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TMI Blog2023 (2) TMI 341X X X X Extracts X X X X X X X X Extracts X X X X ..... it cannot supply power at that rate in open market being a manufacturer and not a distributor - HELD THAT:- As decided in M/s. Dhunseri Ventures Ltd. [ 2022 (8) TMI 1342 - ITAT KOLKATA] no force in the contentions of the Id DR that rate at which the power was sold to unrelated parties by the CPP is the ALP. We also note that decision of the Calcutta High court in the case of CIT Vs ITC [ 2015 (7) TMI 450 - CALCUTTA HIGH COURT] which was relied by the TPO/AO and the functional dissimilarity between CPPs and SEB have been considered by the coordinate bench of the tribunal in the case of Star Paper Mills Ltd [ 2021 (11) TMI 1 - ITAT KOLKATA] . Therefore, we are inclined to uphold the order of Ld. CIT(A) by holding that the ALC at which the power is procured by non-eligible units from SEB is the most appropriate ALP to bench mark the specified domestic transactions and accordingly the order passed by Ld. CIT(A) is upheld by dismissing the revenue's appeal on this issue. The grounds of appeal pertaining to this issue are dismissed. Nature of receipts - compensation paid for obtaining limestone connected to mining activity - HELD THAT:- We find that this Tribunal in assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we hold that the claim of the assessee of excluding the provision for sick leave written back was justified. Thus, no interference is called for in the finding of ld. CIT(A). Thus, ground no. 8 raised by the Revenue for AY 2013-14 is dismissed. Upward adjustment made to book profit for disallowance computed u/s 14A r.w. Rule 8D of the Rules - HELD THAT:- We find that this Tribunal in assessee s own case for AY 2011-12 2012-13 dealt with this issue and decided in assessee s favour [ 2022 (10) TMI 1151 - ITAT KOLKATA] wherein we fail to find any infirmity in the finding of ld. CIT(A) in deleting upward adjustment made to book profit for disallowance computed u/s 14A r.w. Rule 8D of the Rules. Education cess being claimed as an expenditure u/s 37(1) - HELD THAT:- We fail to find any merit in this ground raised by the assessee, since the claim of deduction in the nature of education cess has been decided against the assessee by this Tribunal in the case of M/s. Kanoria Chemicals Industries Ltd. [ 2021 (10) TMI 1153 - ITAT KOLKATA] and also in light of the retrospective amendment made by the Finance Act, 2022 inserting Explanation 3 to Section 40 of the Act as per which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Govt, is capital in nature as against revenue receipt as treated in the assessment order. 5. Whether on the facts and circumstances of the case as well as in law, the Ld. CIT(A) erred in holding that the amount received by the assessee for Rs.2,17,15,118/- as Interest Subsidy from the State Govt, is capital in nature as against revenue receipt as treated in the assessment order. 6. Whether on the facts and circumstances of the case as well as law, Ld. CIT(A) has erred in law in deleting the addition made by A.O u/s 14A under Rule 8D without appreciating the CBDT Circular No-5/2014. 7. Whether on the facts and circumstances of the case as well as laws, Ld. CIT(A) has erred in holding that the impugned capital receipt is neither taxable under normal provisions of the Act nor under the MAT provision without considering that the accounts of the assessee company were prepared in accordance with the provisions of Companies Act and these incentives were credited to Profit Loss Account, and this claim was not made through IT Return of Revised IT Return. 8. Whether on the facts and circumstances of the case as well as laws, Ld. CIT(A) has erred in holding th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to exclude the subsidy from the book profit assessable U/S.115JB, without appreciating that no adjustment is allowed for computation of book profit other than prescribed under explanation 1 to section 115JB(2). 8. Whether on the facts and circumstances of the case as well as laws, Ld. CIT(A) has erred in giving direction to the AO exclude the subsidy aggregating to Rs.28,24,91,754/- from the book profit assessable U/S.115JB of the Act. Without considering that the accounts of the assessee company were prepared in accordance with the provisions of Companies Act and these incentives were credited to Profit Loss Account, and no adjustment is allowed for computation of Book Profit U/S.115JB other than prescribed under explanation 1 to section 115JB(2). 9. Whether on the facts and circumstances of the case as well as law, Ld. CIT(A) has erred in law by deleting upward adjustment made to Book Profit for disallowance computed u/s. 14A read with rule 8D. 10. That the appellant craves for leave to add, delete and modify any of the grounds of appeal before or at the time of hearing. 2.1. The assessee has raised the following grounds of appeal: ITA No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity under the provisions of section 43B(f) of the Act in the remand proceedings. Additional Ground for Assessment Year 2014-15: For that the Assessing Officer should have accepted the disallowance of Rs. 9,10,080/- offered by the assessee U/s. 14A and he erred in invoking and applying rule 8D. 3. In the cross appeals for AY 2013-14 2014-15 most of the issues raised by the Revenue are common, therefore, as agreed by both the parties, the same are taken up together and are being disposed off by this common order for the sake of convenience and brevity. 4. For the purpose of adjudication of the issues, we will take the facts for AY 2013-14. Brief facts of the case are that the assessee is a limited company engaged in manufacturing of cement, generation and selling of power, jute goods, auto trim parts, iron and steel castings. Return of income for AY 2013-14 filed on 29.11.2013 declaring total income of Rs. 3,78,26,730/-. This return was further, revised on 31.03.2015. Case selected for scrutiny through CASS followed by serving of valid notices u/s 143(2) 142(1) of the Act. Various details called for were filed by the assessee. For the issues involvin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment year 2007-08 was allowed by the Hon ble Tribunal by an order dated December 8, 2014 (page 83 at Pp 86-88 of Paper Book-paragraphs 10 at 15-18). The Hon ble Tribunal also allowed the said claim for the assessment years 2008-09 and 2009-10 by a consolidated order dated August 25, 2017 (Page 140 at Pp 142-144 of Paper Book-paragraphs 7 at 7.2) and for the assessment year 