9911796707
TMI Blog2024 (6) TMI 866X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) s finding that, when there was no outstanding balance in the name of these three brokers during the year, the disallowance of notional interest in relation thereto, was erroneous. The reliance placed by the Revenue on the appellate orders passed in assessee s own case in AYs 2006-07 2007-08 are found to be factually distinguishable. In those years, the advances given to the three brokers were very much alive and outstanding in the books of the assessee and therefore the authorities were justified in enquiring into the nature and purpose of these advances and to ascertain whether any interest paid on the borrowings were attributable to such outstanding advances. In the present case before us however, the fundamental fact itself is not present viz., there is no amount outstanding as receivable from these three brokers in the books of accounts for the AY 2010-11. For the aforesaid reasons, we find that the Ld. CIT(A) had rightly held that the impugned disallowance made by the AO following the orders for AYs 2006-07 2007-08 was factually erroneous. Disallowance on account of inflated import purchases made - addition was made relying on the statements recorded under oath during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities. Hence, overall, we countenance the above findings of the Ld. CIT(A) on this aspect. Statements of the two employees cited by the AO in his order - Having perused these statements, we find that these two persons had admitted to the contemporaneous fact that, apart from being employees of the assessee company, they were also directors in the group/associate companies. CIT, DR was unable to show us as to how these statements in any way suggested that the transaction of high-sea sales and re-purchase thereafter was not genuine and more particularly resulted in inflation of purchases made by the assessee. We therefore find merit in the submissions of the Ld. AR that these statements did not contain anything adverse relating to the import of edible oil and high-sea sales and hence were of no relevance to the issue before us. We hold that the finding of the AO that, there was inflation of import prices, was based on incorrect understanding of facts. Overall, it is noted that there was profit derived by the assessee and that the value of purchases recorded in the books was in fact lower and not inflated. Accordingly, the action of the Ld. CIT(A) deleting the impugned addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee, have not been examined by the AO, and therefore the same warrants verification. The AO is accordingly directed to verify the same and accordingly quantify and exclude the subsidies which were received under the FPS and VKGUY of the Foreign Trade Policy, which has been held to be capital receipt, both while computing income under the normal provisions as well as book profit u/s 115JB of the Act. This additional ground no. 1 of the cross objections therefore stands partly allowed for statistical purpose. Disallowance u/s 14A r.w rule 8D under normal provisions and in computing book profit u/s 115JB - HELD THAT:- It is noted that in the case of M/s Nirved Traders Pvt. Ltd. [ 2019 (4) TMI 1738 - BOMBAY HIGH COURT] and HSBC Invest Direct (India) Ltd. [ 2019 (2) TMI 731 - BOMBAY HIGH COURT] has held that the disallowance u/s 14A of the Act cannot exceed the exempt income so earned by the assessee. Following the binding decisions we find merit in the assessee s plea seeking restriction of the disallowance u/s 14A to the extent of exempt income earned i.e. Rs. 62,70,016/-. The AO is accordingly directed to delete the excess disallowance made u/s 14A of the Act of Rs. 2,29,984/- while c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T/sales tax, from the computation of book profit u/s 115JB of the Act. However, since the relevant facts and figures have not been examined by the lower authorities, we deem it fit to set aside this issue back to the AO for the limited purpose of verifying the details figures placed before us. The AO shall accordingly quantify and exclude the subsidies received by way of refund of excise duty and remission of VAT/sales tax under the Industrial Schemes, which have been held to be capital receipt, both while computing income under the normal provisions as well as book profit u/s 115JB - Ground partly allowed for statistical purpose. Liability to pay advance tax and interest u/s 234B 234C in case the income is held to be chargeable to tax u/s 115JB - HELD THAT:- The assessee was not liable to pay advance tax in case of MAT computed u/s 115JB of the Act, in the years prior to the judgment of the Hon ble Supreme Court in the case of Rolta India Ltd. [ 2011 (1) TMI 5 - SUPREME COURT] Admittedly, the assessment year in dispute in case of the assessee is prior to rendering of the said decision of the Hon ble Supreme Court. Hence, respectfully following the above judicial precedents (supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss on account of fluctuation in rate of exchange treating it as capital expenditure - HELD THAT:- Following the said applicable AS-11, the assessee had consistently debited the foreign exchange loss on such foreign currency loans to the Profit Loss Account upto FY 2010-11 and the same was also accepted and allowed by the Revenue. In the relevant FY 2011-12, the ICAI had modified Para 46A of AS-11 in December 2011, in terms of which the company now had an option to either debit such foreign exchange loss to the Profit Loss Account or capitalise the same to the cost of assets. The assessee, in the present case, chose the latter option. Merely because the assessee chose the later option would not alter the nature of foreign exchange loss viz., revenue in nature. It is by now trite in law that, the entries whether the assessee is entitled to a particular deduction or not depends upon the provision of law relating thereto. The existence or absence of entries in the books of account be decisive or conclusive in the matter. This legal principle has been laid down by the Hon ble Supreme Court in the case of Kedar Jute Mfg Co. Ltd. [ 1971 (8) TMI 10 - SUPREME COURT] Likewise, it is noted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2016 (for AY. 2010-11) and dated 12.06.2017 21.02.2020 (for AY. 2012-13) respectively against the orders passed by the Dy. CIT, Central Circle- 7(2), Mumbai [in short the AO ]. Since the issues involved are common in these appeals, they were heard together. Both the parties also argued them together raising similar arguments on these issues. Accordingly, for the sake of convenience and brevity, we dispose of these appeals by this consolidated order. 