Tribunal decision: Deduction disallowance, revenue receipts treatment, book profits set-off, depreciation, and remitted issues.

Dhariwal Industries Ltd. And Others Versus Addl. CIT, Circle-1 (2), Pune And Others

Dhariwal Industries Ltd. And Others Versus Addl. CIT, Circle-1 (2), Pune And Others - TMI Issues Involved:

1. Deduction under Section 80I/80IA.
2. Treatment of sales tax incentive as revenue or capital receipt.
3. Computation of book profits under Section 115JB.
4. Depreciation on assets of Hyderabad unit.
5. Additional ground on deduction under Section 80IA.
6. Capital subsidy from MEDA.

Issue-Wise Analysis:

1. Deduction under Section 80I/80IA:
The assessee claimed deductions under Section 80I and 80IA for its Baroda and Hyderabad units. The AO disallowed the claims based on a previous Tribunal decision, which was upheld by the CIT(A). The Tribunal noted that a Special Bench had determined that Gutkha and Pan Masala manufactured by the assessee were 'tobacco preparations' under the Eleventh Schedule of the Income Tax Act, thus not qualifying for deductions under Sections 80I/80IA. Consequently, the Tribunal upheld the CIT(A)'s decision, dismissing the assessee's appeal on this ground.

2. Treatment of Sales Tax Incentive:
The assessee received sales tax incentives for setting up windmills, which it claimed as capital receipts. The AO treated these as revenue receipts, a decision upheld by the CIT(A). The Tribunal analyzed the scheme and noted that the incentives were linked to the operational efficiency of the windmills, thus characterizing them as revenue receipts. The Tribunal referenced the Supreme Court's decisions in Sahney Steel and Ponni Sugars, emphasizing that the purpose of the subsidy determines its nature. Since the incentives were for operational efficiency, the Tribunal concluded they were revenue receipts and dismissed the assessee's appeal.

3. Computation of Book Profits under Section 115JB:
The AO did not allow the set-off of losses from merging companies for computing book profits under Section 115JB, a decision upheld by the CIT(A). The Tribunal noted that the AO had allowed the set-off for normal computation but not for book profits. The Tribunal referred to the Bombay High Court's decision in Pruthvi Brokers and Shareholders Pvt. Ltd., which allows claims not made in the return to be considered by appellate authorities. The Tribunal concluded that the assessee was entitled to set off the brought-forward losses for computing book profits under Section 115JB, allowing the assessee's appeal on this ground.

4. Depreciation on Assets of Hyderabad Unit:
The AO disallowed depreciation on the Hyderabad unit's assets, which were not used during the year, a decision upheld by the CIT(A). The Tribunal referred to multiple High Court decisions, including Oswal Agro Mills and Sonal Gum Industries, which held that depreciation is allowable on assets forming part of a block of assets even if not used in the relevant year. The Tribunal concluded that the assessee was entitled to depreciation on the Hyderabad unit's assets, allowing the appeal on this ground.

5. Additional Ground on Deduction under Section 80IA:
The assessee raised an additional ground for deduction under Section 80IA if the sales tax incentive was considered a revenue receipt. The Tribunal dismissed this ground as academic since the assessee would not be entitled to any deduction under Section 80IA even if the incentive was treated as revenue.

6. Capital Subsidy from MEDA:
The assessee received a capital subsidy from MEDA, which it did not offer to tax, arguing it had already been taxed in an earlier year. The CIT(A) dismissed the ground, noting that the matter for the earlier year was still pending. The Tribunal remitted the issue to the CIT(A) for adjudication after the appeal for the earlier year was decided.

Conclusion:
The Tribunal's decisions were a mix of upholding and reversing the lower authorities' decisions based on detailed legal analysis and precedents. The appeals were partly allowed, with specific issues remitted for further consideration.