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TMI Blog2022 (11) TMI 1420X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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] The assessee gets relief on this point as well. Allowance of leave encashment claimed on provision - HELD THAT:- 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. Computation of total income - Excluding sales tax incentive availed under various schemes of different states in computing its total income holding the incentives to be capital in nature - HELD THAT:- 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prematurely in terms of the NPV of the same. That the State may have received a higher sum after the period of 12 years and in installments. However, the statutory arrangement and vide section 38, 4th proviso does not amount to remission or cessation of the Assessee's liability assuming the same to be a trading one. Rather that obtains a payment to the State prematurely and in terms of the correct value of the debt due to it. There is no evidence to show that there has been any remission or cessation of the liability by the State Government. We agree with the Tribunal that one of the requirement of section 41(1)(a) has not been fulfilled in the facts of the present case Nature of receipt - exclusion of excise duty incentive availed by the assessee, aggregatingin computing its total income by treating it as capital - HELD THAT:- The subsidy was granted under schemes framed by the State and the Central Government, to be given to the assesses who set up new industry in Kutch District. The scheme was envisaged to encourage investment which would in turn, provide fresh employment opportunity in the district which had suffered due to devastating earthquake. The computation of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowance of the assessee is upheld in principle, the quantum shall stand reduced, upon verification of necessary facts, in the light of the above legal position. To this extent, this ground of appeal is allowed for statistical purposes. Nature of expenses - Expenditure incurred on capital jobs abandoned written off - HELD THAT:- The views expressed by the tax auditor on what constitutes capital expenditure cannot dilute, curtail or override the views expressed by the Hon ble Courts above. What an auditor holds is his accounting perspective, and it has no effect on the legal position. Similarly, just because a claim is made in the revised return, the admissibility of the claim cannot be declined for that reason alone. Nothing turns on these factors, and the Assessing Officer was thus clearly in error, as was the CIT(A) -we uphold the plea of the assessee and direct the Assessing Officer to delete the expenses incurred on these abandoned projects Excise duty exemption availed by the assessee as capital receipt allowed. Disallowance of Community Welfare Expenses - principle of consistency - HELD THAT:- This is a legacy issue and pertains to the expenditure incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d view, stands concluded in favour of the assessee MAT computation u/s 115JB - Exclude the sales tax incentive subsidy for computing book profit under section 115 JB - Pramod Kumar (Vice President), and Sandeep S Karhail (Judicial Member) For the appellant : Yogesh Thar along with Chitanya D. Joshi For the respondent : Jagdish Jangid ORDER Per Pramod Kumar VP Assessment year 2008-09 1. These cross appeals are directed against the order dated 20th March, 2015 passed by the learned CIT(A) in the matter of assessment under section 143(3) of the Income Tax Act, 1961, for the assessment year 2008-09. 2. We will first take up the appeal filed by the assessee. 3. In ground no. 1, 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 action of the A.O. in computing disallowance u/s 14A at Rs. 2,88,59,369/- without appreciating the fact that no expenditure has been incurred by the appellant for earning exempt income. 4. In ground no. 4, the assessee has raised a connected grievance which we will take u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was established considering the finding of fact returned by the first appellate authority as affirmed by the Tribunal which is identical in the present case. 7.1 We also note that the said decision of this Court has been affirmed by the Supreme Court in CIT v. Reliance Industries Ltd. [2019] 102 taxmann.com 52/261 Taxman 165/410 ITR 466. 6. Accordingly, while disallowance of the assessee is upheld in principle, the quantum shall stand reduced, upon verification of necessary facts, in the light of the above legal position. To this extent, this ground of appeal is allowed for statistical purposes. As regards the question of 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) 82 taxmann.com 415 (Del SB)]. The assessee gets relief on this point as well. 7. Ground nos. 1 is thus allowed for statistical purposes, and ground no. 4 is thus allowed. 8. In ground no. 2, the assessee has raised the following grievance: That on the facts and in the circumstances of the case, the Ld. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome holding the incentives to be capital in nature . 18. 