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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 ..... d against the order of the Commissioner of Income Tax (Appeals)-4, Ludhiana, [(in short 'CIT(A)'] dated 20.10.2016, and relates to assessment year 2010-11. 2. It was common ground between the parties that identical issues were involved in all the appeals .Therefore, all the appeals were heard together and are being disposed off by this common consolidated order. We shall first be dealing with the appeal of the assessee in ITA No.214/Chd/2017. ITA No.214/Chd/2017 (A.Y. 2004-05): 3. Ground No.1 raised by the assessee reads as under: "(1) That order passed u/s 250(6) of the Income Tax Act, 1961 by the Ld. Commissioner of Income Tax (Appeals)~4, Ludhiana is against law and facts on the file in as much he was not justified to uphold the action of the Ld. Assessing Officer in treating the amount of sales tax subsidy amounting to Rs. 2,29,48,622/- as a revenue receipt whereas it actually represented capital receipt." 4. The issue involved in the above ground relates to the nature of sales tax subsidy received by the assessee whether capital or revenue . The assessee had treated the same as capital in nature, while the AO had held the same to be revenue in nature following the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T Vs. Ponny Sugars & Chemicals Ltd., 306 ITR 39 (SC), the Hon'ble Apex Court has held that whether the subsidy is a revenue or capital receipt would depend upon the nature and purpose of the subsidy. In this view, the appeals are restored to the Tribunal to adjudicate the nature and purpose of sales tax subsidy and, thereafter record their opinion whether it is a capital or revenue expenditure after taking into consideration the judgment of the Hon'ble Supreme Court in the case of Ponny Sugars & Chemicals Ltd. (supra). 5. Now, the only issue to be decided by us is whether the sales tax Subsidy received by the assessee from the Punjab Government is capital or revenue in nature. The learned counsel for the assessee at the very outset mentioned that these were a bunch of appeals before the Hon'ble Punjab & Haryana High Court together with the appeal of the assessee, out of which there was a case of Bhushan Limited, which was also similarly restored to the file of the Tribunal to decide the same afresh. The order of the Chandigarh Bench of the I.T.A.T. in the case of Bhushan Limited in ITA No.744/Chd/2006 & Others dated 16.6.2015 has been delivered, whereby after deliber ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital investment, project related infrastructural investment, social infrastructural investment and common and public purpose infrastructure. All these requirements are towards capital investments. Further a closer look at the clause relating to ineligible investment shows that short term investment or investment of revenue nature are not eligible for this scheme. A certificate of being declared as Permanent Prestigious Unit has been given to the assessee dated 18.5.2002, whereby the details of investment of the project and employment are given. We have also gone through the scheme of the Bengal Government which was in question before the Chandigarh Bench of the I.T.A.T. in the case of Bhushan Limited (supra). Though both the schemes of Gujarat Government and West Bengal Government are not verbatim, the sum and substance of both the schemes are same. As directed by the Hon'ble High Court on the basis of judgment in the case of Ponny Sugars & Chemicals Ltd. (supra), the nature of the sales tax subsidy is to be decided on the basis of character of the receipt in the hands of the assessee. We see that the sales tax subsidy received by the assessee is capital in nature and is not su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to enable the assessee to set up new unit in State of West Bengal. Therefore, the receipt of the sales tax subsidy in the hands of assessee was capital in nature. The decisions relied on by ld. DR would not support the case of the revenue. The decision cited by ld. counsel for the assessee clearly support the submission of ld. counsel for the assessee that the sales tax subsidy received by the assessee are capital in nature. We may also note here that the same scheme under West Bengal Incentive Scheme, 1999 under reference was subject matter of consideration before ITAT Kolkatta Bench in the case of Keventer Agro Ltd. (supra) and the Tribunal also decided the issue in favour of the assessee holding that the West Bengal Incentive Scheme, 1999 categorically encourage the promotion of industries in the State of West Bengal. 