TaxTMI 
TaxTMI 
2013 (2) TMI 748
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....e case, the Ld CIT(A) has erred in directing the Assessing Officer to recompute deduction u/s 80HHC. 4. On the facts and in the circumstances of the case, the Ld CIT(A) has erred in setting aside the issue regarding commission paid to M/s Ganesh Steel Rolling Mills Ltd Hissar. 5. The appellant craves leave to add or amend the grounds of appeal before the appeal is heard or disposed off. I.T.A. No. 3254/Del/2008: (Assessee's appeal): 1.That the Commissioner of Income Tax (Appeals) erred on facts and in law in upholding disallowance out of club membership and subscription charges to the extent of Rs. 22,125 alleging that the same had not been expended for the proposes of the business. 2. That the Commissioner of Income Tax (Appeals) erred on facts and in law in upholding the action of the assessing officer in partly disallowing expenditure incurred on aircraft, to the extent of RS.5,47,530 alleging that the same was spent for nonbusiness purposes. 3.That the Commissioner of Income Tax (Appeals) erred on facts and in law in setting aside the issue regarding disallowance of commission amounting to " RS.1 ,09,31 0, paid to Ganesh Rolling M....
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.... amend or vary from the above grounds of appeal before or at the time of hearing. , 2. The brief facts of the case are that assessee is engaged in the manufacturing of sponge iron, universal ream/railway mile with its own captive power plant. Besides captive consumption, the assessee is also engaged in supplying electricity to Chattisgarh State Electricity Board. The return of income declaring total income of Rs. .67,15,19,540/- was filed availing deduction u/s 80IA, 80IB & 80HHC of the Income Tax Act, 1961 . The company had paid tax u/s 115JB of the Act being higher than tax on normal income. The case of the assessee was selected for scrutiny. During assessment proceedings the Assessing Officer observed that the cost of production of power was Rs. .1.10 per unit whereas it had charged Rs. .3.7243/3.698 per unit for captive consumption and Rs. .3.292 for its Raipur Unit. In this view of the fact the Assessing Officer observed that charging of rate of Rs. .3.7243/3.698 & 3.392 per unit on the supply of power was not justified. The Assessing Officer further observed that the assessee had supplied power to State Electricity Board @ Rs. .2.32 per unit. In view of the above, the Asse....
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....its with the positive incomes quantifying allowable deduction u/s 80IB were placed by the assessee during the course of assessment proceedings. Considering the reply of assessee, the Assessing Officer held that deduction u/s 80IB was allowable for blast furnace unit and ferro chrome unit and also enhanced deduction u/s 80IB on Kiln No.6. Therefore, in view of above, the Assessing Officer allowed deduction u/s 80IB totaling Rs. .20,92,17,564/-. 4. The Assessing Officer further observed that assessee had made payment of Rs. .3,22,125/- to clubs and assessee was asked to justify as to how this was allowable. In reply, the assessee submitted that payment was allowable being corporate membership fee paid during the year and placed a receipt of Rs. .3 lakhs issued by Chattishgarh Club describing it as corporate membership fee. The Assessing Officer allowed the deduction of Rs. .3 lakhs and disallowed the amount of Rs. .22,125/- in the absence of proof of bill/receipt of Rs. .22,125/-. 5. The Assessing Officer also noted that assessee had claimed deduction of Rs. .1,09,310/- on account of commission paid to M/s Ganesh Steel Rolling Mills Ltd. Hissar. The Assessing Officer noted that....
