9911796707
TMI Blog2013 (2) TMI 748X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer to recompute deduction u/s 80HHC. 4. On the facts and in the circumstances of the case, the Ld CIT(A) has erred in setting aside the issue regarding commission paid to M/s Ganesh Steel Rolling Mills Ltd Hissar. 5. The appellant craves leave to add or amend the grounds of appeal before the appeal is heard or disposed off. I.T.A. No. 3254/Del/2008: (Assessee's appeal): 1.That the Commissioner of Income Tax (Appeals) erred on facts and in law in upholding disallowance out of club membership and subscription charges to the extent of Rs. 22,125 alleging that the same had not been expended for the proposes of the business. 2. That the Commissioner of Income Tax (Appeals) erred on facts and in law in upholding the action of the assessing officer in partly disallowing expenditure incurred on aircraft, to the extent of RS.5,47,530 alleging that the same was spent for nonbusiness purposes. 3.That the Commissioner of Income Tax (Appeals) erred on facts and in law in setting aside the issue regarding disallowance of commission amounting to " RS.1 ,09,31 0, paid to Ganesh Rolling Mills Ltd., without appreciating that complete evidence was placed on record before the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee is engaged in the manufacturing of sponge iron, universal ream/railway mile with its own captive power plant. Besides captive consumption, the assessee is also engaged in supplying electricity to Chattisgarh State Electricity Board. The return of income declaring total income of Rs. .67,15,19,540/- was filed availing deduction u/s 80IA, 80IB & 80HHC of the Income Tax Act, 1961 . The company had paid tax u/s 115JB of the Act being higher than tax on normal income. The case of the assessee was selected for scrutiny. During assessment proceedings the Assessing Officer observed that the cost of production of power was Rs. .1.10 per unit whereas it had charged Rs. .3.7243/3.698 per unit for captive consumption and Rs. .3.292 for its Raipur Unit. In this view of the fact the Assessing Officer observed that charging of rate of Rs. .3.7243/3.698 & 3.392 per unit on the supply of power was not justified. The Assessing Officer further observed that the assessee had supplied power to State Electricity Board @ Rs. .2.32 per unit. In view of the above, the Assessing Officer held that at least Rs. .2.32 per unit can be considered as reasonable rate and anything above this charged to its own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings. Considering the reply of assessee, the Assessing Officer held that deduction u/s 80IB was allowable for blast furnace unit and ferro chrome unit and also enhanced deduction u/s 80IB on Kiln No.6. Therefore, in view of above, the Assessing Officer allowed deduction u/s 80IB totaling Rs. .20,92,17,564/-. 4. The Assessing Officer further observed that assessee had made payment of Rs. .3,22,125/- to clubs and assessee was asked to justify as to how this was allowable. In reply, the assessee submitted that payment was allowable being corporate membership fee paid during the year and placed a receipt of Rs. .3 lakhs issued by Chattishgarh Club describing it as corporate membership fee. The Assessing Officer allowed the deduction of Rs. .3 lakhs and disallowed the amount of Rs. .22,125/- in the absence of proof of bill/receipt of Rs. .22,125/-. 5. The Assessing Officer also noted that assessee had claimed deduction of Rs. .1,09,310/- on account of commission paid to M/s Ganesh Steel Rolling Mills Ltd. Hissar. The Assessing Officer noted that enquiries made during the course of assessment proceedings for assessment year 2003-04 had revealed that there was no such premises at H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t revised/reduce computation of income arrived at after deducting an amount of Rs. .24,,77,25,360/- representing subsidy received from Govt. The assessee had retained this amount by not paying sale tax collected and by not paying electricity duty and entry tax and had declared this as revenue receipt in the books of accounts and return of income. During assessment proceedings it was submitted that nature of subsidy was capital and was not liable to tax and therefore revisded computation of income was filed. The Assessing Officer rejected the same holding that the amount was received as incentive, Govt. grant and was in the nature of revenue receipt. 8. Dissatisfied with the order of the Assessing Officer, the assessee filed appeal before Ld CIT(A) and submitted as under:- a) That in respect of disallowance of deduction u/s 80IA, the issues stand covered in favour of assessee by order dated 7.6.2007 of Hon'ble ITAT Delhi Bench in I.T.A. No.3257/Del/05-06 for assessment year 2001-002. In view of the aforesaid, the Ld CIT(A) holding that facts and circumstances in this appeal under consideration were similar to the facts and circumstances in assessment year 2001-02 and therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the assessment order was only for purposes of businesses but Ld CIT(A) upheld the disallowance made by the Assessing Officer in view of the fact that the nature of business conducted at these places was not explained by the assessee. 