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TMI Blog2019 (9) TMI 150X X X X Extracts X X X X X X X X Extracts X X X X ..... had admitted before us, it was not eligible for the same. Therefore, as far as the disallowance being made and upheld on account of the assessee being ineligible to claim the same u/s 35D of the Act is concerned, admittedly there is no infirmity in the same. But alternatively the assessee had contended that the fact that the expenses related to the business of the assessee not being denied, it was eligible to claim the said expenses on payment basis u/s 43B of the interest differential and also on the principle of consistency, having been allowed the claim in the preceding and succeeding years - claim be allowed in the impugned year since otherwise it would have multiple ramifications with the assessee staking its claim in the year in which it accrued and considering that the Revenue Authorities have already allowed the claim in preceding and succeeding years, it would lead to multiple litigation and adjustments requiring to be made. By allowing the claim in the impugned year, the issue, once and for all will be settled in relation to these facts. Addition on account of proportionate interest on machinery put to use and closing balance of capital-work-in-progress by treating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of interest account on capital advances - capitalization of interest u/s 36(1)(iii) of the Act which was claimed by the assessee as revenue expenses - HELD THAT:- We find merit in the contention of the Ld.Counsel for the assessee that the Ld.CIT(A) has passed a non speaking order on the issue without dealing with the submissions made by the assessee. As rightly pointed out ,the assessee we find, had made submissions on facts to the effect that interest pertaining to the capital advances had not been claimed as revenue expenses. But the Ld.CIT(A), we find, went on to uphold the disallowance without dealing with the specific factual contentions of the assessee. In view of the specific submissions made by the assessee, it was incumbent for the LD.CIT(A) to deal with the same and dismiss it only after giving suitable reasons. Treating a sum as interest on FDR as a receipt and not eligible to be reduced from capitalization of interest - HELD THAT:- As rightly pointed out, the assessee we find, had stated that the interest income had been earned on funds raised for capital purposes, i.e project development. But the Ld.CIT(A), we find, went on to uphold the treatment of the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue s stand that the provision for gratuity was to be added back to the net profit for calculating book profits of the assessee u/s 115JB of the Act. - Decided against revenue - ITA No.241/Chd/2017, 1145/Chd/2016, 1146/Chd/2016, 1147/Chd/2016, 1148/Chd/2016, 62/Chd/2017 - - - Dated:- 30-8-2019 - SMT. DIVA SINGH, JUDICIAL MEMBER AND SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER Assessee by: Shri Ashwani Kumar, CA Revenue by: Shri Chandrajit Singh, CIT(DR) And Shri Ankur Alya, Sr. DR ORDER PER BENCH: All the above appeals relate to the same assessee. The appeals in ITA No.241/Chd/2017, ITA No.1145/Chd/2016, ITA No.1146/Chd/2016, ITA No.1147/Chd/2016 ITA No.1148/Chd/2016 have been preferred by the assessee against the separate orders of the Commissioner of Income Tax (Appeals)-4 Ludhiana, [(in short CIT(A) ] dated 22.11.2016, 19.9.2016, 23.9.2016, 28.9.2016 9.9.2016 relating to assessment years 2004-05, 2007-08, 2008-09, 2009-10 2012-13 respectively, passed u/s 250(6) of the Income Tax Act, 1961 (hereinafter referred to as Act ). The appeal of the Revenue in ITA No.62/Chd/2017 has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emicals Ltd., 306 ITR 392 wherein it was laid down that the nature of the receipt would depend upon the purpose for which subsidy was given. That on restoration of appeal to the Tribunal the matter was decided in favour of the assessee by relying upon the decision of the Tribunal in the case of Vardhman Textiles Limited and others in ITA No.392/Chd/2007 others dated 21-10-15.It was pointed out that the Hon'ble I.T.A.T. had stated that the scheme of Punjab Government by virtue of which sales tax subsidy had been received, was considered in detail in the case of Vardhman Textiles(supra)and thereafter it had been held that the sales tax subsidy was capital in nature. Our attention was drawn to paras 4 to 8 of the I.T.A.T. order bringing out the above facts as under: 4. The assessee preferred an appeal before the I.T.A.T., whereby the appeal of the assessee was dismissed, mainly relying on the judgment of the Hon'ble Punjab Haryana High Court in the case of CIT Vs. Abhishek Industries Ltd., 286 ITR 1 (P H). The Hon'ble High Court by its order in appeal No.421 of 2007 dated 14..5.2014 restored the appeal to the Tribunal. This was basically based on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the material available on record. We have carefully perused the order of I.T.A.T. in the case of Bhushan Limited (supra) and come to a conclusion that this is one of the cases which was before the Hon'ble High Court on the same issue of sales tax subsidy. However, the only