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TMI Blog2017 (9) TMI 962X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and in circumstances of the case, the CIT(A) erred in law as well as on facts in holding that disallowance of deduction u/s 80IA of Rs. 1,11,89,18,801/- computed by the Assessing Officer due to difference in rate of power was not correct, ignoring the fact that there was huge difference in rate on which power was purchased by the cement units with that of power purchased by the Rajasthan & MP state electricity regulatory authority". This ground can be conveniently decided together with grounds no. 2 to 6 raised by the assessee in its appeal. These grounds read as follows :- "2. That on the facts and circumstances of the case, the Ld.CIT(Appeals) erred in not holding that the appellant company is entitled to claim ofRs.1,11,89,18,801/- made during the year uls.80IA of I.T. Act, 1961. 3. That on the facts and circumstances of the case, the Ld.CIT(Appeals) erred in not holding that the basis of sale price considered by the TPP for sale of power to the cement units of the appellant company is correct and accordingly directing the learned AO to accept the same. 4. That on the facts and circumstances of the case, the sale price determined by the Ld.CIT(A) excluding Electrici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... page 194 of the paper book), the AO proposed to adopt the rates adopted by the Rajasthan Electricity Regulatory Commission, Jaipur, for power purchase by Distribution Licensee which was determined at Rs. 2.44 Ps. Per unit. In the case of power generation by the Madhya Pradesh Unit of the Assessee, the AO proposed to adopt the rate of Rs. 1.39 Ps., which was the rate fixed for purchase of power by M.P.Vidyut Vitran Companies in an order dated 3.3.2010 passed by M.P.Electricity Regulatory Commission. 6. The Assessee submitted before the AO, as follows:- i) Provisions of Section 80lA (8) and the Explanation to the sub-section provide for adoption of the market values "for the purpose of computation of profits and gains of the eligible business where its goods or services are transferred to any other business carried on by the assessee. The explanation defines "Market Value" to mean the price that would ordinarily be fetched in the open market. ii) The price at which State Electricity Boards sell electricity to consumers is representative of the price that electricity would ordinarily fetch in the open market and that is the price which has been adopted by the Assessee for the elect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,18,61,971/- earned on fixed deposits by the Chanderia Unit should also be considered as part of the profits derived from the industrial undertaking for the purpose of allowing deduction u/s.80IA of the Act. The AO held that fixed deposits were made out of surplus funds in bank for short period cannot be considered as "derived" from the industrial undertaking as it has not direct nexus with the industrial undertaking. In coming to the above conclusion the AO relied on the decision of the Hon'ble Supreme Court in the case of Liberty India Vs. CIT (2009) 183 Taxman 349 (SC) wherein it was held that the word "derived from" connotes a direct nexus between the profits and gains of the industrial undertaking and a mere commercial connection in the source does not amount to income derived from the industrial undertaking. 9. On appeal by the assesee the CIT(A) noticed that identical dispute had arisen for consideration in assessee's own case in A.Y.2009-10 and CIT(A) following the order of CIT(A) in A.Y.2009-10 directed the AO to adopt weighted average basis of annual consumption. The following were the relevant observations of CIT(A) : "5.2. It is seen that this is also a recurring i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... figures mentioned therein. The assessing officer will verify the quantity of the units consumed and the figures of the bills from the original documents while giving the appeal effect. In case, there is any variation in the figures as given by the appellant, he will modify it accordingly after giving detailed reasoning for the same. The appellant gets part relief on this point." 