2. Before we advert to the grounds taken in the appeals and the cross objections, it would first be relevant to cull out the basic facts of the case and effect of law in brief in respect of the relevant AYs before us. Search u/s 132 of the Income Tax Act, 1961 (hereinafter referred to as the Act ) was conducted against the Ruchi Soya Group, on 29-01- 2013 thereby triggering Section 153A of the Act. Prior to the date of search, the income-tax assessment under section (hereinafter referred to as u/s. ) 143(3) of the Act for AY 2010-11 was pending and therefore this assessment abated as a consequence of the search conducted on 29-01-2013. With regard to AY 2012-13, it was pointed out that the time limit for issuance of notice u/s 143(2) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the Revenue was unable to controvert the foregoing facts. 3.2 Having gone through the material placed before us, we agree with the Ld. AR that these grounds do not emanate from the orders of the lower authorities in as much as the Ld. CIT(A) is noted to have adjudicated the additions/disallowances made by the AO on merits. Hence, these grounds raised by the Revenue are found to be infructuous and are therefore dismissed. 4. Ground Nos. 4 5 of the Revenue s appeal being interlinked are taken up together, which are as follows: 4. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the addition of Rs. 1,49,48,313/- in respect of notional interest could not be made by the Assessing Officer, as it was not based on incriminating material found during the course of search, 5. On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in deleting the addition of Rs. 1,49,48,313/- in respect of notional interest made by the Assessing Officer, without appreciating the fact that the decision of CIT us. Continental Warehousing Corporation (Nhava Sheva) Ltd (2015) the decision in the case of All Cargo Global Logistics have not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ightly disallowed the corresponding interest paid on borrowings made by the assessee, which according to him, was utilized to make such interest free advances. The Ld. CIT, DR, in this regard, relied on the order passed by this Tribunal in assessee s own case for AYs 2006-07 and 2007-08, wherein similar disallowance of interest had been upheld. 4.3 Per contra, the Ld. AR submitted that the AO had proceeded on incorrect assumption of fact that these advances given to the brokers remained outstanding during the year. He invited our attention to the audited financials of the assessee to show that there was no balance outstanding in the name of these brokers and hence the question of disallowing proportionate interest towards such non-existing advances did not arise. The Ld. AR further showed us that these advances had been assigned to M/s Nova Trading Pvt. Ltd. way back in AY 2008- 09. He pointed out that the assessee was having a running account with M/s Nova Trading Pvt. Ltd. and therefore these advances receivable were transferred in satisfaction of the dues payable to M/s Nova Trading Pvt. Ltd. by mutual consent. Hence, according to him, when there was no outstanding sum receivabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f disallowance of notional interest of similar amount made in A.Y.2006-07 and A.Y.2007-08 is found to be erroneous and without merit. Accordingly, the addition of Rs. 149,48,313/- is deleted and ground No.6 is allowed. Further, as the amount of advance, in respect of which interest has been disallowed, is no longer outstanding in the books of the appellant, the other grounds (i.e. ground No. 2 to 5) on the merits of the disallowance become academic in nature and are dismissed as infructuous. 4.5. The reliance placed by the Revenue on the appellate orders passed in assessee s own case in AYs 2006-07 2007-08 are found to be factually distinguishable. In those years, the advances given to the three brokers were very much alive and outstanding in the books of the assessee and therefore the authorities were justified in enquiring into the nature and purpose of these advances and to ascertain whether any interest paid on the borrowings were attributable to such outstanding advances. In the present case before us however, the fundamental fact itself is not present viz., there is no amount outstanding as receivable from these three brokers in the books of accounts for the AY 2010-11. For t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have referred to the disclosure of Rs. 100 crores made by the Group in the hands of several different entities on completely different issues. According to the AO however, these surrounding facts revealed that the Group to which the assessee belonged, was engaging in a systematic pattern of evading taxes by incurring losses in its other companies and that a distinctive pattern was noted which showed that sundry creditors were matched with sundry debtors plus loans plus advances plus investments by them. This according to the AO implied that the turnover achieved by such other companies was bogus. Referring to these observations, the AO held that, the assessee, in the present case, had sold a commodity at a price higher than the original purchase price, and then re-purchased it back at a lower price. This according to him implied that the purchases were inflated. The AO accordingly disallowed the inflated payments for purchases quantified at Rs. 139,18,84,449/- and added the same to the total income. It was brought to our notice that certain transactions valuing Rs. 50,87,27,103/- had been considered more than once, which had since been subsequently rectified by the AO by way of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for making the addition of Rs. 139,18,84,499/- and the same is deleted. 5.4 The Revenue is noted to have cited the disclosure of additional income of Rs. 100 crores given by the Ruchi Soya Group in the course of search to justify the impugned disallowance made by the AO. In this regard, we note that the said disclosure was made in the hands of two different entities namely, M/s Spectra Realities Pvt. Ltd. and M/s Soya Marketing Pvt. Ltd. and therefore the said disclosure was of no relevance to the case of the assessee. It is noted that the Ld. CIT(A) had examined the said disclosure and found that even the issue on which the disclosure was made, was unrelated, and did not pertain to these purchase transactions of edible oil by the assessee. The relevant findings recorded by the Ld. CIT(A) in this regard are as follows: 8.4.3. The A.O. has also referred to incriminating documents found in the course of search on 29.01.2013 on the basis of which disclosure of additional income of Rs. 100 crores was made in the hands of various associate concerns ie Spectra Realities Pvt Ltd and Soya Marketing Pvt It. However, in those transactions non- genuine losses were booked by trading in gold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Worldwide Limited (ITA. 1843/Ahd/2016) and other judicial pronouncements, the respondent is entitled to raise the above additional grounds of appeal before ITAT, since ITAT has jurisdiction to consider new and/or additional claims/deductions subsequently claims/deductions/subsequently which was not claimed in return of income /or before the Ld. AO /or before the Hon ble CIT(A). 