TaxTMI 
TaxTMI 
2015 (7) TMI 2
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....peal by the assessee relates to the order of the CIT(A) in rejecting the assessee's claim for deduction u/s.80I/80IA. 3.1 Facts of the case, in brief, are that the assessee claimed deduction of Rs. 3,18,11,789/- u/s.80I of the I.T. Act, 1961 in respect of the profits and gains derived by its Baroda unit. This is the 10th year of claim for the Baroda unit. Similarly, the assessee claimed deduction of Rs. 4,04,96,585/- u/s.80IA of the I.T. Act in respect of the profits and gains derived by its Hyderabad unit. This is the 9th year of claim for the Hyderabad unit. The AO following the decision of the Tribunal in assessee's own case for A.Yrs. 1994-95 and 1995-96 disallowed the claim. In appeal the Ld.CIT(A) upheld the action of the AO. Aggrieved with such order of the Ld.CIT(A) the assessee is in appeal before us. 3.2 The Ld. Counsel for the assessee at the outset submitted that the decision of the Tribunal in assessee's own case was set aside by the Hon'ble Bombay High Court. Subsequently, the Special Bench was constituted to decide the issue as to whether the assessee is entitled to deduction u/s.80I/80IA of the I.T. Act in respect of the profits and gains of it....
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....13, the assessee has claimed the same to be in the nature of capital subsidy and deducted it in its computation of income filed with the return of income. It is pertinent to mention here that the assessee had not deducted the above amount in the computation of income filed with the original return of income. 4.2 On being questioned by the AO during the course of assessment proceedings, the assessee submitted that consideration so received was in the nature of capital receipt as the same was received by the assessee for setting up wind mills in the State of Maharashtra and had been given to promote investment in this sector. The resolution passed by the Government of Maharashtra was produced before the AO. The decision of the Hon'ble Supreme Court in the case of CIT Vs. P.J. Chemicals reported in 210 ITR 830, the decision of Mumbai Bench of the tribunal in the case of Reliance Industries Ltd. reported vide ITA No.7554/1989 for A.Y. 1985-86 and the decision of the Tribunal in the case of Bajaj Auto Ltd. Vs. ITA Nos. 49 and 1101/1991 order dated 31-12-2002 were brought to the notice of the AO. It was submitted that in view of the above decisions the sales tax incentive to wind ....
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....reported in 88 ITD 273 is concerned the AO noted that the Department has not accepted the decision. Further, in the said decision, the ITAT has not considered the fact that the assessee was separately entitled to capital subsidy as is the case of the assessee. Looking to the dominant purpose of the subsidy the AO held that the aforesaid receipt by the assessee has to be considered as revenue nature and includible in the taxable income of the assessee. 4.5 Before CIT(A) the assessee reiterated the same submissions as made before the AO. It was submitted that during the year under consideration the assessee has transferred the sales tax benefit for a consideration of Rs. 7,28,71,527 to Telco and claimed it as a capital receipt. The salient features of this scheme has encompassed by the Govt. of Maharashtra resolution dated 12-03-1998 and 01-10-99 were brought to the notice of the Ld.CIT(A). It was argued that the scheme as introduced in furtherance of the State Govt. policy to promote generation of energy through non conventional sources to supplement the ever increasing demand of electricity in the State. The scheme has been implemented to promote wind energy generation in the St....
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....tion dated 12.03.1998 which reads as under: "MEDA shall give a subsidy up to 30% of the fixed capital investment [limited to Rs. 20 lacs] to the promoters subject to condition that windpower plant has successfully operated with minimum 12% plant load factor for atleast one year' - emphasis supplied. Thus, it is clear that like Scheme of Andhara Pradesh, the scheme of subsidy of Maharashtra Govt. also provides that subsidy is available only after production has not only started but continued for atleast one year with a minimum of plant load factor. [2] As per scheme of AndharaPradesh Govt. in the case of Sahaney Steel and Press Works Ltd. and Others Vs. CIT before Hon.Supreme Court, the availability of the incentives would be limited to a period of five years from the date of commencement of production. As against this Scheme of Maharashtra Govt. which is subject matter of present appeal says that "sales tax benefit up to amount qualifying investment would be given in six equal installments over a period of six years only under the condition that the plant has successfully operated every year with a minimum of 12% plant load factor." This clearly shows that not only the....
