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TMI Blog2014 (3) TMI 888X X X X Extracts X X X X X X X X Extracts X X X X ..... sistance for the purpose of the trade. As per the scheme of the incentive of Madhya Pradesh Government, sales tax subsidy is taxable - The view taken by the ITAT in assessee's own case for AY 2004-05 is similar – thus, the sales tax and other subsidies provided by Madhya Pradesh Government were revenue receipt - the amount of sales tax and other subsidies received by the assessee were revenue in nature – Decided against Assessee. Confirmation of adhoc disallowance – Expenses incurred for non-business purposes – Held that:- As decided in assessee’s own case for the previous assessment year, the expenditure relatable to trips made for non-business purposes could only be disallowed by the Department - the entire disallowance for the trips undertaken by the assessee was for non-business purposes and the whole disallowance was sustained – the AO has mentioned that the Managing Director of the company has been using the said plane for purposes other than the business of the company - instead of working the disallowance on the basis of such trips which were for non-business purposes, he made an adhoc disallowance - Complete details of aero plane expenses with the purpose of each vis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... & 221/Del/2009 - - - Dated:- 6-3-2014 - Shri G. D. Agrawal And Shri I. C. Sudhir,JJ. For the Petitioner : Shri Ajay Vohra, Shri Rohit Jain and Shri Upvan Gupta, Advocates. For the Respondent : Shri Yogesh Verma, CIT-DR. ORDER Per Bench : ITA No.368/Del/2009 (Assessee's appeal : AY 2002- 2002-03):- This appeal by the assessee is directed against the order of learned CIT(A), Rohtak dated 19th November, 2008 for the AY 2002-03. 2. Ground No.1 of the assessee's appeal reads as under:- That the Commissioner of Income Tax (Appeals), Rohtak has grossly erred on facts and in the circumstances of the case and in law in not adjudicating on the claim for exemption of sales tax, entry tax and electricity duty subsidy amounting to ₹ 3,59,71,541/- in the absence of previous such claim in the original or a revised return without appreciating the fact that the subject claim is legal in nature and has universal application in earlier as well as in the succeeding years. 3. The facts of the case are that before the Assessing Officer, the assessee did not make any claim with regard to exemption of sales tax, entry tax and electricity duty subsidy cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch ground following the decision of Hon'ble Apex Court in the case of Goetze (India) Ltd. - 284 ITR 323. However, when the matter reached to the ITAT, the assessee relied upon various decisions of Hon'ble High Court and the ITAT which are noted by the ITAT in paragraph 17 of the order and, thereafter, the ITAT vide order dated 22nd February, 2013 in ITA Nos.3319 3254/Del/2008 adjudicated the assessee's ground on merits. He, therefore, submitted that instead of setting aside the matter to the file of the CIT(A) for adjudicating this ground on merits, ITAT should adjudicate the same in this year also. 7. Coming to the merits of its claim with regard to exemption of the subsidies, he fairly stated that the decision of ITAT in AY 2004-05 (supra) on merits is against the assessee. He, however, stated that the above decision of ITAT suffers from grave error and, therefore, need 4 ITA-368/Del/2009 3 others not be followed in the year under consideration. He argued at length in support of his contention that the decision of ITAT in this regard for AY 2004-05 is not a binding precedent. His arguments can be summarized as under:- (i) That the ITAT misapplied th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ITAT. In view of the above, it is vehemently contended by the learned counsel that the ITAT fell in error in holding that the sales tax subsidy is a revenue receipt. He submitted that by now it is a settled law by the catena of decisions of ITAT, Hon'ble High Courts including Hon'ble Jurisdictional High Court as well as Hon'ble Apex Court that the subsidy given for the setting up of an industrial undertaking or for the expansion of the industrial undertaking is a capital receipt. The assessee was given the sales tax and other subsidies on account of set up of new industrial undertaking in the backward area. Therefore, the sales tax and other subsidies received by the assessee were of the nature of capital receipt and not revenue receipt. He, therefore, submitted that the decision of ITAT in assessee's own case for AY 2004-05 is per incuriam and should not be followed and it should be held that the receipt by way of sales tax and other subsidies is a capital receipt. 8. Learned DR, on the other hand, stated that the issue of taxability of sales tax and other subsidies is covered in favour of the Revenue by the decision of ITAT in assessee's own case in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2004-05 is not a good law. 10. We have carefully considered the arguments of both the sides and perused the material placed before us. At the outset, we may mention that in the case of DLF Universal Ltd. (supra), Hon'ble Delhi High Court held as under:- It is not only a matter of judicial propriety but also a matter of judicial discipline that when one Bench of the Tribunal takes a view, another Bench on disagreement does not pass a contrary order but refers the matter to a larger bench for getting the matter resolved. 