difference in the facts of the case of Bhushan Limited (supra) and the current assessee is that in the case of Bhushan Limited (supra), the sales tax subsidy was received from the Government of West Bengal under West Bengal Incentive Scheme 1999 , while in the case of the assessee in question, the subsidy has been received from the Government of Gujarat under the New Incentive Policy-Capital investment Incentive to Premier/Prestigious Unit Scheme 1995-2000 . Therefore, in order to compare the policies of two different States, we have very carefully gone through the schemes of both the Governments produced before us. Since as per the directions of the Hon'ble High Court, we have to judge the nature and purpose of the sales tax subsidy received by the assessee. We see that the scheme of the Gujarat Government has aimed to trigger off accelerated industrial development and economic growth. For this purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pra), it is clear that the unit of assessee was set up as per scheme formulated by Government of West Bengal and assessee has been allowed remission of sales tax for 12 years upto 100% of gross fixed capital investment/asset of the approved project. The incentive scheme was available for location of the unit. No incentive is available to units located in group A . The unit of assessee is located in group B (Hooghly). The subsidy would help the growth of industry and not to supplement profit. Subsidy is determined with reference to the fixed capital investment/asset and not profit. No working capital is considered in the scheme. The ld. DR says that the subsidy is given for 12 years after production and as such it is revenue in nature. The arguments of ld. DR cannot be accepted in view of the above facts because the scheme is made to encourage the promotion of industries/setting up in the State of West Bengal. The incentives are provided to approved projects only. The purpose of giving subsidy is thus, to promote and set up industries in State of West Bengal. The eligibility certificate was issued before commencement of production, therefore subsidy based on fixed capital investm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 773/Chd/2012 shall apply to these cases also with equal force. ITA No.897/Chd/2006 : ITA No.341/Chd/2007 : ITA No.756/Chd/2011 : (M/s Steel Strips Wheels Limited,) ITA No.896/Chd/2006 : (M/s Indian Acrylics Limited) 9. The appeal of the assessee is allowed. 11. In these cases, the assesses have received sales tax subsidy from Punjab Government under the scheme named, Industrial Policy Incentive Code, 1996 . We have gone through the said policy and found that the scheme though not verbatim as that of West Bengal or Gujarat schemes, but the sum and substance of all these schemes are the same, therefore, relying on our finding given in ITA No.773/Chd/2012, we hold that the sales tax subsidy received by the assessee is capital in nature. 8. During the course of hearing, the learned counsel for the assessee preferred not to press any other ground raised by the assessee in the ground of appeal. 7. The Ld.Counsel for the assessee, therefore, stated that the issue having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing which we hold that the sales tax subsidy received is capital in nature. The ground of appeal No.1 stands allowed. 10. Ground of appeal No.2 raised by the assessee reads as under: 2. That the Ld. CIT(A) was not justified to uphold the action of the Ld. Assessing Officer in making a disallowance of deferred revenue expenditure i.e. loan processing fee of ₹ 4,00,000/- and interest differential of ₹ 18,92,200/-. 11. The issue relates to the disallowance of claim of loan processing fee and interest differential as deferred revenue expenditure. The facts relating to the case are that the assessee had claimed loan processing fees of ₹ 4 lacs and interest differential of ₹ 18,92,200/- u/s 35D of the Act as preliminary expenses ,being 1/5th of the total expenditure incurred on these amounts. The AO disallowed the said claim holding that the said expenditure do not qualify for deduction u/s 35D of the Act and further that the said expenditure do not relate to the year under consideration. The Ld.CIT(A) upheld the order of the AO. 12. Before us the Ld.Counsel for the assessee contended that the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness of the assessee not being denied, it was eligible to claim the said expenses on payment basis u/s 43B of the Act on account of the interest differential and also on the principle of consistency, having been allowed the claim in the preceding and succeeding years. Considering this contention of the Ld.Counsel for the assessee we are of the view that the claim be allowed in the impugned year since otherwise it would have multiple ramifications with the assessee staking its claim in the year in which it accrued and considering that the Revenue Authorities have already allowed the claim in preceding and succeeding years, it would lead to multiple litigation and adjustments requiring to be made. By allowing the claim in the impugned year, the issue, once and for all will be settled in relation to these facts. We may add that this should not be taken to setting a precedent on such issues . This ground of appeal no.2 is, therefore allowed. 