6.1 Before us, the Ld. CIT, DR for the Revenue objected to the admission of these claims, as according to him, the assessee could not lodge such new claims in the proceedings being conducted u/s 153A of the Act. Per contra, the Ld. AR contended that, the assessee is entitled to make fresh claim u/s 153A of the Act in relation to abated assessments. He submitted that, Section 153A of the Act mandates that, the assessments or re-assessments pending on the date of initiation of search would stand abated and return of income filed by the person qua such abated assessment year would be construed to be a return of income under Section 139 of the Act. Therefore, in view of the second proviso to Section 153A of the said Act, once the assessment got abated, it meant that it was open for both the parties, i.e. the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim in a proceeding under Section 153A of the Act, which was not claimed in the regular return of income, because the assessment was never made/finalized in the case of the assessee in such a situation. We find that this particular issue has been decided in favour of the assessee by the Hon'ble Bombay High Court held in the case of B.G. Shirke Construction Technology P Ltd (supra), wherein it was held as under :- 8. The grievance of the Revenue before us is that the impugned order is unsustainable as it is a passed in the face of the Apex Court Order in Goetze (India) Ltd. (supra). It is submitted that the impugned order could not have held that the claim for deduction could be entertained by the Assessing Officer in the absence of the same finding a place either in return of income or in the revised return of income. It is further submitted that in view of the decision of the Apex Court in CIT v. Sun Engineering Works (P.) Ltd. [1992] 198 ITR 297/64 Taxman 442 a re-assessment consequent to re-opening of the assessment cannot lead to reduction of income which had been originally assessed to tax. In the above view, it is submitted that the impugned order of the Tribunal is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see to lodge new claim in proceedings u/s. 153A of the Act in case of abated assessments as the return filed u/s 153A of the Act was required to be treated as return of income filed u/s 139(1) of the Act. The relevant findings of the Hon ble High Court are noted to be as under: 8.1 In other words, section 153-A(1) provides that where a person is subjected to a search under section 132 or his books of accounts, etc. are requisitioned under section 132-A after 31-5- 2003, the assessing officer is mandated to issue notice to such person to furnish return of income in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made. Such returns of income shall be treated to be returns of income furnished under section 139. Once returns are furnished, income is to be assessed or re- assessed for the six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made. Thus, once section 153-A(1) is invoked, assessment for 6 assessment years immediately preceding the assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... six assessment years is pending on the date of initiation of search or making of requisition, those assessment or re-assessment proceedings shall abate. In other words, pending assessment or re- assessment proceedings on the date of initiation of search or making of requisition shall abate. 8.5 That brings us to the crucial expression, which is 'abate'. The ordinary dictionary meaning of the word 'abate', as per Concise Oxford English Dictionary, Indian Edition, is to reduce or remove (a nuisance). Derivative of abate is abatement. In Black's Law Dictionary, Eighth Edition, 'abatement' has been defined to mean an act of eliminating or nullifying; the suspension or defeat of a pending action for a reason unrelated to the merits of the claim. In Supreme Court on Words and Phrases (1950-2008), abating has been defined to mean an extinguishment of the very right of action itself ; to abate , as applied to an action, is to cease, terminate, or come to an end prematurely. 9. Therefore, from a critical analysis of the provisions contained in section 153-A(1) of the Act more particularly the key expressions as referred to above, it is evident that assessments o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;s appeal in paragraph -14 of the order under challenge dated 28-9- 2016, which reads thus : 14. From the above discussion and precedence, the scheme of assessment u/s. 153A of the Act in case of search, the AO shall issue notice to searched person requiring him to furnish within such period as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b) of sub-section (1) of section 153A and clause (b) postulates assessment or reassessment of the total income of six years immediately preceding the assessment year relevant to the previous year in which such search is conducted. The first proviso mandates that the AO shall assess or reassess the total income in respect of each assessment year falling within such six assessment years. The second proviso postulates that the assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in sub-section (1) is pending on the date of initiation of the search u/s. 132 of the Act shall abate. In the present case before us, however, though the second proviso to sub-section (1) of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms in the abated assessments u/s 153A of the Act. As noted earlier, the provisions of the Act, which would be otherwise applicable in case of return filed under Section 139(1) of the Act, would also continue to apply in case of return filed under Section 153A of the Act. Hence, ordinarily under the regular provisions, the assessee is legally permitted to raise additional claims before Appellate Authorities, which were not claimed in the return filed u/s 139 of the Act. For this, gainful reference may be made to the decision of the jurisdictional Hon'ble Bombay High Court in the case of Pruthvi Brokers Shareholder (349 ITR 336). In the decided case, it was held that an assessee is allowed to raise additional new claims before Appellate Authorities, although not claimed in the return filed u/s 139 of the Act. Having regard to the decisions of B.G. Shirke Construction Technology P Ltd (supra) JSW Steel Ltd (supra), the same analogy would be applicable with equal force in the proceedings u/s 153A of the Act for abated assessments as well. We accordingly hold that the assessee is entitled to raise additional claim/s in the abated assessment for AY 2010-11 in the proceedings u/s 153A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. vs ACIT (ITA No. 1859/Mum/2021) and DCIT vs Aarti Drugs (ITA No. 2503/Mum/2021). The Ld. AR further contended that since these incentives were in the nature of capital receipt, they should be excluded while computing book profit u/s 115JB of the Act as well. In this regard, he relied on the decision of the Hon ble jurisdictional High Court in the case of CIT vs Harinagar Sugar Mills Ltd. (Appeal No. 1132 of 2014) and Hon ble Calcutta High court in the case of PCIT vs Ankit Metal and Power Ltd. (416 ITR 591). Per contra, the Ld. CIT, DR argued that this claim was not admissible at this stage. 