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TMI Blog2023 (5) TMI 538X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld.CIT(A), while confirming additions made by the Ld. AO towards of additional depreciation in subsequent years is in accordance with law as enumerated under the provision of section 32(1)(iia) - Decided against assessee. Disallowance U/sec 14A r.w.r 8(D)(2)(ii) (iii) - HELD THAT:- As per decision of HDFC Bank Ltd [ 2016 (3) TMI 755 - BOMBAY HIGH COURT] and the disallowance u/s 14A r.w.r 8(D)(2)(iii) has to computed considering only investments which yield exempt income as held in the case of ACT Vs Vireet Investment Pvt Ltd [ 2017 (6) TMI 1124 - ITAT DELHI] Special Bench held that only those investments which yield exempted income are considered for computing the average value of investments in respect of computing the disallowance under rule 8D(2)(iii) of the IT Rules. AR demonstrated the details/chart of dividend income and investments in the mutual funds in the dividend yielding schemes. Thus find that the submissions of the Ld.AR are to be considered and direct the Assessing officer to recompute the disallowance u/s 14A r.w.r 8D(2)(ii) (iii) as per the ratio of the decisions discussed above and allow this ground of appeal for statistical purposes. TP Adjustme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciation on fixed assets u/s 40(a)(ia) r.w.s37(1) of the Act in respect of capitalization of professions fees, expenditure, FCCB premium and FCCB expenditure - HELD THAT:- As in own case[ 2021 (7) TMI 1410 - ITAT, MUMBAI] expenditure was incurred for the A.Y 2005-06 and depreciation was allowed by the A.O. therefore for A.Y. 2007-08 is only consequential year of allowing the depreciation and the expenses falling U/sec 40(a)(ia) of the Act. Accordingly we follow the judicial decisions and dismiss the grounds of appeal of the revenue. TP Adjustment - Corporate guarantee fees charged @ 1.5% by the assessee to its AE considered as ALP - HELD THAT:- AR supported the order of the CIT(A) on this issue and contended that the assessee has given a corporate guarantee to AE and which does not involve any cost and no bearing on profits. Further the income or loss or assets of the AE are outside the purview of the international transaction. The Ld. AR has relied on the judicial decisions and the assessee has accepted the charge @ 1.5%. Contra, the Ld. DR could not controvert the findings of the Ld. CIT(A) on this disputed issue with any new cogent material or information to take a differ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 2006-07 and 2007-08 respectively. b) The ld. CIT(A) failed to appreciate that after the amendment of section 32(1)(iia) by the Finance Act, 2005, the condition regarding the previous year which was present in the pre-amended provisions of section 32(1)(iia) has been deleted and therefore the Appellant is eligible for additional depreciation for subsequent years also in absence of any reference to a specific previous year in the amended provisions of section 32(1)(iia). 2.a) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in confirming the addition of 6,78,82,060/- (subject to certain rectification of apparent mistakes) made by the AO to the income of the Appellant by way of disallowing certain expenditure claimed to have been incurred relating to exempt income invoking the provisions of section 14A r.w.r.8D. b) The ld. CIT(A) failed to appreciate that having regard to the accounts there is no reason and basis for the AO in reaching to dis-satisfaction with the correctness of the claim of the Appellant that no expenditure was incurred in relation to dividend income which does not form part of the total income. c) In reaching ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for such penalty. The Appellant craves leave to add, alter, amend or delete any or all of the above grounds of appeal. 2. The brief facts of the case are that the assessee company is engaged in the business of manufacturing of steel pipes, plates and coils. The assessee has filed the return of income for the A.Y 2008-09 on 29.09.2008 disclosing a total income of Rs. 3,95,49,252/-. There was a search and seizure operations U/sec 132 of the Act conducted on the Welspun Group of cases on 13.10.20110 and the assessee company was also covered under the search. The Assessing Officer (AO) has issued notice u/s 153A of the Act and in response to notice, the assessee has filed the return of income on 09.09.2011 disclosing a total income of Rs. 3,95,49,252/- under the normal provisions of the Act and book profit u/s 115JB of Rs. 526,44,48,274/-.Subsequently, the AO has issued notice u/s 143(2) and 142(1) of the Act along with questionnaire. In compliance to the notices, the L. AR of the assessee appeared from time to time and submitted the details and the case was discussed. Since the assessee has international transactions with its AE, the matter was referred to TPO for determination of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and argued forcefully that one such view which is favourable to the assessee has been accepted by some Tribunal or High Court, that by itself will not be sufficient to attract the principle of beneficial interpretation. As brought out above, there is no ambiguity in the relevant law. The instant claim is thus devoid of merit and therefore the same is rejected. This results in addition of Rs. 48,46,49,331 as income of the assessee. Since the assessee made a patently wrong claim of additional depreciation only in order to reduce the Incidence of tax I am satisfied that the assessee has submitted inaccurate particulars of income and/or concealed the particulars of income, hence, penalty proceedings u/s.271(1)(c) of the Act are initiated. 3.