9911796707
TMI Blog2022 (11) TMI 1419X X X X Extracts X X X X X X X X Extracts X X X X ..... Stock Option Expenses should be deleted as relying on Kotak Mahindra Bank Ltd [ 2018 (1) TMI 320 - ITAT MUMBAI] and taking note of the special bench decision in the case of Biocon Ltd. v. Dy. CIT [ 2013 (8) TMI 629 - ITAT BANGALORE] Disallowance u/s 14A r.w.r. 8D - HELD THAT:- We restrict the disallowance under section 14A to 1% of tax-exempt income. Ordered, accordingly. Adjustment of book profits under section 15JB for the 14A disallowance - we find that this aspect of the matter stands concluded, in favour of the assessee, by a special bench decision in the case of ACIT Vs Vireet Investments Pvt Ltd [ 2017 (6) TMI 1124 - ITAT DELHI] Additional depreciation u/s 32 (1)(iia) - eligible assets acquired during the Previous Year - Ceasure of asset after first year use - only objection of the AO is that the provisions refer to new machinery or plant and therefore the machinery will cease to be a new machinery after the end of the first year in which it is installed or put to use - HELD THAT:- As decided in M/S. GLOSTER JUTE MILLS LTD. [ 2017 (3) TMI 1807 - ITAT KOLKATA] stand taken by the revenue is not supported by the language of statutory provision. The condition imposed by the rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee has taken the vessels under a BBCD arrangement and, while entering into this arrangement, the AE essentially has to factor in the financing arrangement. The consideration for the BBCD instalments is based on the cost of finance, as also the cost of vessels, to the AE, and, as such, there is no occasion for sharing the difference between the interest rate implicit in the BBCD arrangement and the cost of borrowing to the AE. While examining the rate of interest under the BBCD also, one has to bear in mind the fact that it cannot be compared with a borrowing arrangement simpliciter as are the transactions on which LIBOR plus rates apply. Learned Departmental Representative has not been able to show any justification for LIBOR plus 300 bps either, and his challenge primarily is even to this approach of benchmarking. No material before us to support the findings of the CIT(A) in any case, and the findings of the AO, as noted above and in our considered view, are unsustainable in law anyway. In any event, interest is only one part of the working in the computation of instalments, and one cannot consider the same on a standalone basis in the transaction. The benchmarking is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) [here-in-after referred to as Ld. CIT (Appeals)] was not justified and grossly erred in confirming the action of the A.O. in not excluding the payment of Net Present Value of deferred sales tax liability, granted under the incentive scheme of State Government of Himachal Pradesh, in respect of its Darlaghat Unit, amounting to Rs. 12,56,20,681/- being capital in nature. 1(b). That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) erred in not appreciating the fact that the gain of Rs. 12,56,20,681/- arising on pre-payment of deferred sales tax liability cannot be treated as revenue receipt liable to tax u/s28 (iv). 4. So far as this grievance is concerned, the assessee was allowed deferral of sales tax liability by the Himachal Pradesh Government General Sales Tax (Deferral Payment of Tax) Scheme 20005 under which payment of 75% of sales tax liability was allowed to be deferred for 5 years. Vide a subsequent notification dated 26.7.2005, an option was given to pay 65% of the sales tax liability for any tax period, and upon such payment, the assessee was to be dee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd, consistent with the view that the Assessing Officer had taken for the taxability of sales tax subsidy, this amount is also required to be treated as revenue in nature. Aggrieved, the assessee carried the matter in appeal but without any success. The assessee is not satisfied and is in further appeal before us. 9. Having heard the rival contentions and having perused the material on record, we are of the considered view that the assessee deserves to succeed on this ground as well. Vide our orders on the appeals for the two immediately preceding assessment years, i.e. assessment years 2005- 06 and 2006-07, which were heard along with this set of cross-appeals, we have held that the sales tax subsidy is capital in nature. Going by the stand of the Assessing Officer, the nature of the sales tax subsidy is the same as this subsidy receipt. We thus have no reasons to take any other view of the matter than the view so taken by us for sales tax subsidy for the assessment years 2005-06 and 2006-07, we hold that the impugned receipt of Rs 30,00,000 is required to be treated as capital receipt and to be excluded from the total income of the assessee. The assessee gets the relief accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med the stand of the Assessing Officer on the short ground that the exemption notification does not specifically state the object and purpose of the concession to be promotion of industry in the specified areas etc. The assessee is aggrieved, and is in appeal before us. 18. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 19. We have noted that the Assessing Officer himself states that he "finds no difference in sales tax and excise exemption claimed", and in the immediately preceding paragraphs in this order, we have held that sales tax exemption receipt is a capital receipt in nature. There cannot be any good reasons to take a different view of the matter in respect to excise exemptions. For this short reason alone, the impugned additions must stand deleted as the related receipts are required to be treated as capital receipts in nature. The observations in the context of the first ground of appeal will apply mutatis mutandis here as well. That apart, once the Assessing Officer himself also accepts that the object and purpose of the excise exemption scheme are to promote ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue was with respect to subsidy granted to the multiplex cinema operators in the form of entertainment tax waiver. The subsidy was granted in view of the fact that, industry was highly capital intensive. The Revenue argued that, the subsidy was revenue in nature. This Court after referring to several decisions of the Supreme Court including the case of CIT v. Ponni Sugars and Chemicals Ltd. [2008] 306 ITR 392/174 Taxman 87 and Sahney Steel and Press Works Ltd. v. CIT [1997] 94 Taxman 368/228 ITR 253 (SC) held that, subsidy had not been granted for construction but only after setting up of a new industry which was in the nature of assistance given for the purpose of carrying on business. 