2022 (12) TMI 1265 - AT - Income Tax

Amortization of leasehold land and land development expenses - On the lands taken on lease are ranging for periods from 21 years to 99 years AO was of the view that the purpose of the expenditure made by the assessee does not satisfy the conditions laid down under the provisions of the act - HELD THAT - From perusal of the above finding of this Tribunal in case of Greenply Industries Limited 2022 (7) TMI 1045 - ITAT GUWAHATI we find that the same is squarely applicable on the issue raised before us in the instant appeal and therefore, taking a consistent view, the expenditure claimed by the assessee on account of amortization of leasehold land and land development charges deserves to be allowed. Therefore, ground no. 1 raised by the assessee is allowed. MAT computation u/s 115JB - excise duty exemptions as capital receipt - whether they are to be excluded for the purpose of computing book profit u/s 115JB? - HELD THAT - Decision of this Tribunal in assessee s parent company case of Greenply Industries Limited 2022 (7) TMI 1045 - ITAT GUWAHATI we find that they are squarely applicable on the issues raised in the instant appeal and there remains no dispute that the alleged sum of excise duty exemption received by the assessee is a capital receipt not chargeable to tax and it is to be excluded for the purpose of computing book profit u/s 115JB - We also find that this Tribunal after considering the settled judicial pronouncements has clearly held that the excise duty exemption received by the assessee during the course of running manufacturing units in the backward areas, notified by the Ministry of Commerce and Industry are to be considered as capital receipt not chargeable to tax and they also need to be excluded from the book profit for the purpose of computing MAT u/s 115JB of the Act. We, therefore, are of the considered view that the alleged sum of excise duty exemption is a capital receipt not chargeable to tax and even for the purpose of computing MAT u/s 115JB the said sum needs to be reduced from the net profit shown in the audited profit and loss account. Therefore, ground nos. 2 3 raised by the assessee are allowed.

Issues Involved:
1. Amortization of leasehold land and land development expenses.
2. Exclusion of excise duty as capital receipt in computing total income.
3. Exclusion of excise duty exemption in computing book profit under Section 115JB.
4. Re-computation of interest under Section 244A.

Detailed Analysis:

1. Amortization of Leasehold Land and Land Development Expenses:
The assessee claimed a deduction of Rs. 22,56,588 for amortization of leasehold land and land development expenses. The Assessing Officer (AO) disallowed this claim, stating it did not satisfy the conditions under the Act. However, the Tribunal referred to a similar case involving the parent company, Greenply Industries Limited, where such claims were allowed. The Tribunal concluded that the amortization expenses were allowable under Section 37 of the Income Tax Act, as they were expended wholly and exclusively for business purposes. The Tribunal followed the principle that amortization is an accounting treatment for spreading the cost of an asset over its useful life, similar to depreciation.

2. Exclusion of Excise Duty as Capital Receipt in Computing Total Income:
The assessee's manufacturing units in Himachal Pradesh were eligible for 100% excise duty exemption under a government scheme aimed at promoting industrialization in backward areas. The assessee claimed that the excise duty exemption amounting to Rs. 19,25,59,001 should be treated as a capital receipt, not chargeable to tax. The Tribunal referred to several judicial precedents, including the Supreme Court's decisions in CIT vs. Ponni Sugars & Chemicals Ltd. and Sahney Steel & Press Works Ltd., which established that subsidies aimed at encouraging industrial development are capital receipts. The Tribunal held that the excise duty exemption was indeed a capital receipt, as its purpose was to promote industrialization and employment in backward areas.

3. Exclusion of Excise Duty Exemption in Computing Book Profit Under Section 115JB:
The Tribunal also addressed whether the excise duty exemption should be excluded from the computation of book profit under Section 115JB for calculating Minimum Alternate Tax (MAT). The Tribunal cited various judicial pronouncements, including decisions from the Supreme Court and High Courts, which held that capital receipts should not be included in book profit calculations. The Tribunal concluded that the excise duty exemption, being a capital receipt, should be excluded from the book profit for MAT purposes. This decision aligned with the principle that MAT provisions should not tax receipts that are not income in nature.

4. Re-computation of Interest Under Section 244A:
Given the Tribunal's decision to allow the exclusion of the excise duty exemption from both total income and book profit, the interest under Section 244A needed to be recomputed. This re-computation would consider the adjustments made based on the Tribunal's rulings on the additional grounds raised by the assessee.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, granting the claims for amortization of leasehold land and land development expenses, and excluding the excise duty exemption from both total income and book profit calculations. Consequently, the interest under Section 244A was to be recomputed in light of these adjustments.

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