2010-11 by an order dated September 13, 2017 (Page 180 at Pp 182-185 of Paper Book-paragraphs 46 at 52-53). The orders of this Hon ble Tribunal for the assessment years 2008-09, 2009-10 and 2010-11 were passed after taking into consideration the judgment of the Hon ble Karnataka High Court in CIT v. Rittal India (P) Limited, (2016) 380 ITR 423 (Karn). Subsequently, the Hon ble Madras High Court in CIT vs. Shri T.P. Textiles (P.) Ltd., [2017] 394 ITR 483 (Mad) [Page 1 at Pp 4-8 of Compilation of Case Laws] has agreed with the Hon ble Karnataka High Court. The issue is thus covered in favour of the assessee. We find that this Tribunal in assessee s own case for AY 2010-11 dealt with this issue and decided in assessee s favour observing as follows: 52. Aggrieved by the order of CIT(A) the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act in the corresponding assessment year 2007-OS for the reason that the new machinery was acquired after 01-10-2006. The relevant portions at page no 's at 9 and 10 of which is reproduced herein below for below for better understanding: The language used in clause (iia) of the said section clearly provides that a further sum equal to 20 per cent, of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii) . The word shall used in the said clause is very significant. The benefit which is to be granted is 20 per cent, additional depreciation. By virtue of the proviso referred to above, only 10 per cent, can be claimed in one year, if plant and machinery is put to use for less than 180 days in the said financial year. This would necessarily mean that the balance 10 per cent, additional deduction can be availed of in the subsequent assessment year, otherwise the very purpose of insertion of clause (iia) would be defeated because it provides for 20 per cent, deduction which shall be allowed. It has been consistently held by this court, as well as the apex court, that the beneficial legislation, as in the present case, should b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hold that the assessee is entitled to claim remaining 50% depreciation of such 20% which is equal to the actual cost of new plant and machinery, accordingly ground no-I raised by the assessee is allowed. Respectfully following the same, we dismiss Ground No. 2 raised by the revenue . Respectfully following the said decision supra, we hold that the assessee is entitled for remaining portion of additional depreciation in the asst years 2008-09 and 2009-10 and accordingly the grounds raised by the assessee in this regard are allowed. 53. Respectfully following the decision of the Tribunal the assessee is entitled to additional depreciation (remaining portion). Thus ground no. 1 raised by the assessee is allowed. 10.2. Since the issues raised before us are squarely covered by the decision of this Tribunal in assessee s own case for preceding assessment year i.e. for AY 2010-11 referred above and Revenue being unable to controvert this fact by placing any other binding precedence in its favour, we fail to find any infirmity in the finding of ld. CIT(A). Thus, common ground no. 1 for AY 2011-12 AY 2012-13 raised by the Revenue is dismissed. 8.1. Si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anderia Unit - Rajasthan (AWNL) Name of the Seller Amount per unit (Rs.) Comments Eligible unit of assessee selling to IEX and RPPC 4.95 Average rate of power sold by eligible unit of assessee to unrelated consumer Approved Sources 3.29 As per tariff order Other short term source 4.14 As per tariff order Average (ALP) 4.13 B. Satna Unit - Madhya Pradesh Name of the Seller Amount per unit (Rs.) Comments Captive 2.45 As per tariff order Average (ALP) 2.45 8. Based on the above, the undersigned adopts the above price and rejects the assessee's analysis which is utter contravention to the basic principles of CUP method. The q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ws: 11. We have heard rival contentions and perused the records placed before us. The second common ground raised in the Department s appeal relates to the assessee s claim for deduction under section 80IA in respect of the thermal power plants set up by it at Satna, M.P. and Chanderia, Rajasthan. The electricity generated by the two power plants was transferred to the assessee s cement manufacturing units. Further, electricity was also sold to independent third parties during the year under reference. Having regard to the provisions of sub-section (8) of section 80IA of the Act, the electricity transferred from the power plants to the cement manufacturing units was valued by the assessee with reference to the amount charged by the concerned State Electricity Board in its bills raised upon the assessee. The assessee took into consideration the average rate charged by the State Electricity Board for the previous month even though the rates at which electricity was sold by the assessee to third parties were higher than the rate charged by the State Electricity Board. 11.1. Ld. AO, however, reworked the profits of the power plants for the assessment year under reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only be made at the tariff determined by the State Regulatory Commission. It was on such basis that the Hon ble High Court held that electricity generated and captively consumed could only be valued with reference to the price charged by a generating company to a distribution company or a generating and distribution company and that the price charged from the consumer by the distribution company was not relevant. This Hon ble Tribunal considered the provisions of the Electricity Act, 2003, which came into force on June 10, 2003, repealed the previous legislation, and was in force during the previous years relevant to the assessment years 2008-09 and 2009-10. The sea change in the law brought about by the Electricity Act, 2003 was considered along with the regulations made by the Regulatory Commissions in the two States. It was noted that by reason of the 2003 legislation and regulations made thereunder, it was open to the assessee to sell electricity even to consumers and such sale could take place at mutually agreed rates notwithstanding the tariff fixed by the State Regulatory Commission. This Hon ble Tribunal took note of the fact that in one of the years before it, the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r A.Y.2008-09 and 2009-10 in ITA No.971/Kol/2012, 942/Kol/2013, 298/Kol/2013 and 329/Kol/2013 dated 25.8.2017. We have already seen that while deciding the issue of deduction u/s.80IA of the Act, the CIT(A) in the impugned order