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2018 (4) TMI 426 - AT - Income TaxAssessment of sales tax incentive - Held that - Sales tax incentive is not required to be deducted from the cost of asset, if the same is considered as capital receipt by the AO in the set aside proceedings. Deduction respect of Provision of leave encashment - Held that - As in Supreme Court in the case of M/s Exide Industries Ltd (2007 (6) TMI 175 - CALCUTTA High Court) held that the assessee shall pay tax on the disallowance of Provision for leave encashment as if sec. 43B(f) is on Statute book. Hence the addition made by the AO is required to be sustained. If the decision of Hon ble Supreme Court comes in favour of the assessee in future, then the assessee is free to seek amendment of assessment order. Additional depreciation claimed u/s. 32(1)(iia) - Held that - By insertion of the above said proviso in sec. 32 though Finance Act 2015 w.e.f. 1.4.2016, the parliament has approved the view taken by the Tribunal/Courts in respect of additional depreciation allowable u/s 32(1)(iia) of the Act. This provision also makes it very clear that the additional depreciation is allowed only once. We notice that the Kolkatta bench of Tribunal did not consider the third proviso inserted by Finance Act, 2015. Since the legislative intent in inserting sec.32(1)(iia) has been made clear by the third proviso inserted in sec. 32(1) by Finance Act 2015, we are unable to follow the view expressed by the Kolkatta bench of Tribunal in the case of Gloster Jute Mills (2017 (3) TMI 143 - ITAT KOLKATA), which was in turn followed in the assessee s own case. Since the decision rendered by Ld CIT(A) on this issue is in accordance with the legislative intent discussed above, we affirm the same. Accordingly this issue is decided against the assessee. Disallowance of foreign exchange fluctuation loss arising on currency swap/derivative transactions - Held that - Following the decision rendered by the co-ordinate bench in the assessee s own case, we reverse the order passed by Ld CIT(A) on this issue and direct the AO to allow the claim of the assessee. Taxability of excise duty exemption - Held that - Excise incentive received by the assessee is considered as capital in nature, the same would go to reduce the Cost of assets as per Explanation 10 to section 43 of the Act for the purpose of allowing depreciation. We have earlier noticed that the learned CIT(A) has made similar observations in respect of sales tax incentive scheme and we have dealt with the same in earlier paragraphs of this order. Since, the issue relating to determining the nature of receipt of Excise incentive has been restored to the file of the Assessing Officer, we restore this issue also to the file of the Assessing Officer with the direction to decide the same in the light of discussions made by us in earlier paragraph in respect of sales tax incentive. Disallowance of foreign exchange fluctuation loss arising on account of restatement of loan taken for the business purposes - Held that - In the instant case, the nature of foreign currency loan availed by the assessee; whether it was held as fixed capital or circulating capital etc., have not been examined or brought on record. The assessee has simply taken the plea that the foreign currency loan has been used for the purpose of business and hence the loss arising its revaluation is allowable. In our view, it may be difficult to accept the said proposition of the assessee without examining the nature of loan and its utilisation. The facts relating to the foreign currency loan of USD 12 million availed by the assessee have to be examined in the light of principles discussed in the preceding paragraphs in order to arrive at a fair and just conclusion of the matter. We notice that neither the assessee nor the tax authorities have brought relevant facts on record. In the absence of the same, it will not be possible for us to apply the legal principles discussed above. Under these set of facts, we are of the view that this issue requires fresh examination at the end of the assessing officer. Accordingly we restore this issue to the file of the assessing officer with the direction to examine the same afresh Claim for deduction of Education cess as part of income tax, dividend distribution tax and fringe benefit tax - AO disallowed the claim by holding that education cess is part of income tax and is covered by the provisions of sec. 40(a)(ii), 40(a)(ic) and sec. 115O(5) - Held that - The character of surcharge and education cess was examined by Hon ble Calcutta High Court in the case of Srei Infrastructure Finance Ltd (2016 (8) TMI 967 - CALCUTTA HIGH COURT) and has held that both surcharge and Education Cess are part of income tax, though payable in addition to the income tax. Also observed that the various provisions of Finance Act speak about income tax being increased by the amount of surcharge and cess. Accordingly it was held that the surcharge and education cess is not anything other than income tax. The CBDT circular, relied upon by the assessee, only explains the difference between the provisions of Income tax Act, 1922 and 1961. It does not clarify the nature of Education cess levied under Finance Act. The nature of Cess mentioned in 1922 Act is also not explained. Since the education cess has been levied under Finance Act as an item to increase income tax and since it has been held to be part of income tax by Hon ble Calcutta High Court, we are of the view that there is no merit in the contentions of the assessee. Accordingly we reject this ground of the assessee. Disallowance of various expenses u/s 69C - Held that - Since the assessee has proved majority of expenses and since the assessee has furnished primary details for all the expenditure, we are of the view that the disallowance of entire amount of ₹ 369.93 lakhs may not be warranted under these set of facts. However, since there is failure on the part of the assessee to reconcile the difference and to obtain confirmation letters from certain parties, we are of the view that a part of expenditure may be disallowed to take care of revenue leakages, if any. Accordingly we sustain disallowance of 20% of ₹ 369.93 lakhs and the same, in our view, would put this issue to rest. Accordingly we modify the order passed by Ld CIT(A) on this issue and direct the AO to sustain disallowance to the extent of 20% of ₹ 369.93 lakhs. Claim of the assessee to exclude Sales tax incentive and Excise incentive from book profit computed u/s 115JB - Held that - In the earlier paragraphs, we have restored the issue relating to both Sales tax incentive and Excise incentive to the file of the AO with the direction to examine the relevant Schemes and then decide about their nature, i.e., whether they are capital in nature or revenue in nature. Hence we are of the view that these issues relating to 115JB also required to be set aside to the file of the assessing officer, since the decision taken by the AO in the set aside proceedings on the original issues will have bearing on these issues. Accordingly we set aside the orders passed by Ld CIT(A) on these two issues and restore them to the file of the assessing officer for examining them afresh in the light of decisions taken by him on the original issues.