10. On the issue of non-consideration of interest income for the purpose of allowing deduction 80lA of the Act, the Assessee submitted before the CIT(A) the interest was earned on temporarily surplus business funds of the thermal power plants deposited with banks and forms part of the profits of the business of the thermal power plants eligible for deduction under section 80IA of the Act. 11. The CIT(A) found that identical issue was considered and decided against the Assessee in AY 2009-10. The CIT(A) following the said order rejected the claim of the Assessee. The following were the relevant observations of the CIT(A). "6.2. This issue was also involved in the earlier assessment years. While deciding appeal no. 245/CIT(A)-VI/Circle-6/2011-12, my ld. predecessor, vide his order dated 07.12.2012, my l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessee was the decision of the Tribunal in the case of ITC Ltd., and that the Hon'ble Calcutta High Court had reversed the order of the Tribunal in the case of ITC Ltd., reported in CIT v ITC Ltd., (2016) 236 Taxman 612 (Cal). In ITC's case (supra) it was held by the Hon'ble Calcutta High Court, that the quantum of benefit u/s 80IA of the Act was to be worked out with reference to the market rate at which electricity could have been sold to the distribution licensee by a generating company and that benefit cannot be claimed on the basis of rate chargeable by the distribution licensee from the consumer. The Assessee however pointed out to the Tribunal that the view taken by the Hon'ble Calcutta High Court in the case of ITC Ltd. (supra) was taken on the basis of the the provisions of Indian Electricity Act, 1910 and Electricity (Supply) Act, 1948 that were in force upto the year 2003. It was pointed out before the Tribunal that The Electricity Act, 2003 (hereinafter referred to as "the 2003 Act") repealed the erstwhile legislation and the new legislation came into force on June 10, 2003. The 2003 Act was applicable and in force during the previous years relevant to the Asst Y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... much as during the relevant previous years it was open to the assessee to sell even to a consumer and the price for sale to a distribution company or to a consumer that could be mutually agreed upon notwithstanding the tariff fixed by the State Regulatory Commission. We find that during the previous year relevant to the Asst Year 2009-10, the assessee in fact sold electricity at rates higher than that charged from it by the State Electricity Board. The assessee nevertheless made the computation for the purpose of section 80IA of the Act with reference to the price charged from it by the State Electricity Board. In such circumstances, we hold that, when it was permissible for the assessee to sell electricity to consumers and distribution licensees at rates higher than that paid by it to the State Electricity Board, the price charged by the State Electricity Board would be a very good indication of the market value of electricity and the assessee did not commit any error in adopting such price for working out the amount eligible for deduction u/s 80IA of the Act. 14. After coming to the conclusion that the decision of the Hon'ble Calcutta High Court in the case of ITC Ltd., (supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rected by ld CITA Now coming to the decision of the ld CITA to exclude electricity duty and cess, we find that the same has been addressed by the Hon'ble Gujarat High court in the case of CIT vs Shah Alloys Ltd in Tax Appeal No. 2092 of 2010 dated 22.11.2011, which approved the view taken by the Ahmedabad Tribunal in ITA Nos.844, 2072 and 2073/Ahd/2006 dated 8.1.2010, that the price charged by the Electricity Board inclusive of the amount of Electricity Duty represented the market value even though the assessee was not required to charge electricity duty. 5.6.6. In view of our aforesaid findings, we direct the ld AO to accordingly modify the earlier years profits also which were modified by him, in the same lines as directed for Asst Years 2008-09 and 2009-10 herein. Accordingly, the grounds raised by the assessee in this regard deserve to be allowed and that of the revenue deserve to be dismissed." 16. The aforesaid decision of the tribunal would apply to the present AY also. Respectfully following the order of the Tribunal we allow grounds 2 to 4 & 6 raised by the assessee in its appeal and dismiss ground no.1 raised by the revenue in its appeal. 17. As far as ground no.5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the CIT(A) by order dated July 9, 2010 deleted the addition made by the AO. Against the said order, the revenue preferred further appeal before the Hon 'ble Tribunal, being ITA No. 1936 (Kol) of 2010. The said appeal has since been rejected by the Hon'ble Tribunal by order dated July 29,2011 (Page 71 to 87 the Paper Book - paragraphs 10-15 at page-77 to 84). The said decision was rendered after considering the judgment of the Hon'ble Supreme Court in Enterprising Enterprises v Deputy Commissioner, (2007) 293 ITR 437 (SC). The said order of the Hon 'ble Tribunal has been followed in first appeal for the assessment years 2007-08 (page 3, para 4), 2008-09 (page 55, para 4) and 2009- 10 (page 110, para 5). It was submitted that in this year also, the compensation amount of Rs. 23,71,3401- should be held to be revenue in nature and an admissible deduction. 21. The CIT(A) deleted the addition made by the AO by following the order of the Tribunal in ITA No. 1936/Kol of 2010. Aggrieved by the order of the CIT(A), the revenue has raised Gr.No.2 before the Tribunal. 