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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 ..... earning exempt income." 4. In ground no. 4, the assessee has raised a connected grievance which we will take up with the above ground of appeal. The said ground is as follows: "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 relevant assessment year." 5. So far as these grievances of the assessee are concerned, it is sufficient to take note of the fact that so far as this assessment year is concerned, it is the first 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, Hon'ble jurisdictional High Court has, in the case of PCIT Vs Shapoorji Pallonji & Co Ltd [(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e following grievance: "That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) was not justified and grossly erred in not allowing exclusion of Education Cess on Income Tax, Dividend Distribution Tax and Fringe Benefit Tax aggregating to Rs. 27,66,52,424/- in computing total income under the normal provisions of the Act." 9. Learned counsel, however, submits that the assessee does not wish to press this grievance, and this ground of appeal, therefore, may be dismissed as not pressed. The prayer is accepted. The ground of appeal is dismissed as not pressed. 10. Ground no 2 is thus dismissed in the terms indicated above. 11. In ground no. 3, the assessee has raised the following grievance: "That on the facts and circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred in not allowing deduction of leave encashment claimed on provision basis amounting to Rs. 25,00,85,597/ -." 12. 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 all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and simply provide for the eligibility. In the absence of a specific mention of the purpose, the CIT(A) held that these subsidies are required to be treated as revenue receipts in nature. None of the parties is satisfied and both the parties are in appeal before us- the assessee is aggrieved of the receipts on account of HP and Rajasthan State Government sales tax subsidy schemes being treated as revenue in nature, and the Assessing Officer is aggrieved of the relief being granted by the CIT(A) in respect of other sales tax exemption and remissions being treated as capital receipts in nature. 6. Learned representatives fairly agree that materially identical issues have come up for our consideration in the assessment year 2005-06, and whatever we decide for the assessment year 2005- 06 will follow mutatis mutandis in this assessment year as well. 7. Vide our order dated 31st October 2022, accepting the plea of the assessee and rejecting the plea of the revenue, we have held as follows: 5. The relevant material facts, so far as necessary for adjudication of these grievances, are as follows. The assessee before us is a company engaged in the business of manufacturing of ceme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer was justified in including the same in taxable income. None of the parties is satisfied. While the assessee is aggrieved of the amount of Rs 39,36,21,956 being included in his taxable income, the Assessing Officer is aggrieved of the learned CIT(A)‟s granting relief of Rs 130,57,12,796. Both parties are in appeal before us. 6. We have heard the rival contentions, perused the material on record, and duly considered the facts of the case in the light of the applicable legal position. 7. We find that the learned CT(A) has, in his elaborate analysis, primarily followed the Special Bench decision in the case of DCIT Vs Reliance Industries Ltd [(2004) 88 ITD SB 273 (Mum)]. Upon analysis of this decision, he has noted that „for deciding the nature of subsidy, whether capital or revenue, what should be seen and examined is the purpose for which the subsidy has been given, and not the timing of the subsidy or the manner in which it has been given to the industry‟, as is also held by Hon‟ble Supreme Court in the case of CIT Vs Ponni Sugar and Chemicals Ltd [(2008) 306 ITR 392 (SC)]. A large number of judicial precedents have been cited in this conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 is concerned, wherein the CIT (A), after discussing the evidence has held in favour of the department. In this regard, he has relied upon the decision of High Court of Bombay in the case of CIT v. Reliance Industries Ltd. [2010] 8 taxmann.com 218/[2011] 339 ITR 632, wherein it is held that object of subsidy being to set up new units in backward area is a capital receipt and another decision of High Court of Calcutta in the case of CIT v. Chhindwara Fuels [2001] 114 Taxman 707/[2000] 245 ITR 9, wherein it is held that subsidy in the form of refund of sales-tax received after commencement of production cannot be treated as capital receipt. 8. On the other hand, Mr. Soparkar, learned counsel appearing for the respondent contended that so far as Tax Appeal No.226 of 2010 is concerned, after discussing the evidence on record, the Tribunal has followed earlier decision and discussed the issue in detail in para 54 and 55 of its decision, which reads as under:- "54. Per contra, the learned D.R. Supported the orders passed by the Assessing Officer and the learned CIT (A). Referring to the judgment in Sahney Steel and Press Works Limited v. CIT 228 ITR 253 (SC), he submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... :- '12. It can thus be straightaway seen that the benefit, though computed in terms of the Sales Tax liability in the hands of the recipient, the same was not mean to give any benefit on day-to-day functioning of the business, or for making the industry more profitable. The principle aim of the scheme was to cover the capital outlay already made by the assessee in undertaking special modernization of its existing industry. 