8.3 We have considered the rival submissions of both the parties. From the facts as already discussed in the foregoing, it is noted that the FPS and VKGUY Schemes, in terms of which the subsidy was granted, was with the object to enhance the Indian export potential in the international market and generate employment opportunities. It was not granted to meet any cost of expenditure incurred by the assessee to make the exports. We note that the Hon ble Rajasthan High Court in the case of PCIT vs Nitin Spinners Ltd. (supra) has considered similar scheme notified under the same Foreign Trade P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the aforesaid schemes in para 14.10 of its order, as under: 14.10 The Government of India notified the Foreign Trade Policy, 2009-14 under Section 5 of the Foreign Trade (Development and Regulation) Act, 1992 vide notification No 1 (RE-2012)/2009-14 dated 05.06.2012. The Policy contains a Chapter on Special Focus Initiatives, wherein the objective of special focus incentives given for various sectors (FMS and FPS) is specified as under: (a) with a view to continuously increasing our percentage share of global trade and expanding employment opportunities, certain special focus initiatives have been identified/continued for Market Diversification, Technological Upgradation, Support to status holders, Agriculture, Handlooms, Handicraft, Gems Jewellery, Leather, Marine, Electronics and IT Hardware manufacturing Industries, Green products, Exports of products from North- East, Sports Goods and Toys sectors Government of India shall make concerted efforts to promote exports in these sectors by specific sectoral strategies that shall be notified from time to time Further, the objective of subsidy under Status Holder Incentive Scrip (SHIS) is laid down in the policy as under: With an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... test' laid down by the Supreme Court in the aforementioned cases, the amounts received by the appellant during the year, under those Schemes as subsidy should be treated as capital receipt in its hands, not includible in the total income. 47. We find that the subsidy granted under the FMS scheme came up for consideration before the Hon'ble Rajasthan High Court in PCIT Vs. Nitin Spinners Ltd. (2020) 116 Taxmann.com 26 (Raj.), wherein the Hon'ble High Court observed as under: . 48. We further find that the Hon'ble Supreme Court dismissed the Revenue's Special Leave Petition in PCIT Vs. Nitin Spinners Ltd., [2021] 283 Taxman 2(SC), against the aforesaid decision of the Hon'ble Rajasthan High Court. Thus, when the objective of the aforesaid subsidies has been admitted to be to encourage industries by providing industrial growth, technological upgradation, and development, we find no infirmity in the impugned order passed by the learned CIT(A) on this issue in treating the amount received by the assessee under the aforesaid schemes as capital receipt. As a result, grounds no. 9-13 raised in Revenue's appeal are dismissed. 8.5 Following the ratio laid down in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t observations of the Hon'ble High Court are as follows: 26. Now the second issue which requires adjudication is as to whether the aforesaid incentive subsidies received by the assessee from the Government of West Bengal under the schemes in question are to be included for the purpose of computation of book profit under section 115JB of the Income-tax Act, 1961 as contended by the revenue by relying on the decision in the case of Appollo Tyres Ltd. (supra). 27. In this case since we have already held that in relevant assessment year 2010-11 the incentives 'Interest subsidy' and 'Power subsidy' is a 'capital receipt' and does not fall within the definition of 'Income' under section 2(24) of Income-tax Act, 1961 and when a receipt is not on in the character of income it cannot form part of the book profit under section 115JB of the Act, 1961. In the case of Appollo Tyres Ltd. (supra) the income in question was taxable but was exempt under a specific provision of the Act as such it was to be included as a part of the book profit. But where a receipt is not in the nature of income at all it cannot be included in book profit for the purpose of computa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforesaid receipts from the book profit under section 115 JB on the ground that the said subsidies do not constitute income under section 2(24) of the Income-tax Act, 1961?. 8.10 The Hon'ble High Court answered the question in negative and in favour of the assessee by observing as under: 28. The third issue involve in the instant appeal which requires adjudication is whether the action of Tribunal entertaining/allowing the claim which was made by the assessee before the Assessing Officer by filing a revised computation instead of filing a revised return since the time to file the revised return was lapsed, for claiming to treat the incentive subsidies in question as capital receipts instead of revenue receipts as claimed in original return. The Assessing Officer had denied this claim. Revenue has attacked the order of the tribunal by relying on the decision in the case of Goetze (India) Ltd. (supra). 29. This case does not help the revenue/appellant. In this case Supreme Court has made it clear that its decision was restricted to the power of the Assessing authority to entertain a claim for deduction otherwise than by a revised return, and did not impinge on the power of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omputing tax liability under the normal provision u/s 115JB of the Act. 9.1 In these grounds, the appellant has contested the correctness of the suo moto disallowance of Rs. 65,00,000/- made u/s 14A of the Act in the return of income. The assessee has brought to our notice that, the dividend income earned during the year was Rs. 62,70,016/- and has accordingly pleaded that the disallowance made u/s 14A of the Act ought to be restricted to the extent of exempt income. The assessee has accordingly sought that, the excess disallowance of Rs. 2,29,984/- (Rs.65,00,000 Rs. 62,70,016) made by them u/s 14A of the Act ought to be deleted. The assessee has further prayed that no disallowance u/s 14A read with Rule 8D was not warranted while computing book profit u/s 115JB of the Act. 9.2 Heard both the parties. It is noted that the Hon ble jurisdictional Bombay High Court in the case of M/s Nirved Traders