22. At the time of hearing it was brought to our notice that identical issue was considered by the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strial promotion assistance from State Govt. was capital in nature, ignoring the fact that the said subsidy was not used for the purpose of acquisition of capital assets". 25. This ground can be conveniently decided with ground no.7 raised by the assessee which reads as follows :- "7. That on the facts and circumstances of the case, the Learned CIT(Appeals) though holding that Industrial Promotion Assistances ofRs.13,59,12,890/- allowed by State Government is in the nature of capital receipt but erred in directing the Assessing Officer (AO) to reduce the same from the cost of Fixed Assets for the purpose of computing depreciation by applying the Explanation 10 ofSecA3(1) of the I.T.Act." 26. During the previous year relevant to AY 2010-11, the Assessee received Industrial Promotion Allowance provided to one of its unit Durgapur Hi-tech, Durgapur under West Bengal Investment Scheme, 2000 to the tune of Rs. 13,59,12,890/-. It was the claim of the Assessee that the 2000 Scheme was formulated by the West Bengal state Government for the promotion of industry in the state. It was applicable in respect of units to be set up and also to expansion projects of existing units having inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital subsidy, the issue of depreciation is to be considered accordingly as per Explanation 10 to Section 43 w.e.f. 01-04- 1999 provides that "actual cost" means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority and further provides that where such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee." The Hon'ble jurisdictional High Court has not considered the amendment carried out as per explanation 10 to subsection 5 of section 43 in the case of CIT vs. Rasoi Ltd. (supra) regarding the depreciation on the capital assets since the matter involved was assessment year 1995-96 and the amendment in the explanation 10 was brought into force w. e. f 1.4. 1999. Therefore, in view of the above decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of the 2000 Scheme and the certificate of registration and eligibility certificate that the assistance was to be made available after the commencement of commercial production without any financial cap and was to be adjusted against the sales tax liability of the year of claim. The industrial promotion assistance was clearly not used directly or indirectly to acquire the assets nor any part of the cost of the assets was met directly or indirectly from the industrial promotion assistance. We find that the issue under dispute is squarely covered by the decision of this tribunal in assessee's own case for Asst Year 2007-08 in ITA No. 683 & 581 /Kol/2011 dated 8.12.2014 wherein the grounds raised by the assessee as well as by the revenue were as under:- Assessee Ground No. 1 That on the facts and circumstances of the case, the learned CIT(Appeals) though holding that sales-tax incentive of Rs. 1238000 allowed by the State Govt. is the nature of capital receipt but erred in directing the Assessing Officer (AO) for reducing the same from the cost of Fixed Assets for the purpose of computing depreciation by applying the Explanation 10 to Sec. 43(1) of I.T.Act. Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the case of PJ. Chemicals. Ltd. (supra) has considered this issue and held that where Government subsidy is intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, the specified percentage of the fixed capital cost, which is the basis for determining the subsidy, being only a measure adopted under the scheme to quantify the financial aid, is not a payment, directly or indirectly, to meet any portion of the actual cost. Therefore, the said amount of subsidy cannot be deducted from the actual cost under sec. 43(1) for the purpose allowing depreciation. It is further held that if Government subsidy is an incentive not for the specific purpose of meeting a portion of the cost of the assets, though quantified as a percentage of such cost, it does not partake the character of payment intended either directly or indirectly to meet the "actual cost". By implication, the above judgment also provides that if the subsidy is intended for meeting a portion of the cost of the assets, then such subsidy should be deducted from the actual cost, for the purpose of computing depreciation. As per Hon'ble Supreme Court, law is that if the subsidy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law considered by Hon'ble Supreme Court in the above cases. 