2014 (5) TMI 961 - AT - Income Tax

Treatment of sales tax subsidy as revenue receipt Held that - As decided in assessee s own case for the earlier assessment year, it has been held that as per the comparative chart the terms and conditions applicable in 1979 scheme were of the same nature and intent of the 1993 scheme- salient features of the 1993 scheme are identical to that of 1979 scheme - CIT(A) has passed a reasonable order which does not need any interference on our part Decided against Revenue. Treatment of trial run expenses as capital expenses Held that - Following Indo Rama Synthetics India Ltd. Versus Commissioner of Income-tax 2009 (9) TMI 635 - Delhi High Court - one has to keep in mind the essential purpose for which such an expenditure is incurred - If the expenditure is incurred for starting new business which was not carried out by the assessee earlier, then such expenditure is held to be of capital nature - it would be irrelevant as to whether project really materialized or not - if the expenditure incurred is in respect of the same business which is already carried on by the assessee, even if it is for the expansion of the business, namely, to start new unit which is same as earlier business and there is unity of control and a common fund, then such an expense is to be treated as business expenditure. In such a case whether new business/asset comes into existence or not would become a relevant factor - If there is no creation of new asset, then the expenditure incurred would be of revenue nature - if the new asset comes into existence which is of enduring benefit, then such expenditure would be of capital nature - it was merely a case of expansion of existing plant - thus, the expenses incurred by assessee which were inherently of revenue nature were rightly allowed by CIT (A) Decided against Revenue. Deletion of depreciation on computer accessories @ 60% - Held that - As decided in assessee s own case for the earlier assessment year, it has been held that the classification for the purpose of computation of depreciation under the Companies Act has no relevance - the disallowance cannot be based merely on entries made in the books of accounts or in the annual accounts - The AO has not brought out any infirmity in the claim of the assessee the order of the CIT(A) is upheld Decided against Revenue. Deletion of penalty paid to custom authorities Custom redemption fees Held that - Following M/s Usha Micro Process Controls Ltd. Versus Commissioner of Income Tax 2013 (10) TMI 9 - DELHI HIGH COURT - CIT (A) has discussed the issue in the light of various provisions of Customs Act - To comply with the said notification, the assessee applied for the issuance of certificate to be submitted at the time of clearance of the imported vehicle - the required certificate was not issued by the prescribed authority by the time of import/clearance of car, the customs authority confiscated the imported car - Commissioner of Customs Authority (Import) gave the option to the assessee to get released the imported car on payment of fine of Rs.15 lacs leviable u/s 125 of the Customs Act, 1962 and penalty of Rs.8 lacs u/s 112(a) of the Customs Act 1962 - the assessee was required to re-export the car on payment of notional penalty in terms of section 112(a) of the Act the fine in lieu of the confiscation is reduced to Rupees four lacs. The importation of hardware as authorised and regarding the importation of software, the appellants had requested for the re-exportation of the software and had also placed on record to the effect that the software which was sent with the hardware was not ordered by the appellants and the appellants were keen for sending them back - There is complete absence of the elements of mens rea (sick) and the valuation of the hardware has been taken at a higher figure due to difference of opinion - originally the penalty which the appellant had been directed to pay was deleted by the CEGAT - the amount of redemption fine was compensatory it fell outside the mischief of explanation of Section 37(1) of the Income Tax Act Decided against Revenue.

Summary

Issues Involved:
1. Treatment of sales tax subsidy as revenue receipt.
2. Treatment of trial run expenses as capital in nature.
3. Allowance of depreciation on computer accessories at 60%.
4. Deduction of custom redemption fees.

Issue-wise Detailed Analysis:

1. Treatment of Sales Tax Subsidy as Revenue Receipt:
The primary issue was whether the sales tax subsidy amounting to Rs.85,19,51,413/- should be treated as a capital receipt or a revenue receipt. The Assessing Officer (AO) treated it as a revenue receipt, noting that the subsidy was not intended to contribute towards the capital outlay of the industrial unit but was given to assist in carrying on the business. The assessee argued that the subsidy was granted under the state government's scheme for setting up new units and should be treated as a capital receipt. The CIT (A) allowed the assessee's appeal, referencing the Supreme Court decision in CIT vs. Ponni Sugars & Chemicals Ltd., which emphasized the purpose of the subsidy. The Tribunal found that the 1993 scheme under which the subsidy was granted was similar to the 1979 scheme considered in the Reliance Industries Ltd. case, where the subsidy was deemed a capital receipt. The Tribunal upheld the CIT (A)'s decision, dismissing the Revenue's appeal.

2. Treatment of Trial Run Expenses as Capital in Nature:
The AO disallowed the trial run expenses of Rs.11,44,58,672/-, treating them as capital in nature since they were incurred during the testing stage of the plant. The CIT (A) deleted the addition, noting that the expenses were related to expanding the existing business operations by establishing two new continuous polymerization (CP) plants. The CIT (A) observed that the business operations, administration, and funds of the existing and new plants were controlled by the same management. The Tribunal upheld the CIT (A)'s decision, referencing the Delhi High Court's ruling in the assessee's own case, which allowed such expenses as business expenditure if they were part of the expansion of the existing business.

3. Allowance of Depreciation on Computer Accessories at 60%:
The AO allowed depreciation on computers at 10%, noting that they were classified under furniture and fittings in the fixed assets schedule. The CIT (A) allowed the assessee's appeal, stating that the classification in the books of account was irrelevant for depreciation purposes. The Tribunal upheld the CIT (A)'s decision, consistent with its previous ruling for AY 2008-09, which allowed depreciation at 60% on computer accessories.

4. Deduction of Custom Redemption Fees:
The AO disallowed the deduction of Rs.15 lacs paid as custom redemption fees for the release of an imported car, treating it as a penalty. The CIT (A) deleted the addition, following the Madras High Court decision in CIT vs. N. M. Parthasarathy, which treated such payments as compensatory rather than penal. The Tribunal upheld the CIT (A)'s decision, referencing the Delhi High Court's ruling in Usha Micro Process Controls Ltd. vs. CIT, which deemed redemption fines as compensatory and thus deductible under Section 37(1) of the Income Tax Act.

Conclusion:
The Tribunal dismissed the Revenue's appeal on all grounds, upholding the CIT (A)'s decisions regarding the treatment of sales tax subsidy, trial run expenses, depreciation on computer accessories, and custom redemption fees.