(ii) On the second disputed issue, in respect of claim of refund of excise duty of Rs. 122,22,92,941/- in the computation of income. The assessee was called to submit the documentary evidence for receipt of the above incentive and benefits including the copy of the scheme under which incentive / benefit has been obtained and the documentary evidence claimed as capital receipt. The assessee has filed detailed submissions explaining the na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of income and the assessee was called to submit the evidence of receipt of incentives and benefits prescribed in the scheme. The assessee has filed the details referred at Para 7.3 of the assessment order explaining the basis of deduction. But the AO was not satisfied with the claims of the assessee and treated as revenue receipt and observed at Para 7.9 7.10 of the order as under: 7.9. During the course of assessment proceeding the assessee has relied on the Special bench decision in the case of DCIT Vs. Reliance Industries Ltd., 88 ITD 273. With due respect, the decision of the said Tribunal is not acceptable in as much as while deciding the issue the Tribunal has not properly appreciated the principles enunciated by the supreme court in the case of Sahney Steel. Further, in the case of Reliance Industries the hon'ble Tribunal has not explained in what way all the principles enunciated by the Supreme Court in the decision of Sahney Steel have been followed. Further, there are various other high court decisions which have not been taken into consideration while deciding the issue on subsidies. 7.10. In view of above, the 'Sales Tax incentive' received by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erative expenditure and subsequently capitalized under the head fixed assets, therefore depreciation of Rs. 13,48,619/- is disallowed. 7. (viii) On the eighth disputed issue with respect to claim made by the assessee in the scrutiny assessment of earlier years being FCCB issue expenditure of Rs. 5,79,90,000/- which was included under the head pre-operative expenditure is not a allowable as the expenditure has been capitalized and the deprecation on the same has been claimed and hence made an addition of Rs. 1,10,98,792/-.(ix) the ninth disputed issue with regard to transfer pricing adjustments. The AO found that the assessee has international transactions with its AE s and therefore the matter was referred to the TPO for determination of ALP. Whereas the TPO has considered the facts, TSR and has passed the order u/s 92CA(3) of the Act with the following transfer pricing adjustments referred at Para 14.1 of the order as under: S.No Adjustment on account of Amount of Adjustment (Rs) 1 Interest on advances given to Welspun Pipes Inc. USA (7.3.4) 35,84,633 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so has the own capital and reserves are more than the investments. Since the own funds are more than the investments therefore no disallowance under rule 8D(2)(ii) is called for and the investments yielding exempt income are to be considered and relied on the judicial decisions. The Ld.AR submitted that the bench marking of interest rate @ 7.11% as against @5.25% and @6.25% adopted by the assessee and TPO is on the higher side irrespective of the fact that the assessee has advanced loan to Welspun Pipes Inc out of external commercial borrowings. Further the Ld.AR submitted that while computing book profits u/s 115JB of the Act no disallowance u/s 14A of the Act has to be made and is not liable to be added in view of the explanation-1 to Sec. 115JB of the Act and The Ld.AR substantiated the submissions with the factual paper book, notes, chart and judicial decisions and prayed for allowing the assessee appeal. Contra, the Ld. DR relied on the order of the CIT(A) to some extent and submitted that the revenue has filed the cross appeal. 10. We heard the rival submissions and perused the material available on record. On the first disputed issue envisaged by the Ld. AR on the disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Ld.CIT(A) after considering relevant facts has rightly noted that there is no error in the findings recorded by the ld. AO in disallowances of additional deprecation on plant and machinery for second year. Therefore, we are of the considered view that the findings recorded by the Ld.CIT(A), while confirming additions made by the Ld. AO towards of additional depreciation in subsequent years is in accordance with law as enumerated under the provision of section 32(1)(iia) of the Act and hence, the findings of the ld. CIT(A) does not call for any interference from our side. Accordingly, the ground taken by the assessee is dismissed. We find that this disputed issue is covered by the decision of the Hon ble Tribunal and we follow the judicial precedence and dismiss this ground of appeal of the assessee. 11. The second disputed issue is with respect to disallowance u/s 14(A) of the Act, the contentions of the Ld.AR that the disallowance U/sec 14A r.w.r 8(D)(2)(ii) (iii) restricted to Rs. 98,96,101 is against the law. The assessee invested the money in group companies as the assessee having own capital and reserves which was more than the investments and since the assessee s o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are sufficient to meet investments Held, yes Whether since, in instant case, said presumption was clearly established in view of findings recorded by Commissioner (Appeals) and Tribunal, impugned order passed by said authorities was to be affirmed - Held, yes Accordingly, we follow the judicial precedence, and find that the submissions of the Ld.AR are to be considered and direct the Assessing officer to recompute the disallowance u/s 14A r.w.r 8D(2)(ii) (iii) as per the ratio of the decisions discussed above and allow this ground of appeal for statistical purposes. 