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, 2006-07 and 2007-08, which were heard along with these crossappeals, 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 and held, except for Rajasthan and Himachal Pradesh Government s sales tax subsidy scheme, all other schemes categorically state the object and purpose as promotion of industries and allied purposes. So far as Rajasthan and Himachal Pradesh Government Schemes are concerned, learned CIT(A) noted that the scheme does not specifically mention such objects and simply provide for the eligibility. In the absence of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P)], 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 detail-to the extent wordings of the preamble of the schemes are concerned, and concluded that while the amounts aggregating to Rs 130,57,12,796, in respect of Punjab and Maharashtra Schemes, are indeed capital receipts in nature, and exempt from tax as such, the amounts aggregating to Rs 39,36,21,956 are revenue in nature, and to that extent the Assessing Officer was justified in including the same in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enting 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) and in directing the Assessing Officer to consider the Sales-tax exemption benefit of Rs. 5,45,81,171/- as capital receipts is concerned, Mr.Mehta contended that in view of the decision of the Calcutta and Punjab High Court, the Tribunal has committed an error in reversing the view taken by CIT (Appeals) so far as Tax Appeal No.226 of 2010 is concerned, wherein the CIT (A), after discuss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 330/215 Taxman 117 (Guj.) and in Dy. CIT v. Munjal Auto Industries Ltd. [2013] 37 taxmann.com 115/218 taxman 135 (Guj.) the issue is squarely covered and the decisions which are sought to be relied upon by learned advocate for the appellant are not applicable in the facts of the present case. In the case of Birla VXL Ltd. (supra), this Court has observed as under: '12. It can thus be strai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 diversification. Fixed capital investment has been defined as to include various investments in land under use, new construction, plant and machinery etc. The entitlement was related to percentage of fixed capital investment. 8. It is undoubtedly true that such subsidy was computed in terms of sales tax deferment and necessarily therefore, would accrue to an industry only once the commercial prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 chargeable to income tax. In this regard, we find that ld. AR placed reliance on the decision of Hon‟ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd., reported in 306 ITR 392, wherein the incentive conferred under that scheme were two fold. First, in the nature of higher free sale sugar quota and second, in allowing the manufacturer to collect Excise duty on sale price on the free sale sugar in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olders. 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 that of Lincolnshire Sugar Co. Ltd. 5 case (supra)that subsidy given by the Canadian Government to encourage construction of dry docks was 'an aid to the construction of dry dock and not an operational subsidy'. 17. This precisely is the question raised in this case. By no stretch of imagination can the subsidies whether by way of refund of sales tax or relief of electricity charges or water cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ara 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 view that the object, as stated in the statement of objects and reasons, of the amendment ordinance was that since the average occupancy in cinema theatres has fallen considerably and hardly any new theatres have been started in the recent past, the concept of a Complete Family Entertainment Centre, more popularly known as Multiplex Theatre Complex, has emerged. These complexes offer various entertainmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Gujarat High Court in CIT vs. Munjal Auto Industries Ltd., in Tax Appeal No.450 with 451-453 of 2012 dated 28/01/2013 also had an occasion to consider the very same issue in dispute before us. In this case also, the Revenue had taken a specific argument that since subsidy would be received only once unit goes for production, subsidy would be revenue nature. The Hon‟ble Gujarat High Court re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 capital investment calculated on the basis of the quantum of investment in capital and, therefore, receipt of such subsidy was on capital account and not on revenue account. It was also urged in that case that subsidy granted on the basis of refund of sales tax on raw materials, machinery and finished goods were also of capital nature as the object of granting refund of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 provisions of thescheme it can be clearly seen that the entire purpose of granting tax exemption was for giving the boost to the terrorism sector. This was to be achieved by attracting higher investment in areas with tourism potential. In order to achieve such purpose, exemption from various taxes as may be applicable was granted. It is true that the exemption was to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion 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 justified in its claim that the sales-tax incentive allowed to it during the previous year in terms of the relevant Government order constitutes capital receipt and is not to be taken into account in the computation of total income? The Hon‟ble Tribunal for Asst Years 1984-85 and 1985-86 had held the sales tax exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew 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 Revenue before the Hon‟ble Supreme Court, the Hon‟ble Supreme Court remitted the matter back to the Hon‟ble Bombay High Court. Accordingly, he argued that the decision of Special Bench was never reversed by the Hon‟ble Supreme Court as stated by the ld. Specia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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 approached the Supreme Court and the Supreme Court had held that a question of law did arise. The Supreme Court framed a question and placed the matter back before the High Court. We are informed that this appeal is still pending. 