TaxTMI 
TaxTMI 
2011 (12) TMI 518
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.... Revenue for A.Y.2004-2005 i.e. ITA No.2007/Ahd/2007. 3. The ground no.1 of the above appeal is as under: "1. The ld.CIT(A) has erred in law and on facts in deleting the addition of Rs. 7,47,590/- being payment of recompensation of State Bank of India disallowed by the AO considering the same as capital expenditure in nature." 4. This issue has been decided by the learned CIT(A) as per para no.8 of his order for A.Y.2004-2005 which is as under: "8. Ground No.6 relates to disallowance of Rs. 7,47,590/- being recompensation payment to State Bank of India on the ground that such expenditure conferred enduring advantage on the assessee and was, therefore, in the nature of capital expenditure. This issue is also squarely covered by my decision in appellant's own case for A.Y.200304. Following the rationale of my order dated 29-9-2006, the disallowance is directed to be deleted." 5. The learned DR supported the assessment order. The learned counsel for the assessee submitted that this issue is now fully covered in favour of the assessee by the Tribunal decision rendered in assessee's own case for A.Y.2003-2004 in ITA No.2761/Ahd/2006 dated 9-4-2010 and he submi....
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....aw and on facts in deleting the amount of Rs. 62,38,589/- being subsidy given by State Government in the form of sales tax deferment being the amount added by the AO treating it as revenue receipt for the reason that subsidy was not for fixed assets but was to augment the normal business running of Binola Unit which had been established years back so question of setting up of new industrial unit does not arise as per finding of the AO." 8. The brief facts till the assessment stage as stated in the order of learned CIT(A) vide para-9 are reproduced as under: "9. Ground No.7 challenges the addition of Rs. 62,38,589/- being amount of sales-tax and VAT incentive granted by Government of Haryana for setting up of Binola manufacturing unit in the state of Haryana, treated as a revenue receipt. This AO noticed that in the tax audit report, the auditor pointed out the receipt of this incentive, and in Note-5 in part-11 of Schedule -16 of the Notes on Accounts, it was mentioned as under: "Binola Unit of the company has availed sales-tax incentive amounting to Rs. 214.70 lakhs by the end of 3 March, 2004 in the form of deferment, to be converted later into capital subsidy, in ....
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....6, wherein the assessee has stated that the amount of sales-tax incentive of Rs. 62,38,589/- is not subsidy for fixed assets. Rather incentive is with reference to sales made after the fixed assets are put to use. The very fact that the subsidy is given in the form of the sales-tax deferment i.s indicative of the fact that the subsidy is to augment the normal business running, once the business is set up. As a matter of fact, in this case the subsidy has been provided by the Government of Haryana to the assessee company for normal running of business and not for setting up of business. Therefore, the amount of subsidy received by the assessee amounting to Rs. 62,38,589/- in the form of sales-tax deferment can only be treated as revenue receipt. The same is, therefore, taxed accordingly." 9. Being aggrieved, the assessee carried the matter before the learned CIT(A). Before the learned CIT(A), it was submitted by the learned counsel of the assessee that none of the tests laid down by the Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd., 228 ITR 253 (SC) (relied upon by the AO) was applicable to the facts of the case. It was submitted that as per the Haryana Gen....
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.... the sales made after the fixed assets were put to use and hence, this was not a case in which portion of cost of fixed assets was met by the Government and therefore, this amount was not required to be deducted from the cost of fixed assets. In view of this reply of the assessee, now it emerges that when the AO considered this receipt of subsidy as capital receipt and asked for reduction of the same from the cost of fixed assets for the purpose of calculating depreciation allowable to the assessee, it was the submission of the assessee before the AO that this incentive is with reference to sales made after the fixed assets were put to use and therefore, it was not a capital receipt meant for cost of fixed assets. When the AO treated the amount of subsidy as revenue receipt, the case of the assessee is that it is a capital receipt. The decision of the Special of the Tribunal rendered in the case of Reliance Industries (supra) has been relied upon by the learned CIT(A) to hold that this receipt as capital receipt, however, there is no finding given by the learned CIT(A) as to whether the subsidy is required to be reduced from the cost of fixed assets for the purpose of calculating d....
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....see and thereafter he should pass necessary order as per the law on these aspects. The Ground No.2 is partly allowed as indicated above. 12. In the result, this appeal of the Revenue is partly allowed. 13. Now, we take up the cross appeals of the assessee and the revenue for A.Y.2003-04 i.e. ITA No.1420/Ahd/2009 and 1382/Ahd/2009. First, we take up the assessee's appeal. 14. Grounds raised by the assessee read as under: "1. The ld.CIT(A) erred in fact and in law in not adjudicating the following grounds of appeal holding that the said grounds of appeal were not pressed: a. The ld. AO erred in issuing notice under section 148 and making assessment u/s.147. Your appellant submits that the AO not justified in proceeding to make reassessment as there were no grounds to have reason to believe that any income has escaped assessment. Your appellant prays that the reassessment be cancelled. b. The AO erred in making assessment without disposing the objections to reassessment filed vide letter dated 5th November, 2008. Your appellant submits that the assessment so made is contrary to law and judicial decisions and prays that the same be cancelled. 2. The ld.CIT....