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2009 (12) TMI 945 - AT - Income TaxNature of receipt/income - sales tax incentive - present scheme is the New Package Scheme of Incentives 1993 of Government of Maharashtra - denial of claim of exclusion of sales-tax incentive on the ground that it is a capital receipt - HELD THAT - FAA has come to a factually incorrect conclusion that the assessee has brought sales-tax incentive by way of interest free unsecured loan and it had to repay the sales-tax liability after 10 years as per the repayment schedule. In view of the discussion we hold that the issue is squarely covered by the Special Bench of the Tribunal in the case of CIT vs Reliance Industries Ltd 2003 (10) TMI 255 - ITAT BOMBAY-J and concluded that the receipt in question is capital receipt. Argument of the revenue that sales-tax is not separately charged in the invoices - When a consolidated amount is charged in an invoice it cannot be said that it does not contain sales-tax component. Even if a separate account has been maintained for the sales-tax collected and paid, it is not correct to say they were not in the revenue field and are not reckoned while computing profit loss of the concern. A disclosure by the auditor that separate account has been maintained for sales-tax recovered and paid does not mean that the effect of the sales-tax has not been considered in the accounts of the assessee. It is well settled that the entries in the books of account are not determinative of the fact whether a deduction is allowable or not. Thus, this objection of the revenue is rejected. Disallowance of depreciation by reduction of notional tax on capital gain on an exemption allowed u/s 54G from the actual cost of the plant and machinery capitalized in the said assessment orders by invoking Explanation 10 to section 43(1) and thereafter computing the written down value - assessee alternatively, aggrieved at the non reduction of the same from the cost of land and building instead of plant and machinery - HELD THAT - Section 54G exempts from capital gain on transfer of assets, in cases where an industrial undertaking is shifted from an urban area to a non urban area subject to fulfillment of certain conditions specified in that section. An exemption from payment of capital gains tax granted u/ 54G cannot by any stretch of imagination be called a subsidy or grant or reimbursement. Such exemption cannot be said to have been granted by the State or Central Government to meet directly or indirectly a portion of the cost or the asset. For this sole reason, the entire theory made out by the assessing officer has to be quashed as devoid of merit. We are unable to comprehend how such strange, thoughts and propositions crept into the mind of the assessing officer. The benefit u/s 54G was admittedly given to the assessee during the assessment years 1995-96 and 1996-97. Explanation 10 to sub section 43(1) was brought into the statute only wef 01-04-1999 and even in this Explanation, in our considered opinion, there is no possibility of anybody coming to a conclusion that actual cost of the asset as accepted by the revenue in the assessment years 1995-96 and 1996-97 have to be disturbed while doing the assessment for the assessment year 2003-04. The proposition suffice to say, is devoid of any logic. If such propositions are accepted, it will lead to a situation where any exemption granted under various provisions of the Income-tax Act for the payment of tax including depreciation, investment allowance etc. would be taken as a subsidy, grant or reimbursement and can be considered for the reduction of cost of asset. CIT(A) exercise of his powers and setting aside the matter to the file of the assessing officer for fresh adjudication - CIT(Appeals) setting aside the matter with regard to factory power expenses, power house expenses,expenses incurred on maintenance of depot shed and non grant MAT credit brought forward from earlier years to the file of the A.O - HELD THAT - We find that the CIT(A) has in erroneous exercise of his powers and wrongly set aside the matter to the file of the assessing officer for fresh adjudication though he had no power to do so consequent to the amendment brought into the Act with effect from 01-06-2001 by Finance Act, 2001 whereby section 251(1)(a) has been amended and the words or he may set aside have been deleted. We also find that while the CIT(A) agrees with the submissions of the assessee, he set aside the matter to the file of the assessing officer for fresh adjudication which is, in our considered opinion, not proper. In any event, as the first appellate authority has no power to set aside the matter, we reverse his order to that extent and remit the matter back to his file for fresh adjudication in accordance with law. The assessee is at liberty to furnish any additional material in support of his claims and the first appellate authority is directed to admit such material and if necessary obtain a remand report from the assessing officer and dispose of these grounds on merits. The first appellate authority shall not be influenced by the fact that in the set aside proceedings the assessee has not been able to present himself before the AO. With these observations we dispose of grounds 5, 6 9 10 of the assessee. Ad-hoc disallowance of sale promotion expenses - Addition made there would be a possibility that some of the expenses would have not been incurred - HELD THAT - Assessee provided complete break up of all the details in the course of assessment proceedings and also an extract of the ledger account in respect of the details provided. The assessing officer has not asked for any specific detail or proof in the nature of any particular bill from the assessee during the assessment proceedings. No explanation regarding allowability or reasonableness of the expenses was asked for during the course of assessment proceedings. On this factual matrix, we hold that the adhoc disallowance is nothing but a sheer surmise and such disallowance cannot be sustained Disallowance of repair and expenses at head office - Expenditure largely been incurred for replacement of tiles, replacement of glass windows, doors panels etc - HELD THAT - The nature of these expenses clearly suggest that they are in the revenue field as no asset of enduring nature can be said to have come into existence by incurring of this expenditure. Thus, We find that the assessee has rightly relied upon the judgment in the case of New Shorrock Spinning Mfg Co Ld vs IT 1956 (2) TMI 54 - BOMBAY HIGH COURT ; Cultural Enterprises Corporation vs CIT 1992 (1) TMI 81 - CALCUTTA HIGH COURT and claimed that this expenditure has been wrongly disallowed. In the case of New Shorrock Spinning held that the test that must be applied is that as a result of the expenditure which is claimed as an expenditure for repairs, what is really being done is to preserve and manage an already existing asset. Respectfully applying these decisions to the facts of this case, we allow the ground of the assessee. Levy of Interest u/s 234D - Section 234D was introduced with effect from 01-06-2003 and hence applicable for the assessment year 2004-05 as held in the case of ITO vs Ekta Promoters Pvt Ltd 2008 (7) TMI 452 - ITAT DELHI-E . Respectfully following the same we allow this ground of the assessee and direct the AO not to levy interest u/s 234D. Levy of Interest u/s 234B and 234C - We respectfully apply the decision in the case of South Eastern Coal Fields Ltd 2002 (2) TMI 344 - ITAT NAGPUR and direct the AO to compute interest u/s 234C as per the income disclosed in the revised return. Coming to levy of interest u/s 234B we hold that it is consequential in nature. In the result, ground 12 is allowed in part. In the result, appeal filed by the assessee is allowed in part.