7. On further appeal by the Revenue, Supreme Court confirmed the decision of this Court. It was noted that, Maharashtra Government's subsidy was not in form of an exemption from payment of entertainment duty to multiplex theater complex. The scheme was introduced to start new cinema houses in the State. The Supreme Court observed that, in such circumstance, the purpose tests for grant of subsidy should be applied. It was concluded as under:-- "Applying the aforesaid test cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture. 9. The second question raised by the Revenue is consequent of the first question, in which, the Revenue argues that, if the subsidy is treated as a capital in nature, the same must bring down assessee's costs of acquisition of plant and machinery. The assessee's claim of depreciation to that extent must shrink. Assessee argues that, the Tribunal correctly held that, the subsidy had not been given in relation to acquisition of plant or machinery and that, therefore, same cannot be adjusted towards cost of acquisition. 10. It is undoubted that, the subsidy had no relation to the assessee's acquisition of plant or machinery. It was to be granted to an industry which had set up the new industrial unit in the District of Kutch. In such back-ground, question - arises whether such subsidy would be adjustable towards assessee's costs of acquisition of capital assets. We may notice that, a similar question was considered by Division Bench of Gujarat High Court in case of CIT v. Grace Paper Industries (P.) Ltd. [1990] 183 ITR 591/52 Taxman 18. The Court noted that, the subsidy was granted by the Government for development of industries in back-ward areas. It was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n any manner he liked. It would, therefore, appear that quantification of subsidy on the basis of investment was a measure adopted by the Government for convenience to work out the subsidy. If subsidy could be utilized by the entrepreneur in any manner he liked, could it be said that it was granted for meeting the cost of the capital assets? In our opinion, taking an overall view of the various provisions of the scheme, it is difficult to hold that cash subsidy was granted to entrepreneur to meet the cost of the fixed assets or part thereof The cost of the fixed assets was merely adopted as a measure for working out subsidy. In fact, a careful examination of the scheme reveals that it is the value of the fixed assets and not its cost which is adopted as the basis for computing the amount of the subsidy. Emphasis on value and not the cost is evident from the fact that land and building already owned by an industrial unit, cost of tools, jigs, dies and moulds, transport charges, insurance premium, erection cost, value of second-hand machinery purchased by an industrial unit etc. were to be taken into account while computing the value of fixed assets for the purposes of subsidy. In ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,1961, needs to be interpreted liberally. Such a subsidy does not partake of the incidents which attract the conditions for its deductibility from 'actual cost'. The amount of subsidy is not to be deducted from the 'actual cost' under section 43(1) for the purpose of calculation of depreciation etc." 20. In view of these discussions, as also bearing in mind the entirety of the case, we uphold the plea of the assessee. The Assessing Office is, accordingly, directed to delete the impugned addition of Rs 46,83,11,376. The assessee gets the relief accordingly. 13. We see no reasons to take any other view of the matter than the view so taken by the Tribunal in assessee's own case for the assessment year 2006-07. Respectfully following the same, we hold that the amount of Rs 53,23,56,012, being a capital receipt in nature, from the total income. The assessee gets the relief accordingly. 14. Ground no. 3 is thus allowed. 15. In grounds no. 4, the assessee has raised the following grievance: "That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified in confirming the disallowance of Employees Stock Option Expenses amounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets the relief accordingly. 18. Ground no. 4 is thus allowed. 19. In grounds no.5 , the assessee has raised two grievances: 5(a). That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred in computing disallowance u/s 14A at Rs. 6,99,32,651/- without appreciating the fact that no expenditure has been incurred by the appellant for earning exempt income. 