13. In a recent decision dated 28th January 2013 in Tax Appeal No. 450 of 2012 and connected appeals, we had an occasion to examine the nature of incentives received by the assessee from the State Government in the form of entertaining tax waiver for setting up multiplexes. In such context, we had in wake of the revenues contention that the receipt was revenue in nature, held and observed as under : "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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommercial production commences. However, this by itself would not be either a sole or concluding factor. In case of Sahney Steel and Press Works Ltd. and others v. Commissioner of Income-tax reported in 228 ITR 253, the Apex Court held and observed that the character of the subsidy in the hands of the recipient whether revenue or capital will have to be determined, having regard to the purpose for which the subsidy is given. The source of find 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. Such 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." 11. He also submitted that in view of above decisions, these appeals may not be entertained. 12. We have heard both the learned counsel and perused the record. We have also gone through the decisions cited before us. After considering the material on record, we are of the view that the issues involved in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sugar in excess of the normal quota, but to pay to the Government only the Excise duty payable on the price of levy sugar. The Hon‟ble Supreme Court in para 14 of its decision had held that "character of receipt of subsidy has to be determined with respect to the purpose for which the subsidy is given. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial." In fact, the Hon‟ble Supreme Court while rendering this decision had duly considered its earlier decision in the case of Sahney Steel and Press Works Ltd., reported in 228 ITR 253 and had absolutely no quarrel with that judgement. Rather, it concurred with the decision rendered in Sahney Steel and Press Works Ltd., case. In this regard, it would be relevant to reproduce the operative portion of the decision of Hon‟ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd., as under:- 14. The second case is Lincolnshire Sugar Co. Ltd. v. Smart 20 TC 643. In that case it was found that Lincolnshire Sugar Co. Ltd carried on the business of manufacturing sugar from home grown beet. The company was paid various sums under British Sugar I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be treated as an aid to setting up of the industry of the assessee. As we have seen earlier, the payments were to be made only if and when the assessee commenced its production. The said payments were trade for a period of five years calculated from the date of commencement of production in the assessee's factory. The subsidies are operational subsidies and not capital subsidies. 5.3.6. Yet another decision was rendered by Hon‟ble Supreme Court in the case of CIT vs. Chapalkar Brothers reported in 400 ITR 279 which held that where the object of respective subsidy schemes of State Government was to encourage development of multiple theatre complexes, incentives would be held to be capital in nature and not revenue receipts. The relevant operative portion of the judgment is reproduced hereunder:- 18. After discussing the judgment in Sahney Steel & Press Works Ltd.'s case (supra) this Court then held: "The importance of the judgment of this Court in Sahney Steel case lies in the fact that it has discussed and analysed the entire case law and it has laid down the basic test to the applied in judging the character of a subsidy. The test is that the character of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amily as a whole. It was noticed that these complexes are highly capital intensive and their gestation period is quite long and therefore, they need Government support in the form of incentives qua entertainment duty. It was also added that government with a view to commemorate the birth centenary of late Shri V. Shantaram decided to grant concession in entertainment duty to Multiplex Theatre Complexes to promote construction of new cinema houses in the State. The aforesaid object is clear and unequivocal. The object of the grant of the subsidy was in order that persons come forward to construct Multiplex Theatre Complexes, the idea being that exemption from entertainment duty for a period of three years and partial remission for a period of two years should go towards helping the industry to set up such highly capital intensive entertainment centers. This being the case, it is difficult to accept Mr. Narasimha's argument that it is only the immediate object and not the larger object which must be kept in mind in that the subsidy scheme kicks in only post construction, that is when cinema tickets are actually sold. We hasten to add that the object of the scheme is only one -the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that concession was capped @125% of fixed capital investment and could be availed within 9 years. The Hon‟ble Gujarat High Court after considering the decision of Hon‟ble Supreme Court both in the case of Sahney Steel and Press Works Ltd., and Ponni Sugars and Chemicals referred to supra had held 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 production commences. However, this by itself would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss or expand his existing business. The contention of the assessee in that case was dismissed by the Tribunal and, therefore, the assessee had come to this Court by way of a special leave petition. It was held by this Court on the facts of that case and on the basis of the analyses of the Scheme therein that the subsidy given was on revenue account because it was given by way of assistance in carrying on of trade or business. On the facts of that case, it was held that the subsidy given was to meet recurring expenses. It was not for acquiring the capital asset. It was not to meet part of the cost. It was not granted for the production of or bringing into existence any new asset. The subsidies in that case were granted year after year only after setting up of the new industry and only after commencement of production