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.... further noted that during assessment proceedings, the assessee has placed on record a letter dated 28.12.2006 wherein it had requested to adopt revised/reduce computation of income arrived at after deducting an amount of Rs. .24,,77,25,360/- representing subsidy received from Govt. The assessee had retained this amount by not paying sale tax collected and by not paying electricity duty and entry tax and had declared this as revenue receipt in the books of accounts and return of income. During assessment proceedings it was submitted that nature of subsidy was capital and was not liable to tax and therefore revisded computation of income was filed. The Assessing Officer rejected the same holding that the amount was received as incentive, Govt. grant and was in the nature of revenue receipt. 8. Dissatisfied with the order of the Assessing Officer, the assessee filed appeal before Ld CIT(A) and submitted as under:- a) That in respect of disallowance of deduction u/s 80IA, the issues stand covered in favour of assessee by order dated 7.6.2007 of Hon'ble ITAT Delhi Bench in I.T.A. No.3257/Del/05-06 for assessment year 2001-002. In view of the aforesaid, the Ld CIT(A) hol....
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....leted the disallowance of depreciation. 11. In respect of disallowance on account of air craft expenses, the appellant submitted that traveling to places mentioned in the assessment order was only for purposes of businesses but Ld CIT(A) upheld the disallowance made by the Assessing Officer in view of the fact that the nature of business conducted at these places was not explained by the assessee. 12. As regards disallowance of subsidy amount of Rs. .24,77,25,360/- the Ld AR of the assessee explained that the subsidy amount was earlier shown as revenue receipt by the assessee but was later shown as capital receipt and this was amended by assessee through revised computation of income on a simple paper placed on record only on 28.12.2006 i.e. just on the same date when the time barring case was finally discussed. The Ld CIT(A) held that exemption granted to assessee from paying Central Sales Tax, entry tax and electricity duty were of production related incentives and none of the above items tantamount to acquisition of capital asset like land, building, machinery etc. The Ld CIT(A) further relied upon the judgment of Hon'ble Supreme Court of India in the case of Goetze In....
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....he deduction of export profit allowable in terms of clause (iv) of Explanation 1 to section 115JB of the Income Tax Act, 1961 to the extent specified in section 80HHC even while computing book profit. ii) That the Assessing Officer failed to appreciate that the entire export profits are allowable as deduction while computing book profit u/s 115JB and the same are not required to be restricted to the extent specified in sub section (Ib) of section 80HHC of the Act. Continuing his arguments with respect to ground No.1, the Ld AR submitted that the appellant had paid Rs. .3,,22,125/- as subscription fees to various clubs and it was also reported in tax audit report and Assessing Officer disallowed Rs. .22,125/- out of aforesaid amount on the ground that appellant failed to substantiate the same. The Ld AR submitted that club fees are allowable as business expenditure and lower authorities had failed to appreciate that particulars of club details and payments were duly furnished and since the quantum of payment was very small the evidence in respect of the same were not readily available. Reliance was placed on a number of judgments listed at page 1 &2 of chart of issues fi....
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....Supreme Court in the case of Goetze India (supra) for the first time in remand reported dated 13.2.2008 and therefore ld CIT(A) should have decided the issue on merits as the issue emanated from the order of Assessing Officer. It was further argued that in the case of Goetze India (supra) Supreme Court had held that Assessing Officer is not obliged to entertain claim not made through revised return but same does not impinge the powers of appellate authority. Reliance was placed on the judgments in the following cases:- 1. CIT v. Jai Parabolic springs Ltd. 306 ITR 42. 2. JCIT v. Hero Honda Finlease Ltd. 115 TTJ 752 (Del.). 3. SNC Lavalin Acres in 110 TTJ 13 (Del.). 4. Sirpur Paper Mills Ltd. v.; city I.T.A. No. 425/Hyd. 5. Aishwarya Roy 2007 TIOL -219-ITAT-Bom. 6. Chicago Pnematc India Pvt. Ltd. v. DCIT 15 S)T 252. 7. Emerson Net Work Power India (P) Ltd. v. ACIT 19 DTR 441 (Bom.). 18. It was further argued that in the case of Hero Honda Finlease it was held that where the Assessing Officer proceeded to deal with the claim on merits, the Ld CIT(A) could not be precluded from adjudicating the issue despite the claim ha....