5(b). That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) was not justified and grossly erred in computing disallowance u/s 14A at Rs. 6,99,32,651/- by applying a method akin to the method prescribed under Rule 8D without appreciating the fact that the same is not applicable to instant Assessment Year. 20. In ground no. 15, which is also a connected issue, the assessee has raised the following grievance: "That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred in confirming the addition of expenditure incurred in relation to earning exempt income in computing Book Profit u/s 115JB without appreciating the fact that no such expenditure had been debited to the Profit & Loss A/c in the relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e preamendment period. We are of the considered view that disallowance @ 1% of tax-exempt income will meet the ends of justice for the reason that the period pertains to the preamendment law and rule 8D does not, therefore, has any application in the matter, and that, in accordance with a series of coordinate bench decisions, it has been consistently held so far as the pre-amendment period is concerned, a disallowance of 1% is reasonableparticularly when the assessee has made investments entirety out of his own funds and when there are no borrowings costs involved. It is an undisputed position, on the facts of this case, that the assessee has made the investments entirely out of his own funds. The disallowance is thus restricted to 1% of the tax-exempt income. The assessee gets the relief accordingly……… 22. We see no reasons to take any other view of the matter than the view so taken by the Tribunal in assessee's own cases for the assessment years 2005-06 and 2006-07. Respectfully following the same, we restrict the disallowance under section 14A to 1% of tax-exempt income. Ordered, accordingly. The assessee gets the relief accordingly. As regards the questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional depreciation u/s.32(1)(iia) of the Act. The undisputed facts are that the original cost of the new machinery purchased and installed by the Assessee after 31-3-2005 but before 1-4-2006 in the 100% EOU and DTA unit Rs.29,77,470 and Rs.2,41,30,615. The WDV of these machineries as on 1-4-2006 was Rs.24,51,920/- and Rs.1,81,50,266/- respectively. The Assessee availed of additional depreciation @ 20% on the original cost of the machinery at Rs.5,95,494/- and Rs.48,26,123/- respectively in AY 2006-07. In AY 2007-08 also the Assessee claimed additional depreciation at 20% of the original cost viz., Rs.5,95,494 and Rs.48,26,123 respectively in all depreciation totaling Rs.54,21,617/-. 26. According to the AO, the deduction u/s.32(1)(iia) of the Act is granted only to "new" plant and machinery and once depreciation is granted in the 1st year in which the machinery is installed or put to use, the machinery ceases to be a new machinery and therefore additional depreciation cannot be allowed. The plea of the Assessee however was that Section 32(1)(iia) of the Act merely provides that further to the normal depreciation at the prescribed rates, an additional depreciation shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lock of assets, such percentage on the written down value thereof as may be prescribed: Section 32(1)(iia) of the Act was originally introduced by the finance (no.2) Act, 1980 w.e.f. 1-4-1981 reads thus (the sub-section existed upto 31-3-1988 and was deleted thereafter): "(iia) in the case of any new machinery or plant (other than ships and aircraft) which has been installed after the 31st day of March, 1980 but before the 1st day of April, 1985, a further sum equal to one-half of the amount admissible under clause (ii) (exclusive of extra allowance for double or multiple shift working of the machinery or plant and the extra allowance in respect of machinery or plant installed in any premises used as a hotel) in respect of the previous year in which such machinery or plant is installed or, if the machinery or plant is first put to use in the immediately succeeding previous year, then in respect of that previous year :" Sec.32(1)(iia) of the Act as reinserted by finance (No.2) Act, 2002 w.e.f. 1-4-2003, reads thus: '(iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of Mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ease in installed capacity by not less than ten per cent. From AY 2006-07, there is no restriction with regard to the year in which such additional depreciation should be allowed and also there is no restriction with regard to the additional depreciation being allowed only on the written down value and therefore the additional depreciation even in the second and subsequent years have to be allowed on the original cost of the Asset. These are evident from a plain reading and literal construction of the relevant statutory provisions. 30. The CIT(A) after considering the aforesaid scheme and history of the provisions of Sec.32(1)(iia) of the Act, deleted the addition made by AO observing as follows :-- "I have considered the submissions of the Ld. A/R and find substance in the contention of the Appellant. On a conjoint reading of the provisions of section 32(1)(iia) inserted by Finance (No. 2) Act, 1980 and reinserted by Finance Act, 2002 it is evident that the said sections specifically restricted the allowability of additional depreciation in the year of installation of P&M. However, in the section 32(1)(iia) amended vide Finance Act, 2005 Legislature had omitted the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gued that Clause (iia) to Sec. 32(1) was first introduced vide Finance (No. 2) Act, 1980 w.e.f. 01-04-81 and was applicable till AY 1987-88. The clause was subsequently re-introduced vide Finance Act, 2002 w.e.f. 01-04-03. On perusal of clause (iia) to Sec. 32(1) as existed during the aforesaid period, it could be seen that the legislature conferred the benefit of additional depreciation only in the first AY when the asset was installed and first put to use. However vide Finance Act, 2005, clause (iia) to Sec. 32(1) was amended w.e.f. 01-04-06 wherein the condition of claiming additional depreciation only in the initial AY was deleted. It was submitted that since the specific condition for claim of additional depreciation in one year has been done away with, it should be construed as the intention of the legislature to allow additional depreciation in subsequent years as well. Reliance was placed on the following decisions wherein it has been held that a fiscal statute shall have to be interpreted on the basis of the language used therein and not de hors the same. Even if there is a casus omissus, the defect can be remedied only by legislation and not by judicial interpretation :-- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore to be construed as referring to the condition that at the time of acquisition or installation the machinery or plant should be new. Going by the legislative history of the relevant provision, we are of the view that the condition for allowing additional depreciation only in the initial assessment year ceased to exist as and from 01-04-2006. The plain language of the section warrants such an interpretation. We therefore uphold the order of CIT(A) and dismiss ground No.3 raised by the revenue. 