2011 (12) TMI 518 - AT - Income Tax

Summary

Issues Involved:

1. Deletion of addition of Rs. 7,47,590/- as capital expenditure.
2. Treatment of Rs. 62,38,589/- subsidy from the State Government as revenue receipt.
3. Adjustment of sales tax subsidy in computing book profits u/s 115JB.
4. Reassessment proceedings u/s 147.

Summary:

Issue 1: Deletion of Addition of Rs. 7,47,590/- as Capital Expenditure

The Revenue's appeal for A.Y. 2004-2005 challenged the deletion of Rs. 7,47,590/- being payment of recompensation to State Bank of India, which the AO considered as capital expenditure. The CIT(A) deleted the disallowance, following his decision in the assessee's case for A.Y. 2003-2004. The Tribunal upheld the CIT(A)'s order, noting that the issue was covered by its earlier decision for A.Y. 2003-2004, where the payment was deemed as interest, a revenue expenditure.

Issue 2: Treatment of Rs. 62,38,589/- Subsidy from State Government as Revenue Receipt

The Revenue's appeal for A.Y. 2004-2005 also contested the deletion of Rs. 62,38,589/- subsidy, treated by the AO as revenue receipt. The CIT(A) held it as a capital receipt, following the Special Bench decision in DCIT Vs. Reliance Industries. The Tribunal agreed with the CIT(A) but directed the AO to reduce the subsidy from the cost of fixed assets for depreciation calculation as per section 43(1).

Issue 3: Adjustment of Sales Tax Subsidy in Computing Book Profits u/s 115JB

In the assessee's appeal for A.Y. 2003-2004, the CIT(A) did not adjudicate the issue of reducing sales tax subsidy from book profits u/s 115JB. The Tribunal remanded the matter to the CIT(A) for a decision on this specific issue.

Issue 4: Reassessment Proceedings u/s 147

The assessee's appeal for A.Y. 2003-2004 included grounds challenging the issuance of notice u/s 148 and the reassessment u/s 147. These grounds were not pressed by the assessee and were dismissed by the Tribunal.

Other Appeals:

For the cross appeals of A.Y. 2003-2004 and the Revenue's appeals for A.Y. 2005-2006 and 2006-2007, the Tribunal followed the same rationale as in A.Y. 2004-2005 regarding the treatment of subsidy as a capital receipt and directed the AO to adjust the cost of fixed assets for depreciation purposes.

Conclusion:

All appeals were partly allowed, with specific directions to the AO for recalculating depreciation after reducing the subsidy from the cost of fixed assets. The Tribunal's decisions were consistent with earlier rulings and legal precedents.