11. Fortunately, on this matter of judicial propriety, both the parties agreed that it is a matter of judicial propriety/judicial discipline that one Division Bench of the Tribunal should not take a contrary view to the view taken by another Division Bench. If at all one Division Bench is not able to follow the view of another Division Bench, then the only option left is to refer the matter to the Larger Bench. However, the dispute between the parties is that as per the assessee's counsel's contention, the ITAT, while passing the order for AY 2004-05, has violated the above settled principle of judicial propriety. But, the Revenue is of the op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise, as the Supreme Court itself recognised, that the object with which the subsidy is given is decisive. It did recognise, following the distinction pointed out by the Supreme Court that if the subsidy is given for setting up or expansion of the industry in a backward area, it will be capital receipt, irrespective of the modality or the source of funds through or from which it is given and that if monies are given for assisting the assessee in carrying out the business operations only after, and conditional upon, the commencement of production, it will be revenue receipt. It was only for the purpose of bringing out that distinction, that the Tribunal had analysed the features of the Maharashtra Scheme of 1979 and had come to the conclusion that the subsidy given under the scheme had a direct nexus with the fixed capital investment and that it could not be said that the subsidy was given with the object of assisting or lending a helping hand to the assessee in its business operations. The Tribunal was, thus, aware of the distinction between the subsidy given with the object of setting up the industry and the subsidy given after the industry commences production and conditional u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Madhya Pradesh is a revenue receipt. The learned counsel for the assessee has referred to various decision of Hon'ble High Courts as well as ITAT but it has nowhere been shown to us whether any other High Court or ITAT considered the incentive scheme of the Madhya Pradesh Government. In fact, if we go through the decision of Hon'ble Apex Court in the case of Sahney Steel and Press Works Ltd. (supra), we find that the above appeal before the Hon'ble Apex Court was against the decision of Hon'ble Andhra Pradesh High Court. However, in the said decision at page 267, their Lordships discussed the decision of Hon'ble Madhya Pradesh High Court in the case of CIT Vs. Dusad Industries [1986] 162 ITR 784. In the above decision, Hon'ble Madhya Pradesh High Court has held the sales tax subsidy to be a revenue receipt after considering the incentive scheme of Madhya Pradesh Government. However, Hon'ble Apex Court held that the view taken by Hon'ble Madhya Pradesh High Court in the case of Dusad Industries (supra) was erroneous. The relevant observation of their Lordships reported at page 267 of 228 ITR reads as under:- The Madhya Pradesh High Court in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same assessee, should not take a contrary view. We, therefore, respectfully following the decision of ITAT in assessee's own case for AY 2004-05 hold that the amount of sales tax and other subsidies received by the assessee were revenue in nature. Accordingly, ground No.1 of the assessee's appeal is rejected. 15. Ground No.2 of the assessee's appeal reads as under:- That the Commissioner of Income Tax (Appeals), Rohtak has grossly erred on facts and in the circumstances of the case and in law in confirming adhoc disallowance of ₹ 2,00,000/- out of expenditure incurred on aircraft for alleged non-business purposes. 16. We have heard the arguments of both the sides and perused the material placed before us. We find that this issue has also been considered by the ITAT in assessee's own case in the AY 2004-05 (supra) wherein the ITAT held as under:- 44. The Ld AR had relied upon the order of Hon'ble Tribunal in assessee's own case in I.T.A. No.3257/Del/2005 for assessment year 2001-02 wherein the Tribunal had held that expenditure relatable to trips made for non business purposes could only be disallowed by the Department. From the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oplane on lease basis. As discussed in detail in the assessment order passed for the earlier assessment years, the Managing Director of the Company has been using the said plane for purposes other than the business of the company. In view of the non business use of the aeroplane, an estimated disallowance of ₹ 2,00,000/- is made. 18. Thus, the Assessing Officer has mentioned that the Managing Director of the company has been using the said plane for purposes other than the business of the company. But, then, instead of working the disallowance on the basis of such