26. In view of these binding judicial precedents, with which we are in considered agreement, we uphold the plea of the assessee on this point as well. The Assessing Officer, accordingly, is directed to grant the additional depreciation prayed for. 27. Ground no. 6 is thus allowed. 28. In grounds no. 7, the assessee has raised the following grievances: 7(a). That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred in confirming addition of unutilized CENVAT credit as on last day of accounting year being 31st March 2007 as adjustment under section 145A disregarding the fact that the appellant himself has already carried out ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not pressed. 34. Ground no. 8 is thus dismissed. 35. In grounds no. 9 and 10, the assessee has raised the following grievance: 9. "That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) was not justified and grossly erred in confirming the denial of deduction u/s 80-IA on Infrastructure facility, being Rail Systems at Ropar, Maratha and Sankrail on the contention that prescribed certificates were not filed along with the return of income." 10. "That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred in confirming the denial of deduction u/s 80IA on Infrastructure facility, being Port at Muldwarka unit on the contention that prescribed certificates were not filed along with the return of income." 36. Having heard the rival contentions and having perused the material on record, we find that, as noted by the authorities below, the form 10CCB is not filed in this case, and that is a mandatory requirement under section 80IA(7) for making a claim under section 80IA. While it has been contended before us that the form 10CCB was filed alongwith the revised return of income, the material before us doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year as well. Vide our order dated 31st October 2022, and while dealing with the assessment year 2005-06, we have held as follows: So far as this grievance of the assessee is concerned, the relevant material facts are as follows. During the course of proceedings before the Transfer Pricing Officer, to whom the ascertainment of arm's length price of the international transactions entered into by the assessee with its AEs was referred, it was noticed that the assessee made payment of US$ 1,93,800 towards instalment payments for two ships under BBCD (Bare Boat cum Charter Demise) arrangements for two vessels, namely MV Ambuja Bhawani and MV Ambuja Lakshmi, from its AE- namely Cement Ambuja International Limited, Mauritius (CAIL). These two vessels were self loading bulk cement carriers, and the entire arrangement was routed through, and duly approved by, the RBI. It was noted that under the terms of arrangement, the assessee company was to pay to CAIL ten half-yearly instalments of US$ 7,69,500 for both of these vessels, and the implicit interest rate, under the arrangement, was 7.5% p.a. The TPO also noted that the CAIL had obtained loan of US $ 7 million from the Bank of Ameri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mental Representative has not been able to show any justification for LIBOR plus 300 bps either, and his challenge primarily is even to this approach of benchmarking. There is thus no material before us to support the findings of the CIT(A) in any case, and the findings of the AO, as noted above and in our considered view, are unsustainable in law anyway. In any event, interest is only one part of the working in the computation of instalments, and one cannot consider the same on a standalone basis in the transaction. The benchmarking is to be done for the entire transaction and not a small and isolated transaction segment. The interest rate of 7.5% implicit in the BBCD arrangement is a part of the pricing and cannot be considered separately In the case of Essar Shipping Limited Vs DCIT [(2009) 27 SOT 409 (Mum)], a coordinate bench of this Tribunal has taken note of the working showing interest rate @ 8%, which has remained unchallenged by the revenue. We have also noted that the payments under the BBCD arrangements were made with specific regulatory approval prescribed by the RBI, and there are coordinate bench decisions, such as in the case of ACIT Vs Dow Agrosciences India (P.) L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were heard along with this set of crossappalls will apply mutatis mutandis for this assessment year as well. While dealing with the assessment year 2006-07, we have held as follows: 44. Learned counsel for the assessee fairly submits that the issue now stands covered against the assessee, and deduction on a provision basis is indeed inadmissible. He, however, prays that a direction may be given that the Assessing Officer at least allows it on a payment basis as and when the payments are actually made. Learned Departmental Representative does not oppose this prayer, though he adds that the deduction can only be allowed when it is otherwise admissible, and that aspect of the matter will have to be examined by the Assessing Officer. That is indeed the correct approach. While we dismiss the grievance of the asseseee, we make it clear that the Assessing Officer will take a call, as and when the payment is actually made, on the admissibility of deduction in accordance with the law. 48. We have no reasons to take any other view of the matter than the view so taken by us in assessee's own case. The grievance of the assessee is, in terms of and subject to the