12. The third disputed issue, the Ld. AR submitted that the CIT(A) erred in bench marking the interest rate @7.11% as against @5.25% and @6.25% adopted by the assessee and TPO, in respect of interest on advance to AE and investment in cumulative preference shares. The contention of the Ld. AR that the assessee has advanced loan to Welspun Pipes Inc USA @ 5.25% p.a out the external commercial borrowings on which assessee paid interest @ 1.54 to 4.25% ie LIBOR+125 basic points. Subsequently Welpsun Pipes Inc invested entire funds in the bonds of Arkansas CIT Government bonds at rate of @5.25% for availing fiscal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... puting the book profits U/sec 115JB of the Act and allow the ground of appeal. 14. In the result, the appeal of the assessee is partly allowed for statistical purposes. ITA No. 4364/Mum/ 2016, A.Y 2008-09 15. The revenue has raised the following grounds of appeal: 1) On the facts and in the circumstances of the case and in law, Ld. CIT(A) erred in holding that backward area incentive consisting of Sales Tax Incentive and Excise duty benefits as capital receipts 2) On the facts and in the circumstances of the case and in law, Ld. CIT(A) erred in applying Explanation 10 to section 43(1) and should have directed that the backward area incentive should have been reduced form the actual cost . 3) On the facts and in the circumstances of the case and in law, Ld. CIT(A) erred in deleting the addition on account of depreciation on fixed assets u/s 40a(ia) r.w.r. sec. 37 in respect of capitalization of professional fees capitalized of certain expenses, FCCB premium and FCCB Issue Expenses . 4) On the facts and in the circumstances of the case and in law, Ld. CIT(A) erred in deleting the addition by way of disallowing FCCB Premium . 5) On the facts a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar production, is not the operative or decisive factor in coming to the conclusion as to whether the receipt is revenue or capital in nature and that the most decisive factor is the object with which the incentive was given. Subsidy received under Sampath Incentive Scheme for repayment of loan taken for setting up/expanding an existing unit/acquiring capital asset was held as capital in character by the Calcutta High Court in the case of CIT v. Balrampur Chini Mills Ltd. [1999] 238 ITR 445. The Delhi High Court in the case of CIT v. National Co-operative Consumer's Federation Ltd. [2002] 254 ITR 599 [2001] has followed the view taken by the Calcutta High Court in the case of Balrampur Chini Mills Ltd. (supra). The Madras High Court in the case of CIT v. Madurantakam Co- operative Sugar Mills Ltd. [2003] 263 ITR 388 (Mad.) has also taken a similar view. The appellant has further submitted that the Sampath Incentive Scheme subsidy treatment as capital was approved by the Supreme Court in the case of CIT v. Ponni Sugars Chemicals Ltd. [2008] 174 Taxman 87. 8.2.11 The Andhra Pradesh High Court following the above decision held in the case of CIT v. Tirumala Bricks Tiles F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal before the second appellate authority by the Department, the ITAT, Mumbai dismissed the appeal of the Department on the ground that the decision of the Special Bench in the case of DCIT V/s. Reliance Industries Ltd. (88 ITD 273-SB-Mum) remains unaltered even if the Hon'ble Supreme Court remanded the matter to the Hon'ble Bombay High Court to decide the question in accordance with the law. 8.2.15 As regard alternate plea of the ld. AO, the appellant has claimed that depreciation is allowed on the actual cost incurred by an assessee for acquiring the asset. Under section 43(1), 'actual cost' means the 'actual cost' of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority . Thus, if a portion of the cost is met directly or indirectly by any person or authority, the 'actual cost' would, for the purposes of the aforesaid sections, be cost minus that cost met by others, that is, subsidies. Thus, where cost of any asset is met directly or indirectly by the Government or an authority in the form of subsidy or grant or reimbursement, then cost to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal was right in holding that sale-tax incentive is a capital receipt? would not arise. In that sense, the Special Bench decision on this issue of capital nature of the incentive remained unaltered. Further, in response to the query from the Bench on the subsequent development, if any, on the said question D , Ld Counsel fairly mentioned that the said question was remanded by the Hon'ble Supreme Court, vide Civil Appeal No. 7769 of 2011 (Arising out of S.L.P. (c) No. 9860 of 2010), to the Hon'ble High Court of Bombay to decide the question in accordance with the law. Thus, the said conclusion of the Special Bench, which is followed by the CIT(A), while granting relief to the assessee, remains unaltered. Therefore, the present impugned order of the CIT(A) does not call for any interference. On the other hand, Ld DR relied heavily on the order of the AO. 11. We have heard both the parties and perused the orders of the Revenue Authorities as well as the material placed before us on this issue. On perusal order cited before us, we find that the argument made by the Ld Counsel is an order, and therefore, the cited decision of the Special Bench in the assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s tax incentives. Since the scheme is aimed at making the economic environment of Kutch district live, it has been decided to confine the same only to Kutch district . 