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2009 (12) TMI 945
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....o.3CB and 3CD alongwith its annexures, schedules etc. alongwith audited balance sheet, P&L account. The return was processed u/s 143(1) of the I.T. Act on 22.03.2004 determining a refund of Rs. 46,84,429 which was issued to the assessee. Subsequently, the return was revised by the assessee on 31.03.2005 declaring total income at Nil after adjustment of carried forward unabsorbed depreciation, and computation of Minimum Alternate Tax (MAT) as per sec. 115JB of the I.T. Act. In the revised return the assessee claimed deduction for notional sales-tax incentive availed in "New Package Scheme of Incentive, 1993" as capital subsidy. It was claimed by the assessee that the notional sales tax liability of Rs. 4,69,70,108/- is included in the sales credited to P&L account in the original return of income. The Assistant commissioner of Income Tax (here-in after referred to as ACIT) passed the order u/s 143(3) on 30-01-2006 determining total income under the provisions of the act other than sec. 115JB, at Rs. 4,84,87,581/-. In the said order, the ACIT made various disallowances and / or modification in the computation of total income under the provisions of the Act other than Sec. 11....
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....000/- on account of sales promotion expenses on the contention that the amount disallowed is too meager and 100% of the expenses could not have been incurred solely for the business purpose. 8.0 That on the facts and in the circumstances of the case, Ld. CIT(Appeals) was grossly unjustified in upholding the disallowance on account of expenditure incurred on repairs and maintenance of building to the tune of Rs. 15,25,297/- as capital in nature despite the fact that the appellant itself had capitalized part of the total expenditure incurred and claimed only those expenses as revenue for which new asset came into existence. 9.0 That on the facts and in the circumstances of the case, the Ld.CIT(Appeals) erred in setting aside the matter with regard to expenses incurred on maintenance of depot shed amounting to Rs. 19,05,642/- to the file of the A.O. instead of outright deciding the issue in favour of the appellant. 10.0 That on the facts and in the circumstances of the case, Ld.CIT(Appeals) erred in not directing the A.O. to grant MAT credit of Rs. 3,68,145/- brought forward from earlier years. 11.0 That on the facts and in the circumstances of the ....
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....khmapur in Nashik Distict of Maharashtra. Even the assessee had got eligibility certificate as also certificate of entitlement way back in 1996 itself. However, the assessee had not claimed any deductions on notional sales tax exemption as capital receipts for the A.Yrs 95-96 to 2003-04. Filing of revised return on the last day of financial year 31.03.2005 is only an indication of afterthought on the part of the assessee to claim Sales-tax exemption as capital subsidy. It is to be noted that any capital subsidy granted by the government will be granted as one time transaction and it cannot be in the nature of recurring incentives. The very nature of subsidy under Special Scheme of Maharashtra Government for year to year basis upto 10-15 years indicate the nature of exemption as revenue rather than capital as claimed by the assessee. 3.1 the asessee's claim of exemption of sales tax liability is as per revised return of income u/s 139(5) of the Act. As per the provisions of sec. 139(5) the assessee, having filed a return u/s 139(1) can file revised return if it discovers any omission or any wrong statement in the original return of income within a period of one year fro....
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.... claim for sales-tax incentive s capital receipts to be deducted from the sales figure in the P & L account, the assessee has relied on the judgment of ITAT, Mumbai, Special Bench in the case of CIT V/s Reliance Industries Ltd 88 ITD 273 (2004)(Mum SB). This judgment was with respect to allowability of Sales-tax incentive granted under 1979 Scheme of Government of Maharashtra. The Hon.ITAT allowed the assessee's (reliance Industries Ltd) plea that notional sales tax liability for the A.Y. 1986-87 is capital receipt in the hands of the assessee. While delivering the judgment the Hon.ITAT Bench discussed at length the various judgments of High Courts as well as Supreme court on the similar issue. It is pertinent here to note that the issue in question for A.Y. 1984-85 and 1985-86 for the same assessee Reliance Industries Ltd. was also decided by the ITAT in assessee's favour and department's reference to Bombay High court on that issue is still pending. In view of the issue under dispute before the Bombay High Court as also varying judgments of various High Courts, the assessee's contention for reliance on the above judgment of ITAT, special bench cannot be accepted. ....