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....r book dated 31.7.2009 was referred to wherein complete judgment of Hon'ble Court was placed. The Ld AR further took us to page 324 onwards of the same paper book wherein the Hon'ble Supreme Court in the case of CIT v. Ponny sugar & Chemical Ltd, 306 ITR 392 (SC) has held in favour of assessee. In this respect para 5 of page 328 and paras 9,12,13,14 & 16 at page 329 were read by Ld AR and in view of the findings of Hon'ble Supreme Court, the Ld AR stressed that Hon'ble Court had over ruled its earlier judgment in Sawhney Steel case and has decided the matter in favour of assessee. Continuing his arguments, the Ld AR submitted that Hon'ble Court had stressed the purpose test for determining the nature of subsidy received by the assessee. Again referring to the industrial policy of Madhya Pradesh, the Ld AR argued that purpose of giving subsidy was overall balance development of State through greater utilization of human and natural resources and was for creation of more direct and indirect employment opportunities and for creation of opportunities to attract new investment in the large and medium sector. In this respect page 7 & 8 of paper book wherein copy of In....
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....eipt. He further submitted that Assessing Officer has simply held the nature of subsidy as revenue on the basis that subsidy in the form of non payment of sales tax, entry tax and electricity duty were production related incentives and none of the above items tantamount to acquisition of capital assets. Our attention was also invited to CBDT Circular No.142 dated 1,8.1974 which explains the nature of subsidies and therefore it was pleaded that subsidy was capital in nature. 23. As regards additional ground taken by the assessee, the Ld AR submitted that in view of judgment of Hon'ble Supreme Court in the case of Ajanta Pharma Ltd, v. CIT 327 ITR 305, the assessee was eligible for claim of full amount of export profits u/s 80HHC of the Act for determination of profits u/s 115JB of the Income Tax Act, 1961 . Therefore, this additional ground of appeal should be admitted and the Assessing Officer should be directed accordingly for determination of taxable profits u/s 115Jb of the Income Tax Act, 1961. 24. On the other hand, the Ld DR submitted that in respect of first ground of appeal of assessee, the assessee did not submit receipt of Rs. .22,125/- and has simply relied upo....
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....39;ble Supreme Court. Continuing his arguments the Ld DR submitted that Govt. is making huge amounts for payment of subsidy from tax payers money and they cannot be allowed to go tax free. With respect to case laws of Sawhney Steel & Pony Sugar (supra) of Hon'ble Supreme Court the ld DR submitted that Hon'ble Supreme Court had not over ruled the earlier case of Sawhney Steel rather in the latter case the Hon'ble Court had clarified the purpose test which was capital in nature in that case whereas it was revenue in nature in first case of Sawhney Steel and therefore these both cases are complimentary to each other. Regarding the case law of Ponny Sugar the Ld DR submitted that subsidy in this case was paid for making repayment of loans which is capital in nature whereas in the present case it is against expenses like electricity duty, sales tax which are revenue in nature. He further stressed that the judgment of jurisdictional High Court of Madhya Pradesh in the caseof Dussad Industries reported in 262ITR 784 carry more weight as compared to other High Courts as the assessee's business was in Madhyha Pradesh. He further elaborated that Hon'ble Madhya Pradesh High Co....
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....r argued that assessee has failed to establish on record that in the present case the subsidy was to enable it to carry out capital investment and in the absence thereof it cannot be presumed that such subsidy would be in the nature of capital subsidy. Reliance in this context was placed on the case of law of LG Electronics India Pvt. Ltd. (2010) TIOL -222-ITAT-Del. Wherein the Hon'ble ITAT held that subsidy was linked with the production and sales after commencement of business and sales tax subsidy was treated as revenue receipt. Regarding contention of the Ld AR that the issue is covered in favour of assessee by the decision of Special Bench of the Tribunal in the case of Reliance Industries (supra), the Ld DR argued that it is not correct in view of the decision of Hon'ble Punjab & Haryana High Court in the case of Abishek Industries Pvt. Ltd. and he further argued that decision of the Special Bench of the Tribunal was rendered before the decision in the case of Abhishek Industries (supra). He further argued that the case of Reliance Industries has now been remitted back by Hon'ble Supreme Court to the Hon'ble High Court for re-adjduication. He further argued th....
