9911796707
TMI Blog2012 (9) TMI 281X X X X Extracts X X X X X X X X Extracts X X X X ..... as held that subsidy given to the assessee to assist in carrying on trade or business, is a trading receipt. 3. In the facts and circumstances of the case, the Ld CIT(A) erred treating the Sales tax subsidy as Capital receipt contrary to the decision of the Madras High Court in the case of Tamilnadu Sugar Corp Ltd. v. CIT (130 Taxman 348), wherein it was held that Purchase tax subsidy in a revenue receipt. 4. In the facts and circumstances of the case, the Ld CIT(A) erred in allowing depreciation @ 60% on computer peripherals and accessories as against the provisions of the Act. 5. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal." 3. The grounds of appeal taken by the assessee ITA No. 2508/Del/2007 are as under :- "(1) That the Commissioner of Income tax (Appeals) -VI, New Delhi has grossly erred on facts and in the circumstances of the case and in law in confirming prorated adhoc disallowance of Rs. 5,59,000 for interest and administrative expenses which are alleged to have been attributable to the earning of divid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial policy of Govt. of India was taken into consideration and there were some modifications with regard to scope of incentives, various scales and mode of release of incentives. 6.1 In the pleadings, Ld. DR mainly relied on the difference in the earlier Schemes and of 1993 Scheme. He had drawn our attention to various provisions of Scheme which are in variance to the old Scheme. He pleaded that the case is not covered by decision of Special Bench ITAT, Mumbai in the case of Dy. CIT v. Reliance Industries Ltd. [2004] 88 ITD 273. On the other hand, ld. AR relied on the order of CIT(A) and pleaded that the issue is covered by decision of Mumbai ITAT Special Bench in the case of Reliance Industries Ltd. (supra) which has been affirmed by Hon'ble Bombay High Court in its order dated 15.04.2009 in CIT v. Reliance Industries Ltd. [2010] taxmann.com 218 (Bom.). 6.2 We have heard both sides on this issue. The learned CIT (A) has granted the relief on the basis of decision of Special Bench of Mumbai ITAT in the case of Reliance Industries Ltd. (supra). This decision has been upheld by Hon'ble Bombay High Court and the Hon'ble High Court has held as under :- "4. Sofaras Question (B) is co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt further observed that in such cases, what has to be applied is the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. Form of subsidy is material. Court then proceeded to observe as under: "The main eligibility condition in the scheme with which we are concerned in this case is that the incentive must be utilized for repayment of loans taken by the assessee to set up new units or for substantial expansion of existing units. On this aspect there is no dispute. If the object of the subsidy scheme was to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account." Therefore, let us apply the purpose test based on the findings recorded by the Special Bench. The object of the subsidy was to set up anew unit in a backward area to generate employment. In our opinion, the subsidy is clearly on capital account. In that view of the matter, Question (D) as framed, would also not arise. 5. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Ltd., I find that the question of sales-tax subsidy provided under Maharashtra Benefit Scheme of Incentive was involved in both the cases. Thus, there are similarity in the facts on the issue of sales-tax subsidy in both the cases. Hence, the finding of ITAT in Reliance case is applicable in appellant's case. For the sake of convenience, the relevant portion of finding of the Special Bench Mumbai in Reliance Industries, (Supra) is produced below:- "Accordingly on the facts and in the circumstances of the case, and in law, the assessee company was Justified in its claim that the sales-tax incentive allowed to it during the previous year in terms of the relevant Govt. order constituted capital receipt and was not to be taken into account in computation of total income." Thus, in the light of Special Bench of Mumbai IT AT decision in Reliance Industries Ltd. case, I find that the AO in appellant case was not justified to treat the sales-tax subsidy of Rs. 6,74,99,274/- as revenue receipt. Further, I find that appellant has charged the Sales Tax amount being part and parcel of sales and quantified this sales-tax subsidy of Rs. 6,74,99,274/- and deducted the same from the block of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue's appeal is general in nature and does not require any adjudication. 9. In the result, the revenue's appeal in ITA No. 2831/Del/2007 for Assessment Year 2004-05 is dismissed. 10. In the cross appeal (ITA No. 2508/Del/2007 for AY 2004-05) filed by the assessee, the ground no. 1 is against the confirmation of ad hoc disallowance of Rs. 5,59,000/- for interest and administrative expenses attributable to the earning of dividend income. 