4. On the other hand, lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, we find that the Co-ordinate Bench of Ahmedabad Tribunal in the case of ACIT vs. Genus Electrotech Ltd., reported in 72 taxmann.com 101 had an occasion to consider the fact of Special Bench decision in a more elaborate manner. The releva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 this Tribunal in Ajanta's Manufacturing Ltd. case (supra) and all these issues will now come up for consideration of Their Lordships. The fact that appeal is admitted does not, as we have stated earlier as well, does not affect the binding natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 20. Ground no. 1 is thus dismissed 21. 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 Id. CITA) erred in treating the difference of the N. P. V. of the sales tax liability and the liability as not assessable to tax based on the decision of the jurisdictional High Court in CIT vs. Sulzer India Ltd. which decision has not been accepted by the Department . 22. Heard the parties; perused the records. 23. A plain reading of the above ground of appeal clearly shows that, even going by the stand of the Assessing Officer, the issue is covered in favour of the assessee, by Hon ble jurisdictional High Court judgment in the case of CIT Vs Sulzer India Ltd [(2014) 369 ITR 717 (Bom)] but yet the appeal has been filed because the revenue has challenged the correctness of the said judgment. That very approach is simply erroneous because it is only elementary in law that the mere pendency of the appeal, against a binding judicial precedent, in a higher judicial forum does not dilute, curtail or otherwise narrow down its binding nature. As long as the binding judicial precedent holds g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility into loans would be taken as discharge of the liability of Sales Tax and, therefore, the deferral amount was in the form of a loan and not a trading receipt. On this basis, the Assessee contended that the remission of a loan cannot be treated as a revenue receipt and taxed as its income. The Assessing Officer rejected this claim and by holding that the Board's Circular is in the context of section 43B of the Income Tax Act and therefore not relevant for the present issue. 6. Against the aforesaid Assessment Order passed by the Assessing Officer, M/s. Sulzer India Ltd. (hereinafter referred to as 'assessee') preferred the appeal before the Commissioner of Income Tax (Appeals) who dismissed the same by sustaining the assessment. This was challenged by the assessee before the Tribunal. In view of the difference of opinion of the two coordinate Benches on this issue, a special Bench was constituted. The special Bench decided the case in favour of the assessee and allowed the appeal. As mentioned above, it is this judgment, which has been upheld by the High Court as well and in these circumstances, the Revenue is in appeal before us. 7. A glimpse of the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Gupta envisages, is not covered by this provision else the subsections and particularly section 43B(1) would have been worded accordingly. Therefore Section 43B has no application. Insofar as applicability of section 41(1)(a), there also the applicability is to be considered in the light of the liability. It is a loss, expenditure or trading liability. In this case, the scheme under which the Sales Tax liability was deferred enables the Assessee to remit the Sales Tax collected from the customers or consumers to the Government not immediately but as agreed after 7 to 12 years. If the amount is not to be immediately paid to the Government upon collection but can be remitted later on in terms of the Scheme, then, we are of the opinion that the exercise undertaken by the Government of Maharashtra in terms of the amendment made to the Bombay Sales Tax Act and noted above, may relieve the Assessee of his obligation, but that is not by way of obtaining remission. The worth of the amount which has to be remitted after 7 to 12 years has been determined prematurely. That has been done by find out its NPV. If that is the value of the money that the State Government would be entitled to rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatutory arrangement and vide section 38, 4th proviso does not amount to remission or cessation of the Assessee's liability assuming the same to be a trading one. Rather that obtains a payment to the State prematurely and in terms of the correct value of the debt due to it. There is no evidence to show that there has been any remission or cessation of the liability by the State Government. We agree with the Tribunal that one of the requirement of section 41(1)(a) has not been fulfilled in the facts of the present case. 10. After hearing the counsel for the parties at length, we are of the view that the aforesaid approach of the High Court is without any blemish, inasmuch as all the requirements of Section 41(1) of the Act could not be fulfilled in this case. 24. In view of these discusssions, as also bearing in mind the entirety of the case, we approve the conclusions arrived at by the learned CIT(A), and decline to interfere in the matter. 