had followed the order of the CIT(A) in Assessee s own case on an identical issue in AY 09-10. The order of the CIT(A) for AY 09-10 was based on a decision of the Hon ble ITAT Kolkata Bench in the case of ITC Ltd., for AY 2002-03. When the appeal of the Revenue in Assessee s case for AY 09-10 was heard by the Tribunal, the revenue pointed out before the Tribunal that the very basis of allowing relief to the Assessee was the decision of the Tribunal in the case of ITC Ltd., and that the Hon ble Calcutta High Court had reversed the order of the Tribunal in the case of ITC Ltd., reported in CIT v ITC Ltd., (2016) 236 Taxman 612 (Cal). In ITC s case (supra) it was held by the Hon ble Calcutta High Court, that the quantum of benefit u/s 80IA of the Act was to be worked out with reference to the market rate at which electricity could have been sold to the distribution licensee by a generating company and that benefit cannot be claimed on the basis of rate chargea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 was introduced with effect from 10.6.2003. Hence for the Asst Years 2008-09 and 2009-10 (i.e. the years under appeal before us), the assessee would be governed by the provisions of Electricity Act, 2003. 5.6.1. We have already seen that the ITC s case in Hon ble Calcutta High Court, proceeded on the basis that the open market for the captive power plant was only a distribution company or a company engaged both in generation and distribution and that the rate at which electricity could be sold by the captive power plant was the one fixed by the tariff regulatory commission. However, such position has undergone sea change inasmuch as during the relevant previous years it was open to the assessee to sell even to a consumer and the price for sale to a distribution company or to a consumer that could be mutually agreed upon notwithstanding the tariff fixed by the State Regulatory Commission. We find that during the previous year relevant to the Asst Year 2009-10, the assessee in fact sold electricity at rates higher than that charged from it by the State Electricity Board. The assessee nevertheless made the computation for the purpose of section 80IA of the Act with reference t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply. The tribunal held that the annual weighted average adopted by the Id CITA would result in variations occurring during the year at different times being made applicable uniformly for the whole year and therefore the assessee s method is more appropriate as it factors in variations as and when they take place. 15. On the issue whether electricity duty and cess has to be excluded from the price while determining profits derived from the business, the Tribunal held that they are also to be considered as part of the price. The following were the relevant observations of the Tribunal: 5.6.5. Exclusion of Electricity Duty and Cess as directed bv Id CITA Now coming to the decision of the Id CITA to exclude electricity duty and cess, we find that the same has been addressed by the Hon ble Gujarat High court in the case of CIT vs Shah Alloys Ltd in Tax Appeal No. 2092 of 2010 dated 22.11.2011, which approved the view taken by the Ahmedabad Tribunal in ITA Nos.844, 2072 and 2073/Ahd/2006 dated 8.1.2010, that the price charged by the Electricity Board inclusive of the amount of Electricity Duty represented the market value even though the assessee was not required to charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he adjustments were carried out by the Ld. AO in terms of Section 80IA(8) of the Act and there was no transfer pricing regulations in force. However the appeal relates to AY 2013-14 when the transfer pricing provisions contained in Chapter X of the Act became applicable to specified domestic transactions and therefore not only the assessee is required to demonstrate that the profits are arrived at by adopting fair value of the goods services provided to related parties but it is also incumbent to prove that the price charged to the related parties was on arm's length. In this regard, the provisions of Chapter X that the arm's length price for the goods or services should be determined on the basis of methods prescribed in Section 92C of the Act. In the circumstances therefore apart from the fact that the power tariff should be shown to be fair value, it must also be demonstrated that the price adopted for determination of profits of the eligible undertaking, the assessee had adopted power tariff which could be said to be arrived at on arm's length principle. 2. From the orders of the lower authorities as also from the contentions of the appellant, it is noted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever when such internal data is not available, then one may apply external CUP which involves comparison of prices paid/ charged between two unrelated third parties in uncontrolled conditions with the transaction conducted between the AEs. 4. In the facts of the present case, the transaction in question involves supply of power by the eligible units at Rajasthan Madhya Pradesh to the non-eligible cement units of the appellant in the same States. From the facts on record, it is noted that the eligible unit at Madhya Pradesh supplied power only to the AE i.e. the non-eligible unit and it did not have any transaction with any unrelated enterprises. In the circumstances the unit at Madhya Pradesh cannot be considered as the tested party for the purposes of application of CUP. On the contrary, it is noted that the non-eligible unit i.e. cement unit was sourcing power both from the AE i.e. the eligible undertaking as well as unrelated enterprises i.e. the SEB. In the circumstances it Is noted that reliable internal CUP data was available with the appellant to benchmark the ALP of the power generated supplied by the eligible undertaking to the non-eligible unit. Similarly in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or captive consumption by eligible units to non-eligible units. This Tribunal after considering the catena of judgments held as follows: 9.5. We have heard rival submissions and perused the material as placed before us carefully including the impugned order and case laws relied upon by the assessee and the revenue. The undisputed facts in brief are that the assessee has two CPPs or eligible units generating electricity which was consumed captively by other non-eligible units i.e. PET Resin Manufacturing Units hereinafter referred to as Non Eligible Units), for carrying out the manufacturing. Noteworthy that non eligible units have also consumed power