9911796707
TMI Blog2022 (1) TMI 922X X X X Extracts X X X X X X X X Extracts X X X X ..... made available to the new units, are clearly in the nature of capital receipt not liable to tax under the Act. The manner in which the concession is given is not material. Even if any concession/ rebate is given in respect of revenue items, the intent of the concession/rebate being the development of the rural economy and upliftment of backward areas, the same would, in our view, be in the nature of capital receipt not liable to tax. Since all the Notifications issued by the State Government for different reimbursements/ remissions, pursuant to the Scheme and in furtherance of the avowed objectives of the State Government in issuing the Scheme, the incentive/ benefit/ subsidy being made available, it has been stated that, it is clearly in the nature of capital receipt not liable to tax under the Act. Even if any concession/rebate is given in respect of revenue items, the intent of the concession/rebate being the development of the rural economy and upliftment of backward areas, the same would still be in the nature of capital receipt not liable to tax. Accordingly, we hold that the subsidy received by the assessee is a capital receipt not allowable for taxable. Accordingly, the gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has taken the deduction and the amount claimed in the return of income for AY 2015-16 of a sum of 62,42,42,420/-, the said claim should be withdrawn and the same is allowable deduction in the year under consideration. The assessee is also directed to file an application before the AO to claim the same. Deduction u/s 80IA in respect of profits of the power generating units located at Raigarh - HELD THAT:- We agree with the submissions of the assessee and hold that inter-division of transfer of power from the captive power plants be made at 3.29/3.72 per unit being the price at which power is sold by the State Electricity Boards to the assessee since the said price was the fair market value of power and hence, in conformity with the provisions of sub-section (8) of section 80-IA of the Act. Accordingly, the order of the ld. CIT (A) is confirmed and the ground raised by the Revenue is dismissed. Depreciation of on the assets of the power generating undertaking viz. Turbine and 220KV transmission lines, at the rates specified in Appendix 1 read with Rule 5(1) of the Income Tax Rules, 1962 - depreciation was claimed on the written down value of the assets - HELD THAT:- In the present c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the appellant on the aforesaid loans for immediately two preceding years and the said stand was accepted by the Department.Since there being no change either in facts or in law in this regard, as compared to the earlier years, the position accepted by the Department has to be followed even as per the principle of consistency. There could be no accrual of notional / imputed interest on the given facts and circumstances of the case, and, therefore, disallowance of interest paid to the extent of such notional / imputed interest was rightly been deleted by the CIT(A). Consequently, ground no.5 is determined against the Revenue. Deduction as ESOP expenditure amortized equally over the vesting period - whether expenditure incurred in order to compensate employees in lieu of services rendered in the form of ESOP? - HELD THAT:- This issue now stands covered by the decision of Hon ble Delhi High Court in the case of CIT vs. Lemon Tree Hotels Limited [ 2015 (11) TMI 404 - DELHI HIGH COURT] and the decision of Biocon Limited [ 2013 (8) TMI 629 - ITAT BANGALORE] - This decision of the Tribunal has been affirmed by the Hon ble Karnataka High Court [ 2020 (11) TMI 779 - KARNATAKA HIGH COUR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntered into between the appellant and GE, the lessor and owner of the aircraft, is, undoubtedly a lease agreement. During the lease period, the ownership in the aircraft vests with lessor. The assessee only has an option to purchase the aircraft after the expiry of the lease period from lessor. Further, the said option is conditional upon the lessee/ assessee not defaulting in any of the lease payments. In case there is a default in making any of the lease payments the clause granting purchase option cannot be exercised and ownership in the asset shall remain with the lessor. In fact the lessee/ assessee would be required to return back the equipments to the lessor, in case the lessee defaults in making any of the lease rent payment.- Thus, in the present case also if the claim of lease rent has been allowed in the earlier and the subsequent year, but the same has been disallowed in the year under consideration, will lead to an absurd and anomalous situation, hence same is allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... s and in law in upholding the action of the assessing officer in charging interest under section 234B of the Act." Additional Grounds: Section 80HHC "That on the facts and circumstances of the case and in law the assessing officer may kindly be directed to allow deduction of ₹ 34,90,377, instead of ₹ 17,45,188 as claimed in the original return of income, while computing 'book profits' in terms of clause (iv) of Explanation 1 to section 115JB of the Act. 1. That on the facts and circumstances of the case and in law the assessing officer erred in restricting the deduction of export profits allowable in terms of clause (iv) of Explanation 1 to section 115JB of the Act to the extent specified in section 80HHC even while computing 'book profits' 1.1 That the assessing officer failed to appreciate that the entire export profits are allowable as deduction while computing 'book profits' under section 115JB and the same are not required to be restricted to the extent specified in sub section (1B) of the section 80HHC of the Act. That the assessing officer failed to appreciate that the entire export profits are allowable as deduction while computing 'book profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o claim a deduction through a letter addressed to the assessing officer. The assessing officer disallowed the said deduction on the ground that there was no provision under the Act to make amendment in the return of income at the assessment stage through an application without revising the return. The decision of the assessing officer was confirmed by the Tribunal and the Delhi High Court. On further appeal, the decision of the High Court was affirmed by the Supreme Court. 