Appeal outcomes for AY 2002-03 and 2005-06: Assessee partly succeeds, Revenue dismissed.

The appeal filed by the assessee for AY 2002-03 is partly allowed for statistical purposes, while the appeal of the Revenue for AY 2002-03 is dismissed. Additionally, the appeal preferred by the Revenue for AY 2005-06 is also dismissed, and the appeal of the assessee for AY 2005-06 is partly allowed for statistical purposes. The decision was pronounced in open court on 6th March 2014.

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Issues Involved:

1. Exemption of sales tax, entry tax, and electricity duty subsidy.
2. Adhoc disallowance of expenditure incurred on aircraft for alleged non-business purposes.
3. Charging of interest under Section 234B of the Income Tax Act.
4. Allowing depreciation under Section 32 of the Income Tax Act.
5. Deduction under Section 80-IA of the Income Tax Act.
6. Disallowance of front-end fees as capital expenditure.
7. Disallowance of interest as capital expenditure.
8. Disallowance of consultancy charges paid to Price Water House.
9. Disallowance of expenses related to acquisition of capital assets.

Issue-wise Detailed Analysis:

1. Exemption of Sales Tax, Entry Tax, and Electricity Duty Subsidy:
The assessee claimed exemption on sales tax, entry tax, and electricity duty subsidy, which was not initially claimed before the Assessing Officer (AO). The CIT(A) dismissed the additional ground based on the Supreme Court's decision in Goetze (India) Ltd., which mandates that such claims must be made in the return of income or a revised return. The ITAT upheld the CIT(A)'s decision, noting that judicial propriety demands adherence to previous ITAT decisions unless referred to a larger bench. The ITAT followed its prior ruling for AY 2004-05, determining the subsidies as revenue receipts based on the incentive scheme of the Madhya Pradesh Government and the Supreme Court's ruling in Sahney Steel and Press Works Ltd.

2. Adhoc Disallowance of Expenditure on Aircraft:
The AO made an adhoc disallowance of Rs. 2,00,000 for non-business use of the aircraft. The ITAT found that the AO did not provide specific details of non-business trips and thus set aside the matter to the AO to determine disallowance based on actual non-business trips.

3. Charging of Interest under Section 234B:
The ITAT directed the AO to rework the interest under Section 234B after determining the income as per the ITAT's order, acknowledging that this issue is consequential.

4. Allowing Depreciation under Section 32:
The AO had adopted the straight-line method for depreciation, disallowing Rs. 54,93,178. The CIT(A) allowed the depreciation based on the written down value method as claimed by the assessee. The ITAT upheld the CIT(A)'s decision, citing previous ITAT decisions and the Punjab & Haryana High Court's rulings in the assessee's favor.

5. Deduction under Section 80-IA:
The AO reduced the deduction under Section 80-IA by treating the inter-unit transfer of power at Rs. 2.32 per unit instead of Rs. 3.72/3.29 per unit. The CIT(A) allowed the higher rate, and the ITAT upheld this decision, following the Punjab & Haryana High Court's rulings in the assessee's favor for previous years.

6. Disallowance of Front-End Fees as Capital Expenditure:
The AO treated Rs. 50 lakhs of front-end fees as capital expenditure. The CIT(A) allowed it as a revenue deduction, supported by various judicial precedents, including the Supreme Court's decision in India Cements Ltd. The ITAT upheld the CIT(A)'s decision.

7. Disallowance of Interest as Capital Expenditure:
The AO disallowed Rs. 62,50,000 of interest on non-convertible debentures as capital expenditure. The CIT(A) allowed it as revenue expenditure under Section 36(1)(iii). The ITAT upheld the CIT(A)'s decision, supported by judicial precedents, including the Supreme Court's decision in Core Health Care Ltd.

8. Disallowance of Consultancy Charges Paid to Price Water House:
The AO disallowed Rs. 4,75,724 paid to PricewaterhouseCoopers for consultancy, deeming it unrelated to business. The CIT(A) allowed the expenditure, supported by judicial precedents. The ITAT upheld the CIT(A)'s decision.

9. Disallowance of Expenses Related to Acquisition of Capital Assets:
The AO disallowed Rs. 1,38,600 paid for design and drawings for slab caster modification as capital expenditure. The CIT(A) allowed it as revenue expenditure, considering it as current repairs. The ITAT upheld the CIT(A)'s decision, supported by judicial precedents.

Summary:
(i) The appeal filed by the assessee for AY 2002-03 is partly allowed for statistical purposes.
(ii) The appeal of the Revenue for AY 2002-03 is dismissed.
(iii) The appeal preferred by the Revenue for AY 2005-06 is dismissed.
(iv) The appeal of the assessee for AY 2005-06 is partly allowed for statistical purposes.

Decision pronounced in the open Court on 6th March, 2014.

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