarat energy transmission Corporation Ltd in terms of units
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      only. Therefore, the Ld. assessing officer was of the view that the assessee
      company has not maintained any books of accounts and therefore the
      requirement of audit as provided under subsection 7 has not been fulfilled.
      Therefore he held that since the assessee company has failed to produce the
      accounts either during the assessment proceedings or as per the direction of
      the Ld. Dispute Resolution Panel the requirement of subsection 7 cannot be
      fulfilled and therefore he disallowed the claim of Rs. 1 8, 35, 10, 396/­.
17.   The Ld. authorized representative submitted that The appellant was earlier
      buying entire electricity from Gujarat Energy Development Authority/
      Gujarat Electricity Board ["GEDA"/ "GEB"]. Subsequent to the
      announcement of Wind Power Policy by the Gujarat Government, the
      appellant had set up Wind Power facility to meet part of the requirement of
      electricity from in house power generation. The electricity was generated at
      the appellants wind farms, situated about 350 kms away from the
      manufacturing facility operated by it. In order to facilitate transmission of
      electricity to the manufacturing facility, the appellant had entered into an
      agreement with GETCO, a Government company functioning as the "State
      Transmission Utility" under the Electricity Act, 2003 for wheeling and
      banking power on behalf of the appellant. In terms of the said agreement,
      GETCO would meter and measure the energy generated at the wind farm,
      which would subsequently be wheeled from the wind farm to the
      appellants manufacturing units. Any surplus energy will also be injected
      into the GETCO Grid system and banked for a period of six months. In the
      wheeling process, the power so generated by the appellant, as measured by
      GEDA, is acknowledged by GEB by issuing credit certificates, which is
      thereafter adjusted in the monthly electricity bills. The process is explained
      hereunder: The detail of power generated and revenue recorded there from
      in Wind power projects I & II is summarized below:
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              Gross     4% Wheeling      Net
   Unit                                             Revenue                 Remarks
            generation     Charge     generation
                          (in units)                 (in Rs.)
    I        20,674,006       826,960 19,847,046    118,647,716   Recorded as 'revenue from
                                                                  generation' in the accounts,
                                                                    certified by Tralsawala
    II       18,215,575      728,623   17,486,952   104,538,829
                                                                    Associates, Chartered
                                                                          Accountants
             38,889,581    1,555,583   37,333,998   223,186,545




The power generated at the appellants wind farms are injected in GETCO grid
system and wheeled to local sub-station of GEB. In the process, wheeling
charges @4% of units generated by the appellant are deducted to compensate
GETCO. For the gross units, GEDA issues monthly certificates for share of
electricity generated by wind farms in district Jamnagar, certifying the
electricity import/ export recorded at 132KV Bhogat Enercon sub-station. The
month-wise breakup of the above detail, specifying the wind farm wise breakup
of the monthly power generation certificates issued by GEB for each month,
certifying the monthly power generated by each wind farm were filed before the
assessing officer vide reply dated 20.12.2013. The benefit/ credit of power
banked at 132KV Bhogat Enercon sub­station of GEB, in place of physically
being transmitted to the manufacturing units of the appellant is provided as
under:

         During the period April - June 2009, GEB gave credit of units generated
at wind farms by reducing from the gross units consumed by manufacturing
units and raising electricity bill for only net units, i.e., gross units consumed less
units generated by appellant;
         Thereafter, during July 2009 - March 2010, electricity bill was raised for
gross consumption and separately GEB credit notes for power generation.


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While making payment of bill, the appellant paid bill after adjusting the credit
note.


A summary of the monthly electricity bills, the electricity bills for April ­ June
2009 and electricity bills for July 2009-March 2010 along with credit note
issued by Dakshin Gujarat Vij CO. Limited has been submitted before the
assessing officer vide reply dated 20.12.2013.It would be appreciated that the
appellant, in its books of accounts, records revenues on the basis of the credit
notes issued by the Dakshin Gujarat Vij CO. Limited (,,DGVCL) being the
nodal agency of Gujarat Government. It is further submitted that AO cannot
reject the authenticity of the credit note(s) issued by a third party, on the basis
of which revenue is booked in the books of accounts of the Windmill
undertakings, without placing on record, any document and/ or by bringing
facts to the contrary, negate such credit note(s) which have been issued by a
third party itself. In other words, in absence of any evidence brought on record
by the AO, which stands contrary to the credit notes provided by the third party,
such documents provided by DGVCL cannot be rejected. it will be kindly
appreciated that the provisions of section 80IA only requires that "accounts of
the undertaking" for the relevant previous year to be audited by a Chartered
Accountant and also requires the assessee to furnish report of such audit in
prescribed Form No.10CCB along with the return of income. In this regard, it is
respectfully submitted that the appellant, during the year under consideration,
had maintained separate books of accounts with respect to both the Windmill
undertakings. Such books of accounts have been duly audited by an
independent auditor viz. Tralsawala Associates, Chartered Accountants and
such report of the auditor has been filed before your Honour. The relevant
extracts of the audit report have been reproduced hereunder as reference:


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"We have checked the books of accounts and other records maintained by M/S
Gujarat Guardian Ltd, State Highway 13,Village Kondh, Taluka Valia, District
Bharuch, Gujarat in respect of the following undertakings set up by the
company for generation of Wind Power;



            Name of undertaking                            Year of Setting up



            1. Wind Power Project ­ I (Satapar, Gujarat)                 2003-04

           2. Wind Power Project ­ I (Bamansa, Gujarat)
      2004-05



            And Certify as below:



The Company has maintained separate books of accounts in respect of each of
the above Wind Power projects from the year of start till financial year 2009-
10.



We have checked attached Profit & Loss Accounts and Balance Sheets prepared
by the company for each of the above Wind Power Projects from the year of
setting up 31st March, 2010 and found the same to be correct and the same
reconciles with the audited accounts of the main company has been arrived at
on the following basis;" (emphasis supplied)



Both revenue and expenses recorded in the books of accounts of both the
Windmill units of the appellant are duly supported by the credit notes in respect
of revenue, bills in respect of direct expenses and working of allocation of
expenses in respect of indirect expenses. All such document(s) are verifiable
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from appellants records and were duly filed before the AO vide replies dated
24.12.2014 (also produced before AO on 08.01.2014). Further, there is no
mandate in the provisions of section 80IA of the Act that prohibits the appellant
from recognizing the revenue generated on the basis of a credit note, which was
issued by a third party viz. DGVCL, being the nodal agency of Gujarat
Government. It would appreciated that the benefit/ credit of power generated
and banked with GEB, in place of physically being transmitted to the
manufacturing units of the appellant, is provided by issuing an electricity bill
for gross consumption on the appellant and separately issuing credit notes for
power generated by the appellant. While making payment of bill, the appellant
simply paid bills after adjusting the credit note(s). All the transactions,
including transfer of power generated by the power plant to GEB/ GETCO, who
banks the power and supplies it further to the other manufacturing unit(s)/
undertaking(s), were undertaken on arms length basis viz. at the rate ordinarily
charged by GEB/ DGVCL for supply of power. The transfer of power from the
Windmill undertaking was made and recorded in the separate books of accounts
on the basis of the credit notes issued by a third party viz. DGVCL being the
nodal agency of Gujarat Government at the rate on which GEB sells power to
the appellant, being the fair market value of the power supplied, and the
statement of profitability for the windmill units were prepared on that basis.It is
further submitted that on the basis of unit wise accounts prepared, the appellant
claims deduction under section 80IA of the Act, which is duly supported by
certificate of the Chartered Accountant. Further, the computation of profits for
the purpose of deduction under sections 80IA of the Act is duly certified by the
auditors and has been provided as part of the audit report in Form 10CCB.
Under the provisions of section 80-IA/ 80-IB of the Act, there is, in fact, no
provision/ requirement of maintenance of separate books of account in respect
of each eligible undertaking. What is only required is that the assessee has to
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furnish report of a Chartered Accountant in the prescribed Form No.10CCB
certifying that deduction has been rightly computed in respect of profit derived
from the undertaking. Reliance in this regard is also placed in the decision of
the Punjab and Haryana High Court in the case of CIT v. Micro Instruments
Co.: 388 ITR 46 (dated 02.09.2016) wherein issue of requirement of separate
books of account in respect of units eligible for deduction under section 80IB of
the Act has been specifically dealt with by the Court. While dealing with the
issue, the Honble Court has held that the said section does not require an
assessee to maintain separate books of accounts for eligible undertakings. The
relevant extracts of the decision are given as under:

     "29. Even as a matter of law, keeping separate books of account is not a
     condition precedent to a claim for a deduction under Section 80-IB. There
     was no statutory provision making it mandatory for an assessee to
     maintain separate books of account. That it may be easier for an assessee
     to establish a claim for deduction under Section 80- IB in the event of
     separate books of account being maintained is another matter altogether.
     That is a question of evidence and not a legal obligation.
     30. Section 80-IB itself does not expressly require an assessee to maintain
     separate books of account to maintain a claim for a deduction thereunder.
     Nor do we find anything in the section that implies such a requirement. So
     long as an assessee fulfills all the conditions stipulated in sub-section (2),
     the section would be applicable. These conditions do not require an
     assessee to maintain separate books of account in respect of the new
     undertaking. Nor does sub-section (3), stipulate such a condition. As we
     will shortly see, where an assessee is required mandatorily to fulfill a
     particular condition, the legislature expressly included a condition to that
     effect.
     31. As we mentioned earlier, where an assessee keeps separate books of
     account that fact would, along with other facts, be relevant while
     considering whether the assessee fulfills all the conditions of Section 80-
     IB and, in particular, sub-section (2) thereof. It would be relevant, for
     instance, while considering whether the industrial undertaking concerned
     is formed by splitting up or a reconstruction of a business already in
     existence or not. If separate books of account are kept in respect of the
     new industrial undertaking, it would certainly be a factor in favour of the
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     assessee. That, however, relates to the question of evidence in support of
     the claim and not to the statutory requirement to maintain separate books
     of account.
     .......
     37. The contention that the assessees are not entitled to the deduction
     under Section 80-IB as they did not maintain separate books of account is,
     therefore, rejected."
                                                                 (emphasis supplied)