11. The learned AR submitted that this issue may be restored to the file of Assessing Officer in view of the decision of Hon'ble Bombay High Court's decision in the case of Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT [2010] 328 ITR 81/194 Taxman 203. Learned DR was not having any objection to this proposition. 12. We have heard both the sides. The Hon'ble Bombay High Court's decision in the case of Godrej & Boyce Mfg. Co. Ltd. (supra), is the only High Court decision available on the applicability of the Rule 8D and disallowance under section 14A. The Hon'ble Mumbai High Court in the aforesaid case held as under : "Rule 8D r.w. S. 14A (2) is not arbitrary or unreasonable but can be applied only if assessee's method not satisfactory. Rule 8D is not r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is "madness" in the method of Rule 8D so as to render it unconstitutional; (5) Rule 8D, inserted w.e.f. 24.3.2008 cannot be regarded as retrospective because it enacts an artificial method of estimating expenditure relatable to tax-free income. It applies w.e.f. AY 2008-09; (6) For the AYs where Rule 8D does not apply, the AO will have to determine the quantum of disallowable expenditure by a reasonable method having regard to all facts and circumstances; (7) On facts, though in the earlier years, the Tribunal had held that the tax-free investments had been made out of the assessee's own funds, this did not mean that there was no expenditure incurred to earn tax-free income. Even though Rule 8D did not apply to AY 02-03, the AO had to consider whether disallowance could be made u/s 14A (1). Also, the principle of consistency would not apply as s. 14A had introduced a material change in the law." As stated above, both sides are agreed to restore the matter to the file of Assessing Officer, therefore, we restore the issue to the file of Assessing Officer for working out the reasonable disallowances u/s 14A (1) in view of the aforesaid decision of Hon'ble Mumbai High Court. 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest-house; or (C) any office appliances or road transport vehicles; or (D) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or profession" of any one previous year;" There is no bar in law that once the amount @ 15% of new plant and machinery is calculated and only 50% is allowable in that particular year on account of period of usage then balance shall not be allowed forever. The law does not restrict/prohibit that the balance of 50% so calculated shall not be allowed in the immediate succeeding year. The additional depreciation u/s 32(1)(iia) as provided by the Finance (No. 2) Act, 2002 w.e.f. 1.4.2003 is explained by Circular No. 8 of 2002 dated 27.08.2002 reported in 258 ITR (ST) 13 as being 'a deduction of a further sum' as depreciation, therefore what was proposed to be allowed is depreciation simplicitor though it was called as additional depreciation. Section 32(1)(iia) mandate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime affair available to assessee on the new machinery and plant. It was also pleaded that what is expressly granted as an incentive cannot be denied through a pejorative interpretation of second proviso to section 32(1)(ii) when such provisions by itself does not bar consideration u/s 32(2) of the Income-tax Act. He pleaded that the orders of the authorities below on this issue is to be set aside. 15. Alternatively, he also pleaded that the provisions of section 32(1)(iia) do not stipulate any condition of put to use, therefore, full deduction is allowable in the year of purchase itself and it may be allowed in full even plant & machinery acquired after 31st September, 2003. 16. On the other hand, the learned DR submitted that the full additional depreciation can be allowed as per section 32(1)(iia) only when the assets are put to use for more than 180 days in the year of acquisition. The additional depreciation on the assets which are put to use by the assessee for less than 180 days is restricted to 50% of the amount by second proviso to section 32(1)(ii). There cannot be any carried forward additional depreciation to be allowed in subsequent year. The second proviso to section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or profession" of any one previous year;" Thus, this incentive in the form of additional sum of depreciation is not available to any plant or machinery which has been used either within India or outside India by any other person or such machinery and plant are installed in any office premises or any residential accommodation, including accommodation in the nature of a guest house or any office appliances or road transport vehicles, or any machinery or plant, the whole of the actual cost of which is allowable as deduction (where by way of depreciation or otherwise) in computing the total income under the head "Profits and gains of business or profession" of any one previous year. Thus, the intention was not to deny the benefit to the assets who have acquired or installed new machinery or plant. The second proviso to section 32(1)(ii) restricts the allowances only to 50% where the assets have been acquired and put to use for a period less than 180 days in the year of acquisition. This restriction is only on the basis of period of use. There is no restriction that balance of one time incentive in the form of additional sum of depreciation shall not be available in the subsequent yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue arises out of the order of the CIT (Appeals)-VI, New Delhi dated 21.02.2008 for the Assessment Year 2005-06. The grounds of appeal taken by the revenue are as under:- "1. In the facts and circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs. 51,86,825/- made by AO on account of foreign exchange fluctuation loss ignoring the fact that liability is unascertained and hence not allowable. 