15. Ground of appeal No.3 raised by the assessee reads as under: 3. That he was not justified to uphold the action of the Ld. Assessing Officer in disallowing an amount of ₹ 6,14,677/- on account of proport ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.4 raised by the assessee reads as under: 4. That he further gravely erred in upholding the addition of ₹ 2,61,743/-made by the Ld. Assessing Office on account of previous year expenses. 20. Brief facts relating to the case are that the AO noted that the assessee had debited previous year expenses amounting to ₹ 2,61,743/-. On being confronted with the same, the assessee contended that the bills relating to these expenses had been raised during the year and, therefore, liable to be accrued during the year itself. The AO rejected the explanation of the assessee and disallowed the expenses holding the same not relatable to the year. The CIT(A) upheld the same. 21. Before us the Ld.Counsel for the assessee reiterated the contentions made before the CIT(A) that all bills regarding the expenses had been filed to the AO. It was also pointed out that the bills relating to these expenses had been received during this year and, therefore, liable to be accrued during the year and that even the tax auditors had noted the fact that the expenditure related to the preceding years, no disallowance was to be made since the liabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the impugned ground was identical to that raised ground No.1 of assessee s appeal pertaining to A.Y 2004-05 In ITA No.241/Chd/2017. Our decision rendered therein at para 9 of our order above, will apply mutatis mutandis to this ground also. Accordingly we hold that the sales tax subsidy received by the assessee was capital in nature and hence not taxable. Ground of appeal No.1 is therefore allowed 25. Ground No.2 raised by the assessee reads as under: 2. That the Ld. CIT(A) was further not justified to uphold action of the Ld. Assessing Officer in disallowing a sum of ₹ 22,42,200/- on account of deferred revenue expenditure ₹ 3,50,000/- on account of loan processing fees and ₹ 18,92,200/- on account of interest differential. 26. It was common ground that the issue raised in the present ground was identical to that raised in ground No.2 of assesses appeal for A.Y 2004-05, in ITA No.241/Chd/2017.Our decision rendered therein at para 14 of our order above will apply with equal force to this ground also. Accordingly the claim of the assessee of loan processing fees and interest differential is allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .5 i.e. GROUND No.3:- Income from Other sources: The assessing officer is not justified in considering Interest Income amounting to ₹ 12,29,570 and Misc. Income amounting to ₹ 1,65,058 as income from other sources as this is directly related to business of the assessee company as interest received is on account of fixed deposit which is being retained on account of margin money on account of non-fund based limits with the Bank and miscellaneous income is on account of penalty or fines charged from contractors on account of not complying -with the terms of the company. 33. The Ld.Counsel for the assessee stated that despite pointing the direct nexus of the said incomes with the business of the assessee, the Ld.CIT(A) had summarily rejected the contentions of the assessee without giving any reasons for the same and without even discussing the facts stated by the assessee relating to the said incomes. He drew our attention to the findings of the Ld.CIT(A) on the issue at para 9.3 of the order as under: 9.3 I have considered the observations of the Assessing Officer as made by him in the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of fines and penalties charged from contractors for non-complying the terms of the contract. We have gone through the order of the Ld.CIT(A) and we find that he has summarily dismissed the contention of the assessee without giving any reasons for the same by simply stating that he does not agree with the contention of the assessee. In view of the specific submissions made by the assessee, it was incumbent for the Ld.CIT(A) to deal with the same and dismiss it only after giving suitable reasons. Clearly the order passed by the Ld.CIT(A) on the issue is a non speaking order. We, therefore, consider it fit to restore the matter back to the Ld.CIT(A) to deal with the issue afresh. The Ld.CIT(A) is directed to pass a speaking order after dealing with the specific contentions made by the assessee. Needless to add that the assessee be given reasonable opportunity of hearing. In view of the above, the ground of appeal No.4 raised by the assessee is allowed for statistical purposes. The appeal of the assessee is partly allowed for statistical purposes. We shall now take up the appeal of the assessee for assessment year 2008-09 in ITA No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he extent of ₹ 59,27,182/- u/s 36(1)(iii) of the Act which was claimed by the assessee as revenue expenses. The facts relating to the issue are that during assessment proceedings the AO noted that the assessee had given capital