25. Ground no. 2 is thus dismissed. 26. In ground no.3, the Assessing Officer has raised the following grievance: On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in exclusion of excis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the industry is set up, or being subjected to substantial expansion, in the backward areas, it cannot be open to the revenue even to suggest that the object and purpose of the scheme are to promote industries in backward areas. The Assessing Officer had declined the relief on a technical ground about at what stage the receipts materialize, whether post-producti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 contained in both Sahney Steel as well as Ponni Sugars, we are of the view that the object, as stated in the statement of objects and reasons, of the amendment ordinance was that since the average occupancy in cinema theatres has fallen considerably and hardly any new theatres have been started in the recent past, the concept of a complete family entertainment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal 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 background, 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 not part of the actual cost of plant or machinery. The Court, therefore, held that it could not have been deducted towards costs of acquisition. The Court held as under: We have carefully considered the provisions relating to the grant of cash subsidy under the schemes framed by the Central Government and the State Government. The Central Governme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 other words, it was the value of the fixed assets which formed the basis for computation of subsidy to be granted under the scheme. Subsidy, in our opinion, did not meet the cost of the fixed assets directly or indirectly. Under the scheme of the Central Government or the scheme of the State Government, cash subsidy was quantified by determining the same at a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 . 28. In view of the above discussions, as also bearing in mind the entirety of the case, we see no legally sustainable merits in the grievance of the Assessing Officer. The views expressed by the learned CIT(A), being in conformity with our decisions for the preceding assessment years, meet our approval. We, therefore, confirm and approve the relief granted by the CIT(A) and decline to interfere in the matter. 29. Ground no. 3 is thus dismissed. 30. In ground no.4, the Assessing Officer has raised the following grievance: On the facts and in the circumstances of the case and in law, the Id. CITIA) erred in allowing of Community Welfare Expenses to the tune of Rs. 2,24,00,224/- . 31. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue is also a legacy issue and is covered by decisions of the co-ordinate benches in assessee s own cases for the assessment years 1988-89 to 1989-90 1997-98 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. 40. 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. The same is the stand of the coordinate benches for the three immediately preceding assessment years as well. Respectfully following the same, we uphold the relief granted by the learned CIT(A) and decline to interfere in the matter. 41. Ground no. 6 is thus dismissed. 42. In ground no.7, the Assessing Officer has raised the following grievance: On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in allowing Mines Prospecting Expenses amounting to Rs. 85,18,084. 43. To adjudicate on this grievance, it is sufficient to take note of the fact that the expenditure in question is incurred on identifying the nature of deposits of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of additional depreciation of plant and machinery on original cost in the year subsequent to the year of acquisition and installation and thereby has erred in deleting the addition of Rs.54,21,617/- without appreciating the fact that such additional depreciation is allowable on plant and machinery only in the year of acquisition and installation. 25. This ground of appeal relates to the claim of the Assessee for additional 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 gran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed (i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed; (ii) in the case of any block 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w.e.f. 1-4- 2006, the benefit for claiming additional depreciation was not so restricted to only to the intital assessment year. From AY 1981-82 to 87-88, the claim for additional depreciation was restricted to 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. From AY 2003-04 till 2005-06, the claim for additional depreciation was restricted to previous year in which such undertaking begins to manufacture or produce any article or thing on or after the 1st day of April, 2002; or if any industrial undertaking existed before the 1st day of April, 2002, during any previous year in which it achieves the substantial expansion by way of increase 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew in the year of claim of additional depreciation. For the reasons aforesaid I am of the view that in terms of provisions of Section 32(1)(iia), additional depreciation is available in AY 2006-07 and subsequent years in respect of all new plant machinery acquired and installed after 31-03-2005 subject to overall criteria that total depreciation does not exceed the actual cost. Hence Ground No. 4 is decided in favour of the Appellant. 