The Delhi Bench of the Tribunal in the case of Ranbaxy Laboratories ITA No.
196/Del/2013 dated 25.04.2016/ [2016] 68 taxmann.com 322 also, inter alia,
held that there is no mandatory requirement to maintain separate books of
account for the purpose of claiming deductions under sections 80-IB and 80-IC
of the Act. To the similar effect are the following decisions:
        Banaskantha District Cooperative Milk Producers Union: ITA
        No.3599/Ahd/2009
        Revenues Appeal dismissed in Tax Appeal No. 1813 of 2010 (Guj.)
        CIT v. Sabarkantha District Co-operative Milk Producers Union Ltd.:
        Tax Appeal No. 473 of 2014 (Guj.)
        Ajanta (P.) Ltd. v. DCIT: [2017] 77 taxmann.com 227 (Guj.)


Reference in this regard is also made to the decision of the Delhi Bench of the
Tribunal in the case of DCIT v. NIIT: ITA No. 1112/Del/2012 wherein books
maintained in ERP software accounting system was held to be sufficient
compliance for the purpose of claiming deduction under section 10B of the Act.
It is pertinent to mention here that appeal filed by the Revenue against the order
of the Tribunal the aforesaid issue raised was not admitted by the Honble Delhi
High Court vide order dated 01.03.2016 in ITA No. 897/2015. In view of the
above, it is respectfully submitted in light of the principles laid down in the

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aforesaid decisions, the assessee was not, in law, strictly required to maintain
separate books of accounts in respect of the eligible undertakings. In view of
the aforesaid, deduction under section 80IA of the Act has been, it is
respectfully submitted, erroneously denied to the appellant on the ground that
books of accounts were not maintained in respect of the eligible
business/undertaking, since the appellant was recognizing sales on the basis of
credit notes. Regarding allowability of deduction to be tested in the first year of
claim It is, at the outset, submitted that the appellant had begun to claim
deduction under section 80IA of the Act in respect of the aforesaid units from
the assessment year 2009-10. It is submitted that the claim of deduction under
sections 80IA of the Act, was examined and allowed to the appellant during the
immediately preceding year. It that the claim of deduction by the appellant
under sections 80IA of the Act has been duly examined on all relevant factors,
during the assessment proceedings for the assessment year 2009-10, being the
first year of claim, and on being fully satisfied, the deduction was allowed. It is,
however, during the year under consideration, that the assessing officer denied
the claim of deduction made under section 80IA of the Act on the primary
ground that the appellant had failed to maintain books of accounts in respect of
unit(s) for which deduction was claimed on the ground that the appellant is not
having any sales vouchers and sales are computed on the basis of credit notes.
In this regard, it is respectfully submitted that it is a well settled proposition of
law that where the Act provides for a deduction which is allowable to an
appellant for a certain term/ period (such as a period of consecutive ten years in
present case), the Revenue is required to examine the eligibility of the appellant
and whether all statutory pre-conditions are satisfied in the first year in which
the appellant claims such a term deduction. In such cases, without disturbing
the assessment for the initial year, it is not open to the Revenue to make
disallowance of such deduction in the subsequent year(s), unless there is a
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material change in the fundamental facts. Reliance, in this regard, is placed on
the following observations made in the following decisions:
-     Saurashtra Cement & Chemical Industries v. CIT: 123 ITR 669 (Guj)
                  "No doubt, the relief of tax holiday under s. 80J can be
            withheld or discontinued provided the relief granted in the initial
            year of assessment is disturbed or changed on valid grounds. But
            without disturbing the relief granted in the initial year, the
            Income-tax Officer cannot examine the question again and decide
            to withhold or withdraw the relief which has been already once
            granted."


-     CIT v. Paul Brothers: 216 ITR 548 (Bom.)
                  "Either in section80HH or in section80J, there is no
            provision for withdrawal of special deduction for the subsequent
            years for breach of certain conditions. Hence unless the relief
            granted for the assessment year 1980-81 was withdrawn, the
            Income-tax Officer could not have withheld the relief for the
            subsequent years. (See Gujarat High Court decision in the case of
            Saurashtra Cement v. CIT: 123 ITR 669.

Hence, the approach of the Tribunal on all the counts has been perfectly
legal."