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....r further extension of its manufacturing activity in a backward area, the entire subsidy must be held to be a capital receipt in the hands of the assessee, but the Hon. Supreme Court clarified that if monies are given to the assessee for assisting him for carrying out the business operation and the money is given only after commencement of production, such subsidy must be treated as assistance for the purpose of trade. On facts, it is held as in the case of Sahney Steel and Press Works Ltd. before the Hon. Supreme Court and similarly in the case of the appellant the subsidy by reimbursement of sales tax is being given for assisting the assessee in carrying out the business operation' which' is being given for a limited period of six years and it is conditional upon utilization of 12% plant load factor for a period of continuous six years. Thus, it is absolutely clear that matrix of facts in the case of the appellant and in the case of Sahney Steel and Press Works Ltd. and Others Vs. CIT is the same. [5] It may be mentioned that in the case of Sahney Steel and Press Works Ltd. before the Hon.Supreme Court, the Hon.Supreme Court also examined the view of Hon. Andhara Prade....
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.... a subsidy could only be treated as assistance given for the purpose of carrying on of the business of the assesses. Applying the test of Viscount Simon in the case of Ostime (1946) 14 ITR (Suppl) 45 (HL), it must be held that these subsidies are of revenue character and will have to be taxed accordingly." In case of the appellant also subsidies have been granted year after year only after setting up of new industry and commencement of production. Therefore as held by Hon.Supreme Court such subsidy is treated as assistance given for carrying out the business of the appellant and therefore having revenue character. 3.4 In view of the foregoing discussion, it is held that ground no.2 of the appeal has no merit and it fails." 4.7 Aggrieved with such order of the CIT(A) the assessee is in appeal before us. 4.8 The Ld. Counsel for the assessee strongly challenged the order of the CIT(A). Referring to the Government resolution dated 12-03- 98, a copy of which is placed in paper book page 1 he submitted that the Government for the promotion of generation of energy through non conventional sources to supplement the ever increasing demand of electricity in the State enunciated i....
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....y 2 years sales tax benefit will not be allowed to be clubbed together to claim in one year. As per clause 4 of the said resolution the promoters of the project, if sell electricity to the third party, for such third party transferring of sales tax benefit will be permitted. The promoters of the project can chose the third party for this facility and it will be applicable for that year only. However, no permission will be given during that period to change the name of the third party. Further amount of sales tax benefit is related to the qualifying investment and plant load factor. He submitted that in view of the above Government resolutions the assessee during the impugned assessment year transferred the sales tax benefit of Rs. 7,28,21,527/- to Telco and claimed the same as exempt from tax being capital receipt. He submitted that the AO as well as the CIT(A) following the decision of the Hon'ble Supreme Court in the case of Sahney Steel and Press Works Ltd., (Supra) treated the said receipt on revenue account. 4.10 The Ld. Counsel for the assessee submitted that after the decision in the case of Sahney Steel and Press Works Ltd. (Supra) various other decisions have come w....
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....ng up industry in the backward area. It was accordingly held that in each case one has to examine the nature of subsidy. The judgment of the Hon'ble Supreme Court in the Sahney Steel and Press Works Ltd., (Supra) was on its own facts as also the judgment of the Hon'ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd. case. It was held that the nature of the subsidies in each of the 3 cases is separate and distinct. There is no straight jacket principle in distinguishing a capital receipt from a revenue receipt. It depends upon the circumstances of each case. In the case of Sahney Steel and Press Works Ltd., (Supra) the Hon'ble Supreme Court has observed that the production incentive scheme is different from the scheme of giving subsidy for setting up industries in backward areas. It was accordingly held that the case of Mepco Industries Ltd., was a change of opinion. Therefore, the Department has erred in invoking the provisions of section 154 of the I.T. Act. 4.13 Referring to the decision of the Hon'ble Gujarat High Court in the case of DCIT Vs. Inox Leisure Ltd., reported in 351 ITR 314 he submitted that the Hon'ble High Court in the said decis....
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....e decision of the Hon'ble Bombay High Court in the case of CIT Vs. Kirloskar Engines Ltd. vide ITA No.2646/2011 order dated 17-04-2014 he submitted that the issue before the Hon'ble High Court was as to whether the special capital incentive amounting to Rs. 25 lakhs received by the predecessor in title of the assessee from the Govt. of Maharastra through the State Industrial Corporation of Maharashtra was capital receipt or a revenue receipt. The AO treated the same as revenue receipt. The CIT(A) allowed the claim of the assessee treating the same as capital receipt which was upheld by the ITAT. On further appeal by the Revenue, the Hon'ble High Court dismissed the appeal filed by the Revenue by observing as under : "5. . . . . . . . . . . . . . . . . . . Undisputedly, the capital incentive was given to the assessee. That was to enable the Assessee's predecessor-in-title to set up a new unit. This was under the incentive package offered by the State Govt. for setting up new industries in the State. The predecessor-in-title of Assessee applied for such special capital incentive from the SICOM. That was in the form of loan of Rs. 20 lacs in the year 1992. Since ....