31. Aggrieved by the order of CIT(A) the revenue has raised ground no.3 before the Tribunal. The ld. DR placed reliance on the order of the AO. The ld. Counsel for the assessee submitted that fiscal statute shall be interpreted on the basis of the language used therein and not de hors the same. It was argued 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e law as it prevailed prior to the said amendment imposed such a condition that additional depreciation will be allowed only in the year of installation of machinery or plant or the year in which it is first put to use or the year in which the concerned undertaking begins to manufacture or produce any article or thing or achieves substantial expansion by way of increase in installed capacity by 25%. The 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. In our view this stand taken by the revenue is not supported by the language of statutory provision. The condition imposed by the relevant provisions is that Plant and Machinery must be new at the time of installation to be eligible for additional depreciation u/ s 32(1)(iia) and not new in subsequent years. The expression new machinery is therefore 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 cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in adding back Rs. 2,79,78,508 as notional expenses incurred towards earning exempt dividend income u/s 14A of the Income-tax Act, 1961 ('the Act') r.w.r 8D of the Income-tax Rules, 1962 ('the Rules'). 57. So far as this grievances of the assessee is concerned, it is sufficient to take note of the fact that so far as this assessment year is concerned, it is an assessment year post insertion of rule 8D and as is the settled legal position in this regard, rule 8 D is to be applied for computing the disallowance. To that extent, our decisions for the preceding assessment years will not hold good. However, since the assessee has not used any borrowed funds, no amount shall be disallowed under rule 8 D in respect of the interest. On this issue, the Hon ble jurisdictional High Court has, in the case of PCIT Vs Shapoorji Pallonji Co Ltd [(2020) 117 taxmann.com 625(Mum)] has, inter-alia, observed as follows: 6. On thorough consideration we find that the principle of apportionment does not arise in this case as the jurisdictional facts have not been pleaded by the Revenue. In fact Tribunal while affirming the order of the first appellate authority noted that the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the terms indicated above. 63. In ground no. 3, the assessee has raised the following grievance: On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was not justified and grossly erred in confirming the action of AO in not allowing the claim of leave encashment amounting to Rs. 8,09,63,884/-on provision basis based on actuarial valuation in computing the total income. . The Ld CIT(A) failed to record any cogent reason and concluded against the appellant merely because of stay on operation of judgment in case of Bharat Earth Movers Vs CIT (2000) 245 IT 428(SC). 64. An identical grievance of the assessee has been considered by us, earlier in this consolidated order, in paragraphs 11,12 and 13. The same observations will apply mutatis mutandis in this assessment year as well. We have no reasons to take any other view of the matter in this assessment year. We, therefore, reject the grievance of the assessee with the same rider and subject to the same observations. 65. Ground no. 3 is thus dismissed. 66. In ground no. 4, the assessee has raised the following grievance: On the facts and in the circumstances of the case and in law, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings, the appellant, vide its aforesaid submissions, has made the submissions in this regard, as under: Claim for expenditure incurred on capital jobs abandoned written off (Rs.5,04,10,349/-) A. Brief Facts of the case 1.0 During the year under consideration, the appellant in the profit loss account, has written off expenditure incurred on capital projects abandoned aggregating to Rs. 5,04,10,349/-. The aforesaid expenditure has been incurred for setting up of new project at Barh in Bihar and Marwa Mundwa in Rajasthan. Since the project has been abandoned, the expenditure incurred for setting up of the aforesaid projects has been written off in the profit loss account under the head 'Capital Projects written off. In clause 17(a) [Details of Capital Expenditure debited to the Profit Loss Account] of the revised tax audit report, it has been stated that expenditure incurred on capital projects at Barh and Marwa Mundwa amounting to Rs. 1,29,98,121/ and Rs 3,74,12,228 respectively which has been written off in the books of accounts is an incidental business loss and hence an allowable deduction. Details of expenditure written off in books is enclose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e commercially unviable. The question before the Hon'ble Tribunal was whether the amount written off is allowable as business loss in the year in which the same is written off in the books of accounts. It was held that since the concerned projects were undertaken in the course of existing business and was not a different or new business; the expenses written off as the project was abandoned represents revenue loss . 