2022 (10) TMI 1151 - AT - Income Tax

Tax Appeals Update: Revenue's Appeals Dismissed, Assessee's Cross Appeals Partly Allowed

The appeals filed by the Revenue for AYs 2011-12 and 2012-13 were dismissed, while the cross appeals filed by the assessee for the same assessment years ... Additional depreciation u/s 32(1)(iia) - assessee’s claim for 50% initial depreciation u/s 32(1)(iia) in respect of new plant and machinery purchased and installed in the preceding year but put to use for a period of less than 180 days in that year - HELD THAT:- Since the issues raised before us are squarely covered by the decision of this Tribunal in assessee’s own case for preceding assessment year i.e. for AY 2010-11 [2017 (9) TMI 962 - ITAT KOLKATA] and Revenue being unable to controvert this fact by placing any other binding precedence in its favour, we fail to find any infirmity in the finding of ld. CIT(A). Thus, common ground no. 1 for AY 2011-12 & AY 2012-13 raised by the Revenue is dismissed. Deduction u/s 80IA in respect of thermal power plants for generating electricity - electricity generated by the two power plants was transferred to the assessee’s cement manufacturing units. Further, electricity was also sold to independent third parties during the year under reference - HELD THAT:- As decided in assessee’s own case for AY 2010-11 [2017 (9) TMI 962 - ITAT KOLKATA] in the issue to exclude electricity duty and cess, we find that the same has been addressed by the Hon’ble Gujarat High court in the case of CIT vs Shah Alloys Ltd. [2011 (11) TMI 762 - GUJARAT HIGH COURT] which approved the view taken by the Ahmedabad Tribunal in [2010 (1) TMI 1175 - ITAT AHMEDABAD], that the price charged by the Electricity Board inclusive of the amount of Electricity Duty represented the market value even though the assessee was not required to charge electricity duty. In view of our aforesaid findings, we direct the Id AO to accordingly modify the earlier years profits also which were modified by him, in the same lines as directed for Asst Years 2008-09 and 2009-10 herein. Accordingly, the grounds raised by the assessee in this regard deserve to be allowed and that of the revenue deserve to be dismissed. Claim of compensation paid for obtaining limestone connected to mining activity - Revenue or capital receipt - HELD THAT:- As decided in assessee own case [2017 (9) TMI 962 - ITAT KOLKATA] for AY 2010-11 assessee is required to pay compensation as determined by the local authority/ court to the persons whose rights are infringed because of the mining activity. We also observe that Ld. CIT(A) has properly analysed the facts of the present case and distinguished the facts decided by the Hon’ble Apex Court in the case of Enterprising Enterprises vs. DCIT [2006 (12) TMI 138 - SC ORDER] and then only had come to a conclusion that the compensation was paid for the damaged caused on the infringement of right of the land owner. He has also analysed that the payments are progressively distributed as they work, as they proceed year by year, going on with their work and the payments are in the nature of incidental expenditure to conduct the mine and the business operations. He, therefore, held that the payment of compensation to persons whose rights are infringed by the mining activity is revenue in nature. Decided against revenue. Nature of receipt - treating of industrial promotion assistance from the State Government as capital receipt - HELD THAT:- The identical question involving the 2000 Scheme came up for consideration recently before the Hon’ble Calcutta High Court in PCIT vs. Budge Budge Refineries Limited [2022 (2) TMI 533 - CALCUTTA HIGH COURT] and the revenue’s appeal against the order of the Hon’ble Tribunal was dismissed - IPA received by the assessee would have to be construed as a Capital Receipt and the same need not be reduced from the cost of assets in terms of Explanation 10 to Section 43(1) of the Act. Accordingly, the grounds raised by the revenue are dismissed and grounds raised by the assessee are allowed. Claim of interest subsidy from the State Government as a capital receipt - HELD THAT:- Since the issues raised before us are squarely covered by the decision of this Tribunal in assessee’s own case for preceding assessment year i.e. AY 2010-11 [2017 (9) TMI 962 - ITAT KOLKATA] and Revenue being unable to controvert this fact by placing any other binding precedence in its favour, we fail to find any infirmity in the finding of ld. CIT(A) to hold that the interest subsidy is to be treated only as a capital receipt and accordingly the grounds raised by the assessee in this regard are allowed. Disallowance u/s 14A of the Act read with Rule 8D of the Rules - HELD THAT:- As decided in assessee own case AY 2010-11 direct the AO to consider all investments (excluding investments in subsidiary companies) which yielded dividend income to the assessee for computing disallowance u/s 14A of the Act r.w. Rule 8D(2)(iii) of the Rules. MAT Computation - whether subsidy/incentives need to be excluded from the book profit u/s 115JB? - HELD THAT:- Since the issue stands squarely covered by the Hon'ble Jurisdictional High Court in the case of Ankit Metal and Power Limited [2019 (7) TMI 878 - CALCUTTA HIGH COURT] we fail to find any infirmity in the finding of ld. CIT(A) holding that the subsidy/incentive received by the assessee which have been held to be capital receipts are to be excluded from the book profit u/s 115JB of the Act. Upward adjustment made to book profit for disallowance computed u/s 14A r.w. Rule 8D of the Rules - HELD THAT:- As relying on Gokaldas Images’ case [2020 (11) TMI 345 - KARNATAKA HIGH COURT] no infirmity in the finding of ld. CIT(A) in deleting upward adjustment made to book profit for disallowance computed u/s 14A r.w. Rule 8D of the Rules. Education cess being claimed as an expenditure u/s 37(1) - HELD THAT:- We fail to find any merit in this ground raised by the