trips which were for non-business purposes, he made an adhoc disallowance. Complete details of aeroplane expenses with the purpose of each visit have not been furnished before us or at least not pointed out before us at the time hearing. In the above circumstances, we are left with no option but to set aside the matter to file of the Assessing Officer with the direction that he shall work out the disallowance, if any, relatable to the trips made by the Managing Director or other Directors for non-business purposes. Needless to mention that he will allow adequate opportunity of being heard to the assessee before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en dismissed vide order dated 2.9.2008 in ITA No.544/2006, reported in 180 Taxman 543 for the AY 2000-01 and in ITA No.53/2008 for the AY 2001-02. 24. Learned DR, on the other hand, tried to justify the assessment order. 25. As claimed by the learned AR, we find that the issue raised in this ground is fully covered by the decision of Delhi Bench of the Tribunal in the case of assessee itself for the AY 2000-01 (supra) and for AY 2001-02 which is now upheld by the Hon'ble Jurisdictional Punjab Haryana High Court vide order dated 2.9.2008 (supra). The relevant observation of the Tribunal on the issue for the AY 2000-01 is being reproduced hereunder for ready reference:- On consideration of the matter we find that as per second proviso to Rule 5(1A), the assessee may instead of the depreciation specified in Appendix 1A on his option be allowed depreciation under Sub-Rule (1) read with appendix 1 i.e. on WDV basis if such option was exercised by the assessee before the due date for furnishing the return of income under section 139(1) of the Act for assessment year 1998-99 or for the assessment relevant to the previous year in which the assessee began to generate power, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee recorded transfer of power produced and captively consumed by the manufacturing units at the rate on which electricity was supplied by the SEB's to the industrial consumers being ₹ 3.72/3.29 per unit, which corresponds to the market price of power as mandated by sub-section (8) of Section 80IA of the Act. 31. The Assessing Officer, relying upon assessments for the earlier years, held that the inter unit transfer of power from the power plants should have been made at ₹ 2.32 per unit, being the price at which power was sold to SEB and not at ₹ 3.72/3.29 per unit being the price charged by the SEB as done by the assessee. Consequently, he held that the deduction allowable under Section 80IA of the Act to be recomputed by treating ₹ 2.32 as the market price of the power and accordingly reduced the deduction allowable under that Section to ₹ 52,00,97,663/- from ₹ 73,02,14,186/- as claimed by the assessee. The learned CIT(A) has deleted the aforesaid disallowance following the decision of Delhi Bench of the Tribunal in assessee's own case in ITA No.3257/Del/2005 for the AY 2001-02. Against this action of learned CIT(A), the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 50,00,000/- made on account of front end fee, which is capital in nature. 37. The relevant facts are that the assessee had issued non- convertible debentures for ₹ 20 crores to UTI Bank Limited to meet fixed capital and working capital requirements. The assessee debited ₹ 50 lakhs (i.e. 2.5% of ₹ 20 crores) to profit loss account on account of processing fee charged by the bank under the terms of issue and claimed the same as revenue deduction. The Assessing Officer disallowed the front end fees of ₹ 50 lakhs by treating the same as capital expenditure on the ground that the assessee had employed the funds for commissioning 55 MW power in Raigarh. The learned CIT(A) has, however, deleted the disallowance made by the Assessing Officer being satisfied with the submission made in this regard by the assessee. This action of the first appellate authority has been impugned by the Revenue in this ground. 38. In support of the ground, learned DR has basically placed reliance on the assessment order. 39. Learned AR, on the other hand, cited the following decisions with the submission that in these cases, it has been held that upfront fees, fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.4 of the Revenue's appeal reads as under:- On the facts and in the circumstances of the case, the ld.CIT(A) has erred in deleting the additions of ₹ 62,50,000/- made on account of interest disallowed by AO treating the same as capital expenses. 43. The facts relevant are that the assessee had issued non- convertible debentures to UTI Bank Limited for ₹ 20 crores carrying interest at the rate of 13% payable quarterly. The Assessing Officer disallowed deduction of interest amounting to ₹ 62,50,000/- on the basis that since the funds were utilized for commissioning 55 MW power project at Raigarh, the expenditure on account of interest was capital in nature. The learned CIT(A) has however reversed the order of the Assessing Officer and has allowed deduction for interest as revenue expenditure under Section 36(1)(iii) of the Act. This action of the learned CIT(A) has been impugned by the Revenue in this ground. 