6.2 The Supreme Court, however, made it clear that the decision in Goetze India Limited (supra) was restricted to the power of assessing authority to entertain a claim for deduction otherwise than by a revised return and the same, did not impinge on the power of the Tribunal under Section 254 of the Act to permit a new claim. Further, the Supreme Court also held that the decision in the case of National Thermal Power Company Ltd. v CIT: 229 ITR 383 dealing with powers of appellate authority to admit new claims did not relate to the power of the assessing authority to entertain a claim otherwise than by way of revised return. The relevant extract of the decision of the Supreme Court in this regard is as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered the similar claim on merits. 6.6. In view of the aforesaid, ld. counsel prayed that the Tribunal may admit and adjudicate the aforesaid claim of the assessee on merits. 6.7 Ld. DR on the other hand objected for admission of this ground; however, he submitted that this issue is covered against the assessee by the Tribunal in assessee's own case by the Tribunal in earlier years. 7. After considering the aforesaid submissions and on perusal of the material placed on record, we agree with the contentions of the ld. counsel for the assessee that, since this claim was made during the assessment proceedings and it is a purely a legal claim which goes to the very taxability of the subsidy receipt, therefore, the same is admitted in view of the principles laid down in the aforesaid judgments as cited by the ld. counsel before us. Accordingly, we admit the same and in the succeeding paragraphs, the matter is adjudicated. 8. As regards merits of exemption of ₹ 11,10,63,938/- on account of sales-tax, entry tax and electricity duty in respect of industrial unit at Raigarh, Madhya Pradesh, it has been submitted that it is a capital receipt not liable to tax and should, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ya Pradesh with special motive of regional development, acceleration of industrial development, generation of employment, encourage backward classes and women for entrepreneurship, etc. wherein objectives of the Policy are expressly set out. The Policy broadly defined the action plan and the use of tax as instrument for achieving the purpose of the policy. The relevant extracts of the Scheme are as follows: In para 2 of the Scheme, it is clearly stated that the Industrial Policy shall use taxation as an instrument for increasing employment generation and developing synergistic linkages between different sectors. The relevant para is reproduced hereunder: "The Industrial Policy and Action Plan, 1994 takes into account the rapid economic changes taking place at the national and international levels. In the context of economic liberalization, it is becoming increasingly necessary to reduce the regulatory role of administration. The facilitatory role of the administration will need to be strengthened. The document delineates, among others, measures to strengthen the physical and human infrastructure base, as well as, promotional measures, including facilities and concessions. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of benefit based on capital investment in fixed assets has been spelt out on the basis of categories of the districts in which the unit is set up. Para 5.26 provides that special packages of concession will be prepared to attract mega investments. In para 5.27, specific reference has been made to the incentives for establishment of integrated steel plant with capital investment of more than ₹ 1,000 crore, which reads as under: "5.27. A special incentive scheme will be prepared for all types of new units with an investment of Rs. five hundred crore or more. Concessions, on the lines of the special incentive scheme for the establishment of integrated steel plants with capital investment of more than Rs. one thousand crore, excluding state capital investment subsidy, and with modified conditions of land allotment, etc. will be provided as incentives under this scheme." Paragraphs 7.1, 7.8 and 7.20 of the Scheme read as under: "7.1 The importance of the small scale sector in the country's export effort, its role in balanced regional development and in providing employment opportunities is well established. It will be the endeavour of the State Government to make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... area where investment entailing investment of more than ₹ 1,000 crores was made by the appellant. This notification also supports the contention of the assessee that incentives were granted by the State Government to promote industrialization, create employment and development of the backward area of Raigarh under the Industrial Policy and Action Plan, 1994. 06.11.1997 Notification No. A31295STV(96) was issued by the government of Madhya Pradesh granting exemption from Entry Tax and Central Sales Tax Act with certain conditions linked to capital investments in different areas of the State. This again shows that the intention of the State Government was to promote and incentivize industrialization of the backward areas of the State. July, 1998 to Nov, 1999 04.07.1998 09.04.1999 08.06.1999 12.10.1999 Nov, 1999 Various letters were written by the assessee to the then Chief Minister of Madhya Pradesh and senior officials of Madhya Pradesh State Industrial Development Corporation for formulating special incentive package for the appellant for setting up of Mini Blast Furnace, Steel Melting Shops and Captive Power Plant involving aggregate investment of more than ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... note that in the aforesaid abstract, the Department recommended the incentives, considering that investment would result in establishment of supporting businesses, employment generation and development of the backward districts; * Order issued by the Council of Ministers for preparation of specific package based on the decision taken for allowing incentives, inter alia, to the assessee. * Internal communication by Principal Secretary, Government of MP to Commercial Tax, intimating decision taken vide order dated 03.02.2000 along with copy of the said order. * Letter by Department of Commerce and Industry to Commercial Tax Commissioner for preparing notification to give effect to the decision taken by the Council of Ministers on 03.02.2000 * Letter by Commercial and Industry Department to Controller, Printing Pages, Bhopal for publication of notifications Nos. 40, 41 and 42 dated 24.4.2000 along with copies of the notifications required to be published: - Notification No.40 for exemption from sales tax. - Notification Nos.41 and 42 for exemption from entry tax * Draft undated notification to be issued for publication for granting exemption from electricity duty P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmed that: (a) Assessee has acquired land for installation of plant II and installation work of plant and building is under construction; (b) Assessee has arranged financing of ₹ 150 crores in the form of loans from banks, ₹ 100 crores in the form of corporate loan/ preference shares and the appellant would be approaching the financial institutions for balance requirements of loans. 