9911796707
TMI Blog2014 (5) TMI 961X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 – t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le of PSF, PFY etc. The assessee filed its return of income showing total income at Nil, and the business loss of Rs. 202,33,36,763/-. The assessment was completed and total a loss of Rs.105,75,53,230/-, inter-alia, making following additions: i. Addition on account of sales tax subsidy Rs.85,19,51,413/-. ii. Disallowance of trial run expenses Rs.11,44,58,672/-. iii. Disallowance of depreciation on computers Rs.64,57,845/-. iv. Disallowance of custom redemption fees Rs.15 lacs. 3. The ld. CIT (A) allowed the assessee s appeal on all counts. Being aggrieved with the order of ld. CIT (A), the Department is in appeal before us and has taken following grounds of appeal. 1. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs.85,19,51,413/- made on account of treatment of sales tax subsidy as revenue receipt. 2. On the facts and circumstances of the case and in law, the CIT (A) has erred in deleting the addition of Rs.11,44,58,672/- made on account of treatment of trial run expenses as capital in nature. 3. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view to achieve faster dispersal of industries outside Bombay-Thane- Pune, belt and to attract industries to the under developed and developing areas of the state. It was further explained that the modus operandi of the scheme was that the assessee collected sales tax (which was in built in sales price of the products manufactured by it), which was not required to be paid to the State Government and was retained by the assessee. The Sales Tax Department, thereafter, calculated the exemption availed by the assessee every year and reduced the same from the opening balance given by the Government of Maharashtra to control that the subsidy in the form of sales tax collected and retained over years did not exceed the approved quantum. 4.2 It was further submitted that the scheme postulated the following important conditions, among others, for eligibility under the scheme: (i) Effective possession of land by an eligible Unit, (ii) Tying up of the means of finance for the project the satisfaction of the concerned implementing agency (iii) Acquisition of fixed assets at site to an extent of at least 10% of the total fixed assets as envisaged for the project, and (iv) Evidenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erved for AY 2005-06 in Para 5 to 5.2 as under: 5. Ground no.1 is on the issue of sales tax subsidy. Similar disallowances were made in the Assessment Year 1997-98, 2003-04 and 2004-05. The assessee had set up a new unit in Butibori, Nagpur during the Assessment Year 1996-97for the manufacture of polyester fibre. The new unit was entitled to the benefit of sales tax subsidy under the provisions of Dispersal of Industries-New Packages Scheme of Incentives, 1993 notified by the Government of Maharashtra. During the current Assessment Year the assessee received sales tax subsidy of Rs.87,85,15,268/-. This was claimed as a capital receipt. The AO brought the same to tax on the ground that the receipt in question is a revenue receipt. On appeal the Commissioner of Income Tax (Appeals) followed the orders of his predecessor on the issue and allowed the claim of the assessee. Aggrieved the Revenue is in appeal before us. 5.1. The C Bench of the Tribunal in assessee s own case for the Assessment Years 1997-98, 2000-2001, 2002-03, 2003-04, 2004-05 upheld the orders of the First Appellate Authority. The First Appellate Authority at page 7 of his order has given a comparison of the 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case for Assessment Year 1997-98, Assessment Year 2000-01 to 2002-03 while concurring with the ruling of the case pf DCIT vs. Reliance Industries Ltd. 88 ITD 273 (Mumbai) (SB) to the case of the assessee, had set aside the subject matter for comparison of the two scheme (one applied by assessee before the Ld.CIT(A) and second availed and applied in case of Reliance (supra). 8.1. A comparative chart on the salient features of the PSI 1979 with PSI 1993 was furnished by assessee before the Ld. CIT(A). Ld. ClT(A) gave a finding that it is observed that object of the subsidy of both the scheme is for promotion of Industrialization in backward area of the State of Maharashtra. Further, eligibility criteria and steps for processing of scheme (e.g. approval from government authorities, financing of project, expenditure on project, approval from SICOM, mode of disbursement of sales tax incentive etc.) are similar in both the schemes. Ld.CIT(A) found that according to the PSI 1993 purpose of the scheme is for encouraging setting up of manufacturing unit in backward area in the state. While granting subsidies for capital investment, the Maharashtra government does not disburse any amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the exemption availed of by the assessee s eligible units under the said notification would, in view of the decisions cited above, be a capital receipt not liable to tax. Therefore, Ld.CIT(A) held that this ground