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TMI Blog2022 (12) TMI 1156X X X X Extracts X X X X X X X X Extracts X X X X ..... it unless its operation has been suspended by a competent court. We find that since the order of the Special Bench of the Tribunal is still holds the field and in absence of any contrary decision brought to our notice by the Ld. D.R, and the order of the Ld. CIT(A) in deleting the addition made by the A.O. is in accordance with law, we find no reason to interfere with the order of the Ld. CIT(A) on this issue and, therefore, we hold that the amount of incentive is not a revenue receipt, but, it is a capital receipt and, therefore, we direct the A.O. to delete the addition. The Revenue fails in its grounds of appeal Nos.1(i) to 1(iv) and, therefore, the grounds on this issue are dismissed. Adding back the excise duty exemption - Capital receipt - After analyzing the Office Memorandum dated 14-06-2002 behind the grant of Incentive has held that Excise Duty refund granted with the object of creating avenues for Perpetual Employment, to eradicate the social problem of unemployment in the State by accelerated industrial development was a capital receipt. Further, the Departmental Appeal filed against the said High Court decision of Shree Balaii Alloys [ 2011 (1) TMI 394 - JAMMU AND ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order dated 16.10.2019 passed under section 250(6) of the I.T. Act, 1961 [In short Act ] and arises out of the order of the Learned Assessing Officer [in short A.O. ], vide order dated 28.03.2013 passed under section 143(3) of the I.T. Act, 1961. Since common issues are involved in both the appeals, the appeals were heard together and are being disposed of by this common consolidated order. 2. The assessee has raised the following grounds in its appeal : 1. That on the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) (here-inafter referred to as 'Ld. CLT(Appeals) was not justified grossly erred in confirming disallowance in respect of provision for leave encashment debited to Profit Loss Account amounting to Rs.35,89,347/- in computing total income under the normal provisions of the Act. [Tax effect Rs.12,20,019] 2. That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified grossly erred in confirming the action of the A.O. in not allowing additional depreciation u/s 32(1)(iia) amounting to Rs.17,66,22,964/- in respect of new Plant Machinery acquired and installed after 31.03.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, the orders of the authorities below be confirmed. 6. We have considered the rival submissions and carefully perused the material on record. We find that the issue with respect to applicability of provisions of Section 43B(f) is decided by the Hon ble Supreme Court in the case of M/s. Exide Industries Ltd., (supra), in favour of the Revenue. We are reproducing the relevant observations of the Hon ble Supreme Court as under for better appreciation: 40. Notably, this regulatory measure is in sync with other deductions specified in Section 43B, which are also present and accrued liabilities. To wit, the liability in lieu of tax, duty, cess, bonus, commission etc. also arise in the present as per the mercantile system, but assessees used to defer payment thereof despite claiming deductions there against under the guise of mercantile system of accounting. Resultantly, irrespective of the category of liability, such deductions were regulated by law under the aegis of Section 43B, keeping in mind the peculiar exigencies of fiscal affairs and underlying concerns of public revenue. A priori, merely because a certain liability has been declared to be a present liability by the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected and had claimed the same as capital receipts. (iii) Whether the CIT(A) erred on the facts and in the circumstances of the case and in law, in relying on the decision of ITAT, Mumbai and the decision of Bombay High Court (ITA No. 1299 of 2008) in the case of Reliance Industries Limited, even though subsequent to the Departmental appeal against the Order of High Court, the issue has been remitted back to the Bombay High Court to decide afresh and the same is still pending for adjudication. (iv) Without prejudice to the above grounds, whether the CIT(A) erred on facts and in law, directing the AO that the Sales Tax Incentive is not required to be deducted from the cost of assets, if the same is treated as capital receipts by the AO. ignoring the provisions of explanation 10 to section 43(1) of the Act. 2. (i) Whether the CIT(A) erred on facts and in the circumstances of the case and in law in holding that the excise duty of Rs. 15,67,00,636/- stated to be collected by the assessee was capital in nature without any evidence placed on record to establish that the said amount was actually collected on account of excise duty. (ii) Without prejudice to the gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rease income tax and it has been held to be part of income tax by Hon'ble Calcutta High Court in the case of Srei Infrastructure Finance Ltd. 5. The appellant craves leave to add, alter, amend and modify any of the above grounds of appeal. 9. The Learned A.O. denied the claim of exclusion of sales tax incentive as capital receipt amounting to Rs.6,74,12,461/-, disallowance of excise duty as capital receipt amounting to Rs.15,67,00,636/-, disallowance of foreign exchange fluctuation loss in respect of currency swap / derivative transactions at Rs.1,30,85,426/- and disallowance of education cess on income tax and dividend distribution tax amounting to Rs.17,67,138/-. 