29.07.2000 Notification No.5328/F- 13/55/2000 granting exemption to the assessee from Electricity Duty. 02.05.2002 Letter dated 02.05.2002 issued by Department of Commerce and Industry, Government of Chhattisgarh approving the incentive/ subsidies granted vide notifications dated 24.04.2000 issued by the earlier Government of Madhya Pradesh. 17.05.2002 Letter by the assessee to the Secretary Energy, Chhattisgarh requesting for grant of exemption from electricity duty to 110MW Power Plant for a period of 15 years against 10 years allowed by the earlier Government of Madhya Pradesh vide notification dated 29.07.2000. 25.06.2002 Notification issued by Government of Chhattisgarh for granting electricity duty exemption to power plants involving investment of more than 100 crores for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate for industrial development of the backward districts as well as generation of employment, apart from receiving greater revenues by way of taxes, royalty, etc., for overall growth and development of the State. The Scheme was linked to the overall investment in fixed capital assets inasmuch as minimum investment of ₹ 1,000 crores in fixed capital assets was a condition precedent to eligibility under the Scheme. The sales-tax/ entry tax/ electricity duty incentive was envisaged to encourage the setting up of industries in backward area and not for supplementing business receipts. It is submitted that the incentives received under the scheme by way of exemption from payment of certain taxes or duty was just a mode adopted to disburse the subsidy by the State Government. 14. Our attention in this regard was also invited to section 8(5) of the Central Sales Tax Act, 1956, and section 10 of the Entry Tax Act, 1976, which empowers the State Governments to exempt sales tax and entry tax respectively for encouraging establishment of industries in the State. 15. Similarly, section 3B of the Madhya Pradesh Electricity Duty Act, 1949, empowers the State Government to exempt electri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessee for assisting him in carrying out the business operations and is given only after and conditional upon commencement of production, such subsidy is to be treated as assistance for the purpose of the trade and would constitute revenue receipt. 19. The taxability of the receipt given by way of subsidy essentially boils down to the purpose for which, the subsidy is granted. If the grant of subsidy is for meeting the capital expenditure for achieving a national objective, the same would be in the nature of capital receipt not liable to tax. On the other hand, if the subsidy is granted to supplement trading receipts/profits, the subsidy is taxable as revenue receipt. 20. Here in this case, the incentives were given in order to encourage the establishment of new industrial units in the private sector to result in development of rural economy and backward areas of the State and creation of employment opportunities. All the Notifications issued by the State Government for different reimbursements/ remissions, are pursuant to the Policy and are in furtherance of the avowed objectives of the State Government in issuing the Policy. Appreciating the objectives of the Policy dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason of enhancement of free sale sugar quota and (b) excise duty rebate. 23. The assessee claimed the said incentives to be in the nature of capital receipt not chargeable to tax. The Revenue, however, contended that such receipts were revenue receipts for the reason that the incentives were given in the form of price differential and duty differential, such price related incentive would normally be presumed to be revenue in nature. The assessee, on the other hand, contended that the character of the incentive had to be decided on the basis of the purpose test, i.e., the character of the receipt had to be determined, with respect to the purpose for which the subsidy was given and the mechanism for computing such incentives is totally irrelevant. The Court, agreeing with the contention of the assessee, held that the incentive was in the nature of capital receipt, not liable for tax. 24. Before us, reliance was also placed on the decision of Hon'ble Jammu & Kashmir High Court in the case of M/s Shree Balaji Alloys vs. CIT: 198 Taxman 122 (J&K), wherein excise refund and interest subsidy received by industrial units in pursuance of incentives announced in terms of new industrial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Scheme that incentives would become available to the industrial units, entitled thereto, from the date of commencement of the commercial production, and that these were not required for creation of New Assets cannot be viewed in isolation, to treat the incentives as production incentives, as held by the Tribunal, for the measure so taken, appears to have been intended to ensure that the incentives were made available only to the bona fide Industrial Units so that larger Public Interest of dealing with unemployment in the State, as intended, in terms of the Office Memorandum, was achieved. 29. The other factors, which had weighed with the Tribunal in determining the incentives as Production Incentives may not be decisive to determine the character of the incentive subsidies, when it is found, as demonstrated in the Office Memorandum, amendment introduced thereto and the statutory notification too that the incentives were provided with the object of creating avenues for Perpetual Employment, to eradicate the social problem of unemployment in the State by accelerated industrial development. 