9. In view of the above facts and circumstances of the case and legal position explained by Hon'ble Supreme Court in the case of P.J. Chemicals Ltd. (supra), we are of the vie that subsidy receipt should not be reduced from the actual cost of fixed assets for computing depreciation under the provisions of the Act. Accordingly, this issue of revenue's appeal is dismissed and that of the assessee is allowed". Respectfully following the aforesaid decision of this tribunal supra, we hold that the IPA received by the assessee would have to be construed as a Capital Receipt and the same need not be reduced from the cost of assets in terms of Explanation 10 to Section 43(1) of the Act. Accordingly, the grounds raised by the revenue are dismissed and grounds raised by the assessee are allowed. 30. Respectfully following the aforesaid decision we hold that the subsidy in question is a capital receipt and not chargeable to tax. Ground no.3 raised by the revenue is dismissed. We also hold that capital receipt need not be reduced from the cost of the assets and under Explanation 10 to section 43(1) of the Act. We accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e business of manufacturing cement, jute goods, vinoleum, auto trim parts, etc. From time to time, the assessee makes investments out of its own funds in shares of companies and units of mutual funds. The assessee does not borrow any funds for making such investments. The mutual fund investments of the assessee are not in equity oriented funds as defined in the explanation to section 10(38) of the Act and disposal/redemption thereof attracts capital gains tax. Substantial part of the mutual fund investments of the assessee are in growth schemes which do not provide for payment of any dividend during the currency of the scheme. Only some of the mutual fund schemes in which the assessee invests provide for payment of dividend. Such dividend is usually reinvested in the respective schemes without being actually received by the assessee. The assessee receives dividend warrants only in respect of some of its investments in mutual funds and in respect of the shares held by it in companies. The only activity in relation to such dividend income is deposit of the warrants received in the bank account. The Assessee also submitted that during the relevant previous year, there was no change in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r statement listing the job profile of the assessee's Chief Financial Officer and Manager (Finance & Accounts) were filed before the CIT(A). 36. It was submitted that the AO in his order arbitrarily rejected the assessee's figure of expenditure. The disallowance under section 14A of the Act was worked out by Assessing Officer by invoking rule 8D at 0.5% of the assessee's average investment of Rs. 846.97 crores amounting to Rs. 4,23,49,000/-. It was submitted that almost the entire expenditure incurred by the assessee is in connection with its business of manufacturing diverse goods. Only the surplus business funds of the assessee are invested by it in safe and liquid investments, which activity is looked after by the aforesaid three officers of the assessee to the extent specified in the assessee's statement of expenditure. The assessee's share investments are practically non-moving with only some small additions taking place, if at all. The expenditure of Rs. 5,84,022/- incurred in connection with management/maintenance of the assessee's investment portfolio has been correctly tabulated by it in the statement submitted to the Assessing Officer. The said st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be applied in its case at all. 39. It was pointed out that for the assessment year 2009-10 the Commissioner (Appeals), by his order dated December 7, 2012, accepted the above alternative plea of the Assessee and disallowed 0.05% of Rs. 12444.14 lakh that is Rs. 62.22 lakh, being the average of the investments which provided for payment of exempt dividend income. 40. The CIT(A) found that the issue of disallowance of expenses u/s 14A of the Act was also a recurring issue in the Assessee's case. He found that in the AY 2009-10 his predecessor had considered various contentions made by the Assessee Vide his order dated 07.12.2012 and he rejected the claim that disallowance offered by the Assessee was reasonable and upheld the action of the assessing officer in invoking Rule 8D of the Rules. He however, accepted the alternate plea of the Assessee that only investment which provided for payment of exempt dividend income should be considered for purpose of Rule 8D. Since the material facts in the year under consideration remained the same, the CIT(A) was of the view that there was no reason to differ from the view taken by his Id. predecessor. Following the reasoning given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in subsidiaries as they are apparently strategic investments. We find that the ld AO had given a finding in the assessment order as to why the workings of disallowance u/s 14A of the Act need to be rejected . Hence it