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.... "The Madhya Pradesh High Court, however, failed to notice the significance fact that under the scheme framed by the Govt. No subsidy was given until the time production was actually commenced. Mere setting up of the industry did not qualify for industrialization for getting any subsidy. The subsidy was given as help not for the setting up of the industry which was already there but is an assistance after the industry commenced its production. The view taken by the Hon'ble Madhya Pradesh High Court is erroneous." 29. Regarding reliance of Ld AR in the case of Maruti Ltd. in I.T.A. No.2188/Del/.2010, the Ld DR submitted that the case law was decided by relying upon the Hon'ble Bombay High Court decision in the case of DCIT v. Reliance Industries Ltd. and the said judgment has since been set aside by the Hon'ble Apex Court in Civil Appeal No. 7769 of 2011 for reconsideration. Reliance was also placed in the case of Steel Authority of India Ltd. 263 ITR 211( Del.) wherein Hon'ble Delhi High Court had held that grant received from Govt. not for bringing into existence any new asset but for functioning of the company was revenue in nature and similarly reliance ....
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....SC). 4. Mepco Industries Ltd. v. CIT 319 ITR 208 (SC). 5. CIT v. Ruby Rubber WEorks Ltd. 178 ITR 181 (Kewr.). (affirmed by the Hon'ble SC in Kalpetta Estates Ltd. v. CIT 221 ITR 601. 6. CIT v. Sham Lal Bansal I.T.A. No.472 of 23010 (P&H). 7. CIT v. Udapi Builders (P) Ltd. 229 CTR 452 (Karnataka). 8. CIT v. Balrampur Chinni Mills Ltd. 238 ITR 445 (Cal.). 9. CIT v. National Cooperative Consumer Federation Ltd. 254 ITR 599(Del.). 10. Sadichha Chitra v. CIT 189 ITR 774 (Bom.). In rebuttal of Ld DR's contention regarding first contention that the case of the appellant is covered by the decisions of Hon'ble Supreme Court in the case of Sawhney Steel & Press Works Ltd. (supra), Dussad Industries and Rajaram Maize Products. He submitted that the nature of subsidy is to be determined by applying purpose test laid down by Hon'ble Supreme Court in Sawhney Steel & Press Works and reiterated in Ponny Sugar & Chemicals Ltd. (supra) The purpose test to the subsidy received by the appellant has to be applied considering the object given in the applicable policy, scheme, notification issued by the State Govt. It was furth....
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....heme had no particular utilization scheme but as a mater of fact the appellant has to utilize the subsidy for repayment of above borrowings and therefore the amount of subsidy can be said to be used for repayment of loan and therefore was of capital receipt. Regarding Ld DR's reliance of Sawhney Steel & Press Works and other decisions the Ld AR submitted that these cases are distinguishable and in those cases after analyzing the purpose of scheme it was held that subsidy granted was revenue receipt. 32. As regards the decision of Hon'ble Madhya Pradesh High Court in the case of Dussad Industries (supra), the Ld AR submitted that the said case relates to assessment year 1979-80 & 1980-81 and in that case the assessee had received subsidy under certain agreements entered into with Govt. of MP and on perusal of relevant clauses of said agreement it can be noted that there is nothing in the said clause to indicate that subsidy was given for industrial development and or for employment generation. Therefore, the case was distinguishable from the present case wherein the purpose of giving subsidy is clearly spelt out in industrial policy. Similarly, it was argued that decision of ....