by purchasing the same from SEB. We observe that the assessee determined the ALP of specified domestic transactions at rate ranging from Rs. 7.66 per unit to Rs. 7.87 per unit which was the Average Annual Landed Cost (AALC) at which the non-eligible unit procured power from SEB. Thus , the assessee followed internal CUP for bench marking the specified domestic transactions of transfer of power from CPPs to non eligible unit at average landed cost at which the non eligible units procured electricity from the SEB by taking non eli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plied by the SEB to other parties/factories located in the same geographical areas/location. It is also undisputed that both CPPs as well as SEB supplied/sold power during the year and thus there is no timing difference as well. Thus we are in agreement with the conclusion of Ld. CIT(A) that transactions of purchase of power by the non eligible units from SEB fulfil the internal CUP parameters vis product comparability and similar market conditions and thus the ALC paid by the non eligible units to the SEB represented the internal comparable ALP. 9.6. According to Ld. CIT(A), the excess surplus power sold in the open market at a price which was lower than the price at which the manufacturing units procured electricity from the SEB cannot the arm's length price of the power. Thus, the Ld. CIT(A) reversed the order of TPO/AO by directing that the price at which the SEB sold power in the open market under uncontrolled conditions is reliable internal CUP and accordingly came to the conclusion that ALC notified by the SEB is a fair, reliable and reasonable basis to bench mark the power procured by non-eligible unit from the eligible unit. The Ld. CIT(A) while allowing the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from generation companies. Further no consumer can buy the power in the open market at a rate generation companies sell power to distribution companies. Thus we do not find any force in the contentions of the Id DR that rate at which the power was sold to unrelated parties by the CPP is the ALP. We also note that decision of the Calcutta High court in the case of CIT Vs ITC 236 Taxman 612 which was relied by the TPO/AO and the functional dissimilarity between CPPs and SEB have been considered by the coordinate bench of the tribunal in the case of Star Paper Mills Ltd Vs DCIT in ITA No. 127/Kol/2021. Therefore, we are inclined to uphold the order of Ld. CIT(A) by holding that the ALC at which the power is procured by non-eligible units from SEB is the most appropriate ALP to bench mark the specified domestic transactions and accordingly the order passed by Ld. CIT(A) is upheld by dismissing the revenue's appeal on this issue. The grounds of appeal pertaining to this issue are dismissed. 9.6. Thus, respectfully following the consistent view taken by this Tribunal and since the issues raised before us are squarely covered by the decision of this Tribunal in assessee s own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal expenditure. The ld. CIT(A) granted relief to the assessee following the orders of this Hon ble Tribunal in the assessee s case for the assessment years 2006-07 to 2010-11. 12.2. The identical disallowance was made in the assessment year 2006-07. Relief was granted to the assessee on first appeal by order dated July 9, 2010 against which the revenue preferred further appeal before this Hon ble Tribunal, being ITA No. 1936 (Kol) of 2010. The said appeal was rejected by the Hon ble Tribunal by order dated July 29, 2011 (Page 66 at Page 73 of the Paper Book - paragraphs 10 at 15). This Hon ble Tribunal also rejected the Department s appeal for the assessment years 2007-08 (Pages 97-98 of the Paper Book, paragraphs 33 at 34) and assessment years 2008-09 and 2009-10 (Page 106 at Pp 107-108 of the Paper Book, paragraphs 2 at 2.2), by following its order for the assessment year 2006-07. The Hon ble Tribunal dismissed the Department s appeal for the assessment year 2010-11 (Page 163 at Pp 164-165 of the Paper Book-paragraphs 18 at 22-23) by following its order for the assessment years 2008-09 and 2009-10. 12.3. The Department preferred appeals before the Hon ble Calcutta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. 20. Aggrieved by the order of the AO, the Assessee preferred appeal before the CIT(A). Before CIT(A), the Assessee contended that identical disallowance was made in the assessment year 2006-07 and in first appeal, the CIT(A) by order dated July 9, 2010 deleted the addition made by the AO. Against the said order, the revenue preferred further appeal before the Hon'ble Tribunal, being ITA No. 1936 (Kol) of 2010. The said appeal has since been rejected by the Hon'ble Tribunal by order dated July 29,2011 (Page 71 to 87 the Paper Book - paragraphs 10-15 at page-77 to 84). The said decision was rendered after considering the judgment of the Hon'ble Supreme Court in Enterprising Enterprises v Deputy Commissioner, (2007) 293 ITR 437 (SC). The said order of the Hon'ble Tribunal has been followed in first appeal for the assessment years 2007-08 (page 3, para 4), 2008-09 (page 55, para 4) and 2009- 10 (page 110, para 5). It was submitted that in this year also, the compensation amount of Rs.23,71,3401- should be held to be revenue in nature and an admissible deduction. 21. The CIT(A) deleted the addition made by the AO by following the order of the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no.2 raised by the revenue. 12.4. Since the issues raised before us are squarely covered by the decision of this Tribunal in assessee s own case for preceding assessment year i.e. AY 2010-11 and Revenue being unable to controvert this fact by placing any other binding precedence in its favour, we fail to find any infirmity in the finding of ld. CIT(A). Thus, common ground no. 3 for AY 2011-12 AY 2012-13 raised by the Revenue is dismissed. 10.1. Since the issues raised before us are squarely covered by the decision of this Tribunal in assessee s own case for preceding AYs 2011-12 AY 2012-13 except the change of figures and Revenue being unable to controvert this fact by placing any other binding precedence in its favour, we fail to find any infirmity in the finding of ld. CIT(A). Thus, common ground no. 3 for AY 2013-14 2014-15 raised by the Revenue are dismissed. Revenue s common Ground no. 4 for AY 2013-14 2014-15 regarding the issue of treating of industrial promotion assistance from the State Government as capital receipt: 11. We have heard rival contentions and perused the records placed before us. We find that this Tribunal in assessee s ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee s trade receipts and profits and was a revenue receipt. On appeal, the ld. CIT(A) accepted the assessee s claim following the decisions of the Hon ble Tribunal in the assessee s own case for the assessment years 2008-09 to 2010-11. 