cannot be said that the ld AO had mechanically applied Rule 8D(2) of the Rules for making disallowance u/s 14A of the Act. It was argued by the ld AR that 69.07% of the assessee's investments (including in non-equity oriented mutual funds growth schemes) did not provide for payment of any dividend. Upon redemption / disposal of such investments, the assessee would be liable to capital gains tax and income from such investments is not exempt under the provisions of the Act. He argued that even in respect of the assessee's investments in other schemes of mutual funds providing for payment of dividend, the assessee is liable for capital gains tax upon disposal / redemption of the units since such schemes are also not equity oriented. We find that the ld AR also made an alternative argument that only dividend bearing investments should be reckoned for disallowance under Rule 8D(2)(iii) of the Rules and that strategic investments should be excluded. We find lot of force i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was receivable. Further, Ld. Commissioner of Income Tax (Appeals) has observed that in respect of investment of Rs. 6,07,75,000/- made in subsidiary companies as per documents produced before him, they are attributable to commercial expediency, because as per submission made by the assessee, it had to form Special Purpose Vehicle (SPV) in order to obtain contracts from the NHAI and the SPVs so formed engaged the assessee company as contract to execute the works awarded to them (i.e SPVs) by the NHAI. In its profit and loss account for the year, the assessee has shown the turnover from execution of these contracts and therefore no expense and interest attributable to the investments made by the appellant in the PSVs can be disallowed u/s 14A r.w. Rule 8D because it cannot be termed as expense / interest incurred for earning exempted income. Under the circumstances, Ld. Commissioner of Income Tax (Appeals) is correct in holding that disallowance of a further sum of Rs. 40,556/- calculated @ 2% of the dividend earned is sufficient. Under the circumstances, we do not find any infirmity in the order of the Ld.Commissioner of Income Tax (Appeals), hence we uphold the same. On going ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said financial year and in respect of such plant & machinery the assessee claimed only 50% of Additional Depreciation u/s.32( 1) (iia) in view of the second proviso to section 32(1) of the IT Act. Now during the year under reference, the assessee claimed further depreciation (balance 10%) on those Plant & Machinery on the plea that it is entitled to get the balance depreciation this year also. In support of its claim, the assessee submitted that, clause (iia) of section 32( 1) of the Act, as it presently stands after substitution by the Finance Act, 2005 w.e.f. the Asst.Year. 2006-07, provides for allowance of further depreciation equal to 20% of the actual cost of new plant and machinery acquired and installed after March 31, 2005 by an assessee engaged in the business of manufacture or production of any article or thing. Such initial depreciation is to be allowed as a deduction under clause (ii). The second proviso to section 32(1) restricts the allowance of depreciation to 50% if the plant and machinery acquired during the previous year is put to use for a period of less than 180 days in that previous year. The said second proviso specifically makes a reference to an asset refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pted the claim of the assessee on identical claim for additional depreciation during assessment year 2009-10, the claim of depreciation on those assets on which additional depreciation was to be computed as per written down value of the assets as per department's records. The claim of the assessee was accepted and the depreciation was allowed according to the revised computation of depreciation entitlement as filed by the Assessee. 50. Before CIT(A) the Assessee reiterated submissions made before the AO and further submitted identical claim was rejected on first appeal in the assessee's case for the assessment year 2009-10 by order dated December 7, 2012, for the assessment year 2008-09 by order dated March 29, 2012 and for 2007-08 by order dated February 28, 2011. The assessee relied on the decision of the Hon'ble Delhi Bench of the Hon 'ble Tribunal in Deputy Commissioner of Income Tax v. Cosmo Films Ltd., (2012) 24 taxmann.com 189, wherein similar claim for additional depreciation spread over for two years was allowed by the Tribunal. 51. The CIT(A) however preferred to follow his predecessor's order for AY 2009-10 and held that the provision of section 32(1) speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) confirmed the order of the AD. however, directed the AD to recalculate the amount of depreciation on writ/en down value (WDV). 