9.1. On Grounds of appeal no.1(i) to 1(iv) of the revenue i.e., Sales Tax Incentive under New Package Scheme of Incentives (PSI), 1993. [Rs.2,23,92734/-], the Learned Counsel for the Assessee drew the attention of the Bench with respect to the brief facts of the case are that the assessee company had set-up a manufacturing unit in backward area of Nashik, Maharashtra. The assessee company is having its manufacturing unit of Asbestos cement sheets and accessories at Lakhmapur, Nasik. The said unit at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t case, the notional sales tax liability for setting up the unit at Lakhmapur, District Nasik was in the nature of capital receipt as it was granted to encourage investment in the backward areas of the state of Maharashtra. The entitlement of industrial unit to claim eligibility for the Sales Tax incentive arose even while the industry was in the process of being set up. The scheme was oriented towards and subservient to investment in fixed capital assets. The object of the subsidy was to encourage the setting up of industries in the backward area. Para 5.1(11) of said 1993 Scheme gave the details of quantum of sales tax incentive which was to be calculated as percentage of fixed capital investment depending on the category of area in which the eligible unit was being set up. The Sales Tax incentive was envisaged only as an alternative to the cash disbursement and by its very nature to be available only after production commenced . Thus in effect, the subsidy in the form of Sales Tax incentive was not given to the appellant company for assisting it in carrying out the business operations. I therefore hold that Sales Tax Incentive availed by the appellant company was on capital ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his regard is also placed on the decision in the case of Rohit Exhaust Systems Pvt. Ltd. Vs. ACIT in IT A No. 1880/PN/2013 dated 31.03.2015 wherein the Hon'ble Pune ITAT, in respect of New Package Scheme of Incentive, 1993 held as under: The perusal of the Package Scheme of Incentive, 1993 reflect that the scheme was formulated to give incentive for setting up the industries in certain belts of Maharashtra and for the purpose of working out the amount of subsidy, though the cost of eligible investment was taken as the base but the said subsidy was not specifically intended to meet the cost of assets. In view thereof, it could not be held that the incentive received by the assessee under the Package Scheme of 1993 in the form of subsidy was covered under provisions of Explanation 10 to section 43(1) of the Act and consequently, the subsidy amount was not to be reduced from the cost of the assets . In the case of Inventaa Chemical Ltd. Vs. ACIT (42 SOT 249), the Hon'ble Hyderabad Tribunal held that the payment of subsidy was not related to the actual acquisition of assets and subsidy was granted on capital investment on kind, building and machinery, therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e receipt, but, it is a capital receipt and, therefore, we direct the A.O. to delete the addition. The Revenue fails in its grounds of appeal Nos.1(i) to 1(iv) and, therefore, the grounds on this issue are dismissed. 13. The Grounds of appeal Nos.2(i) to 2(v) of the Revenue are relates to adding back the excise duty exemption amount of Rs.15,67,00,636/- to the total income of the assessee. 14. Learned Counsel for the Assessee submitted that during the previous year relevant to AY 2009-10, the assessee company has commenced commercial production at its Cement Unit and PEB Unit located in Bhagwanpur, Tehsil Roorkee, District Haridwar in Uttaranchal. The said Units are entitled to Excise Incentive under the Central Excise Notification No. 50/2003 -CE dated 10-06-2003 [Refer Page No. 263 -281 of FBI, since the same are situated in the specified backward area. Accordingly, the assessee availed Excise Duty Incentive amounting to Rs.15,67,00,636 and excluded the same in the Return of Income being capital receipt by relying on the Judgment of Hon ble Supreme Court in the case of CIT vs. Ponni Sugars and Chemicals Ltd. (2008) 306 ITR 392 (SC). 14.1. However, the Learned A.O. noted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 02 behind the grant of Incentive has held that Excise Duty refund granted with the object of creating avenues for Perpetual Employment, to eradicate the social problem of unemployment in the State by accelerated industrial development was a capital receipt. Further, the Departmental Appeal filed against the said High Court decision of Shree Balaii Alloys (supra) has also been dismissed by the Hon'ble Apex Court. So, this issue has attained finality. Since we find no infirmity in the order of the Ld. CIT(A) and the Ld. D.R. failed to put forth any contrary decision, we confirm the order of the Ld. CIT(A) on this issue and dismiss the grounds of appeal no.2(i) to 2(v) of the Revenue. 17. With respect to grounds of appeal No.3 of the Revenue, the brief facts of the case are that during the previous year relevant to instant assessment year, the assessee company has debited an amount of Rs.3,62,93,426/- as loss on derivatives in the P/L account which includes mark to market loss of Rs.1,30,85,426/- in respect of the LIBOR hedging with ICICI Bank, Currency Swap Transaction with ICICI Bank and Currency Swap Transaction with Centurion Bank of Punjab [presently known as HDFC Bank]. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tstanding derivative contracts on the Balance Sheet date and recognised as per AS -11 issued by the ICAI read with announcement of ICAI dated 29-03-2008 regarding accounting for derivative. The assessee had entered into currency swap agreement with the aforesaid banks to safeguard against the risk of foreign exchange fluctuations and thereby reducing the cost of borrowing. Therefore, it should be considered as a prudent commercial decision. Hence, the above loss should be considered as normal business loss and is allowable. The assessee has been consistently booking gain or loss in the Profit Loss A/c in respect of derivative transactions. The Learned Counsel for the Assessee drew the attention of the Bench Judgment of Hon'ble Apex court in the case of CITvs.- Woodward Governor India Pvt. Ltd. (2009) 312 ITR 254 (Sc) wherein the Hon ble Court held that loss suffered by assessee on account of the exchange difference as on the date of the balance sheet is an item of allowable expenditure/s under section 37(1) of the I.T. Act, 1961 and an identical view was also taken by Apex Court in the case of ONGC Ltd. vs. CIT reported in (2010) 322 ITR 180 (SC). The Learned Counsel for th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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