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....ries. The fact that it was available after the business had been set up also influenced the judgment, which had, therefore, considered that the package of incentives by way of refund of sales tax or rebate on electricity or water charges has to be treated only as revenue receipt liable to tax. The Tribunal took the views that since the assessee was eligible for the incentive sat the stage of setting up of industries, it cannot be said that the scheme of Maharashtra govt. was for assisting the assessee to carry out the business operations profitably and therefore there was direct nexus of incentive linked to capital investment. 2. The judgment of the Madras High Court in Tamil Nadu Sugar Corporation Ltd. V/s CIT (2001) 165 CTR (Mad) 276 the assessee, a sugar factory owner, received purchase tax subsidy equivalent to the quantum of purchase tax, from the state government for a period of 5 years from the date of commencement of production. It returned the subsidy as business income for the A.Y. 1986-87 and 1987-88 but later filed revision applications before the CIT u/s 264 of the I.T. Act contending that the subsidy should be treated as capital receipt. The applicat....
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.... in the case of Reliance Industries Ltd. It is stated as under - a) Even though the assessee is granted the Certificate of Entitlement and Eligibility Certificate for Sales tax exemption at the stage of setting up of the industries, the assessee's actual claim is based on purchases of goods for manufacture and sales of the goods manufactured as laid out in the terms and conditions of Certificate of Entitlement which is as under - i) Sales of goods manufactured at the said eligible Unit by the holder of this Certificate shall be free from whole of tax if it incorporates the following declaration in addition to certificate under section 12A of the Act in the sales bill or each Memorandum issued by him, in respect of the sales, viz "This sales is exempt from payment of sales tax under the provisions of Entry No.E-3 of the Schedule appended to the government Notification, finance Department, No. STA- 1095/37/TAXATION-2, dated 22-09-1995, and the buyer purchasing these goods and any subsequent buyer purchasing these goods - a) shall not be entitled to claim drawback, set off or refund under any provisions of the Act or the rules framed thereunder,....
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.... units. iii) Refund of Octroi / entry tax (in lieu of Octroi) iv) Refund of electricity duty. v) Concession in the capital cost of power supply; and vi) Contribution towards cost of feasibility study Para 5.1 (I)(A) of the scheme gives the details of sales tax incentive by way of exemption. Para 5.1(I)(B) of the Scheme gives the details of sales tax incentive by deferral Para 5.1(I)(C) of the Scheme gives the details of sales tax incentive by way of interest free unsecured loans. Para 5.1(II) of the scheme refers to quantum of sales tax incentives. On going through the details of para 5.1(I)(B) and 5.1(I)(C) relating to Sales tax incentives by way of deferral and by way of interest free unsecured loans, the eligible unit shall have to repay the sales tax liability after 10 years in accordance with the repayment schedule as per para 5.1(IV) of the Scheme. This clearly indicate that the legislature had never intended that the sales tax incentives by way of deferral and by way of interest free unsecured loan. Under Sales tax incentive by way of deferral and by way of interest free unsecured loans the assessee has funds ava....
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.... directly to sales tax payment account." And that these observations clearly show that the sales figures shown in the P & L account do not include any sales; and (c) That the decision of the Special Bench of the Tribunal in the case of CIT vs Reliance Industries Ltd 88 ITD 273 (Mum)(SB) is distinguishable and is not applicable to the facts o the case and also that the ratio laid down by the Special Bench in this case is against the law laid down by the Hon'ble High Court. Accordingly the first appellate authority rejected the claim of the assessee. Aggrieved, the assessee is in appeal. 7. Shri SE Dastur, the learned senior advocate submitted that the assessee had originally filed its return of income on 29-11-2003 and the decision of the Special of the Tribunal in the case of CIT vs Reliance Industries Ltd 88 ITD 273 (Mum)(SB) though pronounced on 23-10-2003 was published at a later date and was available to the public after 29-11-2003. On coming to know of this Special Bench decision, the assessee filed a revised return well within the time permitted by the law, wherein a claim has been made that sales-tax incentive received is a capital receipt and hen....