5. . The Ld AR before us submits that the case in hand is squarely covered by the decision of the Hon 'ble Karnataka High Court in the case of CIT & Anr Vs. Rittal India Pvt. Lid reported in (2016) 380 ITR 423 (Karn). 6. The Ld. Sr. DR relied on the orders of the authorities ' below. 7. Heard both the parties and perused the relevant material on record. In this regard, we may refer to the decision of the Hon 'ble High Court of Karnataka in the case of CIT and another vs Rittal India Private Ltd (supra). The facts of the case therein are that the assessee being an existing industrial undertaking had acquired and installed new plant and machinery in the F. Y 2006-07 and claimed 50% of additional 20% depreciation i.e, 10% additional depreciation under section 32(1)(iia) of the Act in the corresponding assessment year 2007- 08 for the reason that the new machinery was acquired after 01-10-2006. The relevant portions at page no 's at 9 and 10 of which is reproduced herein below for below for better understanding:- "The language us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trains the authority to allow depreciation to 50% of such 20% if the subjected plant and machinery acquired during the previous year and is put 10 use for a period of less than 180 days in that previous year. According to AO in his order at page no-4 referred that the assessee put to use new plant and machinery for less than 1BO days and confirmed by the CIT-A in para-8 of impugned order and it is a requirement under 2nd proviso to section 32(1) which lifts the restriction on AO allow the further depreciation of 10% of which remained unclaimed out of20% as referred in Clause (iia) to sub-section (1) of section 32 of the Act. The facts of the present are similar to the decision supra relied on by the assessee. Therefore, we are of the view that the law laid down by the Hon 'ble High Court of Karnataka in the case of CIT and another vs Rittal India Private Lid supra is applicable to the present case, thus we hold that the assessee is entitled to claim remaining 50% depreciation of such 20% which is equal to the actual cost of new plant and machinery, accordingly ground no-I raised by the assessee is allowed. " Respectfully following the same, we dismiss Ground No. 2 raised by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is neither a statutory liability nor a contingent liability and it is a provision to be made for the entitlement of an employee achieved in a particular financial year. Testing clause (f) with the objects sought to be achieved by the introduction of sec 43B, it was held that the same could not have any nexus with the object sought to be achieved by the original enactment. Sec 43B was originally inserted to plug evasion of statutory liabilities and the introduction of clause (f) was found to be inconsistent with the said object. The Judges held that the amendment brought in could not have nullified the dictum laid down in Bharat Earth Movers case (supra). 57. The Department filed SLP against the decision of the Hon'ble Calcutta High Cour t and while admi tt ing the same, the Hon'ble Supreme Court vide i ts judgment dated 08.09.2008 stayed the judgment of the Hon'ble Calcutta High Court unti l fur ther orders. By another Interim Order passed by the Hon'ble Supreme Court on 08.05.2009, which is as fol lows: "Pending hearing and final disposal of the Civi l Appeal, Depar tment is restrained from recovering penal ty and interest which has accrued ti ll date. I t is made clear that as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that provision had been made as per guidelines given in Accounting Standard AS-15. The assessing officer, however, made disallowance by invoking the provision of section 438(f) of the 1.T.Act, 1961. 64. Before CIT(A), the Assessee submitted that liability on account of provision for sick leave liability of Rs. 10,35,870/- was wrongly rejected the claim of the assessee without citing any reason and without considering the submissions of the assessee. In respect of provision for sick leave liability, the Institute of Chartered Accountants of India has issued Accounting Standard (AS) 15 (Revised 2005). In accordance with the said standard, the assessee provided a sum of Rs. 10,35,870/- in its profit and loss account for the previous year relevant to the assessment year 2010-11. The said amount was determined by actuarial method to assess the liability including for death-service and incapacity benefits on year wise basis taking into account the following assumptions, which are consistent with the requirements of AS15 (Revised 2005) such as : (a) Discount rate per annum; (b) Rate of increase in salary; (c) Rate of return of plan assets; (d) Expected average remaining workin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sec ion 438 (f) of the I.T.Act. The addition of Rs. 10,35.870/- was accordingly confirmed. 