13.3. It is submitted that the identical question fell for consideration in the assessee s own case for the assessment years 2008-09 and 2009-10 and was decided in assessee s favour by this Hon ble Tribunal by a consolidated order dated August 25, 2017 (Page 115 at Pp 122-125 of Paper Book-paragraphs 4 at 4.3) and for the assessment year 2010-11 by an order dated September 13, 2017 (Page 165 at Pp 168-171 of Paper Book-paragraphs 25 at 29-30). The Department had preferred appeal against the said order dated August 25, 2017 passed by this Hon ble Tribunal for the assessment years 2008-09 and 2009-10 before the Hon ble Calcutta High Court under section 260A of the Act being ITA No. 125/2019, GA No. 3548/2018 (Page 11 at Pp 23-24 Question 10(i) of the Compilation of Case Laws). The Hon ble High Court by an order dated September 12, 2019 was pleased not to admit the said question (Page 9-10 of the Compilation of Case Laws). 13.4. The ide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herein the grounds raised by the assessee as well as by the revenue were as under: Assessee Ground No. 1 That on the facts and circumstances of the case, the learned CIT(Appeals) though holding that sales-tax incentive of Rs. 1238000 allowed by the State Govt, is the nature of capital receipt but erred in directing the Assessing Officer (AO) for reducing the same from the cost of Fixed Assets for the purpose of computing depreciation by applying the Explanation 10 to Sec. 43(1) of I.T.Act. Revenue Ground No. 2 That Ld.CIT(A)-VI Kolkata has erred in law as well as on facts by deleting the addition made by the AO on account of Sales Tax Subsidy received by the assessee as revenue income of Rs 12,38,000/-. The decision rendered thereon by this tribunal is as under: 7. We have heard rival contentions on this issue and gone through the facts and circumstances of the case. We find that the facts are discussed in detail and which are undisputed. It is admitted that the assessee's issue of Sales Tax Incentive is capital in nature for the reason that the very scheme under which the expansion of the unit and subsidy under Rajasthan Sales Tax Sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive not for the specific purpose of meeting a portion of the cost of the assets, though quantified as a percentage of such cost, it does not partake the character of payment intended either directly or indirectly to meet the actual cost . By implication, the above judgment also provides that if the subsidy is intended for meeting a portion of the cost of the assets, then such subsidy should be deducted from the actual cost, for the purpose of computing depreciation. As per Hon'ble Supreme Court, law is that if the subsidy is asset-specific, such subsidy goes to reduce the actual cost. If the subsidy is to encourage setting up of the industry, it does not go to reduce the actual cost, even though the amount of subsidy was quantified on the basis of the percentage of the total investment made by the assessee. The law is already settled on the subject. Now, the only wavering is with reference to Explanation 10 provided under sec.43(l) of the Act. The said Explanation provides that where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed not be reduced from the cost of assets in terms of Explanation 10 to Section 43(1) of the Act. Accordingly, the grounds raised by the revenue are dismissed and grounds raised by the assessee are allowed. 30. Respectfully following the aforesaid decision, we hold that the subsidy in question is a capital receipt and not chargeable to tax. Ground no.3 raised by the revenue is dismissed. We also hold that capital receipt need not be reduced from the cost of the assets and under Explanation 10 to section 43(1) of the Act. We accordingly allow ground no.7 raised by the assessee in its appeal. 13.5. Since the issues raised before us are squarely covered by the decision of this Tribunal in assessee s own case for preceding assessment year i.e. AY 2010-11and Revenue being unable to controvert this fact by placing any other binding precedence in its favour, we fail to find any infirmity in the finding of ld. CIT(A). Thus, common ground no. 4 for AY 2011-12 AY 2012-13 raised by the Revenue is dismissed. 11.1. Since the issues raised before us are squarely covered by the decision of this Tribunal in assessee s own case for preceding AYs 2011-12 AY 2012-13 except ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 at 6.2). In the order dated August 25, 2017, the Hon ble Tribunal also considered the judgment of the Hon ble Jammu Kashmir High Court in Shree Balaji Alloys v. CIT, (2011) 333 ITR 335 (J K) and the judgment of the Hon ble Supreme Court on appeal therefrom reported as CIT v. Shree Balaji Alloys, (2017) 80 taxmann.com 239 (SC) as also the judgment of the Hon ble Supreme Court in CIT v. Meghalaya Steels Limited, (2016) 383 ITR 217 (SC).The order dated August 25, 2017 for the assessment years 2008-09 and 2009-10 was followed by the Hon ble Tribunal for the assessment year 2010-11 decided by an order dated September 13, 2017 (Page 190 at pages 193-194 of the Paper Book paragraphs 68 at 73-74). A still later decision in the assessee s favour is that of the Hon ble Calcutta High Court in PCIT v. Ankit Metal and Power Limited, (2019) 416 ITR 591 (Cal) (Page 76 at Pp 84,86-87 of the Compilation of Case Laws). It is submitted that this ground is covered in favour of the assessee. We find that this Tribunal in assessee s own case for AY 2010-11 dealt with this issue and decided in assessee s favour observing as follows: 73. At time of hearing, it was agreed by the parties be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in the case of Shree Balaji Alloys vs. CIT, (2011) 333 ITR 335 (J K) at page 346 held interest subsidy to be a capital receipt. On further appeal by the revenue, the Hon ble Supreme Court by an order dated 19.4.2016 in Civil Appeal No.10061 of 2011 held that the interest subsidy was a capital receipt in view of its decision in Ponni Sugars (supra) and further held that even if it was treated as a revenue receipt, then the assessee was entitled to deduction under section 80IB/80IC as profits derived from eligible business according to its judgment in CIT v Meghalaya Steels Ltd., (2016) 383 ITR 217 (SC). Hence respectfully following the said decision of the Hon ble Supreme Court in Balaji Alloys supra, we hold that the interest subsidy is to be treated only as a capital receipt and accordingly the grounds raised by the assessee in this regard are allowed. 