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2018 (11) TMI 1628 - AT - Income TaxDisallowance of deduction u/s 80IC - amount received as Transport subsidy and sales tax rebate given under sales tax deferment rebate scheme - HELD THAT - A relying on M/S SHREE BALAJI ALLOYS 2016 (4) TMI 1161 - SC ORDER aforesaid receipts of the assessee on account of sales tax / VAT deferment subsidy and Transport subsidy are held to be capital in nature and not taxable. Since the receipts have been held to be capital in nature, hence, no addition is attracted on account of these receipts into the income of the assessee. Deduction u/s 80IC - interest income on FDRs obtained from ILC/ FLC for purchase of raw material - HELD THAT - Tribunal passed in the own case of the assessee wherein, this issue has been remanded back by the Tribunal to the file of the Assessing officer with a direction to decide the same afresh keeping in view the decision in the case of Vishal Tools Forging Pvt Ltd. v CIT 2011 (5) TMI 1093 - PUNJAB AND HARYANA HIGH COURT . VAT Deferment excluded while computing book profits u/s 115JB as being the capital receipt and not liable to tax in view of the proposition laid down in the case of Shree Balaji Alloys Ors 2016 (4) TMI 1161 - SC ORDER . Addition u/s 36(i) (iii) on account of interest free advances given by the assessee - HELD THAT - Assessee was possessed of own surplus funds more than the interest free advances given. He has observed that the assessee had share capital of ₹ 10.10 crores and free reserves of ₹ 43.06 crores, whereas, the interest free advances given to the assessee were to the tune of ₹ 12.28 crores. No reason to interfere in the well justified order of the CIT(A) on this issue and, therefore, this issue is accordingly decided in favour of the assessee. Disallowance of proportionate interest on investments made - HELD THAT - CIT(A) has discussed this issue in para 8 of the impugned order, wherein, he has observed that the assessee was possessed of sufficient own funds to make the aforesaid investments. We do not find any infirmity in the order of the CIT(A) on this issue also. Disallowance of deduction claimed u/s 80IC in respects of Misc. receipts - HELD THAT - AO held that the Misc. receipts of ₹ 1,64,980/- was not income earned from the business activity of the assessee and, hence, was not eligible for deduction u/s 80IC . CIT(A), however, has given a finding that these receipts were in fact re-imbursement of the expenditure claimed by the assessee in earlier years and, hence, these were relating to the business activity of the assessee and thus the reimbursement of the same goes into increase the income of the assessee which otherwise was eligible for deduction u/s 80IC of the Act. Penalty u/s 271(1)(c) - addition on account of disallowance of deduction u/s 80IC on Transport Subsidy, Deferred VAT Liability and interest income - deduction u/s 80IC on Transport subsidy and Deferred VAT liability is concerned, the same has been dealt with by us while deciding the appeal of the assessee - HELD THAT - We have already held the same as capital receipt and in the alternative eligible for claiming of deduction u/s 80IC hence, the levy of penalty on this issue does not survive. So far as the claim regarding interest income is concerned, the issue has already been restored by us to the file of the AO of adjudication afresh, hence, at this stage; penalty is not sustainable on this issue also.
Issues Involved:
1. Disallowance of deduction under Section 80IC for transport subsidy and sales tax rebate. 2. Treatment of interest income on FDRs for deduction under Section 80IC. 3. Classification of transport subsidy and sales tax rebate as capital or revenue receipts. 4. Determination of proper head of income for transport subsidy, sales tax deferment amount, and bank interest. 5. Depreciation allowance in determining profits and gains from industrial undertakings. 6. Imposition of interest under Sections 234B and 234C. 7. Exclusion of VAT deferment from book profits under Section 115JB. 8. Additional grounds raised by the assessee and revenue regarding various disallowances and deductions. Detailed Analysis: 1. Disallowance of Deduction under Section 80IC for Transport Subsidy and Sales Tax Rebate: The assessee contested the disallowance of deductions under Section 80IC for amounts received as transport subsidy and sales tax rebate. The Supreme Court's decision in "CIT Vs. M/s Vijay Steel Industries" and "CIT Vs. Meghalaya Steels Ltd." was cited, where it was held that such subsidies are capital receipts and not taxable. The Tribunal concluded that the transport subsidy and sales tax rebate should be treated as capital receipts, thus allowing the deductions under Section 80IC. 2. Treatment of Interest Income on FDRs for Deduction under Section 80IC: The issue of whether interest income on FDRs should be eligible for deduction under Section 80IC was remanded back to the Assessing Officer. The Tribunal referenced the jurisdictional High Court's decision in "Vishal Tools & Forging Pvt Ltd. v CIT," directing the AO to re-evaluate the matter considering the principles laid down in the case. 3. Classification of Transport Subsidy and Sales Tax Rebate as Capital or Revenue Receipts: The Tribunal referred to the Supreme Court's ruling in "CIT Vs. M/s Chaphalkar Brothers, Pune," which applied the 'purpose test' to determine the nature of subsidies. It was concluded that subsidies aimed at industrial development and employment generation are capital in nature, regardless of their form or timing. Consequently, the transport subsidy and sales tax rebate were classified as capital receipts. 4. Determination of Proper Head of Income for Transport Subsidy, Sales Tax Deferment Amount, and Bank Interest: The Tribunal upheld that the transport subsidy and sales tax deferment amounts are capital receipts and should not be included in the taxable income. The interest income on FDRs was remanded for fresh adjudication to determine if it should be netted against related expenses and included under Section 80IC. 5. Depreciation Allowance in Determining Profits and Gains from Industrial Undertakings: The Tribunal did not address specific arguments regarding the exclusion of depreciation in determining profits and gains from industrial undertakings, as no arguments were presented by the assessee on this ground. 6. Imposition of Interest under Sections 234B and 234C: Grounds related to the imposition of interest under Sections 234B and 234C were deemed consequential and did not require specific adjudication. 7. Exclusion of VAT Deferment from Book Profits under Section 115JB: The Tribunal allowed the exclusion of VAT deferment from book profits under Section 115JB, recognizing it as a capital receipt. This decision was based on precedents set by the Supreme Court and the Tribunal's previous rulings. 8. Additional Grounds Raised by the Assessee and Revenue: The Tribunal addressed various additional grounds raised by both the assessee and the revenue. These included issues related to the netting of interest income, foreign exchange fluctuation gains, profit on the sale of assets, and the disallowance of interest expenditure. Most of these issues were either remanded back for fresh adjudication or decided in favor of the assessee based on established legal principles and factual findings. Conclusion: The Tribunal's consolidated order addressed multiple appeals involving identical issues, primarily focusing on the classification of subsidies as capital receipts and the eligibility for deductions under Section 80IC. The Tribunal's decisions were largely influenced by Supreme Court rulings and jurisdictional High Court precedents, ensuring that the subsidies aimed at industrial development were treated as capital receipts and excluded from taxable income. The appeals were partly allowed or remanded for fresh adjudication, providing a comprehensive resolution to the contested issues.
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