66. Aggrieved by the order of CIT(A) the assessee has raised ground no.9 before the Tribunal. The ld. Counsel for the assessee reiterated the submissions as were made before CIT(A) and also filed before us a chart showing as to how the provision for sick leave liability was computed by the assessee and as to how in a case where there was excess provision made it was being written back in the books of account as AS-15 of ICAI, on the basis of which the liability in question is claimed as deduction was also filed before us. 67. We have considered his submissions and are of the view that this liability is purely notional and cannot be allowed as deduction. It is an admitted position that there is no out flow on this account in any assessment year and the liability is notional and is based purely on entries in the books of account on the basis of notional figures. This may be relevant for the purpose of showing the true and fair view of the state of affairs of the assessee as is required for reporting to share holders and other public authorities. When it comes to computing total income und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an rather than towards acquisition of specific capital assets in that industrial unit. The intention was with the object of supplementing trade receipt and profits of the assessee rather than to assist the assessee in acquiring a capital asset and accordingly the said subsidy is incidental to the carrying on the business of the assessee. Based on these observations, he treated the interest subsidy as a revenue receipt. 71. Before CIT(A), the assessee reiterated the submissions made before the ld AO and also tried to distinguish the earlier order of the ld CITA on the very same issue in the earlier year wherein it was held that the subsidy was revenue receipt and taxable. The ld CIT(A) upheld the order of the AO by relying on the order of his predecessor in AY 2009-10 on an identical issue, wherein it was held as follows:- "16. The whole of the subsidy has been given in respect of setting up of a captive power plant which is not in the nature of expansion. This scheme has been termed as a scheme of interest subsidy. Under this scheme an assessee becomes eligible only if it borrows funds from banks/financial institutions etc. for investing in the new industry/expansion/modernizati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dustry did not qualify an industrialist for getting any subsidy. The subsidy was given as help not for the setting up of the industry which was already there but as assistance only after the industry commenced production and that too minimum three years prior to it. 19. The interest subsidy was @ 5% of capital as interest out of interest paid by the industry on the money borrowed for this purpose. The appellate courts have held that the sales tax subsidy is a revenue receipt and this is also indirectly exemption out of sales tax in the form of interest being paid by the industry and reimbursement of the same by the State out of the sales tax. Therefore, in view of the above discussion and following the reasoning an decision of my predecessor in the case of the appellant in the assessment year 2007-08, it is held that the reimbursement of interest out of sales tax payable is not a capital receipt in nature as it does not meet the capital expenditure of the assessee and is a profit earned year after year by the appellant. The Hon'ble High Court of Gauhati in the case of CIT vs. Meghalaya Steels Ltd. reported in (2011) 12 Taxman.com 451(Gau) has held impliedly in para 14 that the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue as to whether the said interest subsidy is to be reduced from the cost of assets as per Explanation 10 to section 43(1) of the Act was restored back to the file of the ld CITA for fresh adjudication. We find that with regard to treatment of Industrial Promotion Assistance (IPA) as capital receipt or revenue receipt supra in Para 4 above, we have already held it to be a capital receipt and the same need not be reduced from the cost of assets as per Explanation 10 to Section 43(1) of the Act. We find that the subsidy amount was adjusted against the sales tax liability and was not used directly or indirectly to acquire the assets and hence the cost of assets cannot be reduced by the amount of subsidy. We also find that the Hon'ble Jammu and Kashmir High Court in the case of Shree Balaji Alloys vs. CIT, (2011) 333 ITR 335 (J&K) at page 346 held interest subsidy to be a capital receipt. On further appeal by the revenue, the Hon'ble Supreme Court by an order dated 19.4.2016 in Civil Appeal No.10061 of 2011 held that the interest subsidy was a capital receipt in view of its decision in Ponni Sugars (supra) and further held that even if it was treated as a revenue receipt, then the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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