-     CIT v Gujarat State Fertilizers Co. Ltd: 247 ITR 690 (Guj.)
                   "Having heard learned counsel for the parties and critically
            examining the relevant provisions contained in section 80J in the
            light of the decisions cited before us, we are of the considered
            opinion that, as in the preceding assessment years, the appellant
            cannot be denied the benefit of deduction at the prescribed rate
            under section80J on the capital employed in the form of
            residential accommodation given to the shopkeepers in the
            township of the appellant."







-     CIT v. Fateh Granite (P) Ltd.: 314 ITR 32 (Bom.)
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                    "8. On behalf of the appellant, the learned counsel had
            drawn our attention to the judgment of the Gujrat High Court in
            the case of Saurastra Cement & Chemical Industries Ltd v. CIT
            (1979) 11 CTR (Guj) 139: [1980] 132 ITR 669 to contend that
            once the revenue had allowed the relief for the previous
            assessment year, it was not open to disturb the relief for the
            subsequent years without disturbing the relief granted in the
            initial year. Our attention is also invited to the judgment of this
            court in the case of CIT vs. Paul Brothers reported in [1995] 216
            ITR 548 where in court was considering the issue for the
            assessment year 1981-82. This court took a view that for the
            purpose of Section80-HH or Section80-J, there is no provision
            for withdrawal of deduction for the subsequent year for breach of
            certain conditions, unless the relief granted for the earlier year
            1981-82 was withdrawn. For the reasons set out earlier, we need
            not consider this aspect. We find no merit in this appeal and
            accordingly, the same is dismissed."


-     Similarly, the Honble Bombay High Court in the case of CIT v.
Western Outdoor Interactive Pvt. Ltd: 349 ITR 309, held as under:
            "We have considered the submissions. We find that the
            submissions made by Mr. Pardiwalla on the basis of the decision
            of this Court in the matter of Paul Brothers (supra) and Director
            of Information Pvt. Ltd. (supra) merits acceptance. Therefore, in
            this case, it is not necessary for us to decide whether SEEPZ unit
            was set up/formed by splitting up of the first unit. In both the
            above decisions, this Court has held that where a benefit of
            deduction is available for a particular number of years on
            satisfaction of certain conditions under the provisions of the
            Income Tax Act, then unless relief granted for the first
            assessment year in which the claim was made and accepted is
            withdrawn or set aside, the Income Tax officer cannot withdraw
            the relief for subsequent years. More particularly so, when the
            revenue has not even suggested that there was any change in the
            acts warranting a different view for subsequent years. In this case
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             for the assessment years 2000-01 and 2001-02 the relief granted
             under Section10A of the Act to SEEPZ unit has not been
             withdrawn. There is no change in the facts which were in
             existence during the assessment year 2000-01 vis a vis the claim
             to exemption under section10A of the Act. Therefore, it is not
             open to the department to deny the benefit of Section10A for
             subsequent assessment yearsi. e. assessment years 2002-03 and
             2003-04 and 2004-05. Besides that, on consideration of the facts
             involved both the Commissioner of Income Tax (Appeals) and
             the Tribunal have recorded a finding of fact that the SEEPZ unit
             is not formed by splitting up of the first unit."


To the same effect is the decision of the Honble Bombay High Court in
Direct Information Private Ltd. vs. ITO: 349 ITR 150 and the following
decisions of the Delhi High Court:

-     CIT vs. Escorts Ltd : 338 ITR 435
-     CIT vs. Delhi Press Patra Prakashan Ltd. (No.2) : 355 ITR 14
-     CIT vs. Tata Communications Internet Services Ltd.: 251 CTR 290
In view of the above, it is submitted that since deduction under sections 80IA of
the Act is a deduction admissible for a certain term, the question whether or not
the statutory conditions precedent to the admissibility thereof (including the
question separate books of accounts are maintained and the basis of computing
sales) are fulfilled in the case of an appellant, is required to be examined by the
Revenue in the first year in which such deduction was/were claimed. The
deduction having been admitted in the preceding year, which have now attained
finality, it is not, it is submitted, open to the Revenue to disallow the claim of
the appellant for deduction under those provisions for the year under
consideration without disturbing the claim for preceding year. In this regard, it
will be appreciated that the units were set up in earlier years and deduction in
respect of profits derived therefrom was, in principle, allowed in the preceding
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  year. In that view of the matter, the deduction claimed by the appellant calls for
  being allowed in the year under consideration too. He further pressed principles
  of consistency. As already stated hereinabove, though principle of res-judicata
  does not apply to income tax proceedings, it is well settled that if there being no
  change either in facts or in law, as compared to the earlier and subsequent
  years, the position accepted/ determined by the Department needs to be
  followed even on the principle of consistency. Reliance in this regard is placed
  on the following decisions:

  -     CIT vs. Excel Industries Ltd.: 358 ITR 295 (SC)
  -     Radhasoami Satsang v. CIT: 193 ITR 321 (SC)
  -     DIT (E) v. Apparel Export Promotion Council: 244 ITR 734 (Del)
  -     CIT v. Neo Polypack (P) Ltd: 245 ITR 492 (Del.)
  -     CIT v. Dalmia Promoters Developers (P) Ltd: 281 ITR 346 (Del.)
  -     DIT v. Escorts Cardiac Diseases Hospital: 300 ITR 75 (Del.)
  -     CIT v. P. KhrishnaWarrier: 208 ITR 823 (Ker)
  -     CIT v Harishchandra Gupta 132 ITR 799 (Ori)
  -     CIT v. SewaBharti Haryana Pradesh: 325 ITR 599 (P&H)
      o CIT v. Rajasthan Breweries Limited.: ITA 889/2009 (Del) ­ SLP
        dismissed.

  Thus, in view of the above, the department having accepted that the aforesaid
  units were eligible to claim deduction under section 80IA of the Act in the
  preceding year, the same stand ought not to be changed/ modified, during the
  year under consideration, even on the principle of consistency, particularly,
  when no new fact/ information has been brought on record for the same.

18.   Ld. departmental representative also supported the order of the Ld.
      assessing officer and stated that subsection 7 shows that the books of
      accounts are required to be maintained by the assessee for such unit which
      claimed deduction under that section. He further submitted that no details
      has been produced by the assessee before the assessing officer.


