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TMI Blog2011 (8) TMI 1147X X X X Extracts X X X X X X X X Extracts X X X X ..... the binding decision of the Jurisdictional High Court - Matter restored back. Disallowance comprising of PLA balances of R D Cess on vehicles - Deduction u/s 43B - As per AO, PLA balances are advance payments made towards goods which are yet to be manufactured or cleared from the factory, thus disallowed. HELD THAT:- We may point out that the decision of the ITAT Special Bench of Chandigarh in the case of DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 4 (1). VERSUS GLAXO SMITHKLINE CONSUMER HEALTHCARE LIMITED. [ 2007 (7) TMI 334 - ITAT CHANDIGARH] , is directly on the issue of balances in PLA and is allowable deduction u/s 43B of the Act and, therefore, in the light of these, we decline to interfere - Decision in favour of Assessee. Customs duty on import of components for Export Purposes - The AO disallowed the claim holding that the same is revenue neutral since this amount should be reflected in the closing stock and purchase as provided in section 145, thus not allowable deduction - HELD THAT:- In our view, this issue is concluded in favour of the assessee by the decision of the Hon ble Supreme Court in the case of BERGER PAINTS INDIA LTD. VERSUS COMMISSIONER OF INCOME-TAX ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e considered and allowed u/s 37(1). Expenditure incurred for Business Purposes - Assessee claimed expenditure on club membership fee was for employees and directors. CIT(A) allowed said expenditure - HELD THAT:- ld. CIT(A) following its own case, confirmed that expenditure was incurred for business purposes and warranted by business necessities and exigencies. We therefore, confirm the decision of CIT - Decision in favour of Assessee. Sales Tax Subsidy - Wrongly included in Return of Income - Sales Tax subsidy recieved was included in the return of income by the assessee. Also, such income was considered as capital receipt - HELD THAT:- The CIT(A) was right in having come to the conclusion that when the assessee signed a letter before the AO during the course of assessment proceedings wherein it was claimed that the disputed receipt be excluded from the total income, was required to be adjudicated by the AO. Merely because the assessee wrongly included the income in the return of income, it cannot by itself tax that income in that year, even though legally such income did not pertain to that year - Decision in favour of Assessee. Sales Tax Subsidy u/s 25A of The Harya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision were explained which require submission of information and documents for determination of the amount or rate of drawback, verifying the correctness or otherwise of any claim for drawback. It is only after submission of the claim along with complete enclosures and necessary verification by the authorized officer, the payment of drawback is made to the credit of the assessee s bank account. Thus, it is only when an amount is found to have accrued, payment is simultaneously made. It was claimed before the Commissioner that the issue is now fully covered in favour of the assessee by the order of the ITAT in the assessee s own case for the AY 1999-00 and 2001-02 and by the order of the CIT(A) for the assessment year 2002-03. 5. The Commissioner, however, preferred to follow the view of his predecessor for the AY 2004-05. It is explained before us by the ld. Counsel for the assessee that the assessee has been consistently following an exclusive method of accounting in respect of custom duty paid on import of components for export purposes. Accordingly, duties paid on purchases are not included in the cost of purchases and the value of closing stock in the Profit loss accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel fairly admitted that this issue is covered by the order of the Special Bench in the case of DCIT vs Glaxo Smithkline Consumer Health Care Ltd. In 107 ITD 343 and in the assessee s own case in Asstt. Year 2001-02, the said issue is decided against the assessee. The operative portion of the order for the Asstt. Year 2001-02 is as under:- In regard to Ground no.2 which was against the Excise Duty on inputs, it was fairly agreed by both the sides that the issue was squarely covered against the assessee by the decision of the Special Bench of this Tribunal in the case of Glaxo Smithkline Consumer Health Care Ltd. referred to supra wherein it has been held that the unutilized MODVAT credit is not an allowable deduction since such credit does not amount to payment of duty. Respectfully following the decision of the Special Bench of this Tribunal in the case of Glaxo Smithkline Consumer Health Care Ltd., Ground no.2 of the revenue s appeal stands allowed. 