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....tal purposes-But, if monies are given to assessee for assisting him in carrying out business operations and given after satisfaction of the conditions of commencement of production, such subsidy must be treated as assistance for the purpose of the trade-in instant case principle aim of scheme was to cover capital outlay already made by assessee in undertaking special modernization of its existing industry and was not mean to give any benefit on day-to-day functioning of business, or for making industry more profitable, thus was capital in nature-Thus, order of Tribunal confirmed-Revenues' appeal dismissed" 4.17 Referring to the decision of Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Siya Ram Garg (HUF) reported in 237 CTR 321 he submitted that the Hon'ble High Court in the said decision has held that subsidy received by the assessee for setting up agro based industrial unit in backward area which was determined with reference to capital investment is a capital receipt. 4.18 Referring to the decision of Hon'ble Jammu & Kashmir High Court in the case of Shree Balaji Alloys Vs. CIT reported in 333 ITR 335 (J&K) he submitted that the Hon'ble Hig....
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....this case were the sale of the loom hours, the receipts by sale of the surplus loom hours were capital receipts and not income. 4.22 Referring to the decision of the Hon'ble Supreme Court in the case of CIT Vs. Ganapathi Raju Jogi reported in 200 ITR 612 he submitted that the Hon'ble Supreme Court in the said decision has held that route permits acquired on the basis of various factors and no amount paid for such route permit, then in that case consideration for sale of permit is not assessable to tax as capital gains. The Ld. Counsel for the assessee drew the attention of the Bench to the following short notes (at page 613 and 613) : "Against the decision of the Andhra Pradesh High Court in CIT (Addl.) v. Ganapathi Raju jegi, Sanyasi Raju (1979( 119 ITR 715 to the effect that though route permits for buses granted by the road transport authority were capital assets, where no amount was paid by the operator for acquiring a route permit and it was only over a number of years that it acquired some value because of various factors, namely, development of roads, passenger traffic, frequency of the buses, the value of the permit could not be evaluated as on the date of acq....
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....unsel for the assessee submitted that the alternate contention of the assessee that it goes to reduce the cost of asset become academic in nature. 5. The Ld. Departmental Representative on the other hand heavily relied on the order of the CIT(A). Referring to the decision of the Pune Bench of the Tribunal in the case of Rasiklal M. Dhariwal Vs. DCIT vide ITA No.575/PN/2007 and ITA No.150/PN/2008 order dated 31-03-2011 for A.Y. 2003-04 and 2004-05 he submitted that the Tribunal after considering the decision of Hon'ble Supreme Court in the case of Sahney Steel and Press Works Ltd.,(Supra) Ponni Sugars and Chemicals Ltd. (Supra) has decided the issue against the assessee. Following the aforesaid decision the Pune Bench of the Tribunal in the case of various other decisions has decided the issue against the assessee. He submitted that wherever the amount is given for meeting fixed asset it has to go to reduce the same from the capital asset. In other cases it has to be treated as a revenue receipt. He submitted that the entire scheme has been analysed by the Pune Bench of the Tribunal in the case of Rasiklal M. Dhariwal (HUF), sister concern of the assessee and it has been held....
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.... the taxability of the amount received on transfer of sales tax eligibility as capital or revenue in nature. We find the assessee in the instant case has set up windmills in Maharashtra for generation of wind power. During the impugned assessment year, the assessee has transferred the sales tax benefit for a total consideration of Rs. 7,28,71,527/- and treated the same in the nature of capital subsidy. Although the same was credited to the profit and loss account as "other income" the assessee in the computation of income claimed the same to be in the nature of capital subsidy and deducted in its computation of income. We find the AO rejected the claim of the assessee and following the decision of Hon'ble Supreme Court in the case of Sahney Steel and Press Works Ltd. (Supra) treated the same as revenue in nature. In appeal the Ld.CIT(A) apart from relying on the decision of Hon'ble Supreme Court in the case of Sahney Steel and Press Works Ltd. (Supra) relied on various other decisions and upheld the action of the AO. 6.1 It is the submission of the Ld. Counsel for the assessee that although the issue has been decided by the Tribunal in the case of the sister concern name....