above observations which wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen a receipt is not in the character of income as defined under section 2(24) of the I.T. Act, 1961, then it cannot form part of the book profit u/s 115JB of the I.T. Act, 1961. The Hon'ble High court, further observed that sales tax subsidy received by the assessee is capital receipt and does not come within definition of income under section 2(24) of the I.T. Act, 1961 and when, a receipt is not a in the nature of income, it cannot form part of book profit u/s 115JB of the I.T. Act, 1961. The Court, further observed that the facts of case before the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (supra) were altogether difference, where the income in question was taxable, but was exempt under a specific provision of the Act, and as such it was to be included as a part of book profit, but where the receipt is not in the nature of income at all, it cannot be included in book profit for the purpose of computation u/s 115JB of the I.T. Act, 1961. 48. We further noted that the ITAT special bench of Kolkata Tribunal, in the case of Sutlej Cotton mills Ltd. v. Asstt. CIT [1993] 45 ITD 22 (Cal.) (SB), held that a particular receipt, which is admittedly not an income c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal of the assessee is partly allowed in the terms indicated above. 61. We will now take up the appeal filed by the Assessing Officer. 62. In ground no. 1, the Assessing Officer has raised the following grievance: "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing sales Tax incentives received under various schemes of different states amounting to Rs. 3,28,05,13,532 / - computed in total income by treating it capital in nature." 63. This is an issue coming up time and again in the appeals in the case of the assessee, and, as learned representatives fairly agree, whatever we decide on the cross-appeals for the assessment years 2005-06 and 2006-07, which were heard along with these cross-appeals, will apply mutatis mutandis here as well. In our order for the assessment year 2006-07, while deciding the issue in favour of the assessee, we have inter alia observed as follows: 5. This is a legacy issue. The Assessing Officer has simply followed the stand taken by him in the preceding assessment years. In appeal, learned CIT(A), on the same lines as his stand in the immediately preceding assessment year, analysed the schemes in detail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , being sales tax exemption/incentives received by it, as capital receipt, and hence not liable to tax. The Assessing Officer declined this claim, primarily on the basis of certain observations in the judgments in the cases of Tamilnadu Sugar Corporation Ltd Vs CIT [(2001) 251 ITR 843 (Mad)], CIT Vs Rajaram Maize Products [(2001) 251 ITR 427 (SC)], CIT Vs S Kumars Tyre Manufacturing Co [(2004) 266 ITR 325 (MP)], and CIT Vs Abhishek Industries Ltd [(2006) 286 ITR 1 (P&H)]. The entire amount of Rs 1169.93 crores was added to income of the assessee. Aggrieved, assssee carried the matter in appeal before the CIT(A). Learned CIT(A) took note of the fact that these amounts pertained to five different units under four schemes- namely Maharshtra's Dispersal of Industries Package Scheme of Incentives 1993 (Maratha Unit), Punjab's Industrial Incentives Code under the Industrial Policy, 1996 (Ropar and Bhatinda Units), Rajasthan's Sales Tax New Incentives Scheme for Industries, 1989 (Rabriyawas Unit), and Exemptions/ Concessions to Industries Excise & Taxation Department Notification No EXN C(9)2/9- dated 31-1-2-1994 (Himachal Unit). He discussed these schemes in quite a bit of de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n nature. However, in our considered view, the approach of discerning the purpose of the subsidy, solely from the specific words used in the preamble of the scheme and without examining the overall scheme of the Act- which is admittedly to promote the growth of industry, is incorrect and superficial. The subsidies so received can be said to be revenue in nature unless these subsidies are for augmenting the profits of the assessee, and that is not even the case of the revenue. The CIT(A) is simply swayed by the wording of the preamble of the scheme- something clearly impermissible. These subsidy schemes are materially similar in nature, and there are, by now, a number of decisions of the coordinate benches, as also Hon'ble Courts above, dealing with these schemes. It is also important to bear in mind the fact that the subsidies received by the assessee are in the nature of sales tax subsidies, and dealing with sales tax subsidies, Hon'ble Gujarat High Court, in the case of CIT Vs Nirma Ltd [(2017) 397 ITR 49 (Guj)], has observed as follows: 7. So far as second issued as to Whether the Appellate Tribunal was right in law and on facts in upholding the decision of the CIT (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in core sector industry having potential, to spur industrial growth in ancillary, tertiary and secondary sector of the economy. The other scheme announced by the Government of Gujarat as Capital Investment Incentive Scheme on 11th September 1995 was intended to attract investments to generate greater employment in less industrially developed areas of Gujarat and also to secure balanced development of industries in Gujarat through dispersal of industries in the most backward area and backward areas. It is thus clear that the object of both the scheme was to ensure development of backward areas or for development of core sector industries in the State or for generating the employment. Perusal of both the schemes shows that the incentives extended to the eligible units were, inter alia, through exemption from payment of Sales Tax. Thus, the object of both the schemes was to attract capital investment to ensure development of backward areas and the modality or mechanism chosen to attract such investment was, inter alia, through exemption from payment of sales tax." 9. He further contended that in view of decisions of this Court in CIT v. Birla VXL Ltd. [2013] 32 taxmann.com 33 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the purpose for which the subsidy is given. The source of fund is quite immaterial. If the purpose is to help the assessee to set up its business or complete a project the monies must be treated as having been received for capital purposes. But, if monies are given to the assessee for assisting him in carrying out the business operations and given after the satisfaction of the conditions of commencement of production, such subsidy must be treated as assistance for the purpose of the trade." 