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19.   In the rejoinder, the Ld. authorized representative submitted that details
      were filed before the Ld. assessing officer and it were placed at the paper
      book page No. 78 onwards.
20.   We have carefully considered the rival contention and perused the orders of
      the lower authorities. The brief background of the issue shows that assessee
      has set up two windmills for its captive consumption. On the same assessee
      claimed deduction under section 80 IA. Before the assessing officer the
      assessee submitted the audit report in form No. 10 CCB. The assessee
      started generating power from assessment year 2004 ­ 05 onwards. For
      both the windmills the assessee entered into a power purchase agreement,
      such power generated at the windmill wheeled by that agreement to the
      manufacturing unit of the assessee, and number of units generated after
      deduction of the billing charges is granted as set-off in the electricity bill of
      the assessee. Based on this assessee booked the revenue and burnout profit
      thereon to derive at the profit generated from the industrial undertaking.
      During the course of assessment proceedings, the assessee was directed to
      produce the books of accounts maintained in respect of windmill units,
      which was produced by the assessee along with the methodology by which
      the income is booked and expenditure incurred of the windmill. The Ld.
      assessing officer rejected it on the ground that the appellant is computing
      sales based on the credit notes and the appellant failed to produce any
      document vouchers, which could have asserted that the appellant has
      maintained its accounts separately. Apparently the assessee is booking
      revenue is based on the credit note issued by the power purchase company
      wherein the specified number of units generated are shown. Based on that
      the assessee shows the revenue and further the respective expenditure
      incurred for the windmill are also recorded in the books of accounts. The
      assessee has claimed that it is maintaining separate books of accounts with
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respect to both the windmill undertakings and such books of accounts are
duly been audited by an independent auditor and such report of the auditor
has been filed before the Ld. assessing officer. The main reason for the
rejection of the deduction of the assessee by the Ld. assessing officer is that
that assessee is booking revenue based on the credit notes. Looking at the
nature of the activities carried out by the assessee wherein it has set up
industrial undertaking for the purpose of captive consumption of power. For
its major requirement, it buys the power from Gujarat electricity board.
However to get the benefit of its different industrial undertaking which
generates the power, the assessee entered into an agreement with a power
transmission company which gives the credit of units generated by the
windmill project against the electricity bill of the manufacturing unit of the
assessee. Therefore, the assessee is recording the number of units generated
by the windmill as unit revenue generated from the industrial undertaking.
While paying the electricity bill of the manufacturing unit, such number of
units, which were generated by the industrial undertaking such as windmill,
was granted as deduction and only the net units charged to the assessee. The
assessee has recorded the revenue involved in those units generated by the
windmill based on the rate at which power that is supplied to the assessee
for the manufacturing unit. According to the subsection 7 of section 80 IA
the only requirement is that, the accounts of the undertaking are required to
be audited. In the present case, the assessee has submitted the audited
accounts. If the auditor has not qualified those audited accounts, there is no
reason to reject them at the threshold without making further verification.
The Ld. assessing officer should have verified whether the assessee has
properly computed the income derived from the industrial undertaking or
not. If the assessing officer finds that such working is not proper then only
he can say that that the audited accounts of the assessee are not reliable. In
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      the present case the revenue has been recorded by the assessee by deriving
      the units generated based on the credit notes issued by the transmission
      company, the assessee multiplied those units generated with the power rates
      for which the manufacturing unit buys the power from an outside agency,
      reduced the proper expenditure there from to derive at the profits of the
      industrial undertaking. It is further stated that this is not the 1 st year of the
      claim of the assessee under section 80 IA of the act. In the past years, also
      the assessee was granted deduction on the similar facts and circumstances
      by the Ld. assessing officer. The principle of consistency also demands the
      assessee may be treated as eligible for deduction and it may not be rejected
      merely based on non-maintenance of books of accounts. Same is also not
      found as the mandatory conditions for deduction. Therefore, we do not
      approve the approach of the assessing officer in rejecting the claim of the
      assessee at the threshold merely on the basis that no separate books of
      accounts are maintained even when the assessee has submitted the audit
      report of the accounts of the industrial undertaking which was the
      requirement of subsection 7. Further, the claim of the assessee has been
      rejected at the threshold itself without verifying that what is the amount of
      profits that is derived by the industrial undertaking during the year. The
      assessee has submitted that these details were placed before the Ld.
      assessing officer, which is also placed before us at page No. 78 onwards of
      the paper book. In view of this we set aside this ground of appeal back to
      the file of the Ld. assessing officer with a direction to verify the claim of
      the assessee on examination of the audited accounts of the industrial
      undertaking and then grant deduction under section 80 IA of the income tax
      act in accordance with the law. In the result ground No. 4 of the appeal of
      the assessee is allowed with above direction.
21.   Accordingly, appeal filed by the assessee is allowed with above direction.
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22.   Now we come to the appeal of the Ld. assessing officer, which is against
      the direction of the Ld. Dispute resolution panel.
23.   The 1st ground of appeal is against the direction of the Ld. dispute
      resolution panel where the addition of Rs. 4,42,55,709 made by the AO on
      account of disallowance of the claim towards reduction of deduction under
      section 80 IA(5) in the draft order. The brief facts of the issue shows that
      during the year under consideration the assessee revised its claim for
      deduction under that section with respect to the wind power undertaking.
      The assessee did not set-off claim notionally by brought forward losses of
      the eligible undertaking for the earlier years. The aforesaid treatment was
      given by the assessee by way of revised returns filed before the assessing
      officer. The assessee has also submitted the working of the same before the
      AO. The Ld. assessing officer in the draft order rejected the revised claim
      of the appellant on the ground that for granting deduction under section 80
      IA that 1st brought forward losses were to be set off against the profit of the
      eligible unit and the deduction is allowed in respect of balance of profit if
      any. Accordingly the AO rejected the claim of enhancement of deduction
      claimed by the assessee from Rs. 1 8, 35, 10, 398/ ­ Rs. 22, 77, 66, 107/­.
      On objection filed by the assessee before the Ld. Dispute resolution panel
      the above disallowance was deleted. Against these directions the assessing
      officer is in appeal before us.
24.   The Ld. departmental representative relied upon the orders of the Ld.
      assessing officer and submitted that such brought forward losses cannot be
      set off against other income but should be set off only against the income
      generated of the eligible undertaking only.
25.   The Ld. authorized representative vehemently stated that identical issue has
      been decided in favour of the assessee by the coordinate bench in asse ssees
      own case for assessment year 2009 ­ 10 in ITA No. 3554/del/2014 and
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      3596 and 3595/del/2014. It is therefore submitted that the issue is squarely
      covered in favour of the assessee.
26.   We have carefully considered the rival contentions and the orders of the ld
      AO. We have also verified the direction of the Ld. Dispute resolution panel.
      The only issue involved in this ground of appeal of the revenue is that
      whether the Ld. dispute resolution panel is        right in directing the Ld.
      assessing officer to not to set off the brought forward losses of the eligible
      undertaking against the income of that industrial undertaking before
      allowing deduction under section 80 IA of the act. The coordinate bench
      has already decided this issue in earlier years in assessees case wherein
      relying on the decision of the jurisdictional High Court as well as the
      circular issued by the Central board of direct taxes in circular No. 1/2016
      dated 15/2/2016, it was held that when the assessee exercises option of
      choosing the initial assessment year which it chooses 10 assessment years
      out of 15 years, then only the losses of the year starting from the initial
      assessment year alone are to be brought forward and set off as stipulated in
      section 80 IA (5) of the act, as loss prior to the initial assessment year
      which has already been set of cannot be once again reduced from the
      eligible income of the assessee. In nutshell, it is held that only the holiday
      period of 10 years starting from the initial assessment year to the last
      eligible assessment year up to which the assessee is eligible for deduction
      that is only covered by the provisions of section 80 IA (5) of the act. The
      Ld. departmental representative also could not show us any other judicial
      precedent, which forces us to take a different view. In view of this ground
      No. 1 of the appeal of the revenue is dismissed.
27.   The ground No. 2 of the appeal of the revenue is with respect to the
      direction of the Ld. Dispute resolution panel in deleting the disallowance
      made out of the miscellaneous expenditure. The brief facts of the case are
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      that during the year under consideration the assessee has incurred
      expenditure aggregating to Rs. 2, 97, 20, 756/­ and out of the said
      expenditure the assessing officer disallowed the expenditure on account of
      horticulture expenditure incurred by the assessee at plant, horticulture
      expenditure incurred by the assessee at its residential colony, purchases of
      the computer supply, software purchase expenses and security services
      charges paid at the colony. Ld AO held them to be capital expenditure. The
      Ld. Dispute resolution panel directed the Ld. AO to delete the above
      disallowance and therefore this ground of appeal.
28.   The Ld. departmental representative relied upon the order of the Ld. AO.
29.   The Ld. authorized representative submitted that identical issue has been
      covered in favour of the assessee by the decision of the coordinate bench in
      assessees own case for assessment year 2007 ­ 08 and 2008 ­ 09 in ITA
      No. 3215/del/2013 and 3214/del/2014. He further stated that for assessment
      year 2009 ­ 10 in ITA No. 3554 and 3596 and 3595/del/2014 this issue is
      also been decided in favour of the assessee it was further submitted that the
      assessing officer himself has accepted the claim of the appellant in the
      subsequent year in assessment year 2011 ­ 12 and 2012 ­ 13 wherein the
      AO had allowed the aforesaid expenditure holding the same to be revenue
      in nature.
30.   We have carefully considered the rival contentions and find that identical
      issue has been decided by the coordinate bench in assessees own case
      where the issue of horticultural expenses for plant and staff colony as well
      as the security service expenses and computer supply charges and software
      expenses are involved. The coordinate bench has decided the whole issue as
      under:-