and, therefore, such a subsidy could only be treated as assistance given for the purpose of carrying on the business of the assessee. Consequently, the contentions raised on behalf of the assessee on the facts of that case stood rejected and it was held that the subsidy received by Sahney Steel could not be regarded as anything but a revenue receipt. Accordingly the mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . However, the purpose of such exemption was to meet with the capital outlay already undertaken by the assessee. This clearly comes out from various provisions of the scheme. For example, the scheme was applicable only to the new project or to a existing project provided investment in fixed capital or capacity was increased atleast by 50%.Thus, the very eligibility for seeking exemption was linked with new investment being made in fixed capital. Further though the scheme envisaged a certain period spanning for 5 to 10 years during which such exemption could be availed depending on the category of the unit, such exemption would cease the moment the total incentives touched 100% of the eligible capital investments. In other words, the upper limit of total incentive which the unit could receive from the State Government in the form of tax waiver would not exist 100% of the eligible capital investment regardless of the residue of the period of its exemption eligibility as per the scheme. From the combined reading of salient features of the scheme, we have no doubt in our mind that the incentive was being offered for recouping or covering a capital investment or outlay already made by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... backward districts as well as generation of employment. However, the matter was referred to the Special Bench as it was alleged that the decision for AY 1985-86 was virtually overruled by subsequent decision of the Mumbai Tribunal in the case of Bajaj Auto Ltd (ITA No. 49 and 1101 of 1991). The Special Bench held that the decision of Bajaj Auto has not overruled the decision of Hon‟ble Mumbai Tribunal for AY 1985-86 on the following basis: i)There cannot be any question of overruling the decision of one Bench by another bench of equal strength as it would be contrary to the established norms of judicial system in the country. ii) Even on merits it cannot be said that the Tribunal has laid out more stress on the form of the scheme and not their substance as held in Bajaj Auto as the Tribunal in the order for AY 1985-86 has explained the difference between exemption schemes of Maharashtra and Andhra Pradesh in detail. iii) Reliance placed by Tribunal in Asst Year 1985-86 on the decision of Hon‟ble Supreme Court in the case of Sahney Steel & Press Works Ltd. v. CIT (228 ITR 253) cannot be said to be erroneous. The Tribunal did recognise that the object with wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion Bench. In fact, in assessee‟s own case for A.Y.2001-02 in ITA No.778 of 2015 dated 18/12/2018 before the Hon‟ble Jurisdictional High Court, wherein the question Nos. c & d was exactly on this point. For the sake of convenience, the question Nos. c & d raised by the Revenue before the Hon‟ble Jurisdictional High Court is reproduced hereunder:- "(c) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in restoring the issue of taxability of the sale tax exemption benefit of Rs.58 crores availed by the assessee to the file of the Assessing Officer for deciding afresh after considering the decision of the Special Bench of the ITAT in the case of DCIT V. Reliance Industries Ltd., 88 ITD 273, which has not been accepted by the Revenue? (d) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in entertaining the additional ground without appreciating that the assessee had treated the amount of sales tax exemption benefit of Rs.58 crores as revenue receipt and had included this amount in the returned income and it had been taxed accordingly and the assessee did not raise thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. In earlier orders, the Revenue had approached the Court against the similar orders of the Tribunal. The High Court on two occasions, in the order dated 27.09.2016 and 22.11.2016 passed in Income Tax Appeal Nos. 475 of 2014 and 102 of 2014 respectively had not entertained the challenge of the Revenue. In any case, it was contended that the facts on record are available and the Tribunal has merely asked the Assessing Officer to take a decision on the assessee's contention. 5. As long as the material exists on record, a contention raised by the assessee for the first time before the Tribunal, cannot be barred. So much is clear from series of judgments of various Courts including of this Court in case of CIT Vs. Pruthvi Brokers and Shareholders P. Ltd. (2012) 349 ITR 336. It is not the case of the Revenue that the assessee in the context of its contention on the nature of the subsidy, desired to produce additional evidence. It is true that the judgment of this Court confirming the order of the Tribunal in case of Reliance Industries Ltd. has been partially reversed by the Supreme Court. A question of law has been framed and placed for consideration of the 4 of High Court. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Reliance Industries Ltd. (supra) is concerned, it still holds the field. All that has happened, as a result of Hon'ble Supreme Court's decision dated 9th September 2011, is that Hon'ble Bombay High Court has now admitted the question "whether, on the facts and circumstances of the case, the Hon'ble Tribunal was right in holding that sales tax exemption was a capital receipt" and will, in due course though, adjudicate on this legal issue. To that extent, Hon'ble Bombay High Court's order dated 15th April 2009, to the extent of declining to admit this question, stands reversed. However, the decision of the Special Bench still holds good as the same has not, and at least not yet, even been examined by Hon'ble Bombay High Court. Mere admission of appeal against a decision, as is elementary, does not affect the biding nature of a judicial precedent. The Special Bench decision, in the case of Reliance Industries Ltd. (supra), was not reversed by Hon'ble Supreme Court, but was directed to be examined, on merits, by Hon'ble Bombay High Court. That is quite different from disapproving the special bench decision, but it appears that the coordinate bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this assessee are the same as in the case of Ajanta Manufacturing Ltd. (supra). All the material facts being the same, there is no reason to take any other view of the matter than the view so taken by the coordinate bench. We must, therefore, uphold the conclusions arrived at by the Commissioner (Appeals), which are in consonance with the Special Bench decision in the case of Reliance Industries Ltd. (supra) and coordinate bench decision in the case of Ajanta Manufacturing Ltd. (supra), and decline to interfere in the matter." (emphasis supplied by us) 5.4.6. In view of the above, no fault could be attributed on the ld. CIT(A) placing reliance on the decision of the Special Bench of the Tribunal and granting relief to the assessee in the instant case. 9. In the Special Bench decision in the case of Reliance Industries Ltd (supra), what came up for consideration was specifically the sales tax subsidy, and that decision, as we seen in the elaborate analysis of the coordinate bench- as extracted above still holds good in law. In the case of CIT Vs Chaphalkar Brothers [(2018) 400 ITR 279 (SC)], Hon‟ble Supreme Court has held that where the object of respective subsidy sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the Hon'ble Bombay High Court in Sulzer's case (supra) now stands approved and confirmed by the Hon'ble Supreme Court in the case of CIT Vs Balakrishna Industries Limited [(2017) 88 taxmann.com 273 (SC)] wherein Their Lordships have, inter-alia, observed as follows: ........The main judgment is dated 05.12.2014 which was rendered in a batch of appeals with the leading case known as 'The CIT v. Sulzer India Ltd. [2015] 54 taxmann.com 161/229 Taxman 264/[2014] 369 ITR 717 (Bom.). It is this judgment which has been followed in other cases. Therefore, for the sake of convenience, we shall refer to the facts as noted in Sulzer India Ltd.'s case (supra). 4. The Assessee M/s. Sulzer India Ltd. filed return of income for the assessment year 2003-04 on 27th November, 2013, declaring total income at Rs. 10,59,76,986/-, claiming deduction under section 80HHC of the I.T. Act in the sum of Rs. 82,48,864/-. 5. During the assessment proceedings, the Assessing Officer observed that the Assessee had credited amount of Rs. 4,14,87,985/- to the capital reserve contending that the said amount was a remission of loan liability. The Assessee stated that under the Industrial Backward ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r those assessees who set up their industries in the backward area, the sales tax liability was deferred for a period of 7 years and, thereafter, it can be paid over a period of 7 years under the Deferral Scheme of 1983 and over a period of 6 years under the Deferral Scheme of 1988. However, under the Scheme of 1988, the Government of Maharashtra promoted premature or payment of deferral sales tax at Net Present Value (NPV). 8. In the meantime, section 38 of the Sales Tax Act was amended which provides that where the NPV of deferred tax as may be prescribed was paid, the deferred tax was deemed to have been paid. Taking advantage of this Scheme, the assessee made repayment of Rs. 3,37,13,393/- against the total liability of Rs. 7,52,01,378/-. In this manner, the assessee could save a sum of Rs. 4,14,87,985/-. The issue is as to whether this amount, which the assessee could save, is to be treated as 'income' by applying the provisions of Section 41 of the Act. The Assessing Officer treated it as the revenue receipt and thereby income. Contention of the assessee is that it is a capital receipt, which is accepted by the High Court. 9. In a very detailed and exhaustive ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sales Tax amount already recovered and collected from the customers is in no way wiped out or diluted. The obligation remains. All that has happened is an option is given to the Assessee to approach the SICOM and request it to consider the application of the Assessee of premature payment and discharge of the liability by finding out its NPV. If that was a permissible exercise and in terms of the settled law, then, we do not see how the Assessee can be said to have been benefited and as claimed by the Revenue. The argument of Mr. Gupta is not that the Assessee having paid Rs. 3.37 crores has obtained for himself anything in terms of section 41(1), but the Assessee is deemed to have received the sum of Rs. 4.14 crores, which is the difference between the original amount to be remitted with the payment made. Mr. Gupta terms this as deemed payment and by the State to the Assessee. We are unable to agree with him. The Tribunal has found that the first requirement of section 41(1) is that the allowance or deduction is made in respect of the loss, expenditure or a trading liability incurred by the Assessee and the other requirement is the Assessee has subsequently obtained any amount in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decide in the assessee's crossappeals for the assessment year 2006-07, which was heard along with these appeals, will mutatis mutandis in this assessment year as well. Vide our order dated 31st October 2022, and dealing with the same issue on the admittedly same set of facts, we have decided this issue in favour of the assessee, and observed, inter alia, as follows: 17. So far as this grievance of the assessee is concerned, the relevant material facts are like this. During the course of assessment proceedings, the Assessing Officer noticed that the assessee has availed excise duty exemption, amounting to Rs 46,83,11,376, in respect of their Darlaghat Unit, HP, and it was claimed as a capital receipt in nature. It was also noted that in terms of general