2019 (9) TMI 150 - AT - Income Tax

Sales tax subsidy received - whether capital or revenue receipt - HELD THAT - Undisputedly the issue of treatment of sales tax subsidy whether the capital or revenue, has been decided in favour of the assessee as being capital in nature by the decision of the I.T.A.T. in the case of M/s Trident Alco-chem Ltd. I.T.A.T. had followed the decision of the ITAT Chandigarh Bench in the case of Vardhman Textiles 2015 (10) TMI 2764 - ITAT CHANDIGARH wherein the scheme of Punjab Government granting the subsidy had been considered at length and thereafter it was held that the purpose of the subsidy being promotion of industries the nature of the subsidy was capital in nature. In view of the same, we have no hesitation in holding that the sales tax subsidy received by the assessee is capital in nature. Disallowance of deferred revenue expenditure i.e. loan processing fee and interest differential - HELD THAT - Assessee admittedly had claimed deduction u/s 35D of the Act, which it had admitted before us, it was not eligible for the same. Therefore, as far as the disallowance being made and upheld on account of the assessee being ineligible to claim the same u/s 35D of the Act is concerned, admittedly there is no infirmity in the same. But alternatively the assessee had contended that the fact that the expenses related to the business of the assessee not being denied, it was eligible to claim the said expenses on payment basis u/s 43B of the interest differential and also on the principle of consistency, having been allowed the claim in the preceding and succeeding years - claim be allowed in the impugned year since otherwise it would have multiple ramifications with the assessee staking its claim in the year in which it accrued and considering that the Revenue Authorities have already allowed the claim in preceding and succeeding years, it would lead to multiple litigation and adjustments requiring to be made. By allowing the claim in the impugned year, the issue, once and for all will be settled in relation to these facts. Addition on account of proportionate interest on machinery put to use and closing balance of capital-work-in-progress by treating the same as capital expenditure - HELD THAT - Since we have noted from the order of the CIT(A) that the depreciation has already been allowed on the same, we do not find any merit in this plea of the assessee. In any case, no arguments have been made on the merits of the case. The ground of appeal No.3 raised by the assessee is, therefore, dismissed. Addition on account of previous year expenses - HELD THAT - The assessee has time and again contended that though the expenses related to the preceding years, the bills were raised in the impugned year. This has not been controverted by the Revenue. Therefore, we agree with the Ld.Counsel for the assessee that since the bills were raised of these expenses in the impugned years, the liability for these expenses crystallized in the impugned year only and following the mercantile system of accounting the assessee had, therefore, rightly claimed the said expenses in the impugned year. Even otherwise following the same logic and reasoning, we have noted, that the Ld.CIT(A) had allowed identical expenses claimed by the assessee in assessment year 2003-04 which were disallowed by the AO for identical reasons treating them as previous year expenses - Decided in favour of assessee Characterization of income - treatment of interest income and miscellaneous income earned by the assessee - income from other sources or business income - HELD THAT - Assessee had explained the reasons for treating so, stating that the interest income was earned on FDRs which were retained by the banks as margin money for releasing non fund based limits to the assessee. As for the miscellaneous income, the assessee had contended that these were in the nature of fines and penalties charged from contractors for non-complying the terms of the contract - gone through the order of the CIT(A) and we find that he has summarily dismissed the contention of the assessee without giving any reasons for the same by simply stating that he does not agree with the contention of the assessee. In view of the specific submissions made by the assessee, it was incumbent for the Ld.CIT(A) to deal with the same and dismiss it only after giving suitable reasons. Clearly the order passed by the Ld.CIT(A) on the issue is a non speaking order. We, therefore, consider it fit to restore the matter back to the Ld.CIT(A) to deal with the issue afresh. Disallowance of interest account on capital advances - capitalization of interest u/s 36(1)(iii) of the Act which was claimed by the assessee as revenue expenses - HELD THAT - We find merit in the contention of the Ld.Counsel for the assessee that the Ld.CIT(A) has passed a non speaking order on the issue without dealing with the submissions made by the assessee. As rightly pointed out ,the assessee we find, had made submissions on facts to the effect that interest pertaining to the capital advances had not been claimed as revenue expenses. But the Ld.CIT(A), we find, went on to uphold the disallowance without dealing with the specific factual contentions of the assessee. In view of the specific submissions made by the assessee, it was incumbent for the LD.CIT(A) to deal with the same and dismiss it only after giving suitable reasons. Treating a sum as interest on FDR as a receipt and not eligible to be reduced from capitalization of interest - HELD THAT - As rightly pointed out, the assessee we find, had stated that the interest income had been earned on funds raised for capital purposes, i.e project development. But the Ld.CIT(A), we find, went on to uphold the treatment of the same as being revenue in nature, without dealing with the specific contentions of the assessee. In view of the specific submissions made by the assessee, it was incumbent for the LD.CIT(A) to deal with the same and dismiss it only after giving suitable reasons. Clearly the order passed by the Ld.CIT(A) on the issue is a non speaking order. We, therefore, consider it fit to restore the matter back to the Ld.CIT(A) to deal with the issue afresh. The Ld.CIT(A) is directed to pass a speaking order after dealing with the specific contention made by the assessee after verifying the facts stated by the assessee Delayed payment of EPF and Punjab welfare Fund - HELD THAT - CIT(A) deleted the disallowance made by the AO of delayed payment of employees contribution to EPF, following the decision of the Hon'ble Jurisdictional High Court on identical issue in the case of M/s Rai Agro Industries Ltd. 2010 (11) TMI 386 - PUNJAB AND HARYANA HIGH COURT - DR has been unable to point out any distinguishing fact in the present case from the said decision relied upon by the Ld.CIT(A), nor has he been able to bring to our knowledge any subsequent decision of the Hon'ble Jurisdictional High Court or Hon'ble Apex Court deciding the issue against the assessee - no hesitation in upholding the order of the CIT(A) in deleting the disallowance made of the employees contribution to EPF Addition u/s 43B - CIT-A directing the Assessing Officer to verify and allow the claim of the assessee - HELD THAT - As gone through the order of the CIT(A) and do not find any infirmity in the same. As rightly noted by the CIT(A) the AO had disallowed the claim for want of evidence. Since necessary evidence had been filed before the CIT(A), the CIT(A) had rightly restored the matter to the AO to verify the claim of the assessee. We see no reason to interfere in the order of the CIT(A) Addition to book profits u/s 115IB on account of provisions for gratuity made - HELD THAT - DR was unable to point out any infirmity in the order of the Ld.CIT(A). The Ld. DR was unable to distinguish the facts of the present case with that of the INOX LEISURE LTD 2013 (2) TMI 353 - GUJARAT HIGH COURT relied upon by the Ld.CIT(A) while allowing assessee s claim. Further no decision of the Hon'ble Jurisdictional High Court or of the Hon'ble Apex Court was cited before us upholding the Revenue s stand that the provision for gratuity was to be added back to the net profit for calculating book profits of the assessee u/s 115JB of the Act. - Decided against revenue