74. Respectfully following the decision of the Tribunal in Assessee s own case, we hold that the interest subsidy in question is a capital receipt not chargeable to tax. Thus, ground nos. 10 and 11 raised by the assessee are allowed. 14.2. Since the issues raised before us are squarely covered by the deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O disallowed Rs.5,71,31,208/-. On appeal, the ld. CIT(A) following the decisions of the Hon ble Tribunal in the assessee s own case for the assessment years 2008-09 to 2010-11 directed the ld. AO to consider all investments (excluding investments in subsidiary companies) which yielded dividend income for computing the disallowance under section 14A read with rule 8D(2)(iii). 15.2. Before us, ld. Counsel for the assessee stated that the material facts are that the assessee is in the business of manufacturing cement, jute goods, vinoleum, auto trim parts, etc. From time to time, the assessee makes investments out of its own funds in shares of companies and units of mutual funds. The assessee does not borrow any funds for making such investments. The mutual fund investments of the assessee are not in equity-oriented funds as defined in the explanation to section 10(38) of the Act and disposal/redemption thereof attracts capital gains tax. Substantial part of the mutual fund investments of the assessee are in growth schemes which do not provide for payment of any dividend during the currency of the scheme. Only some of the mutual fund schemes in which the assessee invests provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts (including in non-equity oriented mutual fund growth schemes) did not provide for payment of any dividend. Upon redemption/disposal of all such investments, the assessee would be liable for capital gains tax. The income from such investments is not exempt under the provisions of the Act. Even in respect of the assessee s investments in other schemes of mutual funds providing for payment of dividend, the assessee is liable for capital gains tax upon disposal/redemption of the units since such schemes are also not equity oriented. Similarly, in respect of the assessee s investments in unquoted equity shares of companies, it will have to pay capital gains tax upon disposal thereof. It is only the dividend received by the assessee in respect of the dividend schemes of the mutual funds which is not taxable in the assessee s hands because of payment of dividend distribution tax by the mutual funds. 15.5. Further ld. Counsel for the assessee submitted that in course of the assessment proceedings, the assessee submitted a detailed statement in respect of the expenditure of Rs. 6,40,792/- offered by it for disallowance as incurred in relation to the exempt dividend income. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... management/maintenance of its investment portfolio. This is apparent from the findings of the ld. AO in paragraphs 11.2 and 11.3 at page 15 of the assessment order: 11.2 Carefully considering the above submission, contention of the assessee is partly accepted. Disallowance u/s. 14A is worked out by invoking Rule 8D of the IT Rules since it is applicable for current assessment. The amount of disallowance is worked out as follows: Opening value of investment : 114165.22 lacs Closing value of investment : 116920.91 lacs Average value : 115543.07 lacs 0.5% of the above : 577.72 lacs 11.3 In view of above Rs.5.71,31,208/- [Rs. 5,77,72,000 less Rs.6,40,792] is further disallowed u/s. 14A and added back to total income. It is submitted that ld. AO did not dispute the correctness of the assessee s computation of the expenditure to be disallowed. The only reason given by ld. AO for making the disallowance was that rule 8D was applicable for the assessment year. It is subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly in the Memorandum explaining the provisions of the Finance Bill, 2001 . Having regard to the language of Section 14A(2) of the Act, read with Rule 8D of the Rules, we also make it clear that before applying the theory of apportionment, the AO needs to record satisfaction that having regard to the kind of the assessee, suo moto disallowance under Section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, the nature of the loan taken by the assessee for purchasing the shares/making the investment in shares is to be examined by the Assessing Officer. [emphasis added] 15.8. Ld. Counsel for the assessee further submitted that in Kesoram Industries Ltd. vs. PCIT [2022] 441 ITR 648 (Cal), the Hon ble Calcutta High Court was pleased to hold as follows: 6. Two important issues have been pointed out in the aforementioned decision. Firstly that the provisions of section 14A has to be interpreted, particularly, the words that in rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tisfaction. In other words, it is only when no reasonable and proper parameters for making disallowance can be arrived at, that resort to Rule 8D(2) can be had by the AO. Rule 8D(2) will thus be a last resort when it becomes impossible to arrive at a just conclusion on the amount of expenses that has to be disallowed as attributable or incurred in earning exempt income. It cannot therefore be said that once the AO rejects the mode of computation of disallowance u/s.14A of the Act as made by the Assessee, he has no other option but to resort to Rule 8D of the Rules . [emphasis added] 15.10. Ld. Counsel for the assessee that in the instant case, ld. AO not having expressed any dis-satisfaction with the assessee s claim of expenditure incurred in relation to exempt income, he was not entitled to invoke section 14A(2) or rule 8D(2)(iii). Where an assessee is engaged in multiple income-earning activities and the same set of employees and infrastructure are used for all the activities, some taxable and some exempt, the common expenses incurred in respect of such employees and infrastructure have to be necessarily apportioned between the taxable and exempt activities. As hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules may be restricted only to the extent of 0.5% of the average investments yielding dividend income, we find that for the preceding AY 2010-11 also same issue under identical facts was there before this Tribunal and after considering the ratios laid