30. For all what has been said above, the finding of the Tribunal on the first issue th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that incentives/ subsidy were granted for industrialization, increase in employment opportunities and better utilization of human and state resources. Still, however, the Tribunal proceeded to erroneously conclude the subsidy/ incentive received by the assessee to be in the nature of revenue receipt, on, inter alia, the following grounds:- * The Tribunal totally misconstrued the decision of the apex Court in the case of Sahney Steel (supra) and held the on similar facts subsidy/ incentive was held to be revenue receipt by the apex Court; * The Tribunal got swayed by the fact that there was no stipulation in the Scheme/ Policy for utilization of subsidy/ incentives for repayment of outstanding loans; * The Tribunal concluded that the decision of the Special Bench of the Tribunal in the case of Reliance Industries (supra) was not binding since the Supreme Court had remitted the matter back to the Bombay High Court; * In para 49 the Tribunal observed that "taxation of subsidy under Income-tax Act cannot be intended to be used for achieving state objectives. 29. The reasoning given by the Tribunal has been rebutted in detail before us. 30. Since we have already observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be revenue receipt: "14. In our view, the controversy in hand can be resolved if we apply the test laid down in the judgment of this Court in the case of Sahney Steel and Press Works Ltd.(supra). In that case, on behalf of the assessee, it was contended that the subsidy given was up to 10% of the capital investment calculated on the basis of the quantum of investment in capital and, therefore, receipt of such subsidy was on capital account and not on revenue account. It was also urged in that case that subsidy granted on the basis of refund of sales tax on raw materials, machinery and finished goods were also of capital nature as the object of granting refund of sales tax was that the assessee could set up new business or expand his existing business. The contention of the assessee in that case was dismissed by the Tribunal and, therefore, the assessee had come to this Court by way of a special leave petition. It was held by this Court on the facts of that case and on the basis of the analyses of the Scheme therein that the subsidy given was on revenue account because it was given by way of assistance in carrying on of trade or business. On the facts of that case, it was held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory purpose and was not formulated as a basis for granting subsidy/incentive. Such subsidy/incentive, as stated earlier, was also given to an assessee not availing any loan from the banks/financial institutions and in case of both the persons whether availing loans or not, the nature of subsidy, it will be appreciated would remain the same. The stipulation/regulation to utilize the incentive/subsidy for repayment of loan in the scheme, considered by the Supreme Court in Ponni Sugar (supra), does not mean that subsidy/ incentive under only those schemes, where such stipulation is there would qualify as capital receipt, and not in any other case. 39. Thus, the decision of the Tribunal is contrary to the decision of Hon'ble Supreme Court in case of Ponni Sugar (supra). Apart from that, Hon'ble Jammu & Kashmir High Court in the case of Shree Balajee Alloys (supra) rejected the identical contention of the Revenue that there is no embargo on the utilization of subsidy, the amount received is in the nature of revenue receipt. Hon'ble Court held that the said factor is irrelevant or immaterial criteria to determine the nature of subsidy in the hands of the assessee. 40. Hon'ble Apex Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessing officer disallowed the expenditure incurred on an ad-hoc basis, by randomly picking some of the journeys made and holding that they were not made for business purposes without bringing on record any iota of evidence to substantiate that the journeys were for non-business purposes. 47. It is also pointed out before us that this issue stands decided in favour of the assessee in assessee's own case in ITA Nos.3257/Del/2005 & 3485/Del/2005 for AY 2001-02 wherein the Tribunal has held that expenditure relatable to trips to meet the customers and/or prospective customers are directed to be allowed. Since it is purely an ad hoc addition, therefore, we direct to disallow the addition and the ground is accordingly allowed. GROUNDS NO.3 & 4 48. Insofar as the issue with regard to commission amounting to ₹ 6,55,809/- paid to M/s. Shree Ganesh Steel Rolling Mills Pvt. Ltd., Hisar. 49. It is seen that the AO disallowed the aforesaid claim of the assessee on the ground that the assessee was unable to adduce evidence of services having been rendered by the said party. The assessing officer allegedly made certain exparte enquires at the back of the assessees, which were not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directions of CIT(Appeals), the AO simple repeated the disallowance made earlier without making any enquiries on the evidence furnished by the assessee. Further, disallowance of ₹ 6.00 lacs out of the claim of ₹ 6,55,809/- on the ground that the genuineness of the existence of the company at the given address is in doubt is beyond comprehension. Therefore, the disallowance made by the AO is directed to be deleted and the grounds of appeal are allowed. 6. In the result, the appeal is allowed." 54. In view of relief being allowed to the assessee in the second round, it is respectfully submitted that the present grounds of appeal challenging the disallowance of commission of ₹ 6,00,000 is rendered infructuous, hence dismissed. GROUND NO.4 55. Ground No.4 qua levy of interest u/s 234B of the Act needs no specific finding being consequential in nature. 56. Insofar as additional ground under section 80HHC taken by the assessee is as under :- "That on the facts and circumstances of the case and in law the assessing officer may kindly be directed to allow deduction of ₹ 34,90,377, instead of ₹ 17,45,188 as claimed in the original return of income, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is restricted to the extent specified therein, the said restriction is, however, not applicable for the purpose of computing "book profits". 58. In view of the aforesaid decision, the assessee has raised an additional ground on the legal issue before us. 59. Since it is a purely legal ground, therefore, the same is being admitted. 