44. In support of the ground, learned DR placed reliance on the assessment order. 45. Learned AR, on the other hand, tried to justify the first appellate order on the issue. He submitted that the assessee is in the business of manufacturing, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Chhattisgarh with objective to develop infrastructural facilities in the newly formed State of Chhattisgarh. The Assessing Officer disallowed the said expenditure holding that the same did not relate to the business of the assessee and was incurred at the instance of the Government of India to secure assets of enduring nature. 50. Learned DR placed reliance on the assessment order whereas contents of the first appellate order in this regard have been cited by the learned AR. The learned AR submitted that the assessee company has entered business interest in the State of Chhattisgarh. The improved infrastructural facilities would result in economies of the state in day to day working of the assessee in short run and improved business environment/conditions resulting in richer dividend in the long run. He submitted that the aforesaid expenditure was incurred to suggest to the Government ways and means to improve the infrastructure facility in the state, which was in the larger interest of the business of the assessee. 51. Having gone through the orders of the authorities below, we find that while deciding the issue in favour of the assessee, learned CIT(A) has taken strength ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenditure was attributable to current repairs and there had been no increase in capacity of the asset and hence, the expenditure is revenue in nature. 54. In support of the ground, learned DR has placed reliance on the assessment order. Learned AR, on the other hand, submitted that the finding of the learned CIT(A) on the issue is fully covered by the following decisions:- (i) Empire Jute Co. Ltd. Vs. CIT - 124 ITR 1 (SC). (ii) Associated Cement Companies Ltd. - 172 ITR 257 (SC). (iii) Alembic Chemical Works Co.Ltd. Vs. CIT - 177 ITR 377(SC). (iv) Saravana Spinning Mills (P) Ltd. - 293 ITR 201(SC). (v) CIT Vs. Ramraju Surgical Cotton Mills - [2007] 294 ITR 328 (SC). 55. Considering the above submissions and having gone through the decisions relied upon, we find that the decision of the learned CIT(A) on the issue is fully covered by the cited decisions. In the case of Empire Jute Co. Ltd. (supra), Hon'ble Supreme Court has been pleased to lay down the basis for determining as to what constitutes a capital expenditure. The ratio decidendi as laid down in the aforesaid judgment has been reiterated by the Hon'ble Supreme Court in the case of Associa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment year 2002-03. 59. Since the issues raised in these grounds are covered by the above cited decisions in the case of assessee itself for the assessment years 2000-01, 2001-02 and 2004-05, we do not find any reason to interfere with the first appellate order in this regard. The same is upheld. Both the ground no.1 and 2 are thus rejected. 60. In the result, the appeal is dismissed. ITA No.168/Del/2009 (Assessee's appeal : AY 2005- 2005-06):- 61. The assessee has impugned the first appellate order on the following grounds:- 1. On the facts and in the circumstances of the case and in law the Commissioner of Income Tax (Appeals), Rohtak has grossly erred on facts and in the circumstances of the case in treating ₹ 58,88,22,668/- being capital receipt received as revenue receipt. 2. That the Commissioner of Income Tax (Appeals), Rohtak has grossly erred on facts and in the circumstances of the case and in law in concluding that the subsidy received by the appellant company is an assistance in carrying on its trade or business and hence it is revenue receipt. 3. That the Commissioner of Income Tax (Appeals), Rohtak has grossly erred on facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horities below. 66. Having gone through the orders of the authorities below, we find that the Assessing Officer had disallowed the amount of ₹ 14,85,085/- out of the claimed expenditure for running and maintenance of aircrafts on adhoc basis alleging that it was not for business purposes. The contention of the assessee has remained that details of the expenditure incurred on air journey were produced and all the journeys were related to the business of the assessee. It was submitted that Assessing Officer had disallowed the expenditure incurred on an adhoc basis by picking some of the journeys made and holding that they were not for business purposes without bringing on record any evidence to substantiate that the journey was for non-business purposes. We find that under similar facts in the assessment year 2001-02, the Tribunal in the case of assessee itself (supra) has held that expenditure relatable to trips made for the alleged non-business purpose could not be disallowed and has accordingly directed that the expenses for trips to meet customers and/or prospective customers be allowed. We, thus, following this order of the Tribunal for the assessment year 2001- 02, set ..... X X X X Extracts X X X X X X X X Extracts X X X X
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