is to be held in favour of the assessee and notional amount of sales tax subsidy is held as capital receipt not chargeable to tax. 9. Against the above order, the Revenue is in appeal before us. 10. We have heard the rival contentions in light of the material produced and precedents relied upon. We find that Ld. ClT(A) has given a finding that issue in dispute was covered by the special Bench decision of the Tribunal in the case of Reliance Industries Ltd. (supra). Though the scheme applicable in the case of Reliance Industries Ltd. was 1979 scheme, however, in the 1993 scheme terms and conditions were of the same nature and intent. For this purpose, a comparative chart was referred by the Ld. CIT (A). As per the comparative chart the terms and conditions applicable in 1979 scheme were of the same nature and intent of the 1993 scheme. We further note that Mumbai Tribunal in the case of Everest Industries Ltd. in ITA no. 814/Mum/2007 has held that salient features o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere as under: CP-4 CP-5 Date of commencement of Trial Run/Production 09.03.2007 10.09.2006 Date of commencement of commercial Production 30.03.2007 01.11.2006 7. He further observed that during the year under consideration, the assessee merely expanded its business operations by establishing two new CP Plants. He further pointed out that not only assessee claimed running expenses of Rs.11.44 crores but also received trial run income of Rs.50 crores which was taken by the assessee as revenue receipt. 8. At the outset ld. counsel for the assessee submitted that this issue is now concluded by the decision of Hon ble Delhi High Court in the assessee s own case reported at 333 ITR page 18 wherein it has been held that where the new unit proposed to be set up by the assessee was the expansion of its business operation, the expenditure incurred on the proposed unit, is to be allowed as business expenditure even if the project was abandoned. 9. Ld. DR relied on the order of AO. 10. We have considered the riva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it 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. However, if the new asset comes into existence which is of enduring benefit, then such expenditure would be of capital nature. 13. Since it was merely a case of expansion of existing plant, therefore, the expenses incurred by assessee which were inherently of revenue nature were rightly allowed by ld. CIT (A). In the result, this ground is dismissed. 14. Brief facts apropos ground no. 3 are that assessee company had claimed the depreciation of Rs.77,49,413/- on computers. AO noted that computers were reflected under the head furniture and fittings in the fixed assets schedule but the assessee had claimed depreciation @ 60% on computers. After considering the assessee s submissions, AO allowed depreciation @ 10%. 15. The ld. CIT(A) allowed the assessee s appeal, inter-alia, observing that classification of computers under the head f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Foreign Trade had issued a notification dated 31st March, 2001, in terms of which an assessee importing any new vehicle in India was required to produce certificate of compliance as per the provisions of Rule 126 of Central Motor Vehicle Rules, 1989 from the Automotive Research Association of India, Pune. 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. However, since 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. 22. The 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. Alternatively, the assessee was required to re-export the car on payment of notional penalty in terms of section 112(a) of the Act. Consequently, the assessee incurred expenditure on account of redemption fees of Rs.15 lacs payable to Custom Authorities u/s 125 of the Customs Act, 1962 for release of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. If the seized goods, without the exercise of option, had been confiscated once and for all, it goes without saying that the property in the goods shall vest in the Government, in the sense of the Government becoming the absolute owner thereof. The fine amount, whatever be its quantification, that is to say, whether it is equivalent to or below the value of the goods seized, cannot at all, in such a situation, be stated to be penal in nature, notwithstanding its nomenclature, but it is reparatory or compensatory in nature. Once it is compensatory in nature, its goes without saying that the authority has to allow deduction under section 37(1) of the Income Tax Act as laid down by the apex court in the two latest decisions aforecited. Further, the expenses incurred by way of payment of fees to advocates in defending penalty proceedings must also be construed as an allowable deduction. We, therefore, answer questions Nos. 1 and 4 in the affirmative and against the Revenue. 10. In the present case, this Court notices that originally the penalty which the appellant had been directed to pay was deleted by the CEGAT. What remained was the confiscation; the appellant was given the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