Issues Involved:
1. Nature of sales tax subsidy: capital or revenue receipt.
2. Disallowance of deferred revenue expenditure: loan processing fee and interest differential.
3. Disallowance of proportionate interest on machinery and capital work in progress.
4. Addition of previous year expenses.
5. Treatment of miscellaneous income and interest as business income or income from other sources.
6. Capitalization of interest on capital advances.
7. Treatment of interest on FDR as a revenue receipt.
8. Addition of provision for gratuity for calculating book profits under section 115JB.
9. Disallowance of delayed payment of EPF.
10. Verification of claim under section 43B.

Detailed Analysis:

1. Nature of Sales Tax Subsidy: Capital or Revenue Receipt
The primary issue was whether the sales tax subsidy received by the assessee was capital or revenue in nature. The assessee treated it as capital, while the AO considered it revenue, relying on the jurisdictional High Court's decision in the case of CIT Vs. Abhishek Industries Ltd. The ITAT held that the sales tax subsidy was capital in nature, following the Supreme Court's decision in CIT Vs. Ponni Sugars & Chemicals Ltd., which emphasized the purpose of the subsidy. The Tribunal cited its own previous decisions, including the case of Vardhman Textiles Limited, to support this conclusion.

2. Disallowance of Deferred Revenue Expenditure: Loan Processing Fee and Interest Differential
The assessee claimed loan processing fees and interest differential under section 35D, which the AO disallowed. The Tribunal noted that while these expenses did not qualify under section 35D, they were allowable on a payment basis under section 43B. The Tribunal allowed the claim, emphasizing the principle of consistency, as similar claims were allowed in other years.

3. Disallowance of Proportionate Interest on Machinery and Capital Work in Progress
The AO disallowed interest related to machinery not put to use and capital work in progress, applying section 36(1)(iii). The Tribunal upheld the AO's decision but noted that depreciation had already been allowed on the same, thus dismissing the assessee's plea.

4. Addition of Previous Year Expenses
The AO disallowed previous year expenses, but the Tribunal found that the bills for these expenses were raised in the current year, thus crystallizing the liability in the current year. The Tribunal allowed the claim, noting that similar claims were allowed in previous years.

5. Treatment of Miscellaneous Income and Interest as Business Income or Income from Other Sources
The AO treated interest income and miscellaneous income as income from other sources. The assessee contended these were business incomes, as interest was earned on FDRs held as margin money and miscellaneous income was from fines and penalties. The Tribunal found the CIT(A)'s order non-speaking and restored the matter for fresh adjudication, directing a speaking order addressing the assessee's contentions.

6. Capitalization of Interest on Capital Advances
The AO capitalized interest on capital advances, which the assessee claimed as revenue expenses. The Tribunal found that the CIT(A) did not address the assessee's specific contentions and restored the matter for fresh adjudication, directing verification of facts and a speaking order.

7. Treatment of Interest on FDR as a Revenue Receipt
The AO treated interest on FDRs as revenue receipt, while the assessee claimed it as capital receipt, as the FDRs were made from funds raised for project development. The Tribunal restored the matter for fresh adjudication, directing a speaking order addressing the specific contentions of the assessee.

8. Addition of Provision for Gratuity for Calculating Book Profits under Section 115JB
The AO added provision for gratuity to book profits under section 115JB. The CIT(A) deleted the addition, relying on the Gujarat High Court's decision in DCIT Vs. Inox Leisure Ltd. The Tribunal upheld the CIT(A)'s decision, noting no contrary decision was provided by the Revenue.

9. Disallowance of Delayed Payment of EPF
The AO disallowed delayed payment of EPF under section 36(1)(va). The CIT(A) deleted the disallowance, following the jurisdictional High Court's decision in CIT Vs. M/s Rai Agro Industries Ltd., which was also followed by the ITAT in the assessee's own case for a previous year. The Tribunal upheld the CIT(A)'s decision.

10. Verification of Claim under Section 43B
The AO disallowed a claim under section 43B for lack of evidence. The CIT(A) restored the matter for verification of the claim, directing the AO to allow the claim after satisfying that no such claim was made in earlier years. The Tribunal upheld the CIT(A)'s decision.

Conclusion:
- The appeals of the assessee were partly allowed or allowed for statistical purposes.
- The appeal of the Revenue was dismissed.
- The Tribunal emphasized the importance of addressing specific contentions and providing speaking orders, ensuring consistency in the treatment of claims across different years.

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