advances amounting to ₹ 9,75,86,774/- for the purchase of capital asset but had not capitalized any interest on them. He further noted that the percentage of borrowed funds to the total funds of the assessee was around 54%. Relying upon the provisions of section 36(1)(iii) of the Act which provided that any amount of interest paid in respect of capital borrowed for acquisition of an asset for any period prior to the date on which such asset is put to use is to capitalized, The AO calculated the amount of interest disallowable by treating the funds available with the assessee as common kitty and accordingly calculating the interest pertaining to funds used for making these advances in the ratio of borrowed funds to total funds available with the assessee, worked out the disallowance to ₹ 59,27,182/-. 43. Before the Ld.CIT(A) the assessee contended that it had a policy to capitalize interest till the date the asset was put to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in-progress is shown under Schedule-8 of the Balance Sheet of the Assessee Company and detail of interest capitalized is included under the Head Project and Pre-Operative expenses. Further the Copy of Account of Project development is enclosed for your kind reference which clearly shows that the interest has been duly capitalized amounting to ₹ 2,42,26,881/-. This fact was duly stated by the appellant during the course of assessment proceedings before the Ld. Assessing Officer. The Ld. Assessing Officer has made disallowance on account of interest on capital advances amounting to ₹ 9,75,96,774/- whereas out of this amount of ₹ 9,75,96,774/-, the appellant has made payments aggregating to ₹ 4,83,39,701/- out of the borrowed funds/term loans/sale proceeds (details enclosed) and interest of which has been capitalized as mentioned above. However, while framing assessment, the Ld. Assessing Officer proceeded to make disallowance of interest ₹ 59,27,182/- on the total capital advances. Thus in view of the submissions made above, the disallowance of interest made by the Ld. Assessing Officer as per the proviso of Section 36(l)(iii) deserves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he submissions made by the assessee. As rightly pointed out ,the assessee we find, had made submissions on facts to the effect that interest pertaining to the capital advances had not been claimed as revenue expenses. But the Ld.CIT(A), we find, went on to uphold the disallowance without dealing with the specific factual contentions of the assessee. In view of the specific submissions made by the assessee, it was incumbent for the LD.CIT(A) to deal with the same and dismiss it only after giving suitable reasons. Clearly the order passed by the Ld.CIT(A) on the issue is a non speaking order. We, therefore, consider it fit to restore the matter back to the Ld.CIT(A) to deal with the issue afresh. The Ld.CIT(A) is directed to pass a speaking order dealing with the specific contention made by the assessee after verifying the facts stated by the assessee. Needless to add that the assessee be given reasonable opportunity of hearing. In view of the above, the ground of appeal No.3 raised by the assessee is allowed for statistical purposes. 49. Ground No.4 raised by the assessee reads as under: 4. That he further gravely erred in upholding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ully convertible debentures till the time not used for capital investment, the same remained deposited in FDR. As such, interest on the same has been reduced from interest capitalized. This reply has also been reproduced as submitted before the Ld. Assessing Officer, which is mentioned in the order of Ld. Assessing Officer at page No. 11. 53. The Ld.Counsel for the assessee drew our attention to the findings of the Ld.CIT(A) pointing that it was a non speaking order as under: 9.2 I have considered the observations of the Assessing Officer as made by him in the assessment order while treating business income as income from other sources. I have also considered written submissions filed by the assessee company vide letter dated 28.09.2016 on the issue under reference. I have further considered the other material placed by the assessee company on record. On careful consideration of the assessment order, it has been noticed that the Assessing Officer has treated interest income received by the assessee company on FDRs as revenue receipt as against treated by the assessee company as capital receipt. The Assessing Officer has further observed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 56. Ground of appeal No.5 raised by the assessee reads as under: 5. That the CIT(A) was further not justified to treat a sum of ₹ 34,37,504/- received as Misc. Income and interest as income from other sources and not a part of business income. 