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.... State Government transferred the sales-tax benefit entitlements to a third party and the consideration thereof amounting to Rs. 63,74,291/- was claimed as a capital receipt. At this stage, it would be appropriate to briefly touch upon the Resolution of the State Government dated 12.3.1998 (supra), the relevant portion of which is reproduced as under: "PREAMBLE The State Government has a policy to promote generation of energy through non-conventional sources to supplement the ever increasing demand of electricity in the State. It was found after a survey that there is an immense potential for generation of wind power in the State. Surveys conducted by MEDA in association with MNES, New Delhi and IITM, Bangalore indicate that the potential is about 300 to 400 MW. Eight different sites have been selected for this purpose and further survey is being carried out. The State Government had enunciated its policy on generation through nonconventional sources in January, 1996. This policy however could not attract the promoters. During the intervening period, the Government of India had issued certain guidelines regarding wind energy generation. These guidelines from Government of ....
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....ts for this expenditure. (7) Capital Subsidy : Wind Power Projects will be granted status of small scale industries. MEDA shall give a subsidy upto 30% or the fixed capital investment (limited to Rs. 20 lakhs) to the Promoters subject to a condition that wind power plant has successfully operated with a minimum 12% Plant Load Factor for at least one year. (8) Entry Tax/Octroi Refund: Entry Tax/Octroi as paid y promoters while making capital expenditure will be reimbursed by MEDA. (9) Sales Tax Benefits : Investments in plant and machinery, new building, land development, technical development and design in a wind power project would be considered as qualifying investment. Promoter shall be entitled to sales-tax benefits upto the amount of qualifying investment. This benefit would be given in 6 equal instalments over a period of 6 years (1/6 of the qualifying investment amount every year) only under the condition that the plant has successfully operated every year with a minimum of 12% Plant Load Factor. This benefit may also be available to any other company associated with the promoters. Detailed instructions about the modus operandi about Sales Tax benefits w....
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....)s. The relevant portion of the said Resolution dated 1.10.1999 is as under: "Preamble: With a view to encourage installation of wind energy generator units, State Government has published a policy vide above mentioned Government Resolution. According to the said policy sales tax benefit is available, equivalent to the qualifying investment on wind energy generation projects. To avail the sales tax benefit a procedure has been laid down by the Finance Department vide Notification No. STA 1098/CR-45/Taxation 2, dated 24.8.1998 and Notification No VKN-1298/CR-33/Taxation-1 dated 24.8.1998. However, even after release of the said Notifications the Industrialists have expressed certain difficulties which have been brought to the notice of the Government. Taking into consideration the requests of the wind power promoters as well as their difficulties, the proposal for modified detailed procedure for availing sales tax benefit was under consideration of the Government. Government Resolution: Considering the difficulties of the industrialists and with a view to make available sales tax benefit, Government has decided to simplify the procedure as follows: 1. The sales tax....
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....party, transferring of sales tax benefit will be permitted. The promoters of the project can choose the third party for this facility and it will be applicable for that year only. However, no permission will be given during that period to change the name of the third party. Third party units can avail the benefit upto the amount mentioned in paragraph 1. For this, "Eligibility Certificate" will be given by Director, Maharashtra Energy Development Agency. Promoters of the project will be allowed to choose, a the most two names of the third party units to get the sales tax benefit. The "Entitlement Certificate" for units of third party will e certified by Commissioner of Sales tax. Amount of sales tax benefit is related to the wind energy generation and they are not related to the amount of electricity sold to the third party. After obtaining the "Entitlement Certificate" for sales tax benefit the promoters of the project can transfer to the third party to whom they have sold the electricity. Amount of sales tax benefit is related to the qualifying investment and plant load factor. The electricity sold to the unit/units of third party can avail sales tax benefit limited only to the q....
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....Objection Certificate' will be issued by Maharashtra Energy Development Agency only after submission of undertaking from the concerned manufacturer and promoter that the machinery used for wind generation project is new. 11. There is no restriction for expansion of projects. However, capacity of the wind energy generator should be minimum 200 Kw 12. Procedure for availing the sales tax benefit will be applicable to all projects such as the Wind Energy Generator Units/Wind - SPV - Diesel Hybrid, Self Starting Generator (Hybrid Stand Alone System) and as per Maharashtra Governments' declared policy published in this connection. By the order ands on behalf of Governor of Maharashtra Sd/- (P.D. Karkhanis) Section Officer (Energy)." 11. As is evident, the said Resolution deals with the manner in which the intended sales-tax benefits can be availed of by the promoters. It is clear that the sales-tax benefits can be availed by all projects which are commissioned as well as connected to the transmission lines from two months after the date of publication of the said Resolution. It is also provided that the Sales-tax benefit is available on electricity genera....