26. Considering the facts and circumstances of the case in the light of decision of the Hon'ble Supreme Court in the case of Ponni Sugars & Chemicals Ltd. (supra) and considering the above discussion, we are of the view that sales tax subsidy received by the assessee is capital receipt in nature and are not subjected to tax. The additions made by the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the assessee. Undisputedly the issue of treatment of sales tax subsidy whether the capital or revenue, has been decided in favour of the assessee as being capital in nature by the decision of the I.T.A.T. in the case of M/s Trident Alco-chem Ltd. , the earlier name of the assessee, for assessment years 1995-96 to 1997-1998 & 1999-2000 (supra). We have gone through the judgment of the I.T.A.T. in the said case and we find that as rightly pointed out by the Ld.Counsel for the assessee, this issue had been restored to the I.T.A.T. by the Hon'ble High Court for reconsideration after taking note of the proposition laid down by the Hon'ble Apex Court in the case of Ponni Sugars & Chemicals Ltd. (supra) for determining of the nature of the subsidy received. That on reconsideration the I.T.A.T. had followed the decision of the ITAT Chandigarh Bench in the case of Vardhman Textiles(supra) wherein the scheme of Punjab Government granting the subsidy had been considered at length and thereafter it was held that the purpose of the subsidy being promotion of industries the nature of the subsidy was capital in nature. In view of the same, we have no hesitation in holding that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he loan processing fees, it was pointed out that the same also related to the restructuring of the existing loan of the IDBI and it was admitted that the same also did not qualify as preliminary expenses for claiming deduction u/s 35D of the Act but at the same time, it was contended that the expenditure on this account had already been allowed in preceding years and subsequent two years i.e. in assessment years 2002-03, 2003-04,2005-06 and 2006-07. It was, therefore, contended that keeping the principle of consistency the same ought to be allowed. 13. The Ld. DR, on the other hand, relied upon the order of the CIT(A) stating that neither of the two expenses related to the impugned year and admittedly the claim did not qualify for deduction u/s 35D of the Act and, therefore, the disallowance had been rightly upheld by the authorities below. 14. We have heard the rival contentions and perused the orders of the authorities below. The issue relates to claim of interest differential and loan processing fees which arose on account of restructuring of existing loan taken by the assessee from IDBI Bank. The aforesaid facts are not in dispute. Also it is not the case of the Revenue tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther relied upon the decision of the Hon'ble Jurisdictional High Court in the case of CIT Vs. Abhishek Industries Ltd., 286 ITR 1 for the proposition that the entire funds in a business being in a common kitty, interest expenditure incurred on funds invested in purchase of machinery and capital work in progress is incurred. Accordingly, he calculated the interest expenditure pertaining to the period prior to the asset being put to use and interest expenditure incurred in relation to the capital work in progress and apportioning the same in the ratio of borrowed funds to total funds, calculated the interest expenditure to be capitalized on account of fixed asset and capital work in progress as amounting to Rs. 7,12,043/-.Thereafter allowing depreciation on the same @ 25%, the AO worked out the disallowance of interest u/s 36(1)(iii) of the Act to Rs. 6,14,677/-. The Ld.CIT(A) upheld the order of the AO. 18. Before us the only plea raised by the Ld.Counsel for the assessee was that direction be given to allow depreciation on the same. Since we have noted from the order of the CIT(A) that the depreciation has already been allowed on the same, we do not find any merit in this p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) had allowed identical expenses claimed by the assessee in assessment year 2003-04 which were disallowed by the AO for identical reasons treating them as previous year expenses. In view of the above, ground of appeal No.4 raised by the assessee is allowed. In effect the appeal of the assessee is partly allowed. We shall now take up the appeal of the assessee for assessment year 2007-08 in ITA No.1145/Chd/2016. ITA No.1145/Chd/2016: 23. Ground No.1(a) & (b) raised by the assessee reads as under: "1(a) That order passed u/s 250(6) of the Income Tax Act, 1961 by the Ld. Commissioner .of Income Tax (Appeals)4, Ludhiana is against law and facts, on the file in as much as he was not justified in arbitrarily upholding action of the Ld. Assessing Officer in treating a sum of Rs. 8,24,54,110/- received by the appellant as sales tax subsidy as a revenue receipt whereas the same was actually a capital receipt. (b) That the Ld. CIT(A) gravely erred in not appreciating the decision of the Hon'ble Bench of ITAT, Chandigarh in the case of the appellant for A/ys 1995-96 to 1997-98 and 1999-2000 in coming to this conclusion." 24. It was common ground that the issue raised i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of fixed deposits retained on account of a margin money on account of non fund based limits with the bank and that miscellaneous income was in the nature of fine and penalties charged from contractors for not complying with the terms of the company. The Ld.CIT(A) rejected the submissions of the assessee and upheld the order of the AO treating the impugned income as income from other sources. 