12. As regards disallowance of subsidy amount of Rs. .24,77,25,360/- the Ld AR of the assessee explained that the subsidy amount was earlier shown as revenue receipt by the assessee but was later shown as capital receipt and this was amended by assessee through revised computation of income on a simple paper placed on record only on 28.12.2006 i.e. just on the same date when the time barring case was finally discussed. The Ld CIT(A) held that exemption granted to assessee from paying Central Sales Tax, entry tax and electricity duty were of production related incentives and none of the above items tantamount to acquisition of capital asset like land, building, machinery etc. The Ld CIT(A) further relied upon the judgment of Hon'ble Supreme Court of India in the case of Goetze India Ltd. v. CIT reported at 284 ITR 323 holding that an assessee can claim such items in its return of income only and cannot claim the same during assessment or appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputing book profit. ii) That the Assessing Officer failed to appreciate that the entire export profits are allowable as deduction while computing book profit u/s 115JB and the same are not required to be restricted to the extent specified in sub section (Ib) of section 80HHC of the Act. Continuing his arguments with respect to ground No.1, the Ld AR submitted that the appellant had paid Rs. .3,,22,125/- as subscription fees to various clubs and it was also reported in tax audit report and Assessing Officer disallowed Rs. .22,125/- out of aforesaid amount on the ground that appellant failed to substantiate the same. The Ld AR submitted that club fees are allowable as business expenditure and lower authorities had failed to appreciate that particulars of club details and payments were duly furnished and since the quantum of payment was very small the evidence in respect of the same were not readily available. Reliance was placed on a number of judgments listed at page 1 &2 of chart of issues filed by the assessee. 15. In respect of disallowance of air craft expenses holding them to be for non business purposes, it was submitted that Assessing Officer had disallowed expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the order of Assessing Officer. It was further argued that in the case of Goetze India (supra) Supreme Court had held that Assessing Officer is not obliged to entertain claim not made through revised return but same does not impinge the powers of appellate authority. Reliance was placed on the judgments in the following cases:- 1. CIT v. Jai Parabolic springs Ltd. 306 ITR 42. 2. JCIT v. Hero Honda Finlease Ltd. 115 TTJ 752 (Del.). 3. SNC Lavalin Acres in 110 TTJ 13 (Del.). 4. Sirpur Paper Mills Ltd. v.; city I.T.A. No. 425/Hyd. 5. Aishwarya Roy 2007 TIOL -219-ITAT-Bom. 6. Chicago Pnematc India Pvt. Ltd. v. DCIT 15 S)T 252. 7. Emerson Net Work Power India (P) Ltd. v. ACIT 19 DTR 441 (Bom.). 18. It was further argued that in the case of Hero Honda Finlease it was held that where the Assessing Officer proceeded to deal with the claim on merits, the Ld CIT(A) could not be precluded from adjudicating the issue despite the claim having not been made by filing revised return. 19. In view of the above, it was argued that Bench should decide the issue on the merits. 20. Continuing his arguments on merits, the Ld AR submitted that the assessee had set up a new indus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emical Ltd, 306 ITR 392 (SC) has held in favour of assessee. In this respect para 5 of page 328 and paras 9,12,13,14 & 16 at page 329 were read by Ld AR and in view of the findings of Hon'ble Supreme Court, the Ld AR stressed that Hon'ble Court had over ruled its earlier judgment in Sawhney Steel case and has decided the matter in favour of assessee. Continuing his arguments, the Ld AR submitted that Hon'ble Court had stressed the purpose test for determining the nature of subsidy received by the assessee. Again referring to the industrial policy of Madhya Pradesh, the Ld AR argued that purpose of giving subsidy was overall balance development of State through greater utilization of human and natural resources and was for creation of more direct and indirect employment opportunities and for creation of opportunities to attract new investment in the large and medium sector. In this respect page 7 & 8 of paper book wherein copy of Industrial Policy of Madhya Pradesh was placed was brought to our notice. Keeping in view the objectives of industrial policy it was argued that purpose of industrial policy has to be considered for determining the nature of subsidy received by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. Our attention was also invited to CBDT Circular No.142 dated 1,8.1974 which explains the nature of subsidies and therefore it was pleaded that subsidy was capital in nature. 23. As regards additional ground taken by the assessee, the Ld AR submitted that in view of judgment of Hon'ble Supreme Court in the case of Ajanta Pharma Ltd, v. CIT 327 ITR 305, the assessee was eligible for claim of full amount of export profits u/s 80HHC of the Act for determination of profits u/s 115JB of the Income Tax Act, 1961 . Therefore, this additional ground of appeal should be admitted and the Assessing Officer should be directed accordingly for determination of taxable profits u/s 115Jb of the Income Tax Act, 1961. 