Pvt. Ltd. vs DCIT (ITA No. 149 of 2017) and PCIT vs HSBC Invest Direct (India) Ltd. (ITA No. 1672 of 2016) has held that the disallowance u/s 14A of the Act cannot exceed the exempt income so earned by the assessee. Following the binding decisions of the Hon ble jurisdictional High Court (s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sanctioned by the Hon ble High Court of Mumbai, in pursuance of which : . (ii) An amount of Rs. 5,193.54 lac has been adjusted to General Reserve as per details given below: Particulars Amount (Rs. in lac) Bad Debt written off 569.65 Provision for Doubtful Debts 1,433.96 Advances written off 2630.30 Provision for Doubtful Advances 193.42 Expenses on amalgamation 26.12 Additional depreciation on revaluation of fixed assets 1,991.35 Less: Current Tax and Deferred Tax 1,651.26 TOTAL 5,193.54 10.2 The Ld. AR also brought to our notice the Note Nos. 5(d)(vii) 5(e)(i) of Schedule 20 of the Notes appended to the annual financial statements for the year ended 31st March 2010, which read as follows: As provided by the Scheme, an amount of Rs. 5,193.54 lac has been adjusted to General Reserve as under: Particulars Amount (Rs. in lac) Bad Debt written off 569.65 Provision for Doubtful Debts 1,433.96 Advances written off 2630.30 Provision for Doubtful Advances 193.42 Expenses on amalgamation 26.12 Additional depreciation on revaluation of fixed assets 1,991.35 Less: Current Tax and Deferred Tax 1,651.26 TOTAL 5,193.54 (e) Had the Scheme, approved by the Hon ble High Court, not prescribed the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit as per the Profit Loss Account, prepared in accordance with Part II of Schedule VI to the Companies Act, 1956. Where the Profit Loss Account is not strictly drawn up in accordance with Part II of Schedule VI of Companies Act, 1956, the necessary adjustments is to be first made to bring the Net Profit in line with the relevant provisions of the Companies Act and thereafter, the adjustment prescribed in Explanation 1 to Section 115JB is to be carried out. For this, we may gainfully refer to the decision of the Hon ble Supreme Court in the case of Indo Rama Synthetics (I) Ltd. v. CIT (330 ITR 363), wherein it was held that, the object of MAT provisions is to bring out the true working result of the companies, for which if so required, relevant adjustments can be made to the Net Profit. 10.5 In the present case, and from the facts discussed in the foregoing, it is evident that the items viz., bad debts and advances written off, ought to have effect on the Net Profit of the company. The fact that, the assessee adopted an alternate approach, which was approved by the Hon ble High Court, of directly adjusting the same from the General Reserve, does not mean that these items are not to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of the books of accounts as contemplated in Part 11 of Schedule VI which should form and assist to find out what is the profit earned and on that profit, tax is levied. 10.8 Useful reference may also be made to the decision of this Tribunal at Pune in the case of K.K. Nag Limited Vs Addl. CIT (52 SOT 281). In the decided case, the assessee is noted to have created an incremental provision towards leave encashment, which was not debited to the Profit Loss Account but was disclosed separately in the Notes to Accounts forming part of the financial statements. While computing book profit u/s 115JB of the Act, the assessee separately claimed deduction in respect of the said liability. The AO denied the claim for the aforesaid deduction from book profit because, the same had not been debited to Profit Loss Account. On appeal, the question posed before the Tribunal was whether the fact that incremental liability towards leave encashment has not been debited to the Profit Loss account would disentitle the assessee of its claim for deduction from the 'net profit' for the purposes of determining 'book profits' under section 115JB. The Tribunal is noted to have observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that, the assessee was in receipt of excise VAT subsidy under different State Schemes. 11.2 The assessee submitted that it had set-up new manufacturing units in Gwalior, Indore and Mangalia in the State of Madhya Pradesh. In terms of the Notifications issued by the Directorate of Industries, M.P., the assessee was entitled to VAT exemption on the goods sold from these Units. The assessee invited our attention to the copies of the Eligibility Certificates placed at Pages 86 92 of the paper book. It is noted that the Directorate of Industries, M.P. confirmed that the unit set-up by the assessee was eligible for exemption from VAT duty in terms of the said Notification, as a new unit, with effect from the date of commencement of commercial production. It is noted that the said exemption was given only to the new units for development of Industries and generation of employment in the State of Madhya Pradesh. 11.3 During the relevant year, the assessee was also in receipt of subsidy in form of refund of sales tax/VAT from the State of West Bengal under the West Bengal Incentive Scheme, 2000 which was formulated expressly for the purpose of attracting private investment in the State o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly 2003. 11.5 The object of the above Industrial Schemes is therefore noted to be for encouraging the setting up of new industrial units pursuant to which subsidy in form of VAT exemption/excise duty refund was granted to the assessee. 11.6 In view of the above facts, it was the plea of the ld. AR that the incentive in the form of excise duty refund and sales tax/VAT subsidy, have been granted for setting up new units in the States of Madhya Pradesh and West Bengal, which lagged behind in industrial development for development of industries and generation of employment opportunities. The object of the assistance was not to enable the assessee to run the business more profitably but encourage them to set up a new unit or expand the existing unit for overall economic development of the State. Referring to the decision of the Hon'ble Supreme Court in the batch of cases, with its lead order in the matter of CIT v. Chaphalkar Brothers (400 ITR 279), the Ld. AR contended that, it is now well settled that subsidies granted under the State Industrial Schemes formulated with the object to accelerate industrial development and generate employment, is capital in nature and therefore not l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 -there is no larger or immediate object. That the object is carried out in a particular manner is irrelevant, as has been held in both Ponni Sugar and Sahney Steel. 