14. In the result, we do not find that the Tribunal has committed any error. No question of law, therefore, arises. Tax Appeals are therefore dismissed.' 10. In the case of Munjal Auto Industries Ltd. (supra), this Court has observed as under:-- "7. From the provisions of the said scheme, it clearly emerges that the subsidy though computed in terms of sales tax deferment or waiver, in essence it was meant for capital outlay expended by the assessee for set up of the unit in case of a new industrial unit and for expansion and diversification of an existing unit. As noted, such subsidy was available only to a new industrial unit or a unit undertaking expansion or diversif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accelerate development and absolutely not for augmenting the profits of the assessee. Effectively, the schemes of various State Governments envisaged the rapid industrialisation, growth and new employment generation in the respective areas which would in turn promote the growth of the State. Hence, it could be safely concluded that subsidy / incentive granted is only for setting up of the units based on the fixed percentage of the capital cost and not for running the business of the assessee. Moreover, even this subsidy which is determined based on sales tax assessment orders for 9 years, 6 years etc., are subject to maximum outer limit already fixed under the respective schemes. Though the quantification of the subsidy has been made post commencement of business, the measurement of subsidy is immaterial. In our considered opinion, none of the schemes contemplated to finance the assessee in the form of subsidy / incentive for meeting the working capital requirements of the assessee company post commencement of business. Hence, by applying the purpose test, apparently, the subsidy / incentive received in the instant case would only have to be construed as capital receipts not charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in arriving at the balance of the company's profits and gains for the year in which they were received." 15. In the case before us, the payments were made to assist the new industries at the commencement of business to carry on their business. The payments were nothing but supplementary trade receipts. It is true that the assessee could not use this money for distribution as dividend to its shareholders. But the assessee was free to use the money in its business entirely as it liked and was not obliged to spend the money for a particular purpose like extension of docks as in the Seaham Harbour Dock Co. 5 case (supra). 16. There is a Canadian case St. John Dry Dock & Ship Building Co. Ltd. v. Minister of National Revenue 4 DLR 1, which has close similarity to the case of Seaham Harbour Dock Co. 's case (supra). In that case it was held that where subsidies were given under statutory authority, the statutory purpose for which they are authorised is relevant and may even be decisive in determining whether it is taxable income in the hands of the recipient. In that case, it was pointed out after discussing the Seaham Harbour Dock Co. 's case (supra)as well as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the Subsidy Scheme was to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account. Therefore, it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form of the mechanism through which the subsidy is given is irrelevant." 19. Sahney Steel was distinguished, in para 16 by then stating that this Court found that the assessee was free to use the money in its business entirely as it liked. 20. Finally, it was found that, applying the test of purpose, the Court was satisfied that the payment received by the assessee under the scheme was not in the nature of a helping hand to the trade but was capital in nature. 21. What is important from the ratio of this judgment is the fact that Sahney Steel was followed and the test laid down was the "purpose test". It was specifically held that the point of time at which the subsidy is paid is not relevant; the source of the subsidy is immaterial; the form of subsidy is equally immaterial. 22. Applying the aforesaid test contained in both Sahney Steel as well as Ponni Sugar, we are of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or for the purpose of purchasing machinery. 24. After setting out both the Supreme Court judgments referred to hereinabove, the High Court found that the concessions were issued in order to achieve the twin objects of acceleration of industrial development in the State of Jammu and Kashmir and generation of employment in the said State. Thus considered, it was obvious that the incentives would have to be held capital and not revenue. Mr. Ganesh, learned Senior Counsel, pointed out that by an order dated 19.04.2016, this Court stated that the issue raised in those appeals was covered, inter alia, by the judgment in Ponni Sugars & Chemicals Ltd. case (supra) and the appeals were, therefore, dismissed. 25. We have no hesitation in holding that the finding of the Jammu and Kashmir High Court on the facts of the incentive subsidy contained in that case is absolutely correct. In that once the object of the subsidy was to industrialize the State and to generate employment in the State, the fact that the subsidy took a particular form and the fact that it was granted only after commencement of production would make no difference. 