2. In the facts and circumstances of the case, the Ld. CIT(A) erred in allowing the depreciation @ 60% on computer peripherals and accessories amounting to Rs.29,620/- even though rule 5 of the I.T. Rules specifically allow hire rate of depreciation at 60% only on computer and computer software and not on computer accessories. 3. In the facts and circumstances of the case, the Ld. CIT(A) erred in treating the "Sale tax Subsidy" amounting to Rs. 9,48,11,588/- as capital receipt which was added by the AO as "Revenue Receipt". 4. The appellant craves leave for reserving the right to amend, modify; alter, add or forego any Grounds(s) of appeal at any time before or during the hearing of this appeal." 21. In ground no.1, the issue involved is f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Decision of the Delhi High Court affirmed. The expression "any expenditure" has been used in section 37 of the Act, 1961, to cover both "expenses incurred" as well as an amount which is really a "loss" even though such amount has not gone out from the pocket of the assessee. Profits and gains of the previous year are required to be computed in accordance with the relevant accounting standard. On general principles of commercial accounting, the value of the stock-in-trade at the beginning and at the end of the accounting year should be entered in the profit and loss account at cost or market price, whichever is lower-the market value being ascertained on the last date of the accounting year, not at any intermediate date. No gain or profit can arise until a balance is struck between the cost of acquisition and the proceeds of sale. The word "profits" implies a comparison between the state of business at two specific dates, usually separated by an interval of twelve months. Stock-in-trade is an asset: it is a trading asset. Therefore, the concept of profits and gains made by a business during the year can only materialize where a comparison of the assets of the business at two diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... untant on qualifying assets put to use in the second half of the immediately preceding previous year. (2) That the Commissioner of Income tax (Appeals)-VI, New Delhi has grossly erred on facts and in the circumstances of the case and in law in negating an alternate claim for deduction of additional depreciation of Rs. 2,22,91,570/- in AY 2005-06. (3) That the appellant reserves the right to add, alter or amend any other ground at the time of hearing." 29. Ground Nos. 1 & 2 are against the confirmation of disallowance of arrears of additional depreciation of Rs. 4,07,69,572/- and negating an alternate claim for deduction of additional depreciation of Rs. 2,22,91,570/-. 30. We have taken up this issue in ground nos. 1 & 2 in assessee's appeal in ITA No. 2508/Del/2007 for Assessment Year 2004-05 vide paragraphs 13 to 17 hereinbefore. Facts and circumstances in this assessment year are also similar to that assessment year. Therefore, following our own decision in the aforesaid appeal, we set aside the orders of the authorities below and direct to extend the benefit. Accordingly, we allow ground no. 1 taken by the assessee. Ground No. 2 is alternate claim, hence no need to adjudicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra). 35.1 We have heard both the sides. We have decided this issue in favour of the assessee in this order vide Ground No. 4 of ITA No. 2831/De/2007 for assessment year 2004-05 in paragraphs 7 & 7.1. Facts remain the same, following our aforesaid order, we sustain the order of CIT(A) on this issue and accordingly this ground is dismissed. 36. Ground No. 5 is general in nature and does not require any adjudication. 