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....ujarat Electricity Board and not to Chhatisgarh Electricity Board as in the earlier year. Therefore, the rate at which the power had been supplied was market rate and was rightly taken by Assessing Officer as market rate. He further argued that there is difference between the facts and circumstances of earlier year With respect to present appeal as in the present appeal the power was sold to Gujarat Electricity Board and not to Chattisgarh Electricity Board. 34. In his reply, the Ld AR argued that assessee was not permitted to sell power other than to Electricity Board of state and forced price can never be market price. He further argued that power was sold to Gujarat Electricity Board through a tripartite agreement with Chattisgarh Electricity Board as the main party and assessee had to raise bills to Chhatisgarh Electricity Board and, therefore, there is no cause in the facts and circumstances of the case from earlier year. 35. We have heard the rival submissions of both the parties and have gone through the material available on record. We first deal with the revenue's appeal in I.T.A. No.3319/Del/ 2008. The first ground taken by the revenue's regarding allowing depreciat....
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....the assessee. 36. We further find that the aforesaid decision has been followed by the Tribunal in appellant's own case for assessment year 2001-02 in I.T.A. No.3257/Del/2005 (relevant pages 307 & 308 of paper book). Further we notice that department's appeal against the said order of the Tribunal has been dismissed by Hon'ble Punjab & Haryana High Court vide order dated 2.9.2008 for assessment year 2000-01 and for assessment year 2001-02(relevant orders are placed at paper book pages 43-46. Following the above, we find that facts and circumstances of the case remains same, therefore, we dismiss the first ground of revenue's appeal. 37. The second ground of revenue's appeal relates to deduction u/s 80IA of the Act. We find that Ld CIT(A) had deleted the disallowance following the decision of Delhi Bench of the Tribunal in appellant's own case in I.T.A. No.3257/Del/2005 for assessment year 2001-02 placed at paper book pages 268 to 308 and further we find that department's appeal against the said order of the Tribunal has been dismissed by Hon'ble Punjab & Haryana High Court vide order dated 2.9.2008 for assessment year 2000-01 & 2001-02. The facts and circumstances tho....
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....The concern was registered with the Sales Tax Department and was liable to pay local taxes and we are of the considered opinion that the assessee had discharged its onus of proving regarding genuineness of transaction, identity of payee and services rendered by the payee and therefore, we are of the considered opinion that payment was for legitimate business purposes and therefore we dismiss ground No.4 of revenue's appeal and consequently allow ground No.3 of assessee's appeal. 41. In view of the above, the appeal filed by the revenue is dismissed. 42. Now we take up the appeal filed by the assessee in I.T.A. No. 3254/Del/2008. The first ground taken by the assessee is regarding disallowance of Rs. .22,125/- claimed by the assessee as part of club fee. The Assessing Officer had disallowed the amount on account of non production of any supporting documents. The assessee even did not file any evidence before the Ld CIT(A) and therefore Ld CIT(A) upheld the addition made by the Assessing Officer. The assessee's argument that club fee was a business expenditure cannot be denied but the assessee did not produce any evidence in respect of payment before lower authorities or before....
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....avour of assessee. Therefore, ground No.3 is allowed. 46. Ground No.4 of assessee's appeal relates to taxability of subsidy received by the appellant on account of exemption from sales tax, entry tax and electricity duty. The appellant had set up during the period 2000 - 04 industrial unit which has enabled it to avail exemption in respect of payment of Central sales tax, entry tax and electricity duty. The assessee had earlier declared the receipt of subsidy as a revenue receipt but during assessment proceedings, the said amount was claimed as not taxable being in the nature of capital receipt and this was claimed by filing a revised computation of total income. The Assessing Officer disallowed the claim of appellant holding that the subsidy received by the assessee was in the shape of incentives/Govt. grant and was in the nature of revenue receipt. The Assessing Officer also rejected the contention of assessee that the matter of receipt of subsidy was covered by the decision of Special Bench of the Tribunal in the case of Reliance Industries Ltd considering it as non binding being a case of non territorial bench. The ld CIT(A) without going into the merits of the issue sustain....