5.3.7. We further find that the Hon'ble Gujara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reated as assistance for the purpose of the trade. 9. Such decision was considered in case of Ponni Sugars and Chemicals Ltd.(supra) and the Apex Court held and observed as under : "13. The main controversy arises in these cases because of the reason that the incentives were given through the mechanism of price differential and the duty differential. According to the Department, price and costs are essential items that are basic to the profit making process and that any price related mechanism would normally be presumed to be revenue in nature. In other words, according to the Department, since incentives were given through price and duty differentials, the character of the impugned incentive in this case was revenue and not capital in nature. On the other hand, according to the assessee, what was relevant to decide the character of the incentive is the purpose test and not the mechanism of payment. 14. In our view, the controversy in hand can be resolved if we apply the test laid down in the judgment of this Court in the case of Sahney Steel and Press Works Ltd. (supra). In that case, on behalf of the assessee, it was contended that the subsidy given was up to 10% of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee to set up new units or for substantial expansion of existing units. On this aspect there is no dispute. If the object of the subsidy scheme was to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account. Therefore, it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form of the mechanism through which the subsidy is given is irrelevant." 10. In a recent judgement dated 8.1.2013 in case of DCIT-Circle1(2)-Baroda v. Inox Leisure Ltd.,we had an occasion to consider somewhat similar question in the backdrop of entertainment tax waiver scheme of State of Gujarat as well as State of Maharashtra. Even in such a case, the entertainment tax waiver which was granted in terms of sale of tickets was treated as capital in nature when it was found that same was relatable to the capital investment made by the assessee. It was held as under : "10. From the above noted pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resaid decisions of Hon'ble Supreme Court, the Courts have been mindful of the fact that the subsidy has to be received after commencement of business and to be availed within 9,10 & 12 years, as the case may be, and yet by applying purpose test, it was held that subsidy was on capital account. 5.4. Applicability of Special Bench decision of Mumbai Tribunal in the case of Reliance Industries reported in 88 ITD 273. The ld. Special Counsel for the Revenue vehemently submitted that the decision of the Hon'ble Special Bench has been reversed by the Hon'ble Supreme Court by remitting the matter back to the Hon'ble Bombay High Court. First of all, it would be relevant to bring on record the crux of the decision of the Special Bench in the case of Reliance Industries Ltd. In case of Special Bench decision of Reliance Industries Ltd, the scheme dealt with sales tax exemption under the scheme of Government of Maharashtra, 1979. Further the said scheme was implemented by SICOM. The following question was referred by the Hon'ble President, Tribunal to the Special Bench: "Whether, on the facts and in the circumstances of the case and in law the assessee company is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observations of the Madras High Court lend support to the view that the purpose and object of the Scheme under which the subsidy is given is of more fundamental importance than the fact that the subsidy was received after the commencement of production or conditional upon it. Therefore, in our view and with respect, the Tribunal in the case of Reliance Industries Ltd. ( supra) had correctly interpreted and understood the ratio of the judgment of the Supreme Court in Sahney Steel & Press Works Ltd.'s case (supra). 38. In this view of the matter, we answer the question referred to us in the affirmative. 5.4.2. The ld. AR vehemently submitted that the department did not challenge the decision of the Special Bench before the Hon'ble Bombay High Court. However, he fairly stated that there was a subsequent decision of the Division Bench of this Tribunal which followed the Special Bench and that Division Bench order was challenged by the Revenue before the Hon'ble Bombay High Court. The Hon'ble Bombay High Court while disposing of the said appeal did not reverse the decision of the Special Bench and accepted the same. When that appeal was further challenged by the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such a contention was raised. The Tribunal by the impugned judgment relied upon its earlier judgment for the Assessment Year 1999- 2000 in case of this very assessee and restored the issue back to the Assessing Officer. In the earlier order, the Tribunal had remanded the issue to the file of the Assessing Officer "to decide the issue afresh after considering the decision of Special Bench of the Tribunal in the case of Reliance Industries Ltd. (supra)". Thus, the Tribunal remanded the issue back to the Assessing Officer to be decided in the light of the Special Bench judgment in the case of Reliance Industries Ltd. The Revenue's grievance in this respect is two fold. It was contended that the issue was raised for the first time before the Tribunal and the same should not have been permitted. Secondly, the view of the Tribunal in case of Reliance Industries Ltd. was challenged before the High Court. The High Court in a judgment dated 15.04.2009 in Income Tax Appeal No. 1299 of 2008 had held that no question of law in this respect arises and thereby confirmed the judgment of the Tribunal. It was pointed out that against this judgment of the High Court, the Department had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue preferred an SLP before the Hon'ble Supreme