2020 (3) TMI 964 - AT - Income Tax

Delayed PF ESI contribution(s) - sum credited beyond the due date stipulated in the corresponding Acts - HELD THAT - CIT-DR fails to dispute the clinching fact that the assessee had very well credited the impugned sum(s) before the due date of filing return u/s 139(1). That being the case, hon'ble jurisdictional high court s decision in Commissioner of Income Tax vs. M/s Vijay Shree Ltd. 2011 (9) TMI 30 - CALCUTTA HIGH COURT squarely covers the issue in assessee s favour. Assessment u/s 153A - Exclusion of Sales Tax Incentive from West Bengal State Government in computing taxable income under normal provisions of the Act - HELD THAT - Nothing comes in the way of the concerned assessee in seeking original claim of deduction in proceedings involving search assessment u/s. 153A as well. We thus express our concurrence with the CIT(A) s impugned action entertaining the assessee s foregoing additional ground seeking to treat its sales tax incentive subsidy as capital and not revenue receipt which had been erroneously recorded under the latter head in the computation of income. We make it clear that purpose of an assessment framed under the provision of the Act is to determine the correct taxable income than that based on estopple only since the Income Tax Act does not involve adversarial proceedings as per in V.W. Narayen 1971 (8) TMI 91 - SUPREME COURT , S.N. Swarnnamal vs. CED 1972 (4) TMI 13 - MADRAS HIGH COURT State of Tamil Nadu vs Arulmurya Co 1982 (11) TMI 143 - MADRAS HIGH COURT Whether the impugned sales tax incentive subsidy sum(s) received under Notification No. 1460 dated 27.05.1994 issued by the West Bengal Industrial Promotion (Assistance to Industrial Units) Scheme are in the nature of a capital or revenue subsidy? - We find this latter issue to be no more res integra since the CIT(A) has taken note of various judicial precedents; including that of hon'ble jurisdictional high court, that this subsidy gives rise to capital receipt only. We adopt the very reasoning mutatis mutandis and uphold the CIT(A) s findings under challenge granting relief to assessee. Sec 115JB MAT computation - CIT-DR fails to dispute that once the impugned subsidy scheme has been held as capital and not a revenue item, the same does not form part of impugned MAT computation as well going by the judicial precedents taken note of in the lower appellate discussion. We quote in Commissioner of Income Tax vs. K.Y. Pilliah Sons 1966 (10) TMI 35 - SUPREME COURT that when this tribunal expresses its concurrence with the lower authorities conclusion in entirety, it may not take recourse to a detailed reasoning on its own. We thus uphold the CIT(A) s lower appellate findings on all these three aspects raised at Revenue s behest. Excessive interest payment disallowance u/s 40A(2)(b) - HELD THAT - We find that the assessee had paid the interest sum(s) @ 12% and 11% in case of related and unrelated parties; respectively. Ld CIT-DR fails to dispute that there is no discussion at all in the assessment order indicating any comparison of market rate of interest vis-a- vis assessee s interest @ 12% forming subject-matter of the impugned disallowance. We thus affirm the CIT(A) s findings under challenge for this precise reason only. Addition on account of stock discrepancy made in the course of assessment - HELD THAT - CIT(A) has rightly granted relief to the assessee since finding no discrepancy in stock in principle. We thus affirm CIT(A) s above findings under challenge deleting the impugned addition - Decided against revenue

Summary

Issues Involved:
1. Disallowance of PF & ESI contributions.
2. Treatment of sales tax incentives as capital or revenue receipts.
3. Inclusion of sales tax incentives in MAT computation under section 115JB.
4. Excessive interest payment disallowance under section 40A(2)(b).
5. Addition on account of stock discrepancy.

Detailed Analysis:

1. Disallowance of PF & ESI Contributions:
The Revenue's first grievance pertained to the disallowance of the assessee's PF & ESI contributions for the assessment years 2009-10 to 2013-14 due to delayed credit beyond the stipulated due date. However, it was undisputed that the assessee credited the contributions before the due date of filing the return under section 139(1) of the Income Tax Act. The jurisdictional High Court's decision in Commissioner of Income Tax vs. M/s Vijay Shree Ltd. covered the issue in favor of the assessee, leading to the dismissal of the Revenue's ground.

2. Treatment of Sales Tax Incentives:
The Revenue challenged the CIT(A)'s decision treating the assessee's sales tax incentives as capital receipts rather than revenue receipts and excluding them from the MAT computation. The CIT(A) admitted the additional ground raised by the assessee, relying on the Supreme Court's decisions in National Thermal Power Co. Ltd. vs. CIT and Jute Corporation of India Ltd. vs. CIT, which allowed the appellate authority to admit additional grounds that are purely legal in nature. The CIT(A) found that the sales tax incentives were granted for the purpose of industrial promotion, modernization, and expansion, thus qualifying as capital receipts based on the 'purpose test' established by the Supreme Court in Sahney Steel and Press Works Ltd. and CIT vs. Ponni Sugars and Chemicals Ltd. This view was supported by the jurisdictional High Court in CIT vs. Rasoi Limited and Manmohan Kedia vs. ITO.

3. Inclusion of Sales Tax Incentives in MAT Computation:
The assessee sought exclusion of the sales tax incentives from the MAT computation under section 115JB, arguing that such incentives, being capital receipts, do not contain any profit element and hence are not income under section 2(24) of the Act. The CIT(A) accepted this argument, citing several judicial precedents, including the Rajasthan High Court's decision in ACIT vs. Shree Cement Ltd. and the Madras High Court's decision in CIT vs. Metal & Chromium Plater (P) Ltd. The CIT(A) concluded that capital receipts should be excluded from the book profit computation under section 115JB, following the principle of judicial discipline and hierarchy.

4. Excessive Interest Payment Disallowance:
The Revenue's grievance regarding the disallowance of excessive interest payments under section 40A(2)(b) was dismissed. The CIT(A) found no discussion in the assessment order indicating any comparison of market rates of interest vis-à-vis the assessee’s interest rates, leading to the affirmation of the CIT(A)'s findings.

5. Addition on Account of Stock Discrepancy:
The Revenue challenged the deletion of an addition made on account of stock discrepancy. The CIT(A) found that the Assessing Officer had re-categorized the items in the inventory on an ad-hoc basis without providing any reasonable explanation or justification. The CIT(A) concluded that the method followed by the assessee was reasonable and deleted the disallowance.

Conclusion:
The Tribunal upheld the CIT(A)'s decisions on all the issues, dismissing the Revenue's appeals. The Tribunal concurred with the CIT(A) that the sales tax incentives were capital receipts and should be excluded from the MAT computation. Additionally, the Tribunal found no merit in the Revenue's arguments regarding the disallowance of PF & ESI contributions, excessive interest payments, and stock discrepancy.