down by the Hon'ble Court s directions are given to ld. AO to consider only those investments which yielded dividend income for concluding the disallowance u/s 14A of the Act r.w. Rule 8D(3) of the I.T. Rules. Relevant finding of this Tribunal is reproduced below: 42 At the time of hearing both the parties agreed that identical issue was considered and decided by the tribunal in assessee s own case in ITA No.971/Kol/2012, 942/Kol/2013, 298 329/Kol/2013 for A. Y.2008-08 and 2009-10 in its order dated 25.8.2017 and this Tribunal on the identical issue held as follows: 3.3. We have heard the rival submissions and perused the materials available on record. The Id DR vehemently relied on the order of the Id AO. The ld. AR prayed that the disallowance made by the assessee voluntarily at Rs 4,00,096/- which was later revised to Rs 4,43,903/- based on the devotion of certain executives of the organization for managing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he total income and this can be done only by taking into consideration the investment which has given rise to this income which does not form part of the total income. Under the circumstances, the computation of the disallowance under section 14A read with rule 8D(2Riii), which is issue in the assessee's appeal, is restored to the file of the AO for recomputation in line with the direction given above. No disallowance under section 14A read with rule 8D(2)(i) and (ii) can be made in this case. We also find lot of force in the argument of the ld. AR that the investments made in subsidiaries would fall under the category of strategic investments as they are admittedly made only for the purpose of obtaining controlling interest in the said companies and not for the purpose of earning dividend income which is exempt. Hence they would stand differently from other regular investments. Reliance in this regard is placed on the decision of this tribunal in the case of Dy CIT vs Selvel Advertising (P) Ltd reported in (2015) 58 taxmann.com 196 (Kol Trib). We also find that the reliance placed in this regard by the Id A R on the decision of the Hon'ble Delhi High Court in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... limited to a sum of Rs 40,556/-. The question of interpreting Rule 8D is not in dispute and the only dispute is with regard to facts which have been settled by the Tribunal. In view of the aforesaid findings and respectfully following the judicial precedents relied upon, we deem it fit and appropriate to remand this issue to the file of the Id AO with the direction to consider all investments (excluding investments in subsidiary companies) which yielded dividend income to the assessee for computing disallowance u/s 14A of the Act r.w. Rule 8D of the Rules. Accordingly the grounds raised in this regard are partly allowed for statistical purposes. 43. Respectfully following the aforesaid decision we partially uphold the order of CIT(A) and dismiss ground no.4 raised by the revenue and partly allow ground nos. 12 and 13 raised by the assessee and direct the AO to consider all investments (excluding investments in subsidiary companies) which yielded dividend income to the assessee for computing disallowance u/s 14A of the Act r.w. Rule 8D(2)(iii) of the Rules. 15.13. Since the issues raised before us are squarely covered by the decision of this Tribunal in assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and these incentives were credited to Profit Loss Account. Besides, the claim was not made through IT Return or Revised IT return and therefore fresh claim raised during the course of assessment proceedings was not accepted in view of decision of Hon ble Supreme Court in case of Goetze (India) Ltd, [2006] 284 ITR 323 (SC). On appeal, the ld. CIT(A) granted relief to the assessee relying upon various decisions including the decision of the Hon ble Tribunal in DCIT v. South Asian Petrochem in ITA Nos. 1222 to 1241/Kol/2014 decided on May 3, 2017. 16.1. We observe that it is settled law that subsidy granted for the purpose/object of encouraging setting up of new industrial units or expansion of existing industrial units is a capital receipt. It has already been held by this Hon ble Tribunal in the assessee s own case for the earlier years that interest subsidy received under the 2003 Scheme and industrial promotion assistance received under the 2000 Scheme are capital receipts. Submissions have been made hereinbefore in support of the assessee s contention that the same view should be taken in this year. Subsidy was included in the definition of income in section 2(24) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s issue is now squarely covered in favour of the assessee by the judgment of the Hon ble Calcutta High Court in PCIT vs. Ankit Metal Power Ltd., [2019] 416 ITR 591 (Cal) [Page 76 of the Compilation of Case Laws]. The said decision also deals with the aspect relating to claim made otherwise than by filing a return/revised return. Particular reference is invited to Paragraphs 30-33 of the judgment [Pages 87-88 of the Compilation of the Case Laws], which are extracted hereinbelow: Now the second issue which requires adjudication is as to whether the aforesaid incentive subsidies received by the assessee from the Government of West Bengal under the schemes in question are to be included for the purpose of computation of book profit u/s 115JB of the Income Tax Act, 1961 as contended by the revenue by relying on the decision in the case of Appollo Tyres Ltd. (supra). In this case since we have already held that in relevant assessment year 2010-11 the incentives 'Interest subsidy' and 'Power subsidy' is a 'capital receipt' and does not fall within the definition of 'Income' under Section 2(24) of Income Tax Act, 1961 and when a receipt is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt and not an 'income' and not liable to Tax Tribunal in exercise of its power under Section 254 of the Income Tax Act justified this claim though no revised return under Section 139 (5) of the Act was filed before the Assessing Officer. We answer both the question Nos. 1 and 2 in negative and in favour of assessee. (emphasis added) 16.4. Since the issue stands squarely covered by the Hon'ble Jurisdictional High Court in the case of Ankit Metal and Power Limited (supra), we fail to find any infirmity in the finding of ld. CIT(A) holding that the subsidy/incentive received by the assessee which have been held to be capital receipts are to be excluded from the book profit u/s 115JB of the Act. Thus, common ground no. 7 raised by the Revenue for AY 2011-12 AY 2012-13 are dismissed. 