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....orks are that whether subsidy received by the assessee company was taxable as revenue receipt or not. As per notification issued by Andhra Pradesh Govt. certain facilities and incentives were to be given to all new industrial undertakings which commenced production on or after 1.1.1969 with capital investment not exceeding Rs. .5 crores and the incentives were to be allowed for a period of five years from the date of commencement of production and incentive was in the form of refund of sales tax on raw material, machinery and finished goods subject to maximum of 10% of equity capital paid up in the case of public limited company and actual capital in the case of other. The incentives were also to be paid in the form of subsidy on power consumed for production and also exemption was to be given for payment of water charges. The incentive scheme was for setting up new industrial undertaking in the State and also for the purpose of stimulating special expansion of the industry. The primary object was rapid industrialization of the State and this object was sought to be achieved by various incentives. It was contended there that since subsidy was calculated on the basis of quantum of i....
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....'ble Court further held that subsidies were not granted for production or bringing into in existence any new asset and the same were granted year after year only after setting up of new industry and commencement of production and such subsidy could only be treated as assistance given for the purpose of carrying on the business of the assessee and held that these subsidies were of revenue character and were liable to tax. 49. The facts and circumstances of the present case are similar to the facts and circumstances of Sawhney Steel & Press Works (supra) wherein the Govt. of Madhya Pradesh with a view to industrialize the State and utilize the human resources with an aim to increase employment had provided subsidies in the form of sales tax exemption, electricity duty and entry tax to the assessee for having made investment for a minimum amount of Rs. .1000 crores. The purpose of Andhra Pradesh Govt. and Madhya Pradesh Govt. were broadly same i.e. industrialization and consequent increase in employment opportunities. The Ld AR's argument that purpose test has to be applied in view of the objectives of the scheme is correct as in both the policies of Andhra Pradesh & Madhya Pra....
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.... facts and circumstances of the present case which are squarely covered by the judgment of Hon'ble Supreme Court in the case of Sawhney Steel & Press Works (supra). The case laws relied upon by the assessee are discussed as under:- 50. CIT v. Rasoi Ltd. 335 ITR 438 (Cal.). The object of the subsidy in this case was expansion of business capacities, modernization and marketing and capability of these were assistance on capital amount whereas the facts and circumstances of the present case are totally different. 51. Sri Balaji v. CIT 333 ITR 335 (J&K). The subsidy in the form of excise duty refund and interest subsidies were given in view of Special package for J&K by Central Govt. in public interest in view of specific problems of unemployment in the State and for acceleration of industrial development which had lagged behind. The Hon'ble Court had held that incentives were provided to eradicate social problems of unemployment and were held to be in public interest and therefore were held to be capital in nature. The facts and circumstances of the present case are not similar as in the present case, incentives were provided under normal industrial policy of State....
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....R on Circular No.142 dated 1.8,1974, it is observed that the circular was in respect of 10% Central outright grant of subsidy for industrial units to be set up in certain selected backward areas and it was specifically intended to be contribution towards capital outlay of industrial unit which is not the case in the present appeal. 59. The Ld AR also argued that assessee had created fixed assets with the help of huge borrowings and these borrowings in any case will have to be repaid over a period of time and assessee will utilize amount of subsidies for repayment of loans and therefore same should be treated as capital receipt but we are not in agreement with Ld AR as his argument is based upon hypothesis only. What is important to be seen is whether assessee was bound to utilize the amount of subsidy for repayment of loan or not which in the present case is No. Therefore, this argument cannot be accepted. 60. After analyzing the facts and circumstances of the above noted cases, viz-a-viz facts and circumstances of the present case and that of Sawhney Steel's case, we find that the most appropriate Case law which fits into the facts and circumstances of the present case are t....