57. It was common ground that the issue raised in the present ground was identical to that raised in ground No.4 of assesses appeal pertaining to A.Y 2007-08 in ITA No.1145/Chd/2016. Our decision rendered therein at para 36 will apply with equal force to this ground also. Accordingly the issue is restored back to the Ld.CIT(A) and he is directed to adjudicate the same afresh in accordance with the directions given in ground No. 4 of assesses appeal pertaining to A.Y 2007-08 in ITA No.1145/Chd/2016,dealt with us above. Ground of appeal No.5 is allowed for statistical purposes. In effect the appeal of the assessee is allowed for statistical purposes. We shall now take up the appeal of the assessee for assessment year 2009-10 in ITA No.1147/Chd/2016. ITA No.1147/Chd/2016: Ground No.1 raised by the assessee reads a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peals)-4, Ludhiana is against law and facts on the file in as much as he was not justified to arbitrarily uphold action of the Ld. Assessing Officer in disallowing a sum of ₹ 18,04,865/- out of interest account on account of capital advances. 63. It was common ground that the issue raised in the impugned ground was identical to that raised ground No.3 of assessees appeal pertaining to A.Y 2008-09 In ITA No.1146/Chd/2016. Our decision rendered therein at para 48 will apply mutatis mutandis to this ground also. Accordingly the issue is restored back to the Ld.CIT(A) and he is directed to adjudicate the same afresh in accordance with the directions given in ground No. 3 of assesses appeal pertaining to A.Y 2008-09 in ITA No.1146/Chd/2016,dealt with us above. The ground of appeal No.1 is allowed for statistical purposes. 64. Ground No.2 raised by the assessee reads as under: 2. That he was further not justified to uphold action of the Ld. Assessing Officer in making an addition of ₹ 62,305/- on account of provisions for doubtful debts for the purpose of calculation of book profits u/s 115JB. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered various judicial pronouncements relied upon by the assessee as well as the other material placed by the assessee company on record. On careful consideration of the assessment order, it has been noticed that the Assessing Officer has made the impugned addition as the payments in respect of employee's contribution to EPF and other welfare funds have not been made by the assessee company within due date. On the other hand, the Ld. AR of the assessee has submitted that an identical issue has been decided by the Honourable jurisdictional ITAT in favour of the assessee vide its order in ITA No. 915/Chd/2009 dated 20.01.2014 [A.Y. 2002-03] in the case of the assessee company itself. It has also been submitted that while giving decision in favour of the assessee company, the Honourable jurisdiction ITAT has followed the decision of the Honourable Punjab Haryana High Court in the case of CIT Vs. M/s Rai Agro Industries Ltd. 334 ITR 122 (P H). It has further been submitted that the issue under reference is squarely covered by the decision of the Honourable Punjab Haryana High Court in the case reported at 334 ITR 122 (P H). On careful consideration of the rival contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justified in not deciding the issue of claim under section 43B of the I.T. Act. 1961 at ₹ 77,70,917/- on merits. 71. The above grounds, it was contended, relate to the same issue of disallowance made of ₹ 77,70,917/- u/s 43B of the Act. The AO during the assessment proceedings had noted that the assessee filed a revised return for the year and claimed therein interest of earlier year to the extent of ₹ 77,70,917/- On being asked to justify his claim, the Ld.Counsel for the assessee contended that the said interest had been paid to bank and claimed on payment basis as per the provisions of section 43B of the Act. The AO found that no evidence had been filed by the assessee to substantiate its claim and accordingly he disallowed the claim of interest so made by the assessee. 72. Before the Ld.CIT(A) the assessee contended that the impugned interest expenses had been disallowed in earlier years and that the assessee had been claiming interest expenses on payment basis since assessment year 2006-07 and had been allowed the same even in assessment year 2011-12. The Ld.CIT(A) on considering the contention of the assessee restored the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. 74. Ground No.4 raised by the Revenue reads as under: iv. Whether on the facts and circumstances of the case and also on merits the Ld. Commissioner of Income Tax (Appeals) was justified in deleting the addition to book profits u/s 115.IB of the I.T. Act on account of provisions for gratuity made by the Assessing Officer at ₹ 29,01,546/-. 75. Briefly stated, the AO, while calculating the book profits of the assessee for the purpose of paying the Minimum Alternate Tax (MAT) as per the provisions of section 115JB of the Act, had added back the provision made for gratuity amounting to ₹ 29,01,546/- to the book profits of the assessee. The assessee challenged the same before the Ld.CIT(A), who held that the issue was squarely covered in favour of the assessee by the decision of the Hon'ble Gujarat High Court in the case of DCIT Vs. Inox Leisure Ltd, reported in 352 ITR 314. Accordingly, the adjustment made by the AO of provision for gratuity was set aside by the CIT(A). 76. Before us the Ld. DR was unable to point out any infirmity in the order of the Ld.CIT(A). The Ld. DR was unable to distinguish ..... X X X X Extracts X X X X X X X X Extracts X X X X
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