24. On the other hand, the Ld DR submitted that in respect of first ground of appeal of assessee, the assessee did not submit receipt of Rs. .22,125/- and has simply relied upon the auditor's report. He argued that auditor report was not sufficient to determine as to the authenticity of payment of Rs. .22,125/- and therefore the Assessing Officer had rightly made the addition and Ld CIT(A) had rightly upheld the addition of Rs. .22,125/-. 25. With respect to ground No.2, rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;ble Supreme Court had not over ruled the earlier case of Sawhney Steel rather in the latter case the Hon'ble Court had clarified the purpose test which was capital in nature in that case whereas it was revenue in nature in first case of Sawhney Steel and therefore these both cases are complimentary to each other. Regarding the case law of Ponny Sugar the Ld DR submitted that subsidy in this case was paid for making repayment of loans which is capital in nature whereas in the present case it is against expenses like electricity duty, sales tax which are revenue in nature. He further stressed that the judgment of jurisdictional High Court of Madhya Pradesh in the caseof Dussad Industries reported in 262ITR 784 carry more weight as compared to other High Courts as the assessee's business was in Madhyha Pradesh. He further elaborated that Hon'ble Madhya Pradesh High Court in the said case had held the subsidy to be of capital nature which was reversed by the Hon'ble Supreme Court. 28. Regarding stress of LR AR with respect to industrialization and more employment in the industrial policy of 1994 the ld DR submitted that the broader object of each industrial policy rema ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el. Wherein the Hon'ble ITAT held that subsidy was linked with the production and sales after commencement of business and sales tax subsidy was treated as revenue receipt. Regarding contention of the Ld AR that the issue is covered in favour of assessee by the decision of Special Bench of the Tribunal in the case of Reliance Industries (supra), the Ld DR argued that it is not correct in view of the decision of Hon'ble Punjab & Haryana High Court in the case of Abishek Industries Pvt. Ltd. and he further argued that decision of the Special Bench of the Tribunal was rendered before the decision in the case of Abhishek Industries (supra). He further argued that the case of Reliance Industries has now been remitted back by Hon'ble Supreme Court to the Hon'ble High Court for re-adjduication. He further argued that answer to the question whether the receipt of a particular subsidy amounts to a capital receipt or a revenue receipt would depend upon the nature and content of subsidy, the scheme, its objective and the purpose for which the subsidy is granted. Relying upon the judgment in the Mapco Industries reported at 319 ITR 208 (SC). The Ld DR argued that one has to exa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s already there but is an assistance after the industry commenced its production. The view taken by the Hon'ble Madhya Pradesh High Court is erroneous." 29. Regarding reliance of Ld AR in the case of Maruti Ltd. in I.T.A. No.2188/Del/.2010, the Ld DR submitted that the case law was decided by relying upon the Hon'ble Bombay High Court decision in the case of DCIT v. Reliance Industries Ltd. and the said judgment has since been set aside by the Hon'ble Apex Court in Civil Appeal No. 7769 of 2011 for reconsideration. Reliance was also placed in the case of Steel Authority of India Ltd. 263 ITR 211( Del.) wherein Hon'ble Delhi High Court had held that grant received from Govt. not for bringing into existence any new asset but for functioning of the company was revenue in nature and similarly reliance was placed in the case of CIT v. Chindwara 245 ITR 9 wherein it was held that since sales tax subsidy was received after the commencement of production, the same could not be treated as capital receipt. In view of the above arguments, the Ld DR submitted that in the present case the subsidy canot be said to be of capital account. 30. In his rejoinder, the Ld AR through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Cooperative Consumer Federation Ltd. 254 ITR 599(Del.). 10. Sadichha Chitra v. CIT 189 ITR 774 (Bom.). In rebuttal of Ld DR's contention regarding first contention that the case of the appellant is covered by the decisions of Hon'ble Supreme Court in the case of Sawhney Steel & Press Works Ltd. (supra), Dussad Industries and Rajaram Maize Products. He submitted that the nature of subsidy is to be determined by applying purpose test laid down by Hon'ble Supreme Court in Sawhney Steel & Press Works and reiterated in Ponny Sugar & Chemicals Ltd. (supra) The purpose test to the subsidy received by the appellant has to be applied considering the object given in the applicable policy, scheme, notification issued by the State Govt. It was further submitted that appellant was granted subsidy since the appellant fulfilled the specific criteria of setting up new industrial undertaking for more than Rs. .1000 crores and since the purpose for subsidy was to promote industrialization and create employment opportunities and was not to supplement trading receipts of the appellant and therefore it was of capital nature. 31. Regarding contention of Ld DR that subsidy under industri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of scheme it was held that subsidy granted was revenue receipt. 