23. Mr. Ganesh, learned Senior Counsel, also sought to rely upon a judgment of the Jammu and Kashmir High Court in ShreeBalaji Alloys v. CIT [2011] 9 taxmann.com 255/198 Taxman 122/333 ITR 335. While considering the scheme of refund of excise duty and interest subsidy in that case, it was held that the scheme was capital in nature, despite the fact that the incentives were not available unless and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 different High Courts and Supreme Court on the numerous occasions. Reference to all those judgments would be un- necessary. However, the principle that has evolved is that, not the nomenclature of the subsidy or the fact that, the computation of the subsidy benefit is in terms of tax payable, would not be conclusive. What is to be examined in each case is the purpose for granting such subsidy. We may refer to the decision of the Supreme Court in case of CIT v. Chaphalkar Bro. [2017] 88 taxmann.com 178/[2018] 252 Taxman 360/400 ITR27. It was a case arising out of judgment of this Court in which, the dispute between assessee and the Revenue was with respect to subsidy granted to the multiplex cinema operators in the form of entertainment tax waiver. The subsidy was granted in view of the fact that, industry was highly capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les tax under the Industrial Schemes, which have been held to be capital receipt, both while computing income under the normal provisions as well as book profit u/s 115JB of the Act. Needless to say, the AO shall provide an opportunity of hearing to the assessee in this regard. This additional ground no. 5 of the cross objections therefore stands partly allowed for statistical purpose. 12. The additional ground no. 6 reads as under: 6. That on the facts and in the circumstances of the case, after giving effect to the above additional ground, the tax would be payable under book profit u/s 115JB and hence provision of interest u/s 234B and 234C shall not be applicable in computing tax liability. 12.1 The issue in dispute in this ground relates to the liability to pay advance tax and interest u/s 234B 234C of the Act, in case the income is held to be chargeable to tax u/s 115JB of the Act. The Ld. CIT, DR, at the outset, contended that the Hon ble Supreme Court in the case of JCIT vs Rolta India Ltd. (330 ITR 470) has held that interest is leviable u/s 234B 234C even if the income tax is ultimately payable under MAT provisions. 12.2 Per contra, the Ld. AR has contended that, earlier t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest under sections 234B and 234C of the Act is not chargeable where the tax liability has been determined in terms of the book profit calculated under section 115JB of the Act. 35. Before the Tribunal it was contended on behalf of the Revenue that charging of interest under sections 234B and 234C of the Act is mandatory in nature by placing reliance on the decision of the Supreme Court in the case of Rolta India Limited (supra) as per which interest under sections 234B and 234C of the Act is chargeable even where the tax liability is determined in terms of section 115JB of the Act. On the other hand, assessee defended the decision of the first appellate authority on the ground that during the relevant period judgment of the Karnataka High Court in Kwality Biscuits Limited (supra) was holding the field and in such circumstances assessee was not expected to pay advance tax in respect of tax leviable on the book profit determined under section 115JB of the Act. The contention was that since at the relevant point of time Karnataka High Court had held that assessee was not required to pay advance tax in respect of minimum alternate tax (MAT), non- payment of advance tax with respect to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sections 207, 208, 209 or 210 (dealing with liability to pay advance tax) cannot be made applicable. Until and unless the accounts are audited and the balance-sheet is prepared, even the assessee would not know whether the provisions of section 115J would be applicable or not. The liability would arise only after the book profits are determined. Accordingly, it was held that interest could not be charged under sections 234B and 234C of the Act while computing book profit. It may be mentioned that Revenue preferred appeal against the aforesaid decision of the Karnataka High Court before the Supreme Court in CIT Vs. Kwality Biscuits Limited, 284 ITR 434. The decision of the Karnataka High Court was affirmed by the Supreme Court and the appeal was dismissed. .. 46. As noticed, in Rolta India Limited (supra) Supreme Court again examined the provisions of sections 234B and 234C and held that section 115JB is a self contained code pertaining to MAT and all companies were liable for payment of advance tax under section 115JB. Consequently, provisions of sections 234B and 234C imposing interest on default in payment of advance tax were also applicable. Therefore, the decision of the Karnat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon the assessee. In the facts and circumstances as discussed above no fault can be found with the assessee in not depositing the advance tax of minimum alternate tax in view of the decision of the hon'ble Supreme Court as well as various decisions of the hon'ble High Court. The assessee had the bona fide reason to believe that advance tax was not payable in respect of minimum alternate tax under section 115JB as it was a settled law laid down by the hon'ble Supreme Court and the hon'ble High Court which hold good till the subsequent decision of the hon'ble Supreme Court in the case of Rolta India Ltd. (supra). Therefore, prior to the decision of the hon'ble Supreme Court in the case of Rolta India Ltd. (supra) settled proposition of the law on the point was that no advance tax was payable on minimum alternate tax computed under section 115JB and accordingly, the interest under sections 234B and 234C cannot be levied for non-deposit of advance tax on minimum alternate tax for the year under consideration. Hence, we delete the levy of interest under sections 234B and 234C in this case. 12.6 From the above it is evident that, the Hon ble jurisdictional High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contents of such books of account and other documents are true. 4. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) was erred in appreciate decision of Hon ble Supreme Court in the case of Sumati Dayal (80 Taxman 89) wherein it was held that apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real and that the taxing authorities are entitled to look into the surrounding circumstances to find out the reality and the matter has to be Considered by applying the test of human probabilities. 