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2019 (4) TMI 1285 - AT - Income TaxTaxability of sale tax subsidy/incentive - assessee had was not deposited and claimed the amount of incentive as a capital receipt, which was received in the form of sales tax remission from the West Bengal Government under the West Bengal Incentive Scheme. 1999 - AO rejected the claim on the premise that the subsidy received was revenue in nature and taxable u/s. 28(iv) - AO observed that the remission of sales tax amounted to cessation of trading liability and hence the provisions of Section 41 also attracted - HELD THAT - Subsidy/incentive was not given to the assessee for the purpose of assisting in carrying on business or trade by way of refund of sales tax nor was there any cessation of liability on account of payment of sales tax attracting the provisions of section 41(1) of the Act. We note that the method of calculation of incentive/subsidy is collection of sales tax but the purpose of giving the incentive was expansion of industries in the backward areas of the State of West Bengal. Since the assessee was not given the incentive for facilitating its business or trade, the amount received by the assessee on account of sales tax remission, was held to be capital in nature. - Decided against revenue Disallowance on expenditure of Repairs Maintenance to the Plant Machinery u/s.37(1) - provision of expenses as on end of FY - no bills and vouchers were produced - AO observed that he could not also verify whether Section 40(a)(ia) had any application - HELD THAT - On 07.02.2014, the AO had required the assessee to furnish its explanation as to why the repairs expenses should not be disallowed on the ground of being capital in nature. It thus appeared that even by AO's own admission he had required the assessee to explain the nature of the expenditure i.e. whether capital or revenue. We note that nowhere the AO stated that he had required the assessee to produce original bills vouchers but had required the assessee to explain the nature of expenditure, whether these are being revenue or capital. Hence, disallowance on ad hoc basis without any cogent reasons is not justifiable We note that in the accounting parlance, unpaid expenditure for which liability has accrued is described as provision under mercantile system of accounting. Copies of the bills produced by assessee during the assessment stage for verification also established that the amount shown as provision for repairs maintenance related to services which were performed for and upto March 2010 and therefore under the mercantile system of accounting, the assessee was entitled to claim deduction since expenditure pertained to the previous year ending on 31.03.2010. Therefore, we note that there was no justification for the AO to disallow - Decided against revenue. Allowability of additional depreciation u/s 32(1 )(iia) - allegation that Assessee is not engaged in manufacturing activity in terms of section 2(29BA) - HELD THAT - In the process of blending of butane propane which is carried out in scientific manner with use and aid of sophisticated plant machinery, transformation is brought about and entirely new product by the name LPG is obtained. The said object or product i.e. LPG is known to the trade and commerce by its separate distinctive commercial name and it has a different character and its end use is also different. Accordingly provisions of Section 2(29BA) of the Act and also the ratios laid down by the Supreme Court in several decisions, we have no hesitation in holding that the assessee was engaged in manufacture or production of an article or thing and therefore it was eligible for claiming additional depreciation u/s 32(1 )(iia) - Decided against revenue. TDS u/s 194I - Disallowance u/s. 40(a)(ia) - failure to deduct the tax on total payment on account of rent paid - HELD THAT - Admittedly, the assessee had paid rent of ₹ 2,61,600/ in respect of a property at Gariahat Road (South), Kolkata which was owned by three persons equally. Since the property in question was owned by three persons jointly, in terms of Section 27 of the Act the owners did not constitute an AOP but they had to be regarded as co owners of the house property, each having one third defined share or rights in the property. Accordingly the assessee had paid rent of ₹ 87,204/ to each of the three co owners namely. Mr. N.R Dhar. Mrs. Ruby Dhar and Mr. Sandip Dhar respectively. We note that since the rent paid in respect of one property does not exceed ₹ 1,80,000/ annually, hence provisions of Section 1941 of the Act does not apply to the assesee under consideration, hence ld CIT(A) has rightly deleted the addition. - Decided against revenue.
Issues Involved:
1. Deletion of addition of ?8,65,69,694/- claimed by the assessee. 2. Deletion of disallowance on expenditure of Repairs & Maintenance to the Plant & Machinery amounting to ?1,16,13,324/-. 3. Deletion of disallowance on additional depreciation claimed by the assessee amounting to ?42,17,995/-. 4. Deletion of disallowance of ?46,66,208/- claimed under the head "Repair & Maintenance". 5. Deletion of disallowance of ?2,61,600/- under section 40(a)(ia) of the Act due to failure in deduction of taxes under section 194I. Issue-wise Detailed Analysis: 1. Deletion of Addition of ?8,65,69,694/- Claimed by the Assessee: The assessee received ?8,65,96,694/- as an incentive for blended LPG under the West Bengal Incentive Scheme, 1999, which was initially offered for tax as revenue receipt but later claimed as a capital receipt in the revised return. The Assessing Officer (AO) added back the amount to the income, treating it as a revenue item under section 43B and section 28(iv) of the Income Tax Act, 1961. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, noting that the incentive was for setting up a new industrial unit and thus was capital in nature. The Tribunal upheld the CIT(A)'s decision, referencing judgments such as CIT vs. Rasoi Limited and Balaji Alloys Limited vs. CIT, which supported the view that such incentives are capital receipts. 2. Deletion of Disallowance on Expenditure of Repairs & Maintenance to the Plant & Machinery Amounting to ?1,16,13,324/-: The AO disallowed the expenditure due to the non-production of original bills and vouchers. The CIT(A) deleted the disallowance, and the Tribunal upheld this decision, stating that the AO could not reject the books of accounts without sufficient reasons and could not make an ad-hoc disallowance without cogent reasons. The Tribunal emphasized that disallowance should be item-wise rather than ad-hoc. 3. Deletion of Disallowance on Additional Depreciation Claimed by the Assessee Amounting to ?42,17,995/-: The AO disallowed the additional depreciation, arguing that the assessee's process of producing blended LPG did not qualify as manufacturing under section 2(29BA) of the Income Tax Act. The CIT(A) deleted the disallowance, and the Tribunal upheld this decision, noting that the production of LPG involves significant transformation and is considered manufacturing under the Central Excise Act, 1944. The Tribunal referenced Supreme Court judgments, including CIT vs. Sesa Goa Ltd, to support the view that the assessee was engaged in manufacturing and thus eligible for additional depreciation. 4. Deletion of Disallowance of ?46,66,208/- Claimed Under the Head "Repair & Maintenance": The AO disallowed the provision for repairs and maintenance, claiming the assessee failed to provide proof of the expenditure's genuineness. The CIT(A) deleted the disallowance, and the Tribunal upheld this decision, noting that under the mercantile system of accounting, unpaid expenditure for which liability has accrued can be claimed as a deduction. The Tribunal found no justification for the AO's disallowance. 5. Deletion of Disallowance of ?2,61,600/- Under Section 40(a)(ia) of the Act Due to Failure in Deduction of Taxes Under Section 194I: The AO disallowed the rent payment on the grounds of non-deduction of tax at source. The CIT(A) deleted the disallowance, and the Tribunal upheld this decision, noting that the rent was paid to three co-owners, each receiving less than the threshold amount of ?1,80,000/- annually, thus not attracting the provisions of section 194I. Conclusion: The Tribunal dismissed the appeal of the Revenue, upholding the CIT(A)'s deletions of the disallowances and additions made by the AO on all grounds. The Tribunal's decision was based on detailed examination of the facts, relevant legal provisions, and judicial precedents.
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