Exemption No, 51 (Notification No. 50/2003 dated 10th June 2003) the assessee is entitled to 100% excise duty exemption for a period of ten years in respect of its cement manufacturing plant at Darlaaghat. The assessee's submission was that this exemption was in response to the announcement made by the Hon'ble Prime Minister to the effect that tax and central excise concession are made to attract investments in the industrial sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of the scheme is to be taken in a holistic manner and on the basis of the scheme on an overall basis. The approach adopted by the learned CIT(A) was not only legally incorrect but wholly superficial. The following observations by Hon'ble jurisdictional High Court, in the case of PCIT Vs Welspun Steel Limited [(2019) 103 taxmann.com 436 (Bom)] are relevant in this regard: 6. Having heard the learned Counsel for the parties on this question, we notice that, the Government of Gujarat Sales Tax Incentive Scheme was envisaged to promote large scale investments in the Kutch District since on account of devastating earth-quake, development of the district had suffered. The Scheme envisaged that, the same was confined only with the Kutch District. Similar, being the purpose and philosophy of the Government of India, while granting excise duty exemption, we may not separately take note of the back-ground thereof. In view of these facts, the question arises is - whether the Tribunal was justified in holding that Sales Tax and Excise duty exemption enjoyed by the assessee under the said subsidy scheme, was not taxable as revenue receipt. Such and similar issue has came up before d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al intensive and their gestation period is quite long and therefore, they need Government support in the form of incentives qua entertainment duty. It was also added that Government with a view to commemorate the birth centenary of late Shri V. Shantaram decided to grant concession in entertainment duty to multiplex theatre complexes to promote construction of new cinema houses in the State. The aforesaid object is clear and unequivocal. The object of the grant of the subsidy was in order that persons come forward to construct multiplex theatre complexes, the idea being that exemption from entertainment duty for a period of three years and partial remission for a period of two years should go towards helping the industry to set up such highly capital intensive entertainment centres. This being the case, it is difficult to accept Mr. Narasimha's argument that it is only the immediate object and not the larger object which must be kept in mind in that the subsidy scheme kicks in only post construction, that is when cinema tickets are actually sold. We hasten to add that the object of the scheme is only one - there is no larger or immediate object. That the object is carried out i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d areas. The industries were concentrating only in urban areas. In other words, rapid urbanization was taking place. So far as the State of Gujarat is concerned, there was rapid industrial growth in cities like Baroda, Ahmedabad and Surat resulting in strain on municipal services. Urbanization created several problems such as pollution, growth of slums etc . It was also necessary to have balanced growth of industry in different regions. However, as pointed out above, entrepreneurs were reluctant to set up industries in backward areas. These areas were identified as backward because there was un-development or underdevelopment of industries in these areas. It was, therefore, that the Government decided to give financial incentives to encourage and induce entrepreneurs to move to backward areas and establish industries there so that the region may develop and promote the welfare of the people living in that region. One of the incentives which the Government decided to grant was cash subsidy so that entrepreneurs could utilize such cash subsidy for any purpose connected with the establishment of industries in the backward areas. Once the decision to give cash subsidy was taken, the Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying the subsidy and it could not be said that the subsidy was given for the specific purpose of meeting any portion of the cost of the fixed assets. The subsidy was granted to compensate the entrepreneur for the hardship and inconvenience which he might encounter while setting up industries in backward areas."' 11. Similar issue came up for consideration again before the Gujarat High Court in CIT v. Swastik Sanitary Works Ltd. [2006] 286 ITR 544. It was a case in which, the Government subsidy was intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries. In such a case, specified percentage of the fixed capital cost, which was the basis for determining the subsidy, would be granted. The Court held that, such basis for determining the subsidy was only a measure adopted under the scheme to quantify the financial aid and it was not a payment, directly or indirectly to meet any portion of the actual cost of acquisition of capital asset. It was held and observed as under:- 'In so far as question No.2 is concerned, this court finds that the same is squarely covered by the decision of the Supreme Court in CIT v. P. J. Chemicals Ltd., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... granted by the CIT(A). Learned Departmental Representative does not dispute this position but relies upon the stand of the Assessing Officer nevertheless. 32. We see no reasons to take any other view of the matter than the view so taken by the coordinate benches all along. The same is the stand of the coordinate benches for the three immediately preceding assessment years as well. Respectfully following the decisions of the coordinate benches, we uphold the relief granted by the learned CIT(A) and decline to interfere in the matter. 33. Ground no. 4 is thus dismissed 34. 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 Id. CIT(A) erred in allowing Temple expenses at Rs. 41,39,919/." 