10. In the light of the above discussion, following the above view, the claim of the assessee is declined by confirming the order of the CIT(A) on this issue. 11. The third ground in the assessee s appeal relates to disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after. The AO is therefore directed to finally dispose of the matter in the light of the decision that may become available to him on the same issue. 13. In the result, appeal of the assessee is treated to be partly allowed. 14. The first ground in the revenue s appeal relates to the disallowance of ₹ 25,73,919 comprising of PLA balances of R D Cess on vehicles of ₹ 24,57,035/- and PLA balance of Excise duty on spare parts to the extent of ₹ 1,16,884/-. According to the AO, PLA balances are nothing but advance payments made towards goods which are yet to be manufactured or cleared from the factory. According to him, these are advance payments made towards goods, which are manufactured/cleared from the factory. It is claimed that the amount representing PLA balances should be allowed as deduction in the light of the Hon ble Supreme Court decision in the case of Berger Paints India Ltd. vs CIT 266 ITR 99 (SC); Indian Communication Network Pvt. Ltd. vs IAC 48 TTJ 604 (Del); ITO vs Food Specialties 48 TTJ 621 (Special Bench, Del), Honda Siel Power Products Ltd. vs DCIT 77 ITD 123 (Del) and a recent decision in the case of DCIT v Glaxo Smithkline Consumer Healthc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le laid down in Berger Paints cited supra and the CIT(A) for AY 2001- 02, 2002-03 and 2004-05 has accepted similar contentions. The revenue is aggrieved. 18. We have heard both the sides and gone through the records. The assessee has been consistently following the exclusive method of accounting in respect of custom duty paid on import of components for export purposes. Accordingly, duties paid on purchases are not included in the cost of purchases and the value of closing stock in the profit and loss account. However, by itself it is tax neutral but in view of the provisions of Section 43B, the said sum in question is deductible as the same is paid by the assessee on the basis of actual payment although the required export have not been made during the relevant year. In our view, this issue is again concluded in favour of the assessee by the decision of the Hon ble Supreme Court in the case of Berger Paints 266 ITR 99(SC) wherein it was observed by the Hon ble Supreme court that by merely debiting the duties to the P L account as part of the value of the closing stock, it could not be said that the same have been allowed as deduction and would be separately allowable u/s 43B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal relates to customs duty on inventory held in closing stock to the extent of ₹ 23,68,09,186/-. According to the AO, the assessee has already debited the said sum to the Profit Loss account and correspondingly included in closing stock and the assessee is not entitled for any further deduction. However, the claim of the assessee is that although the amount stood debited to the Profit and loss account and was included in the closing stock, the said amount would still be separately deductible under section 43B in the light of the decision of Hon ble Supreme Court in the case of Berger Paints (cited supra). According to him, identical claims have been accepted by the Tribunal in the AYs 1999-00 and 2000-01 and 2001-02. In the light of those orders of ITAT on identical issue, the CIT(A) accepted all these contentions and revenue is aggrieved. 22. We have heard both the sides and carefully gone through the orders referred to including the discussion in the impugned orders. We have also carefully gone through the reasoning given by the AO in making the disallowance. We do not think that the contention of the revenue deserves acceptance in the light of the authoritative prono ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts were offered to tax in the return of income as the same was claimed on payment basis u/s 43B in the preceding years. However, out of the said total amount of ₹ 120,47,62,835/- an amount of ₹ 58,32,85,322/- though claimed on payment basis in preceding years were not allowed as a deduction by the AO. The break-up of this amount given by the assessee was as under:- Item No. Item Particulars Amount (Rs.) Amounts claimed in AY Whether allowed or Disallowed 1. Excise duty on Inputs balance in RG23A Part-II 30,38,75,667 2004-05 Disallowed in the order of assessment; disallowance confirmed by CIT(A) ITAT 2. Sales Tax (First Point) 69,655 2004-05 Disallowed in the order of assessment; disallowance confirmed by CIT(A) ITAT 3. Custom duty paid on import of components for export purposes for which export has been made 2,62,20,000 _____________ 25,31,20,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egard. We also do not approve the contention of the revenue that such alternative