           "31. Briefly stated, the facts pertaining to ground no. 3 of the revenue
           for AY 2008-09 are that the AO made disallowance in regard to
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Horticulture expenses (for plant and staff colony), security services
expenses (for staff colony), computer supply (peripherals) and
software purchase expenses total amounting to Rs.68,40,814 which
were deleted by the CIT(A) by allowing ground nos. 4, 5, 5.1, 6, 6.1, 7
& 8 of assessee raised before him i.e. CIT(A) in the impugned order.
Now, the revenue re-agitated the above issue in ground no. 3 as
reproduced hereinabove.

...........



36. On careful consideration of above, we are of the considered
opinion that we are in agreement with the reasoning and conclusion of
the CIT(A) in para 6.5 of the impugned order as the main purpose of
expenditure on horticulture was to facilitate the operations by
providing better environment which is of revenue in nature, hence, the
same is allowable u/s 37 of the Act. We also observe that there are
other several expenses which are incurred for decorating the building
and for providing general security, beautification and required
environment for day to day activities of manufacturing unit of the
assessee, therefore, these kind of expenses are incurred for the purpose
of business and the same cannot be disallowed.

..........



37. In regard to issue            of   security   services     at   the    staff
colony.........................



39. On careful consideration of above submissions and perusal of the
order of the CIT(A) for preceding AY 2007-08 and respectfully
following the decision of Honble Apex Court in the case of Empire
Jute Co. Ltd. vs. CIT 124 ITR 1(SC), wherein it was held that the
expenditure incurred for welfare of employees and even general public
interest is allowable as revenue deduction, we reach to a conclusion
that the expenditure of security for staff colony is squarely covered in
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favour of the assessee by the earlier/preceding AY 2007-08 order of
CIT(A) and in the present case, the CIT(A) was right in deleting the
addition. Hence, we are unable to see any ambiguity or perversity in
the impugned order or any other valid reason to interfere with the
same.



40. On the issue of computer peripherals supply expenses, ld. DR
submitted that as per claim of the assessee, the assessee incurred
expenditure of Rs.18,24,903 towards purchase of printer cartridges,
computer peripherals like CD disks etc. and other consumables for
maintenance of computers and printers but the assessee has not
furnished any details/evidence to support this claim. Therefore, the AO
rightly treated the same as capital nature expenditure and allowed
depreciation @15% and disallowed the remaining balance of
Rs.15,51,168. The DR further contended that the CIT(A) granted relief
for the assessee on wrong basis, hence the impugned order may be set
aside by restoring that of the AO.



41. Ld. Counsel of the assessee replied that (i) the nature of aforesaid
expenses incurred on consumables are routine in nature (ii) such
expenditure was incurred wholly and exclusively for the purpose of
business and did not bring any benefit of enduring nature for the
assessee, therefore, such expenditure should not be treated as capital
expenditure as has been done in the preceding assessment year. Ld.
Counsel further submitted that the expenditure incurred on
consumables of computer supplies should be allowed as deductible
revenue expenditure, the ld. Counsel alternatively submitted that
depreciation on such computer supplies should be allowed @60%.