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....xable as a revenue receipt or not. The Andhra Pradesh Government had notified certain facilities and incentives for all the new industrial undertakings commencing production on or after 1.9.1969 with investment capital (excluding working capital) not exceeding Rs. 5 crores. The incentives were to be allowed for a period of five years from the date of commencement of production and such concession was also available for subsequent expansion of 50% and above of the existing capacities, provided such expansion was located in a city or town or panchayat area other than that in which the existing unit was located. The Hon'ble Supreme Court noticed that the salient feature of the Scheme formulated by the Andhra Pradesh Government was that the incentives were not available unless and until production had commenced and that the same was limited to a period of 5 years from the date of commencement of production. The Hon'ble Supreme Court noted that all the incentives are production incentives in the sense that the company would be entitled to these incentives only after it goes into production and that the Scheme was not to make any payment directly or indirectly for the setting up ....
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....e. Applying the test of Viscount Simon in the case of Ostime (1946) 14 ITR (Suppl) 45 (HL), it must be held that these subsidies are of revenue character and will have to be taxed accordingly." 13. Another decision which has been referred to is the judgment of the Hon'ble Supreme Court in the case of Ponni Sugars & Chemicals Ltd. (supra). In this case also, the issue related to the character of subsidy received by sugar factories . The Hon'ble Supreme Court reiterated the parameters applied in the earlier judgment of Sahney Steel (supra). As per the Hon'ble Supreme Court, the character of the receipt of a subsidy in the hands of the recipient has to be determined with regard to the purpose for which the subsidy has been granted. The following discussion is important to notice: "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 production of or bringing into existence any new asset. The subsidies in that case were granted year after year only 6 after setting up of the new industry and only after commencement of producti....
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....ting up new units/expansion of existing business. Applying the above tests to the facts of the present case and keeping in mind the object behind the payment of the incentive subsidy, we are satisfied that such payment received by the assessee under the scheme was not in the course of a trade but was of capital nature." 14. Another decision relied upon by the appellant is in the case of Reliance Industries Ltd. (supra). In this case, the facts were that the Patalganga unit of the assessee was located in a notified backward area. The sales-tax liability of the assessee was exempted by the State Government and under the Scheme of incentives, assessee was not required to pay any sales-tax to the Government. The contention of the assessee was that non-payment of sales-tax be considered as a subsidy by the Government, which is of capital in nature. The Special Bench of the Tribunal found that the incentives were provided for following four objects, namely, development of backward regions of the State of Maharashtra; dispersal of industries; promotion of industries for employment oriented units; and, providing local employment to SC/ST. The Tribunal observed that in order to decide....
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....ion". It is quite clear that the sales-tax benefit is not intended to be granted for creation of or bringing into existence any new asset. It is also clear that there is no prescribed criteria as to the manner in which such incentives are to be utilized. The claim of the assessee is that the sales-tax benefit is granted having regard to the qualifying investment, which is stated to be towards investments in plant and machinery, new building, land development, technical development and design of wind products. According to the appellant, the incentive being linked to the qualifying investment shows that it is intended as a recoupment of the fixed cost already incurred by the assessee and, therefore, such incentives are to be regarded as capital in nature. In our considered opinion, such purpose, as articulated on behalf of the appellant is not emerging from the Scheme of the State Government. Rather, the emphasis on of the grant of sales-tax benefit is on actual running of the plant and that too under prescribed efficiency levels. In fact, in the Resolution dt 1.10.1999 staggered plant load factors achieved by the unit entitled the unit to varying levels of sales-tax benefit. Theref....
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....le the assessee to run the business more profitably, then the receipt is on revenue account. On the other hand if the object of the assistance under the subsidy scheme is to enable the assessee to set up a new unit or to extend an existing unit, then the receipt of the subsidy would be on capital account. Based on the above decision, the Tribunal in the case of sister concern of the assessee has given a categorical finding that the sales tax benefits received by the assessee under the instant scheme are in the course of carrying on its trade more profitably and therefore, such receipt cannot be characterised as capital in nature. Therefore, this decision relied on by Ld. Counsel for the assessee is of no help to the assessee. 6.4 So far as the decision of Hon'ble Supreme Court in the case of Mepco Industries Ltd. (Supra) is concerned, the relevant observation of the Hon'ble Apex Court at placetum 7 at para 213 is material : "On the facts of the present case, we are of the view that the present case involves change of opinion. In this connection, it must be noted that Government grants different types of subsidies to the entrepreneurs. The subsidy in Sahney Steel and P....