Issues Involved:
1. Assessment of sales tax incentive. 2. Reduction of sales tax incentive from the cost of assets for depreciation computation. 3. Deduction of provision for leave encashment. 4. Allowance of additional depreciation under Section 32(1)(iia). 5. Disallowance of foreign exchange fluctuation loss on currency swap/derivative transactions. 6. Taxability of excise duty exemption. 7. Deduction of foreign exchange fluctuation loss on restatement of loan. 8. Deduction of education cess. 9. Disallowance of various expenses under Section 69C. 10. Exclusion of sales tax and excise incentives from book profit under Section 115JB. Detailed Analysis: 1. Assessment of Sales Tax Incentive: The assessee treated the sales tax incentive of ?583.36 lakhs as a capital receipt, while the Assessing Officer (AO) considered it as a revenue receipt. The CIT(A) sided with the assessee based on prior ITAT decisions. However, the Tribunal restored the issue to the AO for fresh examination, consistent with directions given in earlier years. 2. Reduction of Sales Tax Incentive from Cost of Assets: The CIT(A) directed the AO to reduce the sales tax incentive from the cost of assets for depreciation purposes, following Explanation 10 to Section 43(1). The Tribunal, referencing the Pune Bench decision in Rohit Exhaust Systems Pvt. Ltd., held that the sales tax incentive should not be deducted from the cost of assets if considered a capital receipt. 3. Deduction of Provision for Leave Encashment: The AO disallowed the provision for leave encashment under Section 43B, which was upheld by the CIT(A). The Tribunal restored the matter to the AO, directing consideration in light of the Supreme Court's pending decision in Exide Industries Ltd. 4. Allowance of Additional Depreciation: The assessee claimed additional depreciation on assets acquired in previous years. The AO disallowed it, arguing that additional depreciation is a one-time allowance. The CIT(A) upheld this view. The Tribunal, disagreeing with the Kolkata Bench's decision in Gloster Jute Mills Ltd., held that additional depreciation is allowable only in the year of acquisition and installation. 5. Disallowance of Foreign Exchange Fluctuation Loss: The AO disallowed the foreign exchange fluctuation loss on currency swap transactions as notional. The Tribunal, following its earlier decision in the assessee's case, allowed the claim, noting the consistent accounting treatment of such losses. 6. Taxability of Excise Duty Exemption: The AO treated the excise duty exemption as revenue receipt, which was upheld by the CIT(A). The Tribunal restored the issue to the AO for fresh examination, directing comparison with similar schemes and consideration of relevant case laws. 7. Deduction of Foreign Exchange Fluctuation Loss on Restatement of Loan: The AO disallowed the loss, treating it as notional, and allowed depreciation instead. The CIT(A) confirmed this. The Tribunal restored the issue to the AO, directing examination of the loan's nature and utilization, and consideration of relevant accounting standards and legal principles. 8. Deduction of Education Cess: The AO disallowed the claim, considering education cess as part of income tax. The CIT(A) upheld this view. The Tribunal, referencing the Calcutta High Court's decision in Srei Infrastructure Finance Ltd., held that education cess is part of income tax and disallowed the claim. 9. Disallowance of Various Expenses under Section 69C: The AO disallowed ?99.96 crores due to non-reply, unserved notices, and differences in confirmations. The CIT(A) granted relief for ?96.26 crores based on additional evidence but sustained ?3.69 crores. The Tribunal, acknowledging the assessee's efforts and primary evidence, reduced the disallowance to 20% of ?3.69 crores. 10. Exclusion of Sales Tax and Excise Incentives from Book Profit under Section 115JB: The AO accepted the exclusion of these incentives from book profit, but the CIT(A) included them, considering them revenue receipts. The Tribunal restored the issue to the AO, directing reconsideration based on the nature of the receipts and relevant case laws. Conclusion: The Tribunal allowed the revenue's appeal and partly allowed the assessee's appeal, directing the AO to re-examine several issues with specific instructions and considerations.
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