35. Learned representatives fairly agree that this issue is also covered in favour of the assessee by decisions of the co-ordinate bench an assessee own cases from assessment years 1995-96 to 2000-05; copies of these orders are placed before us in the paper book. It is also pointed out that the appeal filed by the department against the order of the co-ordinate bench and before the Hon'ble High Court was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) gave relief on the ground that as the Assessing Officer has not challenged the relief granted by the Tribunal, the matter has attained finality. No material has been brought before us to dislodge the findings of the learned CIT(A). In any event, even going by the observations of the Assessing Officer, the matter is squarely covered, in favour of the assessee, by decisions of the coordinate benches in assessee's own case. We, therefore, uphold the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter. 44. Ground no. 7 is thus dismissed. 45. In ground no.8, 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 additional depreciation u/s 32(1)(iia) on all the eligible assets acquired on or after 01.04.2005 instead of 01.04.2007 in disregard of the provisions of section 32(1)(iia) to the tune of Rs. 56,80,46,163/-." 46. Learned representatives submit that whatever we decide in respect of ground no. 6 on the assessee's appeal in the immediately preceding assessment year, which was also heard in this bunch of appeals, will apply mutatis mutandis i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act merely provides that further to the normal depreciation at the prescribed rates, an additional depreciation shall be allowed to the assessee at the rate of 20% on new plant and machinery acquired and installed after 31-03-2005. However, the period the period during which such additional depreciation shall be allowed is not specified in the Act. Thus, one may conclude that the allowance of additional depreciation shall not only be restricted to the initial year but continue to second and subsequent years. 27. The claim for additional depreciation was however rejected by the CIT(A) for the reason that additional depreciation is available only in respect of new plant and machinery acquired and installed after 31-03-2005. The word 'new' is not defined in the Act. According to the Shorter Oxford Dictionary the word 'new' means "not existing before; now made, or brought into existence, for the first time". The AO held that the assets on which additional depreciation was claimed by the assessee is neither "new" nor brought into existence in the hands of the assessee in the relevant previous year. It is already used in earlier years and is already depreciated a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2002, by an assessee engaged in the business of manufacture or production of any article or thing, a further sum equal to fifteen per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii): Provided that such further deduction of fifteen per cent shall be allowed to- (A) a new industrial undertaking during any 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 (B) any industrial undertaking existing 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 ]: "Subs. for "twenty-five per cent" by Finance (No. 2) Act, 2004, (w.e.f. 1-4-2005)." Sec.32(1)(iia) as substituted by Finance Act, 2005, (w.e.f. 1-4-2006) reads as follows: "(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 March, 2005, by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of P&M. However, in the section 32(1)(iia) amended vide Finance Act, 2005 Legislature had omitted the proviso wherein it was provided that such depreciation could be claimed only in the initial assessment year. This being a specific omission it could be construed that the intent of the Legislature was not to restrict the allowance of additional depreciation to the year in which the assets are installed but also in the second and subsequent years provided that the aggregate depreciation does not exceed the cost of the asset. It is settled law that a fiscal statute has to be interpreted the basis of the language used therein and not interpreted out of context the same as held by Apex Court in the case of Orissa State Warehousing Corporation, Mohammad Ali Khan and Madurai Mills Co. Ltd. (Referred to by the Appellant.) Further, it is also imperative to state that Section 32(1)(iia) is a beneficial provision enacted with the view to provide benefit to the assessee. The same is also evident from the Explanatory Notes to the Finance Act, 2005 wherein it has been clarified that in order to encourage investment the provisions of sec. 32(1)(iia) have been amended. In so far as the languag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sus omissus, the defect can be remedied only by legislation and not by judicial interpretation :- - Orissa State Warehousing Corpn. v. CIT [1999] 103 Taxman 623/237 ITR 589 (SC) - Prakash Nath Khanna v. CIT [2004] 135 Taxman 327/266 ITR 1 (SC) - Smt. Tarulata Shyam v. CIT [1977] 108 ITR 345 (SC) - Padmasundara Rao v. State of Tamil Nadu [2002] 255 ITR 147 (SC) Apart from the above, it was also pointed out that DTC Bill 2013 has proposed expressly that additional depreciation would be allowed in the FY in which the P&M is used for the first time and those provisions are not made with retrospective effect. It was argued that the legislature has consciously not restricted the allowance of additional depreciation on the original cost for AY 2006-07 till AY 2013-14 to one year only and therefore the additional depreciation should be allowed on the original cost of the asset for the second and subsequent years as well. It was submitted that the condition imposed by the relevant provisions was 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing stock by invoking provisions of section 145A." 50. Learned representatives fairly agree that this issue is covered, in favour of the assessee, by decisions of the coordinate benches in assessee's own cases for the assessment years 1999- 2000 to 2004-05, even though 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. 