14.1. Since the issue stands squarely covered by the Hon'ble Jurisdictional High Court in the case of Ankit Metal and Power Limited (supra), we fail to find any infirmity in the finding of ld. CIT(A) holding that the subsidy/incentive received by the assessee which have been held to be capital receipts are to be excluded from the book profit u/s 115JB of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d balance of Reserves and Surplus as on 01.04.2007 and the company could not charge it to the P L A/c. Accordingly the transitional provision for sick leave of Rs.3,08,60,603/-; created and accounted in the books for the FY 2007-08 was not debited to the assessee's Profit 8i Loss Account but directly adjusted against the balance in General Reserves A/c. As a consequence the appellant never claimed the deduction or benefit of this transitional provision while making computation of book profit for the FY 2007-08 relevant to AY 2008-09. As a corollary, on the write back of Rs. 1,35,70,743/- out of the said provision, which was credited to the Profit Loss Account, in the year under consideration, the assessee claimed exclusion of the same from the computation of book profit. The AO however failed to appreciate the foregoing jurisdictional facts of the case and without bringing any contrary material on record, rejected the appellant's claim of deduction of provision of Rs. 1,35,70,743/- written back and credited to P L A/c during the year from the computation of book profit computed u/s 115JB of the Act. 11.2 The appellant has enclosed herewith the statement showing com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - written back and credited to the Profit Loss Account for the year ended 31st March 2013. The AO may therefore be directed to allow deduction of the same from the income computed under the deeming provisions of Section 115JB. 37. FINDINGS DECISION 1. I have carefully considered the submissions of the Ld. AR of the appellant. During the relevant year the appellant had written back provision for sick leave amounting to Rs. 1,35,70,743/- which was credited to P L A/c. The said sum was excluded by the appellant while computing book profit u/s 115JB since it was the appellant's case that the write back was made out of the provision for sick leave amounting to Rs.3,08,60,603/- created and accounted in the appellant's financial books for the FY 2007-08 relevant to AY 2008-09 which was not claimed as deduction from the computation of book profit u/s 115JB in that year. The Ld. AO although did not comment on this claim but did not grant the benefit of exclusion while assessing the book profit u/s 115JB of the Act. 2. After going through the submissions of the appellant and the facts placed on record, it is noted that provision for sick leave was first acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... smissed. Revenue s common Ground no. 9 for AY 2013-14 2014-15 relating to the upward adjustment made to book profit for disallowance computed u/s 14A r.w. Rule 8D of the Rules: 16. We have heard rival contentions and perused the records placed before us. We find that this Tribunal in assessee s own case for AY 2011-12 2012-13 dealt with this issue and decided in assessee s favour observing as follows: 17. The eighth common ground of the Department s appeal is against the deletion of upward adjustment made to book profit on account of the disallowance computed under section 14A read with rule 8D. The assessee had disallowed a sum of Rs. 6,40,792/- in the computation of its book profit in terms of clause (f) of Explanation 1 to section 115JB of the Act on account of expenditure relatable to exempt dividend income. Whilst working out the disallowance under section 14A of the Act read with rule 8D of the Rules under the normal computation provisions, ld. CIT(A) made a further disallowance of Rs. 5,71,31,208/-. The same disallowance of Rs. 5,71,31,208/- was made in the computation of book profit under section 115JB of the Act. On appeal, ld. CIT(A) held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foresaid provision and there is no exemption granted to the non-dividend company in this regard. However, the tribunal by placing reliance on decision of the Supreme Court in Apollo Tyres v. CIT [2002] 122 Taxman 562/255 ITR 273 has held that Assessing Officer while determining book profits under section 115JB of the Act cannot tamper with the profits as per profit and loss account prepared in accordance with the Companies Act except in the manner provided in Explanation 1 to section 115JB of the Act. Thus, it has been held that the additions made by the Assessing Officer while determining the book profits under section 115JB of the Act cannot be sustained. Any disallowance computed under section 14A of the Act pertain to computation of income under normal provisions of the Act and cannot be read into the provisions of section 115JB of the Act pertaining to computation of book profits by levy of Minimum Alternate Tax (MAT) and there is no express provision in clause (f) of Explanation 1 to section 115JB of the Act to that extent. For the aforementioned reasons, the third substantial question of law is answered against the revenue and in favour of the assessee. (emphasis add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court. On appeal, ld. CIT(A) directed ld. AO to allow deduction in respect of the provision only if the Hon ble Supreme Court upheld the decision of the Hon ble Calcutta High Court by rectifying the assessment once the judgment was rendered by the Hon ble Supreme Court. The assessee s ground of appeal was dismissed subject to the said observation. 21.2. The Hon ble Supreme Court in Union of India v. Exide Industries Limited, (2020) 425 ITR 1 (SC) upheld clause (f) of Section 43B of the Act as constitutionally valid (pages 220 249 of the Compilation of Case Laws). Therefore, in view of the judgment of the Hon ble Supreme Court, deduction in respect of leave encashment is available only in the year of actual payment. It is then submitted by ld. Counsel for the assessee that ld. AO may be directed to allow deduction in respect of the amount actually paid on account of leave encashment during the previous year relevant to the AY 2013-14 2014-15. 21.3. We also find that this issue came for adjudication before this Tribunal in assessee s own case for AY 2011-12 2012-13 and the following was held by this Tribunal: 22.3. We also find that this issue came for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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