claim of the assessee should not be accepted in the absence of the revised return filed in this regard. It has by now been accepted that all claims of the assessee which lead in the determination of proper income of taxation require to be addressed by the AO in accordance with law. In a matter of the type that we have dealt with herein, it is necessary to have a look into the record for fair determination of the lax liabilities. The CIT(A) has rightly set aside the matter for verification of the record of assessment and he has also directed to withdraw the relief allowed to the assessee by accepting this alternative claim, if deduction claimed by it for the same amount is held to be allowable u/s 43B in the earlier assessment year. In sum and substance, the order of the CIT(A) is fair and reasonable and is based on the orders of the ITAT in this regard in the earlier years as referred to in our order in the earlier paragraphs. 30. The next dispute in the revenue s appeal relates to the assesee s claim for deduction u/s 43B of the IT Act amounting to ₹ 47,31,50,000 representing the RG23A balan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e physical stock of some items was actually more than the stock as per stock register by ₹ 3.99 crores. On the basis of this submission of assessee, the excise authorities issued a show cause notice holding that the assessee has cleared/removed inputs valued at ₹ 4,65,02,993/- in contravention of various rules of the Cenvat Credit Rules and the Central Excise Rules, 2002. Based on the said show cause notice of excise authorities, the AO held that there is an excess consumption claimed by the assessee to the tune of ₹ 4,65,02,993 and to that extent, addition was made. It was claimed before the CIT(A) that the addition is based on simple show cause notice and the assessee is maintaining stock register on a computerized system. No discrepancy has been found in respect of said stock register. Explaining the accounting of consumption, it is stated that the amount of consumption debited to profit and loss account is derived by adding to the opening stock, the purchases made and reducing therefrom the closing stock as per physical inventory. All the three figures i.e. opening stock, purchases made by the assessee and the closing stock are not disputed by the AO and there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CIT(A), in our view, does not require any interference. The same is upheld. The addition, in our view, is misconceived and without having regard to the practical realities of the business and the magnitude of the turnover of the assessee. 35. The next dispute in the revenue s appeal relates to the disallowance made by the AO u/s 35DDA of the Act amounting to ₹ 38,63,64,348/-. 36. The facts are that the assessee company had offered two voluntary retirement schemes to its employees. The scheme was offered in the previous year 2001-02 wherein the total payment made to employees was ₹ 73,60,47,559/-. The second scheme was offered in the financial year 2003-04 wherein the total payment made to the employees was ₹ 119,57,74,181/-. The assessee company claimed deduction for these VRS payments u/s 35DDA of the Act. During the year under consideration, the assessee s claim of payment of ₹ 38,63,64,348/- works out as follows:- 37. The AO disallowed the aforesaid claim for the AY 2004-05 on the basis of his own stand taken in the earlier assessment years wherein he held the same to be violative of provisions of Section 35DDA of the Act. The Ld. CIT(A), h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed the Tribunal order and the binding decision of the Delhi High Court in respect of the issue in question. The order of the CIT(A) on this issue is therefore confirmed by holding that the expenditure in question was incurred for business purposes of the assessee and warranted by business necessities and exigencies, such expenses cannot be subject to any arbitrary disallowance. 41. The last dispute in the revenue s appeal relates to the sales tax subsidy of ₹ 16,04,07,733/- received by the assessee company during the year under consideration. According to the assessee, the said receipt represented to be capital in nature and therefore should be excluded from the taxable income. At this stage, it may be mentioned that the assessee has included the tax concession in the gross total income of ₹ 1347,51,71,142/-. According to the ld. Counsel for the assessee, the same was erroneously offered as income in the return of income filed for the relevant assessment year. That the claim of the assessee was based on a subsequent decision of the Hon ble Supreme Court in the case of CIT vs Ponni Sugars and Chemicals Ltd. (2006) 306 ITR 392. The assessee, in this connection, ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 28C, the High Powered Committee in a meeting on 14.06.2001 