60. On merits, we find that now in the light of the decision of Hon'ble Supreme Court in the case of Ajanta Pharma Ltd. (supra), the assessee is eligible for deduction of 100% export profits as computed under section 80HHC while computing book profits in terms of clause (iv) of Explanation to section 115JB of the Act. Further, the aforesaid issue is squarely covered in favour of the assessee by the other decision of the Tribunal in the assessee's own case for the assessment year 2004-05 in ITA No. 3319/Del/2008. Accordingly, this additional ground raised by the assessee is allowed. 61. Insofar as, the issue relating to additional coal levy, the facts in brief are that the assessee had been allotted coal mines at Raigarh, M.P. in the year 1996 by the Government of India, coal extracted wherefrom is used for captive consumption. The assessee was regula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,077,660,835 12,744,684,770 65. On perusal of the aforesaid, it is seen that levy of ₹ 62,42,42,420 relates to the year under consideration. In fairness, it was clarified that the said amount of ₹ 62,42,42,420 has been claimed as deduction by the assessee in the return of income for assessment year 2015-16. It has been submitted that since levy of ₹ 62,42,42,420 related to the coal extracted/ mined by the assessee during the relevant year, the said levy is directly linked to the business of the assessee for the year under consideration, and hence allowable as business deduction for the year under consideration. 66. Further, it has been stated that under mercantile system of account, deduction of any expenditure is allowable in the year to which the expenditure relates, as has been held in the following decision: * Perfect Equipments v. DCIT: 85 ITD 50 (Ahd.):- In that case, debit notes for commission issued by selling agent was received by assessee in assessment year 1991-92 but deduction was claimed in assessment year 1992-93. The assessing officer disallowed that claim without considering alternative contention of assessee that claim may otherwise be allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in the circumstances of the case, the Ld. CIT(A) has erred in law in allowing deduction u/s 80-IA at ₹ 112,76,27,767/- as against at ₹ 65,93,67,681/- allowed by the AO. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in allowing depreciating of ₹ 1,60,52,491/- under section 32 of Income-tax, Act against Rs.l,59,10,047/- straight line method adopted by the AO. 3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in allowing depreciating of ₹ 2,36,30,757/-under section 32 of Income-tax, Act against ₹ 49,81,364/- straight line method adopted by the AO on 220 KV Transmission line. 4. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in allowing the appeal w.r.t. addition made on account of forfeited shares application which was treated as income from other sources of ₹ 1,00,00,000/-. 5. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in allowing the appeal w.r.t. disallowance of interest expenditure of ₹ 78,70,148/-. GROUND NO.1 70. The facts in brief are that During the relevant previous year, the assessee claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Deduction under section 80IA of the Act, is available with reference to the profits derived from the eligible undertakings. The said section provides that in case of an assessee having multiple units, the profits derived by the eligible units has to be computed as if the eligible unit(s) were separate and distinct entity, dealing with the other unit owned by the assessee at arm's length. 74. In the case of assessee, since part of the power produced was captively consumed by the manufacturing units owned by the assessee, the rate of transfer of the power was accordingly recorded at the market rate i.e., the rate at which the electricity is supplied by the SEB's to the industrial consumers. Accordingly, sale of power to other units was recorded at ₹ 3.29/3.72 per unit. The transfers were not recorded at the rate at which the surplus electricity was sold by the assessee to the SEB, i.e. ₹ 2.32 per unit on the ground that the price of ₹ 2.32 was the price determined and dictated by the SEB and thus, could not be treated as the 'market value' of power. 75. Thus, deduction allowable to the assessee under section 80-IA of the Act was computed by taking the price cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Electricity Board. Generation and distribution of electricity being the monopoly of the State, the producers of power were therefore not allowed to sell the same in the open market. Thus the assessee was not in the position to bargain the rate at which the power would have been otherwise sold to the State Electricity Board; on the contrary, the assessee was obliged to sell the surplus power to the State Electricity Board at the price mandated by the said Board. 80. In the present case, in terms of the Power Purchase Agreement entered into by the company with SEB the power generated by the captive plants was required to be consumed by the manufacturing units of the assessee. The company was restricted to sell the power to other consumers, which stipulates that the surplus electricity generated by the captive power plant shall be fed into the transmission system of Grid. In terms of the wheeling agreement entered into by the company with MPEB/CSEB, where the units consumed by the company are less than units wheeled/fed into the transmission system of the Board, the excess is to be treated as deemed sale to the MPEB by the company at the stipulated rate. 81. The rate of purchase o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prescribed by the SEB is a price imposed upon the assessee as a condition precedent to sell excess power to the only purchaser, i.e. SEB. It is the price at which power is supplied to the SEB under compulsion. The same cannot be regarded as indicative of free market price. To put it differently, it is the price at which, the assessee without any option was to sell excess power generated under duress/compulsion. 85. It was thus submitted by the assessee that ₹ 2.32 cannot, by any stretch of imagination be treated/ considered as the price of power in the open market. 86. It has been further submitted that the Tribunal in assessee's own case for the AYs 2000-01 & 2004-05 in ITA Nos.3663/ Del/ 2005 and 3319/ Del/ 2008 respectively has decided the issue in favour of the assessee and appeal filed by the Revenue against the said decision has been dismissed by the Hon'ble jurisdictional High Court vide orders dated 02.09.2008 in ITA nos. 544/ 2006 and 53/ 2008 respectively. Further, the Tribunal in AYs 2002-03 7 2005-06 in ITA Nos.608/Del/2009 and 221/Del/2009 respectively vide consolidated order dated 06.03.2014 also decided this issue in favour of the assessee. 87. Accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red on or after 1st day of April, 1997 shall be calculated at the percentage specified in the second column of the Table in Appendix IA of these rules on the actual cost thereof to the assessee as are used for the purpose of the business of the assessee at any time during the previous year: Provided that the aggregate depreciation allowed in respect of any assert for different assessment years shall not exceed the actual cost of the said asset: Provided further that the undertaking specified in clause (i) of sub-section(1) of section 32 of the Act may, instead of the depreciation specified in Appendix IA, at its option, be allowed depreciation under sub-rule(1) read with Appendix I, if such option is exercised before the due date for furnishing the return of income under sub-section(1) of section 139 of the Act, (a) for the assessment year 1998-99, in the case of an undertaking which began to generate power prior to 1st day of April, 1997; and (b) for the assessment year relevant to the previous year in which it begins to generate power, in case of any other undertaking: Provided also that any such option once exercised shall be final and shall apply to all subsequen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year relevant to assessment year under consideration and being the initial operational year, the assessee in the return of income had claimed depreciation on the basis of Written Down value at the rates as prescribed in Rule 5(1) of the Income Tax Rules. Since the assessee, as stated above, claimed depreciation on fixed assets of the power generating unit/undertaking in accordance with Rule 5(1), in the initial assessment year the assessee thereby exercised the option available under second proviso to Rule 5(1A) of the Rules and was hence bound to claim depreciation in the succeeding years on the same basis as well. Accordingly, in the subsequent years, including the year under consideration, the assessee continued to claim depreciation in accordance with Rule 5(1) read with Appendix 1 of the Rules. It was thus respectfully submitted that the assessee has no choice in the matter and was obliged in law to claim depreciation on the basis opted for earlier and accepted by the Revenue. 93. Even otherwise, we notice that the mode of exercising option in terms of second proviso to Rule 5(1A) of the Rules is not specified. In terms of the said proviso, the assessee has to exercise the op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per WDV of impugned assets as opposed to straight line method adopted in the assessment order. Accordingly, grounds no.2 & 3 taken by the Revenue are dismissed. GROUND NO.4 101. Brief facts are that the assessee forfeited ₹ 1,00,00,000 received in respect of 20 lacs preference shares of ₹ 100 each allotted to Oswal Agro Mills Ltd. with a paid-up capital of ₹ 5 each. The assessee credited the said receipt in the capital reserve account as per the provisions of the Companies Act, 1956. The assessing officer, treating the said receipt as revenue in nature, taxed the same under the head 'Income from other sources'. The assessing officer observed that at the time of receipt of preference share application money, the same is capital receipt but legal ownership and the character of the money had been changed after forfeiture of shares and hence made an addition of ₹ 1,00,00,000. The CIT(A) deleted the aforesaid addition following the decision of the Delhi Bench of the Tribunal in the case of Impsat Pvt. Ltd. vs. ITO reported in 91 ITD 354 which held that receipt of share application money did not connote income. 102. Reliance in this regard was placed on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... restructuring, and (iii) the assessee has itself charged interest on the said loan outstanding in the financial year 1999-2000. On appeal, the CIT(A) deleted the disallowance. 106. After considering the relevant finding given in the impugned orders, we find that the grounds given by the assessing officer for disallowance of interest are not tenable for the following reasons: 1. Jindal Holding Limited is not a related company in terms of section 40A(2)(b) of the Act; 2. The assessee had not divested interest bearing funds to Jindal Holding Limited free of interest inasmuch as: (i) the amount had originally been advanced by Jindal Strips Limited and not the assessee; and (ii) loan was interest bearing and interest was also recognized upto financial year 1999-2000; 3. Jindal Holdings Ltd. had, as a matter of fact, huge accumulated losses and had no effective source to service the interest payment. This is evident from the following: * On perusal of the audited financial statements of M/s Jindal Holdings Limited for the year ended 31st March, 2001, 31st March, 2002, 31st March, 2003 and 31st March, 2004, it will be kindly noticed that the said concern had incurred huge losses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom a realistic and practical point of view. Further, since the recovery of principal itself was doubtful, the assessee had not accrued any interest on illusionary basis. 109. That apart, we find that no interest was accrued by the appellant on the aforesaid loans for immediately two preceding years and the said stand was accepted by the Department. 110. Since there being no change either in facts or in law in this regard, as compared to the earlier years, the position accepted by the Department has to be followed even as per the principle of consistency. 111. In view of the aforesaid settled legal position, there could be no accrual of notional / imputed interest on the given facts and circumstances of the case, and, therefore, disallowance of interest paid to the extent of such notional / imputed interest was rightly been deleted by the CIT(A). Consequently, ground no.5 is determined against the Revenue. 