42. On careful perusal of assessment order, we observe that the AO
treated the expenditure as capital in nature and made an addition, after
allowing depreciation @15%, by holding that the assessee has not
furnished details/evidence to support the claim. From para 6.7 of
                                                                  Page | 40
                                                Gujarat Guradian Limited V DCIT
                                                DCIT V Gujarat Guradian Limited
                                                                    A Y 2010-11
                                                   ITA No 1106 & 973/Del/2015

impugned order, as reproduced above, we observe that the CIT(A)
granted relief for the assessee on perusal of the details furnished before
him but the CIT(A) has not given any finding about the nature of
expenditure and facts emerging from details/evidence submitted before
him, neither and remand report has been called from the AO. Hence,
we find it appropriate to restore this issue to the file of AO with a
direction that the AO shall examine the details/evidence of the assessee
about this claim of the assessee and adjudicate the issue afresh without
being prejudiced from earlier assessment and impugned order.

.............

43.     Apropos        software      purchase       and    development
expenditure..................regarded to be       incurred as revenue
expenditure.........



44. On careful consideration of above submissions of both the sides,
we are of the considered view that the AO has not doubted about the
genuineness of the claim of the assessee but the AO treated the same as
capital ex is penditure. Per contra, the CIT(A) rightly held that the
expenditure incurred on software licence fee, purchase/development of
miscellaneous software and hosting and maintenance of website and
charges for internet band with connectivity are expenditure revenue in
nature and we are unable to see any valid reason to interfere with the
same, hence, order of CIT(A) is upheld and contentions of the DR are
rejected.To sum up, on ground no. 3 of the revenue in AY 2008-09 the
issue of horticulture expenses in plant and staff colony, security,
charge for staff colony and software development expenses is decided
in favour of the assessee and the same is partly dismissed on above
four issues and on the issue of computer supplies part ground of the
revenue is deemed to be allowed by restoring the issue to the file of the
AO with the directions as indicated above."




                                                                     Page | 41
                                                          Gujarat Guradian Limited V DCIT
                                                          DCIT V Gujarat Guradian Limited
                                                                              A Y 2010-11
                                                             ITA No 1106 & 973/Del/2015

31.   Further for assessment year 2009 ­ 10 the coordinate bench has decided on
      the issue of the plantation and horticulture expenditure for plant and colony
      as under"-



          "30. Having gone through the orders of the authorities below, on the
          issue we find that the condonation of the assessee in support of the
          claimed expenditure on plantation remained that it was set up in a
          remote area in the State of Gujarat which is semi dessert State. It was
          thus required to have dust free environment for the proper
          manufacturing of the product of the assessee i.e. glass and such
          expenses were incurred within the factory premises in order to provide
          necessary landscape and making the environment green and eco
          friendly. It was submitted that horticulture expenses were also incurred
          for the staff colony which is in the immediate vicinity of plant and
          security thereof was also held to be of the same nature. It was submitted
          that the staff colony is also a business asset of the assessee. Considering
          all these material aspects of the issue, we are of the view that the Ld.
          CIT(A) has rightly deleted the disallowance made by the A.O. on
          account of expenses incurred on plantations in the factory premised and
          staffs colony. The order of the First Appellate Authority in this regard
          is thus upheld. Ground No. 3 is accordingly rejected."



32.   On facts, the objection before the Ld. Dispute resolution panel with respect
      to the horticulture expenditure incurred for maintenance of Greenland           In
      the factory and colony by holding the same to be non-business expenditure
      and computer peripherals like computer disk CD etc holding the same to
      be capital expenditure and making disallowance thereon and the
      development expenditure of software holding the same to be capital
      expenditure the Ld. Dispute resolution panel has held that these issue has
      been dealt with by the coordinate benches in the appellant s own case for
      assessment year 2007 ­ 08 and 2008 ­ 09 and therefore the Ld. Dispute
                                                                               Page | 42
                                                             Gujarat Guradian Limited V DCIT
                                                             DCIT V Gujarat Guradian Limited
                                                                                 A Y 2010-11
                                                                ITA No 1106 & 973/Del/2015

          Resolution Panel was of the considered view that issue is squarely covered
          in favour of the assessee and therefore it directed the AO to delete the
          disallowance made out of the various expenses. We do not find any
          infirmity in the order of the Ld. Dispute resolution panel as it followed the
          decision of the coordinate bench in assessees own case on identical facts
          and circumstances. In view of this ground No. 2 of the appeal of the
          revenue is dismissed.
   33.    In the result, appeal filed by the revenue against the direction of the Ld.
          Dispute resolution panel is dismissed.
   34.    Accordingly, both the appeals are disposed off.
          Order pronounced in the open court on 16/08/2018.

             -Sd/-                                         -Sd/-
       (S.K.YADAV)                                 (PRASHANT MAHARISHI)
       JUDICIAL MEMBER                               ACCOUNTANT MEMBER

Dated:16/08/2018
A K Keot

Copy forwarded to

  1.   Applicant
  2.   Respondent
  3.   CIT
  4.   CIT (A)
  5.   DR:ITAT
                                                            ASSISTANT REGISTRAR
                                                               ITAT, New Delhi




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