1.4 Reliance is further placed on the decision in the case of Binani Cement Ltd. - vs.- CIT (2015) 380 IT 0116 (Cal)wherein the Hon'ble Calcutta High Court held that expenditure incurred for construction/acquisition of new facility subsequently abandoned at the work-in progress stage was allowable deduction as the same has been incurred wholly or exclusively for the purpose of assessee's business. 1.5 Reliance is further placed in case of Indo Rama Synthetics (1) Ltd. -VS.-CIT (2011) 333 IT 18 (Del). In the said case, the assessee is in the business of manufacture of yarn and polyester. The assessee incurred expenditure for expansion of existing business of the assessee. The project was abandoned and expenditure in nature of salary, wages, repairs, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f coming to the conclusion to the effect that the expenditure was in the nature of capital expenditure. The Hon'ble ITAT held that expenditure incurred for development of new motor was in nature of expansion of existing business which was later on abandoned so, the expenditure could not be said to be capital in nature. 1.10 In the case of Gujarat Green Revolution Co. Ltd. -vs.- ACIT (2013) 37 CCH 0095 (Ahd)(ITAT) the assessee proposed to set up Aqua Agro Project which was admittedly expansion of existing project. The assessee incurred expenses for preliminary survey and other technical matters. The assessee did not proceed with the proposed project and claimed the entire expenditure as revenue expenditure. The A.O. contended that the expenditure that was incurred on abandoned project was of capital in nature and hence disallowed the claim of the assessee. The Hon'ble ITAT held that the proposed new project had inextricable linkage with the existing business of the assessee and it was also the fact that no new asset has come to be created by incurring of said expenditure. Therefore, the expenditure cannot be considered to be of capital nature and hence the claim of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... So far as question No. 4 is concerned, the Tribunal recorded the finding that the assessee spent an amount of Rs. 56,665 as project expenditure. The expenditure represented fees paid to Engineering India Ltd. in connection with the petrochemical project report. The amount was paid by the assessee in order to explore the possibility of setting up of a petrochemical project which could provide a captive plant for manufacture of raw material at the assessee's own factory which would help the assessee in getting continuous supply of raw material even during periods of acute shortage. In fact, the project did not materialise. The ITO as well as the CIT(A), therefore, held that the expenditure was capital in nature. However, the Tribunal found that the expenditure did not result in bringing into existence any capital asset of enduring in nature. The Tribunal further found that the decision of the Calcutta High Court in the case of Hindustan Aluminium Corporation Ltd. v. CIT (1986) 55 CTR (Cal.) 237: (1986) 159 ITR 673 (Cal) was applicable and following that decision held that the expenditure was allowable as incurred wholly and exclusively for the purpose of the assessee's busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;s submission regarding the expenditure made for construction/acquisition of new facility subsequently abandoned at the work-in-progress stage was allowable as incurred wholly or exclusively for the purpose of assessee's business as covered by the decision in Graphite India Ltd. (supra ). The issue whether such expenditure could be allowed in the relevant assessment year is however yet to be resolved. 8. The CIT(A) in his order had found as follows : The company claimed as allowable the expenditure on this abandoned project. While it was found to be unviable, the expenditure on it was for the purpose of business. It was not claimed or allowed earlier as business expenditure because it was of capital nature entitled to depreciation after completion and on commencement of its use for business. But since that stage is not reached-no asset having come into existence-the capital-work-in-progress had to be written off as such. 9. There was no challenge to such finding on facts before the learned Tribunal or even before us. 10. The decision in Delhi Tourism TDC Ltd. (supra ) is distinguishable on facts in as much as in that case the Delhi High Court had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 115JB of the Act. 75. Learned representatives fairly agree that this issue is covered, in favour of the assessee, by the Special Bench decision of the Tribunal in the case of ACIT Vs Vireet Investments Pvt Ltd [(2017) 82 taxmann.com 415 (Del SB)], and that has been consistently followed in assessee s own case for the immediately preceding four assessment years. Respectfully following the views of the Special Bench and the views of the coordinate benches in assessee s own cases, we uphold the plea of the assessee, and direct the Assessing Officer to delete the impugned disallowance in the computation of book profits under section 115JB. The assessee gets the relief accordingly. 