32. As regards the decision of Hon'ble Madhya Pradesh High Court in the case of Dussad Industries (supra), the Ld AR submitted that the said case relates to assessment year 1979-80 & 1980-81 and in that case the assessee had received subsidy under certain agreements entered into with Govt. of MP and on perusal of relevant clauses of said agreement it can be noted that there is nothing in the said clause to indicate that subsidy was given for industrial development and or for employment generation. Therefore, the case was distinguishable from the present case wherein the purpose of giving subsidy is clearly spelt out in industrial policy. Similarly, it was argued that decision of Hon'ble Madhya Pradesh High Court in the case of Neo Sack Ltd. reported in 148 Taxmann 603 and that of Hon'ble Calcutta High Court in the case of Keshoram Industries 228 ITR 253 were distinguishable as in those cases the court had held that subsidy received by the assessee is conditional subsidy on specific facts of those cases. As regards reliance of Ld DR in the case of CIT v. Rajaram Maize Products (supra) the Ld AR argued tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Electricity Board. 34. In his reply, the Ld AR argued that assessee was not permitted to sell power other than to Electricity Board of state and forced price can never be market price. He further argued that power was sold to Gujarat Electricity Board through a tripartite agreement with Chattisgarh Electricity Board as the main party and assessee had to raise bills to Chhatisgarh Electricity Board and, therefore, there is no cause in the facts and circumstances of the case from earlier year. 35. We have heard the rival submissions of both the parties and have gone through the material available on record. We first deal with the revenue's appeal in I.T.A. No.3319/Del/ 2008. The first ground taken by the revenue's regarding allowing depreciation on WDV method as against straight line method. We find that Assessing Officer had held that the applicant was entitled to depreciation on the basis of straight line method on the basis of assessment for earlier years and for assessment year 2003-04 and Ld CIT(A) following the Hon'ble Tribunal order for assessment year 2000-01 in assessee's own case placed at pages 239 to 285 of paper book had deleted the addition made by the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant orders are placed at paper book pages 43-46. Following the above, we find that facts and circumstances of the case remains same, therefore, we dismiss the first ground of revenue's appeal. 37. The second ground of revenue's appeal relates to deduction u/s 80IA of the Act. We find that Ld CIT(A) had deleted the disallowance following the decision of Delhi Bench of the Tribunal in appellant's own case in I.T.A. No.3257/Del/2005 for assessment year 2001-02 placed at paper book pages 268 to 308 and further we find that department's appeal against the said order of the Tribunal has been dismissed by Hon'ble Punjab & Haryana High Court vide order dated 2.9.2008 for assessment year 2000-01 & 2001-02. The facts and circumstances though claimed to be different by DR but factually they are same as though the power was sold to Gujarat Electricity Board but the assessee was bound by tripartite agreement pf State Electricity Board and assessee had to raise invoices against Chattisgarh Electricity Board and was entitled to receive payment from the same. So literally the power was being sold to Chattisgarh Electricity Board as in the earlier year. Therefore, there is no change in the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f assessee's appeal. 41. In view of the above, the appeal filed by the revenue is dismissed. 42. Now we take up the appeal filed by the assessee in I.T.A. No. 3254/Del/2008. The first ground taken by the assessee is regarding disallowance of Rs. .22,125/- claimed by the assessee as part of club fee. The Assessing Officer had disallowed the amount on account of non production of any supporting documents. The assessee even did not file any evidence before the Ld CIT(A) and therefore Ld CIT(A) upheld the addition made by the Assessing Officer. The assessee's argument that club fee was a business expenditure cannot be denied but the assessee did not produce any evidence in respect of payment before lower authorities or before us. Therefore, we are not inclined to accept ground No.1 of the assessee's appeal we dismiss the same. 43. The second ground of assessee's appeal relates to disallowance of air craft expenditure amounting to Rs. .5,47,530/- which was alleged to have been spent for non business purposes. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue receipt but during assessment proceedings, the said amount was claimed as not taxable being in the nature of capital receipt and this was claimed by filing a revised computation of total income. The Assessing Officer disallowed the claim of appellant holding that the subsidy received by the assessee was in the shape of incentives/Govt. grant and was in the nature of revenue receipt. The Assessing Officer also rejected the contention of assessee that the matter of receipt of subsidy was covered by the decision of Special Bench of the Tribunal in the case of Reliance Industries Ltd considering it as non binding being a case of non territorial bench. The ld CIT(A) without going into the merits of the issue sustained the aforesaid disallowance holding that the claim was made by appellant merely by filing of revised computation of total income and not by revising the Income tax return for the captioned assessment year and same was not admissible in view of the decision of Hon'ble Supreme Court in the case of Goetze India Ltd. v. CIT 284 ITR 323. 