13. From the perusal of the above, it is amply clear that the schemes launched was for setting up of new industries in the district of Kutch for the purpose of new employment opportunities and to make industrial and economic environment live. Thus, the scheme of incentives provided by the respective Governments was setting-up of a new unit and not for running of the business more profitably. As laid down by the Hon'ble Supreme Court, the form and the source of subsidy are immaterial and what is material is whether the subsidy is for setting up for a industrial unit or running it for profitability. Similarly, the Central Excise exemption was given in the public interest for setting up of a new industrial unit in the Kutch District. Accordingly on the facts of the present case, we conclude that the incentive given by the State Government and the Central Government is nothing but capital receipts, because applying the purpose test the incentive / subsidy was given only for setting up of new industrial unit an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /2015 has observed at Para 18 to 21 of the order as under: 18. The next issue that came up for our consideration from ground No.1 and 2 of revenue appeal is treatment of sales tax incentives and excise duty benefits received by the assessee as capital receipts. The Ld. AR for the assessee submitted that this issue is squarely covered in favour of the assessee by the decision of ITAT, Mumbai Bench in the case of Welspun India Ltd. vs DCIT in ITA No. 5376/Mum/2015 for AY 2008-09, where under identical set of facts the Tribunal held that sales tax incentives and excise duty benefits received by the assessee are in the nature of capital receipts not liable to tax. 19. The Ld. DR, on the other hand, fairly accepted that the issue is squarely covered in favour of the assessee by the decision of ITAT, Mumbai Bench in assessee group company cases. However, he strongly supported order of the Ld. AO and also, referred AS-2 and AS-10 issued by the ICAI for valuation of inventory and accounting of fixed assets and submitted that as per the provision of section 43(1) and Explanation (10), the same needs to be reduced from actual cost of assets. 20. We have heard both the parties, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 6374/Mum/2014, 6306/Mum/2014 for AY 2009-10, ITA no. 6375/Mum/2014, 6307/Mum/2014 for AY 201011, ITA no. 6376/Mum/2014, 6308/Mum/2014 for AY 2011-12, vide common order dated 18.12.2015 , wherein the tribunal has held that the said incentives are capital receipt and further it has been held that the said amount of incentives received by the assessee shall not be reduced from the cost of the asset of the assessee despite provisions of Section 43(1), Explanation 10 , by holding as under:- 5. The brief facts qua the issue involved is that, assessee is engaged in the business of manufacturing of sponge Iron, Steel Ingots and rolled product. In the wake of devastating earthquake in Kutch District, Gujarat, the Central Government, vide notification No. 39/2001 dated 7th August, 2001 issued an excise benefit incentive scheme and State Government of Gujarat also vide its Notification dated 9th November, 2001 announced an incentive scheme for Sales-tax exemption known as Incentive Scheme, 2001 for Economic Development for Kutch District . Both these schemes were for setting-up of a new industrial unit/s in Kutch District after complying with the terms and conditions as set out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, he submitted that the fundamental object for both the schemes was to set up an industrial plant for economic development and creation of new employment opportunities. From the perusal of these schemes which have been placed in the paper book from pages 35 to 47, he submitted that it can be seen that they were purely for assisting the entrepreneur for setting-up new industrial units and not for running of any industry for profit. He refer to preamble as given in the Incentive Scheme of 2001 for Economic Development of Kutch District issued by Government of Gujarat dated 09.11.2001. Even in the Central Excise Notification, the same was issued in a public interest for setting up of a new industrial plant and the incentive of Excise Duty benefit was given for a period of five years. He further submitted that the nature of incentive under both the notifications and the accounting treatment by the assessee as stated by the assessee before the authorities below was as under:- (a) The nature of incentives under the Notification and the Scheme and the present accounting treatment are summarized as under:- (a) Excise Duty (in view of the Notification) - Refund of the excise du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anufacturing and commenced its business of sale. Thus, the said provision is not applicable and in support of his contention, he relied upon the following Tribunal decisions:- 10. On the other hand Ld. DR strongly relied upon the assessment order especially passed by the AO under section 143(3) r.w.s. 153A dated 25.03.2013 and submitted that, if the incentive/ subsidy has been given in the form of sales-tax or exemption of excise duty then it directly leads to augmentation of profit of the assessee and hence, it is nothing but revenue receipts. 11. We have carefully considered the rival contentions and also perused the relevant material placed on record. The main issue involved is, whether the incentive / subsidy provided by the State Government in the form of sales-tax incentive and in the form of Central Excise benefit by the Central Government for sums aggregating to Rs. 35,33,23,171/- is to be treated as capital receipts or revenue receipts. The Hon ble Supreme Court in the case of Ponni Sugars Chemicals Ltd vs CIT, reported in [2008] 306 ITR 392 after referring to the earlier decisions of the Supreme Court in the case of Sahney Steel Works Ltd v CIT, reported in [1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. Consequently, the contentions raised on behalf of the assessee on the facts of that case stood rejected and it was held that the subsidy received by Sahney Steel could not be regarded as anything but a revenue receipt. Accordingly, the matter was decided against the assessee. The importance of the judgment of this Court in Sahney Steel Press Works Ltd. 