51. Ground no. 9 is thus dismissed 52. In the result, the appeal of the revenue is dismissed. 53. To sum up, while the appeal of the assessee is partly allowed, the appeal of the revenue is dismissed. Assessment year 2009-10 54. These cross appeals are directed against the order dated 10th January 2019 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 2009-10. 55. We will first take up the appeal filed by the assessee. 56. In ground no. 1, the assessee has raised the following grievance: On t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestments. In the facts of that case, it was noted that the said presumption 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. 58. 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. 59. Ground no. 1 is thus allowed for statistical purposes 60. In ground no. 2, 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 deduction for Education Cess levied on Income Tax, Dividend Distribution Tax and Fringe Benefit Tax aggregating to Rs. 17,50,71,281/- as allowable expenditure in computing the total income under the normal provisions of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplanation but without success. Learned CIT(A) dismissed the plea of the assessee and observed that "I have considered the assessment order and the written submissions made by the appellant. Having considered the same, I find that the expenditure claimed by the assessee is purely capital in n attire and therefore the same cannot be debited to P&L account. No material has been submitted by the assessee before the AO or during the appellate proceedings to prove that these expenses are on account of accidental business loss. Therefore, I do not see any reasons to interfere with the order of the AO" The assessee is aggrieved and is in further appeal before us. 68. We have heard the rival contentions, perused the material on record and duly considered the facts of the case in the light of the applicable legal position. 69. While we have taken note of the plea of the authorities below that the assessee did not produce any details before any of the authorities below, para 14.2 of the order of the CIT(A) shows otherwise. A plain look at this paragraph, which is reproduced below for ready reference, does show that while the Assessing Officer did not ask for any clarification before making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession." 1.1 On bare perusal of the aforesaid provision it is clear for claiming deduction under the above provision the expenditure must satisfy the following test: a. It should not be in the nature of expenditure described in section 30 to 36 b. b. It should not be in the nature of capital or personal expenditure. c. It must be expended wholly and exclusively for the purpose of the business. 1.2 In the present case, as the expenditure incurred by the appellant do not fall in any of the negative conditions laid down for not allowing the claim, therefore the expenditure incurred by the assessee is an allowable expenditure u/s 37(1) of the Act. 1.3 Reliance in this regard is placed on the decision in the case of Excel Industries Limited -vs.- DCIT (2004) 86 TTI 840 (Mum). In the said case, the assessee had claimed certain expenses incurred on two new projects. These expenses were capitalized in the books of accounts in the ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o in respect of cost incurred in earlier years was allowed as a trading loss. 1.8 Reliance is placed in the case of CIT -vs.- Priya Village Roadshows Ltd. (2011) 332 ITR 594 (Del) wherein the High Court held as under "The expenditure was incurred in respect of same business which is already carried on by the assessee. Two projects which were undertaken were for the expansion of same business, namely, one for taking over Savitri Cinema for conversion into multiplex and operation and management thereof and other for conversion of Priya Cinema into four-screen multiplex. Payments were made to the consultants for preparing feasibility reports in respect of both the projects. However, ultimately projects were not found to be financially and technically viable and were shelved. Thus, we find that no new asset came into existence, which was the basis adopted by the AO for treating the expenditure as capital expenditure but wrongly. 1.9 Reliance is also placed in case of Lawkim Ltd -vs.- ICIT (2004) 23 CCH 0749 (Mumbai)(ITAT)wherein the assessee was a producer of electric motor for various electronic appliances. Assessee made payment for development of new type of bypass motors to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s loss". Once it is not in dispute that the expenses are on the abandoned projects, which is what the CIT(A) has not even down doubted, the clear legal position is that these expenses are to be allowed as a deduction in the computation of business income. In the case of Binani Cement Ltd Vs CIT [(2015) 60 taxmann.com 384 (Cal)], Hon'ble Calcutta High Court has observed as follows: ......The following question of law was framed when the appeal was admitted: "Whether the Tribunal substantially erred in law in disallowing the expenditure allegedly incurred by the assessee for preparation of the feasibility study report and capital-work-in- progress in the earlier years, but written off during the previous year corresponding to the asst. yr. 2002-03 since the proposed project was abandoned?" 