76. Ground no. 5 is thus allowed 77. In ground no. 6, the assessee has raised the following grievance: On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was not justified and grossly erred in confirming the action of AO in not granting the benefit of tax rate of 5% as per Article 10 of India-Mauritius treaty for determining the tax rate on dividend declared. 78. As this issue has been raised for the first time before us, and none of the authorities below had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... favour of the assessee by the Tribunal in several immediately preceding assessment years. We see no reasons to take a different view of the matter for the present year. For the detailed reasons so set out earlier in this order, while dealing with the immediately preceding assessment year, we uphold the relief granted by the CIT(A) on this point and decline to interfere in the matter. 87. Ground no. 2 and 3 are thus dismissed. 88. In ground no.4, the Assessing Officer has raised the following grievance: Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was right in allowing the appeal of the assessee and holding excise duty exemption availed by the assessee as capital receipt ? 89. This is also a recurring issue. Earlier in this order, dealing with the immediately preceding assessment year, this issue has been discussed in detail in paragraphs 26 to 29 and decided in favour of the assessee. Respectfully following the views so taken in the immediately preceding assessment year, we uphold the order of the CIT(A) on this issue as well, and decline to interfere in the matter. 90. In ground no.5, the Assessing Officer has raised the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned departmental representative rather dutifully relied upon the stand of the Assessing Officer. We see no reasons to take any other view of the matter than so taken by the coordinate benches, and, respectfully following the same, we approve the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter. 99. In ground no.8, the Assessing Officer has raised the following grievance: Whether, on the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in allowing the pre-operative expenses amounting to Rs. 39,82,07,328/- whereas the assessee itself claimed these expenses as capital expenses in the books of accounts adding it to capital work in progress/fixed assets? 100. During the assessment proceedings, the Assessing Officer noted that the assesee has made this claim only by way of a revised return and that no such claim was originally made by the assessee. It was also noted that the books maintained under the Companies Act also show these expenses as capital expenses, which in an indicative, even if not conclusive, evidence of the expenses being in the nature of capital expenses. The judicial precedents relied up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the learned CIT(A) on this point and decline to interfere in the matter. 103. Ground no. 8 is thus dismissed. 104. In ground no.9, the Assessing Officer has raised the following grievance: Whether, on the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in allowing the exclusion of sales tax incentive and excise duty exemption while computing the Book profit us. 115JB of the Act, whereas the same are in the nature of revenue incentive ? 105. Learned representatives fairly agree that the above issues are now covered, in favour of the assessee, by Hon ble Calcutta High Court s judgment in the case of PCIT Vs Ankit metal Power Ltd [(2019) 416 ITR 591 (Cal)], by Hon ble jurisdictional High Court s judgment in the case of CIT Vs Harinagar Sugar Mills Ltd [ITA No 1132 of 2014, dated 4th January 2017] and by a coordinate bench decision in the case of ACIT Vs JSW Steel Limited [(2019) 112 taxmann.com 55 (Mum)]. Learned Departmental Representative, however, relied upon the stand of the authorities below. 106. We find that a coordinate bench of this Tribunal, in JSW Ltd s case (supra), has inter alia, observed as follows: 47. We further n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t , we find that all those case laws have been either considered by the Tribunal or High Court and came to conclusion that in those cases the capital receipt is in the nature of income, but by a specific provision, the same has been exempted and hence, the came to the conclusion that, once particular receipt is routed through profit and loss account, then it should be part of book profit and cannot be excluded, while arriving at book profit u/s 115JB of the Act 1961. 50. In this view of the matter and considering the ratio of case laws discussed hereinabove, we are of the considered view that when a particular receipt is exempt from tax under the Income tax law, then the same cannot be considered for the purpose of computation of book profit u/s 115JB of the I.T. Act 1961. Hence, we direct the Ld. AO to exclude sales tax subsidy received by the assessee amounting to Rs. 36,15,49,828/- from book profits computed u/s 115JB of the I.T. Act, 1961. 107. We see no reasons to take any other view of the matter than the view so taken by the coordinate bench. Respectfully following the same, we uphold the plea of the assessee and direct the Assessing Officer to exclude the sales ta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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