112. In the result, the appeal filed by the Revenue for AY 2003-04 is dismissed. ITA NO.413/DEL/2010 (AY 2006-07) FILED BY THE ASSESSEE 113. In the grounds of appeal, the following grounds raised by the assessee :- "1. That the Commissioner of Income Tax (Appeals), R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 'book profits' in terms of clause (iv) of Explanation 1 to section 115JB of the Income Tax Act, 1961 ('the Act'). Additional Ground Deduction of Additional Coal Levy That on the facts and circumstances of the case and in law, additional coal levy relatable to year under consideration amounting to ₹ 156,64,61,210 paid on account of extraction of coal pursuant to the order(s) of the Hon'ble Supreme Court, be directed to be allowed as business deduction." GROUNDS NO.1, 2, 3 & 4 114. Since we have already decided this issue in assessee's own case for AY 2003-04 in ground no.1, respectfully following the same, grounds no.1 to 4 taken by the assessee are allowed. GROUND NO.5 115. This issue is also decided by us in assessee's own case for AY 2003-04 in ground no.2 and respectfully following the same, ground no.2 taken by the assessee is allowed. GROUND NO.6 116. Facts in brief are that the assessee during the relevant previous year incurred expenditure amounting to ₹ 5,04,78,902/- in respect of grant given to the employees under ESOP plan/ scheme. The assessee had announced Employees Stock Option Schemes ('ESOS') - 2005 & 2006, which were framed in acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee for AY 2006-07 is partly allowed. ITA NO.341/DEL/2010 (AY 2006-07) FILED BY THE REVENUE 122. In the grounds of appeal, the Revenue has taken the following grounds of appeal :- "1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was right in restricting the claim of deduction made u/s 80IA of the Act, 196] from ₹ 3,65,71,39,107/- to ₹ 2,53,05,43,080/- by following his earlier order, without appreciating the additional facts and arguments brought on record by the AO for the first time in the assessment order, which is a subject matter of appeal. 1(a) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was right in holding that electricity rates charged by Chhattisgarh State Electricity Board from consumers constituted market price for the assessee also, when the later is not incurring any infrastructural expenditure on account of electricity transmission and distribution and had also not incurred any establishment cost in supplying power to its associates concerns or using the same for captive consumption. 2. Whether on the facts and in the circumstances of the case, the Ld. CITCA) was right in treating th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nderstanding entered into with the Society owning the same, for the benefits of its employees and their children and also as part of its corporate social responsibility initiatives. 125. The assessing officer disallowed the aforesaid expenditure holding the same to be capital in nature. On appeal, the CIT(A) held that such expense was related to employee welfare and is accordingly allowed under section 37(1) of the Act. 126. The assessee, is carrying on the business/ manufacturing activities in the backward and small city of Raigarh in the State of Chhattisgarh. Further such small town is not equipped with other necessary facilities that may be necessary to meet the regular/basic needs of the residents of that city including employees of the assessee company. The city of Raigarh also did not have any good school or hospital. The assessee was therefore, also finding it difficult to attract qualified employees/ technicians since they were not willing to transfer to a small station not equipped with even basic necessities like good school and hospital. That apart, the functioning of a big industry like that of the assessee causes several inconveniences to the residents of such city, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents of employees of the assessee and other students during the financial year 2005-06. On perusal of the same, it will be kindly noticed that substantial concession in fees is given to the employees of the assessee vis-à-vis the other students; (c) A graph showing growth in strength of the school and its composition into students of the employees of the assessee vis-a-vis other students. (d) Certain photographs showing usage of school auditorium for various meetings by the assessee; (e) Patient Admission report for the year 2008 depicting treatment of employees of the assessee and other persons. 131. On perusal of the same, it was pointed out that a large number of employees use the services of the hospital run by JEWS. On perusal of the aforesaid details/ documents, it can be gauged that substantial benefits flowed to the employees of the assessee as a result of the assessee incurring expenditure on construction of school and hospital run by JEWS. The aforesaid documents clearly support the contention of the assessee that expenditure incurred by the assessee was nothing but employee welfare expenditure resulting in direct benefits to the employees. 132. Apart from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It has been submitted by the assessee that even assuming, without admitting, that the subsidy received is a revenue receipt, the action of the assessing officer in reducing such subsidy from cost of fixed assets by applying the provisions of Explanation 10 to section 43(1) of the Act is patently erroneous as the same resulted in double taxation of the very same amount, viz., (i) by bringing the amount received to tax as income; and (ii) by reducing the claim of depreciation on account of reduction of the very same amount from the cost of the depreciable assets. Ld. Counsel submitted that the assessing officer, , cannot blow hot and cold in the same breadth and, therefore, the action of the assessing officer in making reduction of the amount of subsidy from the cost of fixed assets was not called for and accordingly rightly reversed by the CIT(A). 138. Further, if its to be held that the subsidy received is in the nature of capital receipt, even then, provisions of Explanation 10 to section 43(1) of the Act are not applicable, for the following reasons: * Explanation 10 to section 43(1) of the Act, only applies in a case where any portion of the cost of an asset acquired by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strialization of the backward state, employment generation, etc. and is in the form of capital nature, such subsidy is not required to reduced from the cost of asset u/s 10 to section 43(1) of the Act. Hon'ble Supreme Court in the case of CIT v. P.J. Chemicals Ltd. reported in 210 ITR 830 has observed that in that case, the assessee had received a capital subsidy, which was claimed as capital receipt, not exigible to income-tax. In the assessment proceedings, the assessing officer held that such subsidy is liable to be reduced form the cost of assets, in terms of the provisions of section 43(1) of the Act. The appeal preferred by the appellant before the Commissioner of Income-tax (Appeals) was dismissed. The