Court and the same was dismissed vide order dated 23/08/2019 in SLP (Civil) Diary No.22929/2019. In other words, the Revenue while preferring SLP before the Hon'ble Supreme Court did not even challenge this ground of subsidy and the decision of Special Bench of Tribunal in the case of Reliance Industries Ltd., Hence, the order of the Hon'ble Jurisdictional High Court in assessee's own case for A.Y.2001-02 had become final on the very same issue. Though the said decision has been rendered for subsequent assessment year as compared to the years under consideration before us, in view of identical facts and the same legal issue, and more especially, in order to address the fact of binding precedent of Special Bench decision in the case of Reliance Industries Ltd., this Bench deems it fit to place reliance on the said decision also of the Hon'ble Jurisdictional High Court. Accordingly, we categorically hold that the decision of the Special Bench still holds the field and is a good law. The entire contentions raised by the ld. Special Counsel for the Revenue in this regard are hereby dismissed. 5.4.5. Further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wisdom of a division bench, even if superior- as strenuously argued by the learned Commissioner, has to make way for the higher wisdom of a larger bench. It is this faith of judicial hierarchical system that is the strength of our functioning, and we must follow the same. We, therefore, regret our inability to follow the division bench in the case of Jindal Power, no matter how deeply we respect and admire the work of all our colleagues, and we would rather be guided by the special bench decision - which is exactly what another division bench, on the same set of facts as before us, did in the case of Ajanta Manufacturing Ltd. (supra). As for learned Commissioner (DR)'s suggestion that we should follow the jurisdictional High Court decision in the case off Colourman Dyechem Ltd. (supra), we find that Their Lordships, in this case, were dealing with an entirely different type of subsidy which was clearly dealing with an expansion situation. However, we would rather refrain from making any further detailed observations on this issue, as we are alive to the fact that Hon'ble jurisdictional High Court, in Tax Appeal No 358 of 2012, has admitted appeal against the decision of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p;.. 64. We see no reasons to take any other view of the matter than the view so taken in assessee's own cases. Respectfully following the same, we approve and confirm the relief granted by the CIT(A) and decline to interfere in the matter. 65. Ground no. 1 is thus dismissed. 66. In ground no. 2, the Assessing Officer has raised the following grievance: "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing various expenditure grouped under the nomenclature Community Welfare Expenses" amounting to Rs. 1,05,39,853/- as a business expenditure." 67. This is a legacy issue and pertains to the expenditure incurred for community welfare as the factories of the assessee are concerned in backward areas and the expenditure is incurred for the smooth functioning of the business. Right from the assessment years 1988-89 to 1994-95, the coordinate benches have allowed appeal of the assessee on this point, and from the assessment years 1995-96 to 2004-05, in which the first appellate authority has deleted similar disallowance, the coordinate benches have rejected the grievances of the Assessing Officer, against the reliefs so granted by the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see own cases for the preceding assessment years. Respectfully following the same, we uphold the relief granted by the learned CIT(A) and decline to interfere in the matter. 77. Ground no. 4 is thus dismissed. 78. In ground no. 5, the Assessing Officer has raised the following grievance: "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing consultancy charges amounting to Rs. 40,36,016/- as a revenue expenditure." 79. Learned representatives fairly agree that this issue is also a legacy issue and is covered by decisions of the co-ordinate benches an assessee own cases for the assessment years 1995-96 to 2000-05, copies of the orders passed by the co-ordinate benches were also placed before us. Learned Departmental Representative however relied upon the stand of the Assessing Officer. 80. We see no reasons to take any other view of the matter than the view so taken by the coordinate benches in assessee own cases for the preceding assessment years. Respectfully following the same, we uphold the relief granted by the learned CIT(A) and decline to interfere in the matter. 81. Ground no. 5 is thus dismissed. 82. In ground no. 6, the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, take it up again. 90. Ground no. 8 is thus dismissed. 91. In ground no. 9, the Assessing Officer has raised the following grievance: On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing deduction u/s 35 D of Income Tax Act of Rs. 4,06,31,549/- being 1/5th of the expenditure incurred in A.Y.2001-02 and 2002-03 on issue of FCCB. 92. On a perusal of the impugned order, we find that the CIT(A) has merely remitted the matter to the file of the Assessing Officer with a direction "to verify the facts from records and allow consequential relief to the assessee as per law, if any". The grievance of the Assessing Officer is thus misconceived and devoid of any legally sustainable merits. We reject the same. 93. Ground no. 9 is thus dismissed. 94. In the result, the appeal of the revenue is dismissed. 95. The issue raised therein with respect to the admissibility of the claim under section 80IA in respect of the rail system has been remitted to the Assessing Officer for fresh consideration. The very grievance raised therein is thus rendered infructuous. The CO is thus dismissed as infructuous. 96. To sum up, while the appeal of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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