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....ct of the multiplexes as capital receipt or revenue receipt. In that case, the exemption was for giving boost to tourism sector. The salient features of the scheme in that case had showed that the incentive was being offered for recouping or covering a capital investment or outlay already made by assessee. The Hon'ble High Court following the decision in the case of Ponny Sugars and Chemicals Ltd. (Supra) held that character of receipt of the subsidy has to be determined with respect to purpose for which subsidy was granted. Accordingly, it was treated as capital in nature. However, in the instant case it is not so. There is no such stipulation that it is for recouping or recovering a capital investment or outlay already made. The Tribunal has already given a finding that subsidy received under the instant scheme are in the course of carrying on its trade more profitably. Therefore, This decision has no application to the facts of the present case. 6.7 So far as the decision of the Hon'ble Bombay High Court in the case of Chhapalkar Brothers (Supra) is concerned, the object of the subsidy was to promote construction of multiplex theatre complex for which it was held that....
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....ned, here also subsidy was received for setting up agro based industrial unit in backward area which was determined with reference to capital investment. It was accordingly held that it is a capital receipt. However, in the instant case, the assessee has not received the subsidy for setting up of the unit but for carrying on its business, therefore, this decision is also not applicable to the facts of the present case. 6.11 In the case of Shree Balaji Alloys (Supra) the issue before the Hon'ble Jammu & Kashmir High Court was that the incentive scheme was formulated by Central Govt. for Jammu & Kashmir to accelerate industrial development, generate employment and create opportunities for self employment and the purpose in public interest and the issue was Excise duty refund and interest subsidy which was in pursuance of the new industrial policy introduced in the state of Jammu & Kashmir. The incentives were provided with the object of creating avenues for perpetual employment to eradicate the social problem of unemployment in the State by accelerated industrial development. Under these circumstances the Hon'ble High Court held that it is capital in nature. However, here ....
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....clusions, The tax payable u/s.115-JB as submitted by the company is correct and ought not to have been re-computed." 7.1 Facts of the case, in brief, are that the original return of income declaring total income of Rs. 10,11,10,220/- was filed by the assessee on 27-11-2003. The same was processed u/s.143(1) on 31-03-2004 without any adjustments. Subsequently, the assessee filed the revised return on 02-07-2004 wherein the total income was shown at NIL. The return was also processed u/s.143(1) on 10-02-2005. Subsequently, the AO completed the assessment on 31-03-2006 determining the total income at Rs. 33,30,682/-. In the said year the AO computed the income u/s.115JB at Rs. 16,20,55,646/-. While doing so he did not allow carry forward of losses u/s.72A of the I.T. Act in respect of merging companies to be set off with the income of the assessee. 7.2 The assessee challenged the computation of income u/s.115JB before CIT(A). It was submitted that the disallowance has been made on an erroneous and untenable ground. The assessee argued that the assessee has not claimed benefit of section 72A of the Act while computing the book profits u/s.115JB of the Act. Accounts of the assesse....
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....e Ld. Counsel for the assessee drew the attention of the Bench to the observations of the AO which read as under : "4.1 The submissions of the assessee have been considered. In view of the specific directions of the Hon'ble Mumbai High Court in para 3.9, the unabsorbed depreciation and unabsorbed accumulated losses in the cases of M/s. Manikchand Packaging Pvt. Ltd. and M/s. Dhariwal Electricals Pvt. Ltd. from the "Appointed Date", being "Close of Business as of 31st day of March, 2003" are to be treated as unabsorbed depreciation and unabsorbed accumulated losses of M/s. Dhariwal Industries Ltd. as on the "Appointed Date" itself and M/s. Dhariwal Industries Ltd. are considered as entitled to set off and / or carry forward the unabsorbed depreciation and unabsorbed accumulated losses of the transferor companies. Accordingly, the losses quantified in the assessment orders u/s. 143(3) for A.Y.2003-04 in the cases of M/s. Manikchand Packaging Pvt. Ltd. and M/s. Dhariwal Electricals Pvt. Ltd. shall be set off from the business profits computed in the case of M/s. Dhariwal Industries hereunder and the unabsorbed depreciation and loss shall be allowed to be carried forward by the ....
