2022 (11) TMI 1419 - AT - Income Tax

Nature of receipt - revenue or capital receipt - payment of Net Present Value of deferred sales tax liability, granted under the incentive scheme of State Government of Himachal Pradesh AND pre-payment of deferred sales tax liability - HELD THAT - As the material facts of the case are admittedly identical with the facts of the assessment year 2006-07, and the learned CIT(A) has categorically observed so, we have no reasons to take any other view of the matter than the view taken by the Tribunal for the assessment year 2006-07. Respectfully following the same, we hold that the impugned receipts as capital receipts. Special Capital Incentive availed in respect of unit situated in the state of Maharashtra and Excise Duty Incentive is required to be treated as capital receipt and to be excluded from the total income of the assessee Disallowance of Employees Stock Option Expenses should be deleted as relying on Kotak Mahindra Bank Ltd 2018 (1) TMI 320 - ITAT MUMBAI and taking note of the special bench decision in the case of Biocon Ltd. v. Dy. CIT 2013 (8) TMI 629 - ITAT BANGALORE Disallowance u/s 14A r.w.r. 8D - HELD THAT - We restrict the disallowance under section 14A to 1% of tax-exempt income. Ordered, accordingly. Adjustment of book profits under section 15JB for the 14A disallowance - we find that this aspect of the matter stands concluded, in favour of the assessee, by a special bench decision in the case of ACIT Vs Vireet Investments Pvt Ltd 2017 (6) TMI 1124 - ITAT DELHI Additional depreciation u/s 32 (1)(iia) - eligible assets acquired during the Previous Year - Ceasure of asset after first year use - only objection of the AO is that the provisions refer to new machinery or plant and therefore the machinery will cease to be a new machinery after the end of the first year in which it is installed or put to use - HELD THAT - As decided in M/S. GLOSTER JUTE MILLS LTD. 2017 (3) TMI 1807 - ITAT KOLKATA stand taken by the revenue is not supported by the language of statutory provision. The condition imposed by the relevant provisions is that Plant and Machinery must be new at the time of installation to be eligible for additional depreciation u/ s 32(1)(iia) and not new in subsequent years. The expression new machinery is therefore to be construed as referring to the condition that at the time of acquisition or installation the machinery or plant should be new. Going by the legislative history of the relevant provision, we are of the view that the condition for allowing additional depreciation only in the initial assessment year ceased to exist as and from 01-04-2006 . The plain language of the section warrants such an interpretation. Decided in favour of assessee. Addition of unutilized CENVAT credit as on last day of accounting year is to be deleted as appellant himself has already carried out necessary adjustment u/s 145A which was duly certified by Tax Auditors and hence any further adjustment was not warranted. Deduction u/s 80-IA on Infrastructure facility, being Rail Systems - Claim denied as prescribed certificates were not filed along with the return of income - HELD THAT - As noted by the authorities below, the form 10CCB is not filed in this case, and that is a mandatory requirement under section 80IA(7) for making a claim under section 80IA. While it has been contended before us that the form 10CCB was filed alongwith the revised return of income, the material before us does not evidence so. In the orders of the AO as also the CIT(A), it is specifically submitted that the form 10CCB is not filed by the assessee. In this view of the matter, and the absence of clarity on this factual aspect, we deem it fit and proper to remit the matter to the file of the Assessing Office for fresh adjudication by way of a speaking order. TP Adjustment - interest paid by the appellant under Bare Boat Charter cum Demise Arrangement entered with its Associated Enterprise - CIT(A) directing the TPO/AO to apply LIBOR Plus 350 point as a benchmark for determining the ALP regarding payment of interest for purchase of ships under BBCD arrangement - HELD THAT - As decided in own case 2022 (12) TMI 740 - ITAT MUMBAI 2005-06 CIT(A) has rightly noted, what needs to be benchmarked is the transaction between the assessee and its AE, and that transaction, in our considered view, is to be considered in a broader context- rather than as a simplistic borrowing transaction, which it is not. The assessee has taken the vessels under a BBCD arrangement and, while entering into this arrangement, the AE essentially has to factor in the financing arrangement. The consideration for the BBCD instalments is based on the cost of finance, as also the cost of vessels, to the AE, and, as such, there is no occasion for sharing the difference between the interest rate implicit in the BBCD arrangement and the cost of borrowing to the AE. While examining the rate of interest under the BBCD also, one has to bear in mind the fact that it cannot be compared with a borrowing arrangement simpliciter as are the transactions on which LIBOR plus rates apply. Learned Departmental Representative has not been able to show any justification for LIBOR plus 300 bps either, and his challenge primarily is even to this approach of benchmarking. No material before us to support the findings of the CIT(A) in any case, and the findings of the AO, as noted above and in our considered view, are unsustainable in law anyway. In any event, interest is only one part of the working in the computation of instalments, and one cannot consider the same on a standalone basis in the transaction. The benchmarking is to be done for the entire transaction and not a small and isolated transaction segment. The interest rate of 7.5% implicit in the BBCD arrangement is a part of the pricing and cannot be considered separately. We uphold the grievance of the assessee and delete the impugned ALP adjustment MAT computation u/s 115JB - We direct the AO to exclude the sales tax incentive subsidy for computing book profit under section 115 JB. Sales Tax incentives received under various schemes of different states is capital in nature as decided in own case of assessee 2006-07. Nature of expenses - expenditure grouped under the nomenclature Community Welfare Expenses, temple expenses, consultancy charges, service charges, mine prospecting expenses AND Pooja/ function expenses - Principle on consistency - HELD THAT - Right from the assessment years 1988-89 to 1994-95, the coordinate benches have allowed appeal of the assessee on this point, and from the assessment years 1995-96 to 2004-05, in which the first appellate authority has deleted similar disallowance, the coordinate benches have rejected the grievances of the Assessing Officer, against the reliefs so granted by the CIT(A). Learned Departmental Representative does not dispute this position but relies upon the stand of the Assessing Officer nevertheless. Deduction u/s 35 D being 1/5th of the expenditure incurred on issue of FCCB - CIT(A) allowed deduction - HELD THAT - On a perusal of the impugned order, we find that the CIT(A) has merely remitted the matter to the file of the AO with a direction to verify the facts from records and allow consequential relief to the assessee as per law, if any . The grievance of the Assessing Officer is thus misconceived and devoid of any legally sustainable merits. We reject the same.