Issues Involved:
1. Denial of claim of exclusion of sales-tax incentive as a capital receipt. 2. Disallowance of depreciation by reduction of notional tax on capital gain from the actual cost of plant and machinery. 3. Ad-hoc disallowance of sales promotion expenses. 4. Disallowance of expenditure on repairs and maintenance of buildings. 5. Levy of interest under sections 234D, 234B, and 234C of the Income Tax Act. 6. Setting aside certain matters to the file of the Assessing Officer (A.O.) by the CIT(A). Issue-wise Detailed Analysis: 1. Denial of Claim of Exclusion of Sales-Tax Incentive as a Capital Receipt: The assessee claimed that the sales-tax incentive should be considered a capital receipt and excluded from income. The CIT(A) rejected this claim, stating that the revised return filed by the assessee did not indicate any omission or wrong statement in the original return. Furthermore, the CIT(A) noted that the sales-tax collection and payment were not passed through the profit and loss account, and the decision of the Special Bench in CIT vs Reliance Industries Ltd was not applicable. The Tribunal, however, found that the 1993 incentive scheme was similar to the 1979 scheme discussed in the Reliance Industries case and concluded that the sales-tax incentive was indeed a capital receipt. The Tribunal allowed the assessee's claim, emphasizing that the revised return was filed within the statutory time limit and that the accounting treatment of sales-tax did not affect its nature as a capital receipt. 2. Disallowance of Depreciation by Reduction of Notional Tax on Capital Gain: The A.O. reduced the notional tax on capital gain allowed under section 54G from the actual cost of plant and machinery, invoking Explanation 10 to section 43(1). The Tribunal held that the tax benefit under section 54G could not be considered a subsidy, grant, or reimbursement that reduces the actual cost of the asset. The Tribunal also noted that Explanation 10 was effective from 01-04-1999, while the benefit under section 54G was received in assessment years 1995-96 and 1996-97. Therefore, the Tribunal quashed the A.O.'s adjustment and allowed the assessee's claim for depreciation. 3. Ad-hoc Disallowance of Sales Promotion Expenses: The A.O. made an ad-hoc disallowance of Rs. 3,00,000 on sales promotion expenses, citing the inability to establish exclusive business connection for some expenses. The Tribunal found that the disallowance was based on conjectures and surmises without any specific evidence. The Tribunal held that the assessee had provided detailed break-ups and ledger accounts, and the A.O. had not requested any specific details during the assessment proceedings. Consequently, the Tribunal deleted the ad-hoc disallowance. 4. Disallowance of Expenditure on Repairs and Maintenance of Buildings: The CIT(A) confirmed the disallowance of Rs. 15,25,297 for repairs and maintenance of the head office, treating it as capital expenditure. The Tribunal, however, found that the expenses were for replacement of tiles, glass windows, and doors, which did not create an enduring asset. Relying on the jurisdictional High Court's decision in New Shorrock Spinning & Mfg Co Ltd vs IT, the Tribunal held that the expenses were revenue in nature and allowed the deduction. 5. Levy of Interest under Sections 234D, 234B, and 234C: The Tribunal held that section 234D, introduced with effect from 01-06-2003, was not applicable for the assessment year 2003-04, following the Special Bench decision in ITO vs Ekta Promoters Pvt Ltd. Consequently, the Tribunal directed the A.O. not to levy interest under section 234D. For interest under sections 234B and 234C, the Tribunal directed the A.O. to compute interest under section 234C based on the income disclosed in the revised return, as per the decision in South Eastern Coal Fields Ltd vs JCIT, and held that interest under section 234B was consequential. 6. Setting Aside Certain Matters to the File of the A.O. by the CIT(A): The CIT(A) had set aside matters related to factory power expenses, power house expenses, and depot maintenance expenses to the A.O. The Tribunal found that the CIT(A) had no power to set aside matters after the amendment to section 251(1)(a) effective from 01-06-2001. The Tribunal remitted these matters back to the CIT(A) for fresh adjudication, directing the CIT(A) to admit any additional material and obtain a remand report from the A.O. if necessary. Conclusion: The Tribunal allowed the assessee's appeal in part, providing relief on several grounds, including the exclusion of sales-tax incentive as a capital receipt, disallowance of depreciation, and ad-hoc disallowance of sales promotion expenses. The Tribunal also addressed the improper setting aside of matters by the CIT(A) and the levy of interest under sections 234D, 234B, and 234C.
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