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....different and it cannot be said that the same is covered by the decision of the Special Bench of the Tribunal in the case of CIT vs Reliance Industries Ltd 88 ITD 273 (Mum)(SB). He submitted that in the case of CIT vs Reliance Industries Ltd 88 ITD 273 (Mum)(SB) the bench was considering the 1979 incentive scheme and whereas the present incentive scheme under consideration is that of 1993, the ld DR submitted arguments which in effect disputes all the propositions and conclusions drawn by the Special Bench of the Tribunal in the case of CIT vs Reliance Industries Ltd 88 ITD 273 (Mum)(SB). Suffice to say that these arguments need not be repeated nor be answered separately for the reason that they stand answered by the decision of the Special Bench of the Tribunal in the case of CIT vs Reliance Industries Ltd 88 ITD 273 (Mum)(SB) and we are bound to follow the decision and conclusions therein. The argument that the decision of the Special Bench is "per incurium" is devoid of merit Shri Lal further argued that the assessee had not collected any sales-tax and thus the question of sales- tax incentive being identified and treating the same as a capital subsidy does not arise. He also dr....
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....ited we hold as follows: 10.1 The Special Bench of the Tribunal in the case of CIT vs Reliance Industries Ltd 88 ITD 273 (Mum)(SB) was concerned with the sales-tax incentive scheme of 1979. The present scheme is the New Package Scheme of Incentives 1993 of Government of Maharashtra. The assessee furnished the following comparative chart of both the schemes which is extracted for ready reference: DCIT vs Reliance Industries Ltd Everest Industries Ltd s DCIT Salient Features of the 1979 Scheme as discussed in the order Salient Features of the 1993 Scheme The salient features of the Maharashtra Scheme are: i) The aim was to disperse the industries outside the Bombay-Thane-Pune belt and to hasten the pace of industrialization in the developing regions of the State. Page 298 The aim was to intensify and accelerate the process of dispersal of industries from the developed areas and for development of the underdeveloped regions of the state particularly those farther away from the Bombay-Thane- Pune belt. Pg 52 Openi ng para ii) The incentive is based on the amount of investment in fixed ass....
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....The revised return was admittedly filed within the time available under the statute and a legal claim has been made by the assessee in this revised return of income. In fact, this bench of the Tribunal in the assessee's own case for the assessment year 2001-02 had admitted a similar legal ground at the appellate stage and remitted the matter to the file of the assessing officer for fresh adjudication. 10.4 Coming to the merits of the case, the "G" bench of the Tribunal in the case of M/s Zenith Fibres Ltd (supra) had considered the incentive scheme of the Maharashtra Government of 1993 and came to a conclusion that this scheme is identical to the incentive scheme of 1979 considered by the Special Bench of the tribunal in the case of CIT vs Reliance Industries Ltd 88 ITD 273 (Mum)(SB) and concluded that the receipt in question is capital receipt. 10.5 At the time of hearing, it was brought to our notice that this Tribunal in the case of M/s. Sterlite Optical Technologies Ltd. in ITA No. 7136/Mum/04 had considered the benefit of arising out of earlier repayment of loan deferred under the very same scheme, which was repaid and the Tribunal has held as follows :- "We....
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....scheme was to promote industrial development in the backward regions of the state and to generate employment opportunity in such regions. The entrepreneur setting up industries in the most backward areas were entitled to more sales tax benefit as compared to the entrepreneur who have set up an industry in the developed or semi-developed regions of the state. Thus, the scheme was primarily geared to allure and attract the perspective investor for making capital investment in the backward regions of Maharashtra state and was intended for helping the entrepreneur in setting up the eligible unit. Though the sales tax incentive could have been realized only upon the commencement of the production, but the fixed capital investments entitled the appellant to the sales tax incentive. Thus, the Maharashtra Government instead of giving out rights subsidy for setting up the industry in the backward region had permitted the industrial Unit to realize the said subsidy by way of sales tax collection which were either exempted or deferred at the option of the Industrial unit. The Assessing Officer while disallowing the claim of the assessee by holding that the benefits received by the as....