37. In the result, appeal filed by the revenue in ITA No. 4040/Del/2009 for assessment year 2006-07 is dismissed. ITA No. 4010/Del/2009 38. The grounds of appeal taken by the assessee for Assessment Year 2006-07 are as under :- "(1) That the Commissioner of Income tax (Appeals)-VI, New Delhi has grossly erred on facts and in the circumstances of the case and in law in confirming disallowance of arrears of additional depreciation of Rs. 58,30,495/- as certified by the Chartered Accountant on qualifying assets put to use in the second half of the immediately preceding previous year. (2) That the Commissioner of Income tax (Appeals)-VI, New Delhi has grossly erred on facts and in the circumstances of the case and in law in negating an alternate claim for deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod is actually quantified/crystallized in the year relevant to assessment year 2006-07, therefore, it is deductible expenses. He also relied on the unreported decision of Hon'ble Delhi High Court in the case of CIT v. Vishnu Industrial Gases P. Ltd. in IT Reference No. 229/1988 vide order dated 6th May, 2008 where the Hon'ble High Court has held that the situation does not seem to have changed over the last fifty years and the revenue continues to agitate the question whether tax is leviable in a particular year or in some other year and the Hon'ble Court has held that this is hardly a question that should require us to exercise our minds particularly since there is no doubt that the tax has been paid and the rate of tax remains the same for both the assessment years. He pleaded that the tax rates were the same in those years, therefore, in view of the aforesaid decision of Hon'ble Delhi High Court, no addition is called for. 41. On the other hand, the learned DR submitted that the assessee has failed to establish that these expenses pertaining to prior period expenses were actually quantified and crystallized during the relevant previous year and since the assessee is following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is completely unscientific and unreliable. The allocation on the basis of sales turnover is more accurate and a justified way for allocation of all the common expenses including the expenses of the management salary. He pleaded that the CIT(A) has rightly confirmed the order of Assessing Officer in this regard. 46. We have heard both the sides. In our considered view, two items, charity and misc. expenses should be excluded from the allocation of expenses pertaining to the export oriented unit. However, in the case of management salary, the allocation made by assessee is not justified, the allocation should be made in the ratio of sales turnover as adopted by assessee himself to allocate other expenses. This method of allocation is more accurate and correct way for allocation of management salary to the facts of assessee's case. The basis adopted by assessee of time estimated in proportion to the production capacity employed in EOU and non EOU plants is highly unreliable and unscientific. In view of these facts, we sustain the order of CIT(A) and dismiss this ground. 47. Ground No. 6 is against the confirmation of disallowance u/s 14A at Rs. 88,17,408/- being as high as 111% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at similar view is also taken by the ITAT Visakhapatnam Bench in the case of Sasisri Extractions Ltd. v. Asstt. CIT [2010] 122 ITD 428. 52. On the other hand, learned DR objected to admit the additional ground. He also pleaded that if admitted, then also the assessee's claim that it should not be reduced from the actual cost of the fixed asset, definitely to prove that it was a revenue receipt and should be treated as income of the assessee. 53. After hearing both the sides, we hold that this is a legal ground raised first time before us. In view of the decision of Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. (supra), this ground is admitted. However, in the interest of justice and equity, we restore this issue to the file of CIT(A) to be decided on merits after providing an opportunity of being heard to the assessee. 54. In the result, the additional ground taken in all the three appeals of the assessee for assessment years 2004-05 to 2006-07 is allowed for statistical purposes. ITA Nos. 934 & 935/Del/2011 55. Both these appeals filed by the assessee are directed against the common order of CIT(A)-VI, New Delhi dated 15.10.2010 for Assessment Years 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company. (2) That the Commissioner of Income tax (Appeals)-VI, New Delhi has grossly erred on facts and in the circumstances of the case and in law in not appreciating the point that claim for allowance of deduction of additional depreciation is an arguable, debatable and controversial question on the application of law on which two views are possible. (3) That the entire total action in levying penalty in the appellant's case is outside the jurisdiction and clearly defies the scheme of penalty enshrined in the Income-tax Act, 1961. (4) That the appellant reserves the right to add, alter or amend any other ground at the time of hearing." 58. In the quantum appeals, we have allowed the relief to the assessee on the issue of additional depreciation and these penalties have been levied only on the disallowances made of additional depreciation, since we have deleted the addition in quantum appeal, therefore, the penalty levied in both the appeals could not be sustained, hence deleted. Both the appeals are allowed. 59. In the result, the appeals in ITA Nos. 934 & 935/Del/2011 filed by the assessee are allowed 60. To sum up, appeals of the revenue and assessee are disposed off as ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