'S case (supra) lies in the fact that it has discussed and analysed the entire case law and. it has laid down the basic test to be applied in judging the character of a subsidy. That test is that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, one has to apply the purpose test. The point of time which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. The main eligibility condition in the scheme with which we are concerned in this case is that the incentive must be utilized for repayment of loans taken by the assessee to setup new units or for substantial expansion of existing units; On this aspect there is no dispute. If the object of the subsidy sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or setting up of a new industrial unit in the Kutch District. Accordingly on the facts of the present case, we conclude that the incentive given by the State Government and the Central Government is nothing but capital receipts, because applying the purpose test the incentive / subsidy was given only for setting up of new industrial unit and economic development and generation of new employment opportunities in the Kutch District and not for running the industry for augmenting the profit on day-to-day business. This proposition of law has been reiterated by the Hon ble Bombay High Court in the case of CIT vs Chaphalkar Brothers, reported in 351 ITR 309, wherein the Hon ble High Court relying upon the principles laid down by the Supreme Court in the case of Ponni Sugars Chemicals Ltd has held that if the object of the subsidy was to promote construction of multiplexes, theatre complexes then, it would be on capital account. Similarly, views have been taken by the various other High Courts and Tribunal in the decision as referred and relied upon by the Ld. Counsel as above. Thus, We hold that the amount of incentive received by the assessee cannot be taxed as revenue receipt as i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfied that it is necessary the public interest so to do, hereby exempts the goods specified in the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) other than goods specified in the Annexure appended to this notification and cleared from a unit located in Kutch district of Gujarat from so much of the duty of excise or the additional duty of excise, as the case may be, leviable. The exemption contained in this notification shall be subject to the following conditions, namely;- (i) It shall apply only to new industrial units, that is to say, units which are set up on or after the date of publication of this notification in the Official Gazette but not later than the 31st day of December, 2004; (ii) In order to avail of this exemption, the manufacturer shall produce a certificate from a Committee consisting of the Chief Commissioner of Central Excise, Ahmedabad and the Principal Secretary to the Government of Gujarat, Department of Industry, to the jurisdictional Assistant Commissioner or the Deputy Commissioner of Central Excise, as the case may be, that the unit in respect of which exemption is claimed is a new unit and has been set up during the time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investment in the district, along with which the State Government has also decided to announce the scheme of sales tax incentive. Since the scheme is aimed at making the economic environment of Kutch district live, it has been decided to confine the same only to Kutch district. Conditions Under this scheme, following conditions shall be applicable to sales tax incentives. In the case of violation of one or more conditions, the amount of sales tax incentives availed of shall be recovered as arrears of land revenue. (a) The industrial unit shall have to give a clear undertaking that it shall not transfer or dispose of the assets in any manner, till the expiry of the eligibility period of incentives. (b) The industrial unit availing of the incentives under the scheme, shall have to install, effectively use and maintain the pollution control equipments as per the standards prescribed and approved by the competent authority. (c) The industrial unit shall have to continue production up to the period of eligibility. However, if the unit does not remain in continuous production on account of the reasons beyond the control of the management, the unit shall present its case be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for AY 2006-07, ITA no. 6372/Mum/2014, 6304/Mum/2014 for AY 2007-08, ITA no. 6373/Mum/2014, 6305/Mum/2014 for AY 2008-09, ITA no. 6374/Mum/2014, 6306/Mum/2014 for AY 2009-10, ITA no. 6375/Mum/2014, 6307/Mum/2014 for AY 201011, ITA no. 6376/Mum/2014, 6308/Mum/2014 for AY 2011-12, vide common order dated 18.12.2015 , wherein the Mumbai tribunal has held that the said incentives are capital receipt not exigible to income-tax and further it has been held that the said amount of incentives received by the asseseee shall not be reduced from the cost of the asset of the assessee despite explanation 10 to Section 43(1) , by holding as under 5. The brief facts qua the issue involved is that, assessee is engaged in the business of manufacturing of sponge Iron, Steel Ingots and rolled product. In the wake of devastating earthquake in Kutch District, Gujarat, the Central Government, vide notification No. 39/2001 dated 7th August, 2001 issued an excise benefit