Issues Involved:
1. Exclusion of Net Present Value of deferred sales tax liability
2. Exclusion of Special Capital Incentive
3. Exclusion of Excise Duty Incentive
4. Disallowance of Employees Stock Option Expenses
5. Disallowance under Section 14A
6. Denial of additional depreciation under Section 32(1)(iia)
7. Adjustment under Section 145A for unutilized CENVAT credit
8. Interest Income assessed under "Income from Other Sources"
9. Denial of deduction under Section 80-IA for Rail Systems
10. Denial of deduction under Section 80-IA for Port at Muldwarka unit
11. Arm's length rate of interest for Bare Boat Charter cum Demise Arrangement
12. Disallowance of compensation paid to L&T
13. Disallowance of leave encashment on provision basis
14. Exclusion of Education Cess, Dividend Distribution Tax, and Fringe Benefit Tax
15. Exclusion of Sales Tax Incentive and Excise Duty Exemption in computing Book Profit under Section 115JB
16. Sales Tax incentives received under various schemes treated as capital in nature
17. Allowing various expenditures grouped under Community Welfare Expenses
18. Allowing temple expenses as business expenditure
19. Allowing Pooja/function expenses as business expenditure
20. Allowing consultancy charges as revenue expenditure
21. Allowing service charges as revenue expenditure
22. Allowing mine prospecting expenses as revenue expenditure
23. Deduction under Section 35D for FCCB issue expenses

Detailed Analysis:

1. Exclusion of Net Present Value of deferred sales tax liability:
The Tribunal held that the issue is covered in favor of the assessee based on the decision in the assessee's own case for the assessment year 2006-07. The impugned receipts of Rs 12,56,20,681 are to be treated as capital in nature and excluded from the total income.

2. Exclusion of Special Capital Incentive:
The Tribunal found that the assessee deserves to succeed on this ground. Following the decisions for the assessment years 2005-06 and 2006-07, the Special Capital Incentive of Rs 30,00,000 is treated as capital receipt and excluded from the total income.