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.... relevant figures of the amalgamating companies. In the second category are those amalgamations which are in effect a mode by which one company acquires another company and, as a consequence, the shareholders of the company which is acquired normally do not continue to have a proportionate share in the equity of the combined company, or the business of the company which is acquired is not intended to be continued. Such amalgamation are amalgamations in the nature of 'purchase'. 7.8 The Ld. Counsel for the assessee also drew the attention of the Bench to Explanation 1 & 3 to provisions of section 115JB(2). Referring to the order of the Hon'ble High Court allowing the scheme, a copy of which is placed at pages 42 to 55 of the paper book, the Ld. Counsel for the assessee drew the attention of the Bench to para 3.9 of the order which read as under : "With effect from the Appointed Date and upon this Scheme becoming effective, the unabsorbed depreciation and unabsorbed accumulated losses of the Transferor Companies shall be treated as the unabsorbed depreciation and unabsorbed accumulated losses of the Transferee Company as on the Appointed Date and the Transferee Comp....
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....led on behalf of the assessee. We have also considered the various decisions cited before us. There is no dispute to the fact that the assessee filed the original return of income on 27-11-2003 declaring total income of Rs. 10,11,10,220/- as per the normal provision and Rs. 16,20,43,718/- u/s.115JB of the I.T. Act. We find the assessee filed the revised return on 02-07-2004 declaring total income at NIL and book profit u/s.115JB was determined at Rs. 5,91,71,806/-. In the revised return the assessee set off the brought forward losses. The AO computed the book profit u/s.115JB at Rs. 16,20,55,646/- which was the original book profit computed by the assessee. Thus, he rejected the set off of brought forward losses of the merging companies u/s.72A of the I.T. Act. In appeal the Ld.CIT(A) upheld the action of the AO on two counts (a) the adjustment sought by the assessee of losses of merging companies against income of the assessee company cannot be said to be within the purview of section 139(5) of the I.T. Act and (b) the loss of merging companies cannot be set off against the income of the assessee company in view of the provisions of Part-II and Part-III of Schedule-VI to the Compa....
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....ring in the financial statements of the transferee company. Alternatively, it is transferred to the General Reserve if any. 7.13 Further, the Hon'ble Supreme Court in the case of CIT Vs. T. Veerabhadra Rao and K. Koteshwara Rao and company has held that bad debts is allowable to a successor company even though the debt was shown by the predecessor company. The relevant observations of the Hon'ble Supreme Court at page 156 and 157 read as under: "Section 28, referred to in sub-s. (1) of s. 36, provides that income under the head "Profits and gains of business or profession", shall be chargeable to income-tax. The profits and gains of a business are charged to income-tax. To compute the profits and gains so chargeable, s. 36 pro vides for allowing a number of deductions. Each of the deductions must relate to the business. If the same assessee was carrying on a business and he wrote off a debt relating to the business as irrecoverable, he would without doubt be entitled to a corresponding deduction under cl. (vii) of sub-s. (1) of s. 36 subject to the fulfilment of the conditions set forth in sub-s. (2) of s. 36. If a business, along with its assets and liabilities, is t....
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....eems to us that even if the debt had been taken into account in computing the income of the predecessor firm only and had subsequently been written off as irrecoverable in the accounts of the assessee, the assessee would still have been entitled to a deduction of the amount written off as a bad debt. It is not imperative that the assessee referred to in sub-cl. (a) must necessarily mean the identical assessee referred to in sub-cl. (b). A successor to the pertinent interest of a previous assessee would be covered within the terms of sub-cl. (b). The successor assessee, in effect, steps into the shoes of his predecessor." 7.14 Following the same analogy and in view of the direction of the Hon'ble Bombay High Court and the findings of the AO at para 4.1 of the assessment order, we find force in the submission of the Ld. Counsel for the assessee that brought forward business losses and depreciation of the merging companies is a part of the brought forward business loss and depreciation of Dhariwal Industries Ltd and the assessee is entitled to take into account the same for the purpose of computation of book profit u/s.115JB. 8. In view of the above discussion the ground of ....
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....ully appreciated the matter and has incorrectly applied the ratio of Dinesh Agarwal Vs. CIT [267 ITR 768] and drawn incorrect conclusions. Assessee has rightly claimed Depreciation of Hyderabad Unit is allowable." 12.1 Facts of the case, in brief, are that the AO during the course of assessment proceedings noted that the assessee during the year under consideration has claimed depreciation as per I.T. Act at Rs. 13,45,44,935/- in the computation of income. The AO noted that the assessee has not used it's Pan Masala/Gutkha plant & machinery establishment at Hyderabad unit at all during the previous year relevant to the assessment year under consideration. Therefore, depreciation on the related asset to the extent of Rs. 18,98,807/- was disallowed by the AO. 12.2 Before CIT(A) it was submitted that the assessee has set up a unit in Hyderabad for manufacture of Gutkha and Pan Masala in the previous year relevant to the assessment year 1995-96. The depreciation on the plant and machinery installed in the Hyderabad unit was taken into account while computing the total income of the assessee. The manufacturing operations have been temporarily suspended at Hyderabad unit in the ....