incentive scheme and State Government of Gujarat also vide its Notification dated 9th November, 2001 announced an incentive scheme for Sales-tax exemption known as Incentive Scheme, 2001 for Economic Development for Kutch District ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsidy is given for setting up for a new industrial unit or plant then it is on capital account. In support of this contention a separate compilation of case laws have been filed before us. Explaining the nature of scheme, he submitted that the fundamental object for both the schemes was to set up an industrial plant for economic development and creation of new employment opportunities. From the perusal of these schemes which have been placed in the paper book from pages 35 to 47, he submitted that it can be seen that they were purely for assisting the entrepreneur for setting-up new industrial units and not for running of any industry for profit. He refer to preamble as given in the Incentive Scheme of 2001 for Economic Development of Kutch District issued by Government of Gujarat dated 09.11.2001. Even in the Central Excise Notification, the same was issued in a public interest for setting up of a new industrial plant and the incentive of Excise Duty benefit was given for a period of five Years. He further submitted that the nature of incentive under both the notifications and the accounting treatment by the assessee as stated by the assessee before the authorities below was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is no direct acquisition of asset from the Government subsidy. The subsidy is received in the form of excise tax benefit and sales-tax incentive only when the assessee had set up the whole industrial unit and starts manufacturing and commenced its business of sale. Thus, the said provision is not applicable and in support of his contention, he relied upon the following Tribunal decisions:- 10. On the other hand Ld. DR strongly relied upon the assessment order especially passed by the AO under section 143(3) r.w.s. 153A dated 25.03.2013 and submitted that, if the incentive/ subsidy has been given in the form of sales-tax or exemption of excise duty then it directly leads to augmentation of profit of the assessee and hence, it is nothing but revenue receipts. 11. We have carefully considered the rival contentions and also perused the relevant material placed on record. The main issue involved is, whether the incentive / subsidy provided by the State Government in the form of sales-tax incentive and in the form of Central Excise benefit by the Central Government for sums aggregating to Rs. 35,33,23,171/- is to be treated as capital receipts or revenue receipts. The Hon bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after year only after setting up of the new industry and only after commencement of production and, therefore, such a subsidy could only be treated as assistance given for the purpose of carrying on the business of the assessee. Consequently, the contentions raised on behalf of the assessee on the facts of that case stood rejected and it was held that the subsidy received by Sahney Steel could not be regarded as anything but a revenue receipt. Accordingly, the matter was decided against the assessee. The importance of the judgment of this Court in Sahney Steel Press Works Ltd. 'S case (supra) lies in the fact that it has discussed and analysed the entire case law and. it has laid down the basic test to be applied in judging the character of a subsidy. That test is that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, one has to apply the purpose test. The point of time which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. The main eligibility condition in the scheme with which we are concerned in this case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of subsidy are immaterial and what is material is whether the subsidy is for setting up for a industrial unit or running it for profitability. Similarly, the Central Excise exemption was given in the public interest for setting up of a new industrial unit in the Kutch District. Accordingly on the facts of the present case, we conclude that the incentive given by the State Government and the Central Government is nothing but capital receipts, because applying the purpose test the incentive / subsidy was given only for setting up of new industrial unit and economic development and generation of new employment opportunities in the Kutch District and not for running the industry for augmenting the profit on day-today business. This proposition of law has been reiterated by the Hon ble Bombay High Court in the case of CIT vs Chaphalkar Brothers, reported in 351 ITR 309, wherein the Hon ble High Court relying upon the principles laid down by the Supreme Court in the case of Ponni Sugars Chemicals Ltd has held that if the object of the subsidy was to promote construction of multiplexes, theatre complexes then, it would be on capital account. Similarly, views have been taken by the va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t aforesaid decision of Hon ble Bombay High court has been set aside by Hon ble Supreme Court in Civil Appeal Number 7769 of 2011 ( arising out of SLP (C) No. 9860 of 2010) dated 09.09.2011 and the matter is remitted back to Hon ble Bombay High court to decide the question of law framed thereon in accordance with law. This revives the Special Bench decision of the tribunal in the case of Reliance Industries Limited(supra) , which has already held that subsidy which is given for setting up or expansion of industry in a backward area , will be capital in nature, irrespective of modality or source of funds through or from which it is given. Thus, following the ratio of decision of co-ordinate Benches of the tribunal in the case of Welspun Steel Ltd(supra) , we hold that Central Excise benefit and Sales Tax incentive received by the assessee during the impugned assessment year under consideration, are capital receipts not exigible to income-tax and further we hold that the same shall not be deducted from cost of assets for computing depreciation. The ground number 1 and 2 raised by the Revenue in its memo of appeal filed with the tribunal are dismissed. We order accordingly. 21. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 263 has been quashed by the ITAT in ITA No. 3374/Mum/2010. However, since there was a search action in the case of the appellant and a fresh order u/s 143(3) rws 153A was to be passed, the AO incorporated the issues which had been dealt with by the CIT-7 in his order. 10.3 of Income Ta The additions in subsequent years, including the present year are similar. It is seen that the issue has already been decided by my predecessor for AY 2005-06, AY 2006-07 and AY 2007-08. The CIT(A)-51, Mumbai has elaborately dealt with this issue in his order for AY 2005-06 before deciding the issue in favour of the appellant. The CIT(A) has relied on the decision in the case of Mark Auto Industries Ltd, 12 taxmann.com 259 (P H) and SKOL Breweries Ltd, 29 taxmann.com 111 (Mum) to hold that depreciation is a statutory deduction and hence provisions of section 40(a)(ia) do not apply to such deduction. Respectfully following the decision of CIT(A)-51 on this issue, I allow the ground raised by the appellant. 10.4 With respect to the expenditure on FCCB premium and depreciation on FCCB issue expenditure, the CIT(A) 51 has held them to be expenditure in the nature of business allowable by treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ITAT has deleted said additions in ITA No. 5371/Mum/2015, on technical ground without discussing the issues on merits. Therefore, it is necessary to examine the issue on merits, whether the claim of the assessee with regard to depreciation on fixed assets, in respect of that expenditure for non deduction of tax at source is in accordance with law. The provisions of section 40(a)(ia) of the Act, is applicable, where any expenditure is debited into profit and loss account without deduction of tax at source, then to that extent, the expenditure on which TDS was not deducted is not allowable as deduction. Similarly, if any amount as capitalized to fixed assets and depreciation was claimed thereon, if no TDS is deducted, in respect of those capitalized fixed assets, then depreciation to that extent is not allowable. The Ld. AR for the assessee has failed to bring on record any evidence to prove that whether, the claim made, in respect of depreciation on fixed assets, in respect of those expenditure is in accordance with provision of section 40(a)(ia) of the Act. Therefore, we are of the considered view that the issue needs to go back to the file of Ld.AO for verification of facts wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has filed a copy of statement of total income, where FCCB premium paid on conversion of bonds into equity shares have been disallowed in the statement of total income. But, the facts with regard to the availability of these evidences before the Ld. AO at the time of assessment proceedings are not clear. Hence, we are of the considered view that the issue needs to go back to the file of the Ld. AO to ascertain the fact with regard to the claim of the assessee that said expenditure has been suffered to tax in AY 2014- 15. Hence, we set aside the issue to the file of the Ld. AO and direct him to cause necessary enquiries and if he is found that the said amount has been offered to tax in AY 2014-15, then the additions made for the year under consideration needs to be deleted. 20. Further we found that in MA 100/M/2021 dated14-7-2021, the Hon ble Tribunal has considered the facts and dealt on this issue at Para 3.2 and held that the expenditure was incurred for the A.Y 2005-06 and depreciation was allowed by the A.O. therefore for A.Y. 2007-08 is only consequential year of allowing the depreciation and the expenses falling U/sec 40(a)(ia) of the Act. Accordingly we follow the judici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and costs involved for the assessee. He also held that a bank guarantee could not be taken as a CUP in case of a corporate guarantee as the banks, being in the business of giving guarantee, cover their risks from multiple customers and hence the risk, in the case of the appellant, was much higher. The TPO also differentiated a BG from a CG by holding that in case of invocation of a BG, all expenses are recovered from the defaulting party and the party is treated as a debtor till all outstanding amounts are paid while there is no such provision in a CG. 11.10.1 The TPO also differentiated the case of the appellant from the case in Everest Canto Cylinders Ltd. by holding that the credit rating of the appellant was much better, the financial Neverage of the appellant has increased because of the guarantee given to the AE and that the increased risk required arm's length compensation. 11.10.2 Accordingly, the TPO adopted yield approach / interest saving approach for computing the benefit accruing to the AE on account of guarantee given by the appellant. In absence of any financial credit rating in respect of the AE, the TPO examined the financials of the arrive at a conclusi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars. In view of availability of internal comparable transactions, the Appellant selected CUP method as most appropriate method for benchmarking the international transaction of guarantee commission. In order to factor in the fact that the guarantees given by the appellant do not have any duration, a 1% increase has been effected to the above CUP. A 1% charge over and above the 0.50% charged by the bank /financial institution i.e. 1.5% for the loan availed by WPI for a period of more than three years can be considered to be reasonable and at arm's length. 