14.1 These grounds relate to the addition of Rs. 243,60,00,000/- made by the AO by way of unaccounted profits derived from trading in guar gum and guar seed in a joint venture with Betul Group. Brief facts as noted by us are that, in the course of search conducted upon the Ruchi Soya Group, a worksheet summarising the profits from guar/seed transactions of Ruchi Betul Group was found from the possession of one employee, Shri RC Gupta, General Manager (Accounts). When confronted with this worksheet, it is noted that Shri RC Gupta, in his answer to Question No. 18 of his statement recorded u/s 131 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s noted to have rejected the explanations put forth by the assessee. The AO was of the view that the notings found on this working sheet denoted that the assessee had a joint venture with Betul Group. After analysing the notings, the AO concluded that this joint venture had derived profit of Rs. 243,60,00,000/- from trading in guar gum and guar seeds, which according to him, had not been accounted in the books of the assessee. For arriving at such conclusion, the reasons given by the AO have been summarized below, for the sake of convenience :- (i) The assessee group had funded the Betul Group to hold large quantity of stocks of guar seed and gum. (ii) There was a relationship between the assessee group and Betul Group. (iii) The answers given by Shri RC Gupta showed that he had deciphered the worksheet and was aware of the transactions conducted by the joint venture. (iv) The averment of Shri RC Gupta and the assessee that the document did not contain any dates or period for the transaction was not acceptable because Shri RC Gupta had clearly stated that he had received this working sheet in FY 2011-12 and therefore the AO deduced that such transactions ought to pertain to AY 2012 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rroborated the AO s case that this worksheet also denoted trading transactions undertaken outside the books. He thus urged that the order of Ld. CIT(A) be reversed and the action of AO be restored. Per contra, the Ld. AR heavily relied on the order of the Ld.CIT(A). 14.6 We have heard both the rival parties and perused the relevant material placed before us. It is noted that, the issue in dispute emanated from a loose paper which was a working sheet found from the possession of the General Manager (Accounts) of the assessee company. It is the case of the Revenue that this working sheet contains summary of actual transactions undertaken by a joint venture between the assessee and Betul Group during FY 2011-12. Having perused this sheet, it is noted that, ex-facie it does not contain any dates or period of transaction. It is observed that the AO had deduced this working sheet to be pertaining to FY 2011-12, by relying on the statement of Shri RC Gupta. As rightly pointed out by the Ld. AR that Shri R C Gupta had nowhere admitted that this statement pertained to FY 2011-12. Rather, he is noted to have averred that this working sheet was received by him in FY 2011-12 and in the same br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chi and Betul Group and the preparer of this statement had remarked that Ruchi had realised Rs. 44.9 more than Betul. This according to Ld. CIT(A) suggested that there was no joint venture between them. Going by the figures mentioned against the name of the assessee in the worksheet, the Ld. CIT(A) noted that the preparer had worked out the profit of Ruchi at Rs. 365.35. Against this, the Ld. CIT(A) took note of the fact that, the assessee had already accounted for profit in excess of Rs. 839 crores from physical trading of guar in its books of accounts. Since there was no date or period mentioned in this working sheet, we agree with the Ld. AR that, even if the notings are said to be actual, then also no feasible reconciliation with the books was possible. However, as the profits reflected in the books for the year were substantially higher than what was found noted on this working sheet, we agree with the Ld. AR that, a plausible inference could be drawn that the notings found in this working sheet did not represent undisclosed income of the assessee. In this regard, the relevant findings of the Ld. CIT(A) taken note by us are as follows: 13.3.2. I find that the said work sheet, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so rebuttable. The appellant has denied the existence of any joint venture between the Betul group and the appellant company and has submitted that the income arising from physical trading of guar gum and guar seed in its own name, during the year had been recorded in the books of account and profit of approximately Rs. 839 crore earned from such physical trading was appropriately accounted for. It has been submitted that the appellant company did not have any business in guar gum and guar seed futures during the A. Y. 2011-12, 2012-13 2013-14. I find that the figures noted in the said worksheet do. not refer to any date or period and has not been corroborated with any other evidence like purchase/sale bills, vouchers, details of payments etc. to come to a conclusion that the profits noted therein are in the nature of undisclosed income of the appellant company 14.8 It is also noted that Shri R C Gupta had all along maintained his stand in his statement given u/s 131 of the Act that, this working sheet contained estimates and projections and therefore it cannot be construed as actual transactions undertaken by the assessee. The assessee had also denied having any joint venture with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a and Manish of Betul group with copy to Jigar Shah on various dates pertaining to F.Y.2011-12 and F.Y 2012-13. The transactions noted in the e-mails pertain to invoices raised by BOL and its group concerns like Vision Millennium in favour of Nova Trading and other concerns of Ruchi group, summary of advances (company- wise) given to Vision Millennium and Betul by various associate concerns of Ruchi group. The seized documents containing e- mail from Ramesh Gupta of Ruchi group to Raj Kumar Goyal contains an internal correspondence regarding requirement of fund considering the proposed date of payment falling in the month of January 2012 and it is stated that these pertain to the fund requirement for guar business to be made from the books of RSIL except two entries amounting to Rs. 97.5 crores and Rs. 82.5 crores relating to delivery of exchange of seed and gum from JV books. The appellant has filed copy of ledger accounts of associate concerns noted. in the e-mail and has submitted that the said transactions of advances and sale/purchase are duly recorded in their books of accounts. The ledger shows advance payment by associate concerns of appellant company like Nova Trading Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ksheet being without any reference to date or time period and not corroborated by any other evidence or material, was unreliable. Hence, we agree with the Ld. CIT(A) that it was not possible to drawn any legitimate inference that these notings denoted undisclosed income in the hands of the assessee. Accordingly, we see no reason to interfere with the order of the Ld. CIT(A) deleting the impugned addition made by the AO. These grounds of appeal of the Revenue are therefore dismissed. 