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....rrying out the business operation and the money is given only after and conditional upon commencement of production, such subsidies must be treated as assistance for the purpose of the trade." From the above observations of Hon'ble Supreme Court, it is very clear that even the sales tax refund can be treated as a capital receipt in the hands of the assessee provided the same is granted to meet directly or indirectly the capital cost on the fixed assets and to help the entrepreneur in the establishment and expansion of the Industrial unit. Thus, where the subsidy or incentive given by the Government for acquisition of an asset or for buying any new assets for completion of the project, such subsidy would be of capital nature. The Special Bench of the Tribunal in the case of Reliance Industries (supra) has considered similar views of Maharashtra Scheme and had also made a comparative analysis of Andhra Pradesh Scheme and Maharashtra Scheme. The Judgement of Apex Court in Sahney Steel and Press Works was also taken into consideration and then after analyzing all the material, it was found that the benefit availed by the assessee was on account of capital receipt. It has b....
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....ecisions of the Tribunal referred to above, we are of the view that the order of learned CIT(A) on this issue has to be set aside. 10.7 Coming to the argument of the revenue that sales-tax is not separately charged in the invoices, we find that the Special Bench of the Tribunal in the case of CIT vs Reliance Industries Ltd 88 ITD 273 (Mum)(SB) had considered the issue and decided the issue in favour of the assessee. At page 282 and 283 at paragraph 7 & 8 it is held as follows: "7. After coming to the above conclusions, the Tribunal proceeded to consider the question whether any amount was received by the assessee "so as to brand the receipt as either capital or revenue in nature" and the further question as to whether "if the amount is received where does it appear in the books of account". This question was considered in paragraph 27 of the Tribunal's order. One of the objections raised by the tax authorities was that the assessee did not separately charge sales tax in the invoices, but the tribunal held that this aspect was not relevant because it is not necessary to show in the sales invoices a separate charge for sales tax. The Tribunal proceeded to record a fin....
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....bsidy under scheme framed by the government. Therefore, this amount determined and referred to as notional sales-tax liability should have been reduced from the revenue receipts as it is embedded in such receipts, though having character of subsidy. Section 41(1) of Bombay Sales Tax Act states that subject to such condition as it may impose, the State government may, if it is necessary in public interest, by notification exempt any part of any tax payable under the provisions of the Act. This amount as claimed should have been transferred to the separate account of subsidy. But as stated earlier the entries in the books of account are not sacrosanct and if the true nature of the receipt or payment is different then the same has to be evaluated on the basis of substance of the transaction and in accordance with the law applicable to such transaction. This is what the commissioner (Appeals) has done in assessment year 1989-90 after reviewing earlier appellate orders (page 479 of paperbook). From this discussion it will be amply clear that the amount of notional liability determined bears the character of subsidy, the amount which otherwise would have been paid to the Sales T....
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....the case of CIT vs Reliance Industries Ltd 88 ITD 273 (Mum)(SB) as followed by the division bench of the Tribunal in the case of Zenith Fibres Ltd (supra) and in the case of M/s Sterlite Optical Technologies Ltd. (supra). In the result, this ground of the assessee is allowed. 11. The second issue that arises in this appeal is the disallowance of depreciation by reduction of notional tax on capital gain on an exemption allowed u/s 54G of the Act during the AY 1995-96 and 1996-97, from the actual cost of the plant and machinery capitalized in the said assessment orders by invoking Explanation 10 to section 43(1) and thereafter computing the written down value. The assessee alternatively, aggrieved at the non reduction of the same from the cost of land and building instead of plant and machinery. The facts of the issue are that the assessee had shifted its factory from Mulund, Mumbai to Lakhmapur, Nashik during the assessment year 1995-96 and 1996-97. As the assessee had shifted the unit from an urban area, to a non urban area it was entitled for claim of deduction u/s 54G of the Act. There is no dispute on the fact that the assessee was entitled to a deduction u/s 54G. The assessi....