3. Exclusion of Excise Duty Incentive:
The Tribunal held that the excise duty incentive of Rs 53,23,56,012 is capital in nature, following the decision for the assessment year 2006-07. The amount is to be excluded from the total income.

4. Disallowance of Employees Stock Option Expenses:
The Tribunal decided in favor of the assessee, following the decision for the assessment year 2006-07, and directed the deletion of the disallowance of Rs 83,84,690.

5. Disallowance under Section 14A:
The Tribunal restricted the disallowance under Section 14A to 1% of the tax-exempt income, following the decisions for the assessment years 2005-06 and 2006-07. The adjustment of book profits under Section 115JB for the 14A disallowance was also resolved in favor of the assessee.

6. Denial of additional depreciation under Section 32(1)(iia):
The Tribunal upheld the assessee's claim for additional depreciation of Rs 13,97,67,365, following judicial precedents that allow additional depreciation in subsequent years.

7. Adjustment under Section 145A for unutilized CENVAT credit:
The Tribunal followed the decisions in the assessee's own cases from previous years and upheld the assessee's plea, directing the deletion of the impugned addition.

8. Interest Income assessed under "Income from Other Sources":
The assessee did not press this grievance, and the ground was dismissed as not pressed.

9. Denial of deduction under Section 80-IA for Rail Systems:
The Tribunal remitted the matter to the Assessing Officer for fresh adjudication, as the form 10CCB was not filed.

10. Denial of deduction under Section 80-IA for Port at Muldwarka unit:
Similar to the Rail Systems issue, the matter was remitted to the Assessing Officer for fresh adjudication.

11. Arm's length rate of interest for Bare Boat Charter cum Demise Arrangement:
The Tribunal deleted the ALP adjustment of Rs 18,93,544 and upheld the assessee's plea, finding no justification for the CIT(A)'s benchmarking at LIBOR plus 3.5%.

12. Disallowance of compensation paid to L&T:
The ground was dismissed as not pressed, as the assessee had been given alternative relief by way of depreciation.

13. Disallowance of leave encashment on provision basis:
The Tribunal rejected the grievance but directed the Assessing Officer to allow the deduction on a payment basis when actually made.

14. Exclusion of Education Cess, Dividend Distribution Tax, and Fringe Benefit Tax:
The assessee did not press this grievance, and the ground was dismissed as not pressed.

15. Exclusion of Sales Tax Incentive and Excise Duty Exemption in computing Book Profit under Section 115JB:
The Tribunal upheld the assessee's plea, following judicial precedents, and directed the exclusion of these amounts from the book profit.

16. Sales Tax incentives received under various schemes treated as capital in nature:
The Tribunal upheld the CIT(A)'s relief, treating the sales tax incentives as capital receipts in nature, following the decisions in the assessee's own cases for previous years.

17. Allowing various expenditures grouped under Community Welfare Expenses:
The Tribunal upheld the relief granted by the CIT(A), following the decisions in the assessee's own cases for previous years.

18. Allowing temple expenses as business expenditure:
The Tribunal upheld the relief granted by the CIT(A), following the decisions in the assessee's own cases for previous years.

19. Allowing Pooja/function expenses as business expenditure:
The Tribunal upheld the relief granted by the CIT(A), following the decisions in the assessee's own cases for previous years.

20. Allowing consultancy charges as revenue expenditure:
The Tribunal upheld the relief granted by the CIT(A), following the decisions in the assessee's own cases for previous years.

21. Allowing service charges as revenue expenditure:
The Tribunal upheld the relief granted by the CIT(A), following the decisions in the assessee's own cases for previous years.

22. Allowing mine prospecting expenses as revenue expenditure:
The Tribunal upheld the relief granted by the CIT(A), following the decisions in the assessee's own cases for previous years.

23. Deduction under Section 35D for FCCB issue expenses:
The Tribunal found the grievance of the Assessing Officer to be misconceived as the CIT(A) had merely remitted the matter to the Assessing Officer for verification. The grievance was dismissed.

Conclusion:
The appeal of the assessee is partly allowed, while the appeal of the revenue is dismissed. The cross-objection is also dismissed as infructuous.

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