Tribunal, however, allowed the assessee's claim. The Hon'ble High Court decided the matter in favour of the Revenue. On further appeal preferred by the assessee, the Hon'ble Supreme Court reversed the decision of the Hon'ble High Court and decided the issue in favour of the assessee. The relevant observations of the Supreme Court are as under: "……… The question in the present context is not whether if a portion of the cost is met directly or indir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s finance lease for the purpose of accounting treatment. AS-19 on Leases provides that in case of "finance lease", lessee has to capitalize the leased asset at an amount equal to the present value of future lease payments and a corresponding amount is recognized as a liability. Accordingly, out of total lease rental of ₹ 7,94,22,735, ₹ 1,04,47,179 was charged to the P&L account and the balance amount of ₹ 6,89,75,556 was adjusted against the outstanding liability towards value of the aircraft. In the return of income, total lease rental amounting to ₹ 7,94,22,735 was claimed as an admissible deduction under section 37(1) of the Act. Further, no depreciation was claimed on cost of aircraft under the provisions of the Act. 146. The assessing officer held that the aforesaid expenditure of lease rent of ₹ 6,89,75,556 was towards cost of the aircraft and accordingly, disallowed the same. The action of the assessing officer in making the disallowance of ₹ 6,89,75,556 out of total lease payments made during the year has been challenged on the following reasoning before us :- * AS-19 on accounting for "Leases" issued by the ICAI is only applicable for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , under section 32 of the Income-tax. The ownership of the asset is determined by the terms of the contract between the lessor and the lessee……. ……………….. "It has come to the notice of the Board that the New Accounting Standard on 'Leases' issued by the Institute of Chartered Accountants of India require capitalization of the asset by the lessees in financial lease transaction. By itself, the accounting standard will have no implication on the allowance of depreciation on assets under the Act." 149. The legal position that emerges from the aforesaid is that Accounting Standard 19 issued by ICAI, by itself, has no implication on the allowance of depreciation on assets under the provisions of the Act. The owner, i.e. the lessor, is ordinarily eligible to claim depreciation under section 32 of the Act, while the lessee can claim expense on account of lease rental payments comprising of principal as well as interest amount. 150. The aforesaid legal position finds support from the decision of the Supreme Court in the case of ICDS Ltd. vs. CIT: 350 ITR 527, wherein the Court held that the lessor is the owner of the leased prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in law in holding the capital subsidy amounting to ₹ 932,188,629/- as revenue receipt for the reason that benefit of the subsidy part became operative only at the time of commencement of the production, in defiance of the settled law that the point of time when the subsidy is paid is irrelevant. 3. That the Commissioner of Income Tax (Appeals), Rohtak has grossly erred on facts and in the circumstances of the case and in law in not adjudicating the inter-connected additional ground in respect of exemption of capital subsidy of ₹ 11,55,71,730/- on account of exemption from entry tax in respect of New Industrial Unit No.III. 4. That the Commissioner of Income Tax (Appeals), Rohtak has grossly erred on facts and in the circumstances of the case and in law in disallowing a sum of ₹ 2,49,722/- out of the expenditure on running and maintenance of aircrafts for alleged personal use of aircraft. 5. That the Commissioner of Income Tax (Appeals), Rohtak has grossly erred on facts and in the circumstances of the case and in law in confirming disallowance of proportionate value of discount of ₹ 5,04,78,902/- on stock options offered under Stock Option Schem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital expenditure is specifically excluded from the purview of section 37 and the MOU between the assessee and its employees cannot convert capital expenditure to revenue expenditure." GROUNDS NO.1 & 1(a) 161. Since we have already decided this issue in Revenue's case for AY 2003-04 in ground no.1, respectfully following the same, grounds no.1 & 1(a) taken by the Revenue are dismissed. GROUND NO.2 162. We have already decided this issue in Revenue's case for AY 2003-04 in ground no.3, respectfully following the same, ground no.2 taken by the Revenue are dismissed. GROUND NO.3 163. This issue has already been decided by us in Revenue's case for AY 2006-07 in grounds no.2 & 2(a), respectfully following the same, ground no.2 taken by the Revenue are dismissed. 164. In the result, the appeal filed by the Revenue for AY 2007-08 is dismissed. ITA NO.4185/DEL/2011 (AY 2008-09) FILED BY THE ASSESSEE 165. The following grounds of appeal taken by the assessee:- "1. That the Commissioner of Income Tax (Appeals), Rohtak has grossly erred on facts and in the circumstances of the case and in law in holding the subsidy of ₹ 48,39,36,937/- being in the character of a cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was right in allowing the claim of deduction made u/s 80IA of the Act, 1961 from to ₹ 4,28,94,98,566/- as against the deduction of ₹ 2,23,80,25,060/- given by the AO by following his earlier order, without appreciating the additional facts and arguments brought on record by the AO for the first time in the assessment order, which is a subject matter of appeal. 1(a) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was right in holding that electricity rates charged by Chhattisgarh State Electricity Board from consumers constituted market price for the assessee also, when the later is not incurring any infrastructural expenditure on account of electricity transmission and distribution and had also not incurred any establishment cost in supplying power to its associates concerns or using the same for captive consumption. 2. Whether on the facts and in the circumstances of the case, the Ld. CITCA) was right in deleting the disallowance of ₹ 1,36,30,573/- made by the AO on account of depreciation by applying the Straight Line Method, without appreciating the provisions of section 32(1)(i) and Appendix 1A of the Income-tax Rules, 1962. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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