32. Before us, the Ld.Counsel for the assessee reiterated the contentions made before the lower authorities that both the interest income and miscellaneous income had direct connection with the business of the assessee and, therefore, were in the nature of business income of the assessee. That therefore, they had been incorrectly treated as income from other sources. The Ld.Counsel for the assessee drew our attention to the submissions made before the Ld.CIT(A) in this regard, reproduced at para 9.1 of his order as under: "GROUND No.5 i.e. GROUND No.3:- Income from Other sources: The assessing officer is not justified in considering Interest Income amounting to Rs. 12,29,570 and Misc. Income amounting to Rs. 1,65,058 as income from other sources as this is directly related to busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same, the impugned incomes were to be treated as business income of the assessee only as returned by it. 35. The Ld. DR, on the other hand, relied upon the order of the CIT(A). 36. We have considered the rival contentions and also perused the orders of the authorities below. The issue relates to the treatment of interest income and miscellaneous income earned by the assessee as income from other sources. The assessee on the contrary had claimed the said incomes to be in the nature of business income. We find that the assessee had explained the reasons for treating so, stating that the interest income was earned on FDRs which were retained by the banks as margin money for releasing non fund based limits to the assessee. As for the miscellaneous income, the assessee had contended that these were in the 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 mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d/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 allowed. Ground of appeal No.2 is therefore allowed. 41. Ground No.3 raised by the assessee reads as under: "3. That he was further not justified to arbitrarily uphold action of the Ld Assessing Officer in disallowing a sum of Rs. 59,27,182/- out of interest account on capital advances." 42. The issue in this ground relates to capitalization of interest to the extent of Rs. 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 Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assets Fixed assets are stated at historical cost less accumulated depreciation. The cost of fixed assets comprises of its purchase v price and any attributable expenditure (directly or indirectly) for bringing the assets to its working condition for its intended use. Further for the year under consideration, the interest of Rs. 2,42,26,881/-- was duly capitalized (Detail enclosed). The detail of Capital Work-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 Rs. 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 Rs. 9,75,96,774/- whereas out of this amount of Rs. 9,75,96,774/-, the appellant has made payments aggregating to Rs. 4,83,39,701/- out of the borrowed funds/term loans/sale proceeds (details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Ld. DR relied upon the order of the AO. 48. We have considered the rival contentions and also perused the orders of the authorities below. 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as capitalized and interest received on FDR made out of fully convertible debenture proceeds has been reduced from the interest capitalized, as the funds raised against fully 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the above, the ground of appeal No.4 raised by the assessee is allowed for statistical purposes. 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 Rs. 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 as under: " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest 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 Rs. 62,305/- on account of provisions for doubtful debts for the purpose of calculation of book profits u/s 115JB." 65. The above ground was not pressed by the Ld.Counsel for the assessee. The same is therefore dismissed as not pressed. In effect the appeal of the assessee is partly allowed for statistical purposes. We shall now take up the appeal of the Revenue for assessment year 2010 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee 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 contentions, I am of the opinion that there is a lot of force in the arguments of the Ld. AR assessee company on the issue under reference. As an identical issue stands decided in favour of the assessee company in its own case for the A.Y. 2002-03 by the Honorable jurisdiction ITAT following the decision of Honourable jurisdictional High Court, I am having no hesitation in holding that the action ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel 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 issue to the AO to verify the claim. The relevant findings of the CIT(A) at para 8.2 of his order are as under: "8.2 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 20.10.2014 on the issue under reference. I have further considered the other material placed by the assessee company on record. On careful consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had added back the provision made for gratuity amounting to Rs. 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 the facts of the present case with that of the Hon'ble Gujarat High Court relied upon by the Ld.CIT(A) while allowing assessee's claim. Further no decision of the Hon'ble Jurisdictional High Court or of the Hon'ble Apex Court was cited before us upholding the Revenue'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. In view of the above, ground of appeal No.4 raised by the Revenue is dismissed. In effect, the appeal of the Revenue is dismissed. 77. In the result; i) The appeal of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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