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....ed, then the same should be reduced from the cost of the land as the same is related to capital gain on sale of land. Without prejudice it was submitted that even it is held that if it is not deducted from land, then, as per the proviso to Explanation 10 to section 43(1) it is to be deduction on pro-rata basis among depreciable and non depreciable assets. 15. The learned departmental representative, on the other hand, submitted that the assessing officer, as well as the first appellate authority had considered all these arguments of the assessee and has come to a proper conclusion that Explanation 10 to section 43(1) is applicable for the benefit derived by the assessee u/s 54G during the assessment years 1995-96 and 1996-97. He relied on the orders of the authorities below. 16. Rival contentions heard. Section 54G exempts from capital gain on transfer of assets, in cases where an industrial undertaking is shifted from an urban area to a non urban area subject to fulfillment of certain conditions specified in that section. Explanation 10 to Section 43(1) reads as follows: "Explanation 10.- where a portion of the cost of an asset acquired by the assessee has been met ....
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....s of the Income-tax Act for the payment of tax including depreciation, investment allowance etc. would be taken as a subsidy, grant or reimbursement and can be considered for the reduction of cost of asset. 18. In view of the above discussion we fully agree with the submissions of the learned senior advocate, Shri SE Dastur and allow this ground of the assessee. 19. Ground 3 & 4 are on the same issue of disallowance of depreciation and in line with our decision on ground 2 we allow these grounds of the assessee. 20. Coming to grounds 5, 6 9 & 10 after hearing rival contentions we find that the CIT(A) has in erroneous exercise of his powers and wrongly set aside the matter to the file of the assessing officer for fresh adjudication though he had no power to do so consequent to the amendment brought into the Act with effect from 01-06-2001 by Finance Act, 2001 whereby section 251(1)(a) has been amended and the words "or he may set aside" have been deleted. We also find that while the CIT(A) agrees with the submissions of the assessee, he set aside the matter to the file of the assessing officer for fresh adjudication which is, in our considered opinion, not proper. In any ev....
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....f Rs. 3 lakhs out of a total sales promotion expenses of Rs. 2,30,95,852 claimed by the assessee on the ground that it is not possible to establish that the same has been incurred wholly and exclusively for the purpose of business. He made an observation that some of the expenses were on account of gifts made by the assessee. He confirmed the adhoc addition. Further aggrieved, the assessee is before us. 22. The learned counsel for the assessee submitted that a disallowance cannot be made merely on conjectures and surmises. He vehemently contended that in the absence of any material on record to show that any part of the sale promotion expenses having been incurred for business purposes, the entire expenditure has to be allowed u/s 37(1) as held in National Industrial Corporation vs CIT 258 ITR 575 (Del). He also relied on the following case laws: Lalchand Bhagat Ambica Ram vs CIT (1959) 37 ITR 288 (SC) CIT vs Daulat ram Rawatmull (1973) 87 ITR 349/360 (SC) Sukhdayal Rambilas vs CIT (1982) 136 ITR 414/418 (Bom) He also pointed out that the details of the sale promotion expenditure are given at page 237 of the paper book as well as on pages 19 and ....
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....essee has rightly relied upon the judgment of the jurisdictional High Court in the case of New Shorrock Spinning & Mfg Co Ld vs IT (1956) 30 ITR 338 (Bom); Cultural Enterprises Corporation vs CIT (1992) 196 ITR 488 (Cal) and claimed that this expenditure has been wrongly disallowed. The Hon'ble Bombay High Court in the case of New Shorrock Spinning & Mfg Co Ltd vs IT (1956) 30 ITR 338 (Bom) held that the test that must be applied is that as a result of the expenditure which is claimed as an expenditure for repairs, what is really being done is to preserve and manage an already existing asset. The object of the expenditure is not to bring a new asset into existence nor is its object the obtaining of a new or fresh advantage. Similarly, the Hon'ble Calcutta High Court in the case of Cultural Enterprises (supra) held that when money is spent for repairs in a particular year, the expenses on even arrear repairs are to be considered as revenue expenditure. Respectfully applying these decisions to the facts of this case, we allow the ground of the assessee. 27. Ground No.11 is against the levy of interest u/s 234D. Section 234D was introduced with effect from 01-06-2003 and he....