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.....T.A.T. that the expression 'used' occurring in section 32(1) means 'actually used for the purpose of business'. As regards the case laws relied upon by the appellant, the case of Artic Vs. ACIT as reported in 68 ITD 462 is in the context of capital gains and therefore, has no direct applicability to the facts of the appellant's case. However, the case of Packwell Printers Vs. ACIT is applicable to the facts of the appellant's case because in that case depreciation was held to be allowable in respect of truck which was used for the purpose of business. With this view of the Hon'ble I.T.A.T, I am not in agreement with in view of the clear cut decision on the same issue by Hon'ble Bombay High Court as quoted supra. Accordingly, denial of depreciation is held to be justified. Ground No. 2 of appeal for assessment year 2004-05 is held to have no merit and it fails. 3.4 The facts and legal position for assessment year 2005-06 in respect of ground of appeal No. 2 which relates to disallowance of depreciation by the learned Assessing Officer in respect of Hyderabad Unit remains the same. Accordingly, for assessment year 2005-06 also, the claim of the app....
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....ame class of assets. Hence, after the amendment w.e.f. 01- 04-88, the individual assets have lost its identity and for the purpose of allowing depreciation only the block of assets has to be considered. It was held that if a block of assets is owned by the assessee and used for the purpose of business depreciation will be allowed. The Tribunal after considering the decision of Hon'ble Bombay High Court in the case of Dinesh Kumar Gulabchand Agarwal Vs. CIT reported in 267 ITR 867 distinguished the same and held that the assessee has already used the asset for the purpose of business and it has already entered into block of assets. Accordingly, the claim of depreciation made by the assessee was allowed. 12.10 Referring to the decision of the Hon'ble Delhi High Court in the case of CIT Vs. Oswal Agro Mills Ltd. (Supra) reported in 341 ITR 467 he submitted that the Hon'ble High Court in the said decision has held that depreciation has to be allowed on assets forming part of block of assets even though not used in relevant year. 12.11 Referring to the decision of the Hon'ble Gujarat High Court in the case of CIT Vs. Sonal Gum Industries the Ld. Counsel for the ass....
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.... these circumstances the question that arise is as to whether the assessee is entitled to depreciation on assets which have entered into the block of assets but the unit was temporarily closed down because of the Government Notification. We find the Hon'ble Delhi High Court in the case of Oswal Agro Mills Ltd. (Supra) has held that depreciation has to be allowed on assets forming part of block of assets even if not used in the relevant year. The Hon'ble Gujarat High Court in the case of Sonal Gum Industries (Supra) has also held that once the factory building was put to use it was not possible to restrict the depreciation on the building by stating that only a portion thereof had been put to use. It has further been held that in relation to block of assets it is not possible to segregate items falling within the block for the purpose of granting depreciation or restricting the claim thereof. Once it was found that the assets were used for business it was not necessary that all the items falling within the plant and machinery have to be simultaneously used for being entitled to depreciation. It was accordingly held that the assessee was entitled to depreciation on the block ....
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....laim of the assessee company that the amount of Rs. 11,05,60,540/- is a capital receipt not liable to tax.' 15.1 After hearing both the sides, we find the above ground is identical to ground of appeal No.2 in ITA No.489/PN/2007. We have already decided the issue and the ground raised by the assessee has been dismissed. Following the same reasonings this ground by the assessee is dismissed. 16. Ground of appeal No.2 by the assessee reads as under : "2. In facts and circumstances of the case the CIT(A) ought to have held that the amount of Rs. 20 lakhs received as capital subsidy from MEDA is not liable to tax and in any event could not be brought to tax for the year under consideration". 16.1 Facts of the case, in brief, are that there is no discussion of this issue by the AO. Before CIT(A) it was submitted that the assessee is entitled to capital subsidy by the State Government @30% of the fixed capital investment subject to a maximum limit of Rs. 20 lakhs. The amount was received by the assessee during the year and as such had not been offered to tax. It was pointed out that this amount however was added by the AO to the total income while passing the order for A.Y....