granted sales tax concession to it, whereby it was to pay 50% of the sales tax collected on sale of finished products from expanded unit and retain 50% but maximum benefit permissible was ₹ 564.35 crores. In pursuance to the above, the appellant was also issued entitlement certificate dated 01.08.2001 (enclosed at Annexure-5 of the written submission on this ground by the Ld. ARs) under rule 28C of Haryana General Sales Tax Rules, 1975 to avail sales tax concession to the extent of ₹ 564.35 crores during the period 01.08.2001 to 31.07.2015. For the instant assessment year, the company accordingly retained ₹ 16,04,07,773/- out of the sales tax collected on sale of finished products from expanded unit and, but declared the same erroneously as income under the head SALES TAX BENEFIT as seen from Schedule 16 (Other Income) to the Profit and Loss Account prepared for the financial year 2004-2005 relevant to the instant assessment year. In the case of CIT vs Ponni Sugars and Chemicals Ltd. 306 ITR 392 (2008)/ 174 Taxman 87 (SC), the Hon ble Supreme Court has said prescribed the test for the purpose of determ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incentives, making it more effective and meaningful for speedy development of the State. 44. To monitor the implementation of the Policy, an Empowered Committee was constituted under the chairmanship of the Chief Secretary to suggest policy initiatives and for coordinating with various departments of the Government to achieve the objectives set forth in the policy. It was stated that a customized package of incentives and concessions will be provided for prestigious projects having an investment of ₹ 30 crores and above, which will be decided by a High Powered Committee. The relevant provisions for granting the subsidy, as contemplated in the Industrial Policy, 1999 are stated to be as under:- (a) attracting new investment and growth of existing industries; (b) generation of employment in industrial and allied sector by 20 per cent. 45. Ld. Counsel, based on the Industrial Policy 1999 of the Government of Haryana, argued that taxation of subsidy, by whatever name called, is determined by the purpose for which the subsidy is granted and not the form/mode/manner in which the subsidy is received/disbursed. 46. Ld. Counsel for the assessee strongly relied upon the decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was made during the assessment proceedings, notwithstanding the fact that there was no revised return forthcoming from the assessee. In fact, when the claim of the assessee was based on the decision of the Hon ble Supreme Court in the case of Ponni Sugars, the AO should have discussed the issue and decided. Therefore, we do not find any infirmity in the order of the CIT(A) insofar as he proceeded to deal with the same and made these observations. Now, coming to the merits of the matter, the assessee has undertaken an expansion in terms of Rule 28C of General Sales Tax Rules 1975. The objective of the grant of subsidy by way of sales tax concession was to give assistance to the assessee for establishing a new industrial unit or for substantial expansion of an existing industrial unit. The objective of the grant of the said subsidy was again made clear by the Industrial Policy 1999 issued by the Department of Industries, Govt. of Haryana specifically stating that one of the objectives of the policy is to attract new investment and growth of the existing industries. The High Powered Committee at its meeting on 14.6.2001 granted sales tax concession to it whereby the assessee was re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The judgement of the House of Lords shows that the source of payment or the form in which the subsidy is paid or the mechanism through which it is paid is immaterial and that what is relevant is the purpose for payment of assistance. Ordinarily, such payments would have been on revenue account but since the purpose of the payment was to curtail/bliterate unemployment and since the purpose was dock extension, the House of Lords held that the payment made was of capital nature. One more aspect needs to be mentioned. In Sahney Steel and Press Works Ltd., this court found that the assessee was free to use the money in its business entirely as it liked. It was not obliged to spend the money for a particular purpose. In the case of Seaham Harbour Dock Co., the assessee was obliged to spend the money for extension of its docks. This aspect is very important. In the present case also, receipt of the subsidy was capital in nature as the assessee was obliged to utilize the subsidy only for repayment of term loans undertaken by the assessee for setting up new units/expansion of existing business. Applying the aforesaid test laid down by the Supreme Court to the facts of the case, we do n ..... 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