assessee, since the claim of deduction in the nature of education cess has been decided against the assessee by this Tribunal in the case of M/s. Kanoria Chemicals & Industries Ltd. [2021 (10) TMI 1153 - ITAT KOLKATA] and also in light of the retrospective amendment made by the Finance Act, 2022 inserting Explanation 3 to Section 40 of the Act as per which education cess cannot be claimed as expenditure. Therefore, common ground no. 1 raised by the assessee for AY 2011-12 & AY 2012-13 are dismissed. Deduction of provision made for leave encashment and the allowability of the deduction u/s 43B(f) of the Act - HELD THAT:- As respectfully following the finding of the Tribunal applying the ratios laid down by Hon'ble Supreme Court of India in the case of Exide Industries Limited [2020 (4) TMI 792 - SUPREME COURT] are of the considered view that the issue needs to be remitted back to the file of ld. AO who shall allow the claim of leave encashment actually paid by the assessee during the AY 2011-12 & AY 2012-13. Issues Involved:1. Condonation of delay in filing the appeal.2. Deduction of education cess under Section 37(1) of the Income Tax Act.3. Deduction of leave liability under Section 43B(f) of the Income Tax Act.4. Claim of additional depreciation under Section 32(1)(iia) of the Income Tax Act.5. Deduction under Section 80IA of the Income Tax Act for thermal power plants.6. Treatment of compensation paid for obtaining limestone as revenue expenditure.7. Treatment of industrial promotion assistance from the State Government as capital receipt.8. Treatment of interest subsidy from the State Government as capital receipt.9. Disallowance under Section 14A read with Rule 8D of the Income Tax Rules.10. Exclusion of subsidy/incentives from book profit under Section 115JB of the Income Tax Act.11. Upward adjustment to book profit for disallowance computed under Section 14A read with Rule 8D.Detailed Analysis:1. Condonation of Delay in Filing the Appeal:The assessee's appeals were time-barred by 741 days. The delay was attributed to the decision to file cross appeals based on the judgment of the Hon'ble Bombay High Court in the case of Sesa Goa Ltd. and COVID-19 restrictions. The Tribunal found merit in the condonation application and admitted the appeals for adjudication.2. Deduction of Education Cess:The assessee claimed that education cess is an allowable deduction under Section 37(1) and not hit by Section 40(a)(ii). However, the Tribunal dismissed this ground, referencing the decision in M/s. Kanoria Chemicals & Industries Ltd. vs. ACIT and the retrospective amendment by the Finance Act, 2022, which clarified that education cess cannot be claimed as expenditure.3. Deduction of Leave Liability:The assessee claimed deduction for leave liability based on the decision of the Hon'ble Calcutta High Court in Exide Industries Limited. The Tribunal remitted the issue back to the AO to allow deduction for the actual payment made during the relevant assessment years, in line with the Hon'ble Supreme Court's decision in Union of India v. Exide Industries Limited.4. Claim of Additional Depreciation:The Tribunal upheld the assessee's claim for additional depreciation under Section 32(1)(iia), following the decision in the assessee's own case for previous assessment years, and the judgments of the Hon'ble Karnataka High Court and Hon'ble Madras High Court.5. Deduction Under Section 80IA for Thermal Power Plants:The Tribunal upheld the assessee's method of valuing electricity transferred from its power plants to its cement manufacturing units based on the rates charged by the State Electricity Board. This was in line with the Tribunal's decisions in the assessee's own case for previous years and the Hon'ble Calcutta High Court's decision.6. Treatment of Compensation Paid for Obtaining Limestone:The Tribunal upheld the treatment of compensation paid for obtaining limestone as revenue expenditure, following its decisions in the assessee's own case for previous assessment years and the Hon'ble Calcutta High Court's decision.7. Treatment of Industrial Promotion Assistance as Capital Receipt:The Tribunal upheld the treatment of industrial promotion assistance from the State Government as a capital receipt, following its decisions in the assessee's own case for previous assessment years and the Hon'ble Calcutta High Court's decision in PCIT vs. Budge Budge Refineries Limited.8. Treatment of Interest Subsidy as Capital Receipt:The Tribunal upheld the treatment of interest subsidy received under the Rajasthan Investment Promotion Scheme as a capital receipt, following its decisions in the assessee's own case for previous assessment years and the Hon'ble Supreme Court's decision in CIT v. Ponni Sugar and Chemicals Limited.9. Disallowance Under Section 14A Read with Rule 8D:The Tribunal directed the AO to consider only those investments which yielded dividend income for computing the disallowance under Section 14A read with Rule 8D(2)(iii), following its decision in the assessee's own case for previous assessment years.10. Exclusion of Subsidy/Incentives from Book Profit Under Section 115JB:The Tribunal upheld the exclusion of subsidy/incentives from book profit under Section 115JB, following the Hon'ble Calcutta High Court's decision in PCIT vs. Ankit Metal & Power Ltd.11. Upward Adjustment to Book Profit for Disallowance Computed Under Section 14A Read with Rule 8D:The Tribunal upheld the deletion of upward adjustment made to book profit for disallowance computed under Section 14A read with Rule 8D, following the Hon'ble Calcutta High Court's decision in CIT v. Jayshree Tea and Industries Limited and the Hon'ble Karnataka High Court's decision in CIT v. Gokal Das Images Private Limited.Conclusion:The appeals filed by the Revenue for AYs 2011-12 and 2012-13 were dismissed, and the cross appeals filed by the assessee for both AYs 2011-12 and 2012-13 were partly allowed for statistical purposes.