11.11.3 The appellant has further contended that though the corporate guarantee transactions have been benchmarked by the application of CUP method, by applying internal comparable uncontrolled transactions; the Appellant would like to reiterate that it is not engaged in business of giving guarantees and this transaction should be looked upon as a shareholder function and not as a service function. If this perspective is kept in mind then the transaction can also take upon the garb of it being quasi-equity in nature, as it saved the company from investing its own or borrowed funds for funding its subsidiary and allowed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, circumstances and the grounds of appeal no 1,2,4, in this assessee appeal are identical to grounds of appeal in ITA No. 3890/Mum/2016 for A.Y. 2008-09 (except the variance in figures). Therefore, the decision rendered in above paragraphs no. 10,11 13 would apply mutatis mutandis for this appeal. The ground of appeal No. 3 raised by assessee as under: 3.a) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in confirming the addition of 3,03,24,000/- made by the AO to the income of the Appellant on account of unexplained investment in office property at Vasant Square, Vasant Kunj, New Delhi invoking the provisions of section 69B of the Income Tax Act, 1961. b) The ld. CIT(A) failed to appreciate that the Appellant has explained the nature and source of cash payment satisfactorily and as such no part of payments remained unexplained c) In reaching to the conclusion and confirming such addition, subject to The certain rectification, the ld. CIT(A) omitted to consider relevant factors, Mimi considerations, principles and evidences while he was overwhelmed, influenced and prejudiced by irrelevant considerations and factors 24. The cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the suppressed profits had been brought in as cash credits and one has to be telescoped into the other resulting into one addition. iii). CIT, Poona V/s. Jawanmal Gemaji Gandhi, 151 ITR 353 (BOM) It was held that secret profits or undisclosed income of an assessee earned in an earlier assessment year can constitute a fund, though concealed, from which the assessee may draw subsequently. In the instant case the assessee acquired gold during the latter half of the assessment year and it could be that the undisclosed income earned in that year constituted a fund from which the asset was acquired. iv. CIT V/s. Venkateswara Timber Depot, 222 ITR 768 The Appellate Tribunal was justified in law in telescoping the unexplained credits with the estimated addition to the business income towards deficiency in gross profits. v. Karanveer Singh Bawa V/s. ACIT (ITA No.2076, 2077, 2078 and 2080/Mum/2010) vi. Kirit V. Patel V/s. Department of Income Tax (ITA No.45/Ahd/2009) vii. Yogesh Thakkar V/s. DCIT (ITA No.3372, 3373 and 5745/Mum/2010) According to the assessee, the telescoping set off is well accepted by the Department. It has submitted that the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t view, accordingly we uphold the decision of the CIT(A) and dismiss the ground of appeal of the revenue. 29. In the result, the appeal filed by the revenue is dismissed. ITA.No.5165/Mum/2016(Assessee)A.Y. 2010-11 30. As the facts, circumstances and the grounds of appeal no 1,2,4, in this assessee appeal are identical to grounds of appeal in ITA No.3890/Mum/2016 for A.Y. 2008-09 (except the variance in figures). Therefore, the decision rendered in above paragraphs no.10,11 13 would apply mutatis mutandis for this appeal. The ground of appeal No. 3 raised by assessee as under: 3.a) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in confirming the action of the AO in restricting the deduction u/s.80IA(4)(iv) to 41,43,29,379/- only as against claim for such deduction of 53,45,29,379/- and thereby erred in confirming the addition of 12,02,00,000/- made by the AO to the income of the Appellant by way of disallowing certain part of deduction claimed u/s.801A(4)(iv). b) The Id. CIT(A) failed to appreciate that the Appellant has opted to claim deduction u/s. 80IA only in the A.Y. 2010-11 and as such there was no question of setting-off n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tistical purpose. ITA.No.5043/Mum/2016 A.Y. 2010-11(Revenue) 32. As the facts, circumstances and the grounds of appeal in revenue appeal no 1,2,4,5,6,7 in this appeal are identical to grounds of appeal in ITA No.4364/Mum/2016 for A.Y. 2008-09 (except the variance in figures). Therefore, the decision rendered in above paragraphs no.16,17,18,19,20, 21 would apply mutatis mutandis for this appeal also The ground of appeal No. 3 raised by the revenue is identical to A.Y. 2009-10 and the decision rendered in above paragraph no.28(i) which apply mutatis mutandis and dismiss the grounds of appeal of the revenue. ITA No. 5044/Mum/2016, A.Y 2011-12(Assessee) 33. As the facts, circumstances and the grounds of appeal no 1,2,3, in this assessee appeal are identical to grounds of appeal in ITA No.3890/Mum/2016 for A.Y. 2008-09 (except the variance in figures). Therefore, the decision rendered in above paragraphs no.10,11 13 would apply mutatis mutandis for this appeal also and partly allow the grounds of appeal for statistical purpose. ITA No. 5166/Mum/2016, A.Y 2011-12(Revenue) 34. As the facts, circumstances and the grounds of appeal in revenue appeal no 1,2,4,5,6,7 in this ..... X X X X Extracts X X X X X X X X Extracts X X X X
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