3. Mr. Bajoria, learned senior advocate, appearing for the appellant submitted that the question is partly covered by the decision in CIT v. Graphite India Ltd. [1996] 221 ITR 420 (Cal.). The relevant question referred by the Tribunal to this Court in that case was whether in the facts and circumstances of that case, the Tribunal was justified in holding that the expenditure incurred for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em of accountancy adopted by the assessee, and (ii) if it is the mercantile system, subject to the deeming provisions, when has the right to receive accrued? If he comes to the conclusion that such a right accrued or arose to the assessee in a particular accounting year, he should include the said income in the assessment of the succeeding assessment year. No power is conferred on the ITO under the Act to relate back an income that accrued or arose in a subsequent year to another earlier year, on the ground that that income arose out of an earlier transaction. Nor is the question of reopening of accounts relevant in the matter of ascertaining when a particular income accrued or arose." 5. In Swadeshi Cotton & Flour Mills (P.) Ltd. (supra ) on a similar question the said Court held : "The system of reopening of accounts does not fit in with the scheme of the IT Act. As far as receipts are concerned there can be no reopening of accounts, and the position is the same in respect of expenses". 6. Mr. R.N. Bandopadhyay, learned advocate appearing on behalf of the Revenue relying upon the decision in Delhi Tourism & TDC Ltd. v. CIT [2006] 285 ITR 114/155 Taxman 10 (Delhi) submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as deduction in computation of taxable business income. As for the objections taken by the Assessing Officer, we see no substance in these objections either. 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). 72. In view of these discussions, as also bearing in mind the entirety of the case, we uphold the plea of the assessee and direct the Assessing Officer to delete the expenses incurred on these abandoned projects. The assessee gets the relief accordingly. 73. Ground no. 4 is thus allowed. 74. In ground no. 5, 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 adding Rs. 2,79,78,508/- being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling 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. 84. Ground no. 1 is thus dismissed. 85. In ground no. 2 and 3, the Assessing Officer has raised the following grievance: "Whether, on the facts and in the circumstances of the case and in low, the Ld. CIT(A) was right in allowing the appeal of the assessee and holding that incentive quantified on payment of net present value of the deferred sales tax liability in respect of Darlaghat Unit as capital in nature?" "Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was right allowing the appeal of the assessee and holding that gain arising out of pre-payment of deferred sales tax liability as capital receipt? 86. While dealing with the same grievance of the Assessing Officer, for the immediately preceding assessment year and in paragraphs 21 to 25 of this order, we have decided this issue in favour of the assessee. The issue in both these grounds is exactly the same, though dealing with different facets of the same issue. All these issues are comprehensively decided by Hon'ble Courts above in f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thus dismissed 94. In ground no.6, 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 additional depreciation on all the eligible assets acquired before 01.04.2008?" 95. 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 45 to 47 and decided in favour of the assessee in principle. Respectfully following the views so taken in the immediately preceding assessment year, and subject to the same observations, we uphold the order of the CIT(A) on this issue as well, and decline to interfere in the matter. 96. Ground no. 6 is thus dismissed. 97. In ground no.7, 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 deleting the addition in respect of unutilized CENVAT credit?" 98. Learned representatives fairly agree that this issue is covered, in favour of the assessee, by decisions of the coordinate benches in assessee's own cases for the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore us. 101. We have heard the rival submissions, perused the material on record and duly considered the facts of the case in the light of the applicable legal position. 102. The short grievance raised before us by the Assessing Officer is whether, even when the expenditure is shown in the books of accounts, it can be treated as revenue in nature. That question, in our considered view, stands concluded in favour of the assessee. In the case of CIT Vs Havells India Ltd (ITA Nos 55 and 57 of 2012; judgment dated 21 May 2012), Hon'ble Delhi High Court has, in this context, observed, speaking through Hon'ble Justice Easwar, that "The fact that in the books of account the assessee had capitalised the expenses does not prevent the assessee from claiming them as revenue expenses since the question of allowance of expenses has to be considered in the light of the legal position and the accounting treatment cannot be conclusive". The limited grievance raised by the Assessing Officer is thus devoid of any legally sustained merits, and we reject the same. In any event, even on merits, the well reasoned order of the learned CIT(A), in our considered view, does not merit any interference. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluded 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 cannot be brought to tax under the deeming provisions of section 115J of the Act, as it defies the basic intention behind introduction of provisions of section 115JB of the Act. The ITAT Jaipur bench, in case of Shree Cement Ltd. (supra) had considered an identical issue and held that incentives granted to the assessee is capital receipt and hence, cannot be part of book profit computed u/s 115JB of the Act. Similarly, the ITAT Kolkata Bench, in the case of Sipca India (P.) Ltd. v. Dy. CIT [2017] 80 taxmann.com 87 (Trib.) had considered an identical issue and held that when, subsidy in question is not in the nature of income, it cannot be regarded as income even for the purpose of book profit u/s 115JB of the Act, though credited in the profit and loss account and have to be excluded for arriving at the book profit u/s 115JB of the Act. 49. Insofar as, case laws relied upon b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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