47. Before us, the Ld AR contended that Assessing Officer had raised the issue of applicability of decision of Hon'ble Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f refund of sales tax on raw material, machinery and finished goods subject to maximum of 10% of equity capital paid up in the case of public limited company and actual capital in the case of other. The incentives were also to be paid in the form of subsidy on power consumed for production and also exemption was to be given for payment of water charges. The incentive scheme was for setting up new industrial undertaking in the State and also for the purpose of stimulating special expansion of the industry. The primary object was rapid industrialization of the State and this object was sought to be achieved by various incentives. It was contended there that since subsidy was calculated on the basis of quantum of investment in capital, such subsidy cannot be considered to have been received by the assessee on revenue account. The Hon'ble Apex Court held: " That contention of assessee that subsidies were of capital nature and were given for the purpose of stimulating the setting up and expansion of industries in the State cannot be upheld because of the subsidy scheme itself as no financial assistance was granted to the assessee for setting up of the industry. It is only when the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... similar to the facts and circumstances of Sawhney Steel & Press Works (supra) wherein the Govt. of Madhya Pradesh with a view to industrialize the State and utilize the human resources with an aim to increase employment had provided subsidies in the form of sales tax exemption, electricity duty and entry tax to the assessee for having made investment for a minimum amount of Rs. .1000 crores. The purpose of Andhra Pradesh Govt. and Madhya Pradesh Govt. were broadly same i.e. industrialization and consequent increase in employment opportunities. The Ld AR's argument that purpose test has to be applied in view of the objectives of the scheme is correct as in both the policies of Andhra Pradesh & Madhya Pradesh, the macro purpose was industrialization, increase in employment and better utilization of human and state resources. Therefore, the facts and circumstances of Sawhney's case and present case are similar. The Supreme Court in the case of Sawhney Steel & Press Works (supra) has clearly held that refund of sales tax or relief of electricity charges cannot be treated as an aid to setting up of an industry of the assessee and therefore cannot be said to be of capital receipt. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resent case are totally different. 51. Sri Balaji v. CIT 333 ITR 335 (J&K). The subsidy in the form of excise duty refund and interest subsidies were given in view of Special package for J&K by Central Govt. in public interest in view of specific problems of unemployment in the State and for acceleration of industrial development which had lagged behind. The Hon'ble Court had held that incentives were provided to eradicate social problems of unemployment and were held to be in public interest and therefore were held to be capital in nature. The facts and circumstances of the present case are not similar as in the present case, incentives were provided under normal industrial policy of State Govt. and facts of present case are directly similar to facts and circumstances in Sawhney Steel & Press Works (supra) as decided by the Hon'ble Apex Court. 53. CIT v. Siya Ram HUF. (237 ITR 321 (P&H) In this case the subsidy was received by the assessee for setting up agro base industrial unit in a backward area and was determined with reference to capital investment which is not the case in the present appeal. 54. Bhushan Steel & Strips v. DCIT 91 TTJ 108. In this case the UP Gov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee will utilize amount of subsidies for repayment of loans and therefore same should be treated as capital receipt but we are not in agreement with Ld AR as his argument is based upon hypothesis only. What is important to be seen is whether assessee was bound to utilize the amount of subsidy for repayment of loan or not which in the present case is No. Therefore, this argument cannot be accepted. 60. After analyzing the facts and circumstances of the above noted cases, viz-a-viz facts and circumstances of the present case and that of Sawhney Steel's case, we find that the most appropriate Case law which fits into the facts and circumstances of the present case are that of Sawhney"s Steel & Press Works (supra), therefore, we hold that the amount of subsidy was revenue in nature. Therefore, this ground of appeal of assessee is dismissed. 61. Ground No.6 of appeal of assessee regarding charging of interest u/s 234 B is also dismissed as provisions of section 234 B are mandatory and consequential. 62. As regards additional ground taken by the assessee during appellate proceedings regarding calculation of tax payable u/s 115JB of the Act. We find that Hon'ble Court in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