15. We now take up the appeal in ITA No. 320/Mum/2023 filed by the assessee for AY 2012-13. Ground No. 1.0 being general in nature does not call for any adjudication. Ground No. 1.1 of the appeal reads as under :- 1.1. That on the facts and in the circumstances of the case the Ld. CIT(A) is unjustified in confirming the disallowance of Rs. 2,57,78,489/- being expend towards employee Stock Options (ESOPs) provided the employees. 15.1 This ground relates to the Ld. CIT(A) s action of confirming the disallowance of ESOP expenditure made by the AO. Briefly noted the facts of the case are that, the assessee had claimed deduction for ESOP expenses in the return filed u/s 139(5) of the Act on 31.01.2014. The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the option set out in Para 46A of AS-11 notified by Institute of Chartered Accountants of India dated 29th December 2011, in terms of which, the assessee capitalized the foreign exchange loss of Rs. 53,67,95,036/- incurred during the year to the fixed assets. However, while filing the return of income, the assessee is noted to have separately claimed deduction for such foreign exchange loss while computing business income. Correspondingly, the said foreign exchange loss, which was capitalized to fixed asset, was excluded / reduced for the purposes of computing depreciation u/s 32 of the Act. The AO however held that the said foreign exchange loss was not allowable u/s 43A of the Act but was required to be added to the block of assets. The AO accordingly disallowed the foreign exchange loss holding it to be capital in nature. Instead, he added the same to the block of assets and allowed increased depreciation thereon, thereby resulting in net disallowance of Rs. 31,85,98,806/-. On appeal, the Ld. CIT(A) is noted to have upheld the disallowance. Now, the assessee is in appeal before us. 16.2 Assailing the action of Ld. CIT(A), the Ld. AR for the assessee submitted that the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court in the case of CIT vs Tata Iron Steel Co. Ltd. (231 ITR 285) to be relevant in the facts of the present case. In the decided case, it was held that the cost of an asset and the cost of raising money for purchase of the asset are two different and independent transactions. Once the asset has been acquired, the events subsequent to the acquisition cannot alter the price paid for it. Therefore, the fluctuation in foreign exchange rates while repaying the foreign currency loans raised to acquire capital assets, which had already been put to use, cannot alter the actual cost of assets in terms of Section 43(1) of the Act. 16.4 It is noted that the AO had applied provisions of Section 43A of the Act to hold that the gain/loss incurred on foreign currency loans in relation to capital assets was to be reduced/added to the cost of assets. In our opinion, Section 43A of the Act only applies to the gain/loss incurred on repayment of foreign currency loans which were used for acquiring asset from a country outside India. The said provision does not apply indigenous assets acquired out of foreign currency loans. Hence the fundamental premise on which the AO made the impugned disallowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrency loans to the Profit Loss Account upto FY 2010-11 and the same was also accepted and allowed by the Revenue. In the relevant FY 2011-12, the ICAI had modified Para 46A of AS-11 in December 2011, in terms of which the company now had an option to either debit such foreign exchange loss to the Profit Loss Account or capitalise the same to the cost of assets. The assessee, in the present case, chose the latter option. Merely because the assessee chose the later option would not alter the nature of foreign exchange loss viz., revenue in nature. It is by now trite in law that, the entries whether the assessee is entitled to a particular deduction or not depends upon the provision of law relating thereto. The existence or absence of entries in the books of account be decisive or conclusive in the matter. This legal principle has been laid down by the Hon ble Supreme Court in the case of Kedar Jute Mfg Co. Ltd. vs CIT (82 ITR 363) wherein the Hon ble Court has clearly stated as follows: Whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might taken of its right nor can the exis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of capital receipt. However, as the relevant facts and figures were not placed before the AO, we deem it fit to set this issue aside for the limited purpose of verifying the details figures. The AO shall accordingly quantify and exclude the subsidies received under the FPS VKGUY Scheme of Foreign Trade Policy, which have been held to be capital receipt, both while computing income under the normal provisions as well as book profit u/s 115JB of the Act. Needless to say, the AO shall provide an opportunity of hearing to the assessee in this regard. This additional ground is therefore partly allowed for statistical purposes. 19. The Additional Ground No. 1.4 reads as under :- 1.4 That on the facts and in the circumstances of the case the CIT(A) ought to have considered that the disallowance of Rs. 60,00,997/- u/s 14A r.w.r. 8D c not be made in computing the book profit u/s 115JB of the Act. 19.1 This additional ground is against the addition of disallowance computed u/s 14A r.w. Rule 8D to the book profit u/s 115JB of the Act. After considering the rival submissions, it is observed that the issue involved in this ground is similar to the Additional Ground No. 2 taken by this assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set this issue aside for the limited purpose of verifying the details figures. The AO shall accordingly quantify and exclude the subsidies received by way of VAT Remission Excise refund under the different Industrial Schemes, which have been held to be capital receipt, both while computing income under the normal provisions as well as book profit u/s 115JB of the Act. Needless to say, the AO shall provide an opportunity of hearing to the assessee in this regard. This additional ground is therefore partly allowed for statistical purposes. 22. The last additional ground raised by the assessee in AY 2012-13 is against the levy of interest u/s 234C of the Act. This ground is noted to be consequential in nature. The levy of interest u/s 234C of the Act is mandatory. The AO is therefore directed to recompute and levy the interest in accordance with law while giving effect to this appellate order. This ground is therefore allowed for statistical purposes. 23. We now take up the Revenue s appeal in ITA No. 1176/Mum/2023 for AY 2012-13. This appeal has been preferred by the Revenue against the order of Ld. CIT(A) deleting the penalty levied by the AO with reference to the addition/s which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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