TaxTMI 
TaxTMI 
2017 (1) TMI 1214
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.... of computing 'Book Profit' under section 115JB of the Act as the same is in the nature of reserve not specified under section 33AC of the Act. 2. (a) That the learned CIT(A), has erred in sustaining the addition made by the learned Assessing Officer in respect of the amount of capital subsidy to the book profits while computing income under the section 115JB of the Act, on the alleged contention that the appellant has transferred Rs. 17,84,404/- to a reserve which has not been specified under section 33AC of the Act and therefore the same has to be added back for computing Book Profits under section 115JB of the Act. (b) That, in this connection, the learned CIT(A) has erred in interpreting the provisions of section 115JB of the Act stating that the appellant had transferred the amount of Rs. 17,84,404/- to a reserve which has not been specified under section 33AC, without giving credence to the fact that the amount of Rs. 17,84,404/- is not an appropriation of profits and there is no such debit to profit & loss account for the alleged appropriation. 3. That the learned CIT(A) has erred in sustaining the addition of Rs. 1 Lakh on account of forfeiture of security depo....
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.... allowed part relief to the assessee. Aggrieved, both the assessee and the Revenue are in appeal before the Tribunal. 5. Before us, the learned counsel of the assessee submitted that ground No. 1 of the appeal of the assessee was covered against the assessee by the order of the Tribunal in the case of the assessee for assessment year 2009-10. 5.1 Learned CIT(DR), on the other hand, relied on the order of the lower authorities. 5.2 We have heard the rival submission of the parties and perused the relevant material on record. We find that in para-5 of the order of the Tribunal in ITA No. 703/Del/2013, the issue in dispute has been decided by the Tribunal as under: "5. In view of above, at the very outset, we note that the assessee company has transferred impugned amount to a reserve which has not been specified u/s 33AC of the Act, therefore, as per Explanation 1 attached to provisions of section 115JB of the Act, the book profit is required to be increased by the amount carried to any reserve account. We also note that the AO has rightly relied on the decision of Hon'ble Apex Court in the case of State Bank of Patiala reported as 219 ITR 706(SC) wherein it was clearly he....
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....similar corresponding amount was shown as capital subsidy in the balance sheet in Schedule II under the head of reserves and surpluses. At this juncture, we also take cognizance of Note No. 14 Schedule 12 to balance sheet (as on 31.3.2008) which reads as under:- "5.0.1 This is as per Note No. 14 (schedule 12 to balance sheet as at 31.03.08), which reads as under: "Under the agreement dated 31.01.1986, as amended thereafter, the interest liability aggregating to Rs. 27,55,420/- on loan from the Central Govt. is treated as having been discharged in view of the fact that an equivalent amount is received as cash subsidy for the specific purpose to the company's undertaking by the Govt. The Hon'ble ITAT, New Delhi, for the A.Y. 1990-91 in the company's own case, has held that the subsidy received from the Central Govt. is capital in nature. Accordingly, the interest amounting to Rs. 27,55,420/- has been debited to the statement of profit and loss under the head 'Financial Expenses' and the corresponding amount has been credited to capital subsidy under the head' Reserves and Surplus'." 9. It is also undisputed that the amount of interest paid by the ....
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....d under the scheme to quantify the financial aid. The contention is that it is not a payment, directly or indirectly, to meet any portion of the 'actual cost' but intended as an incentive to entrepreneurs, its quantification determined at a percentage of the fixed capital cost." We further note that the Hon'ble Apex Court in the case of P.J. Chemicals (supra) has held that the expression "actual cost"" in section 131(1) of the Act needs to be interpreted liberally and subsidy does not partake of the character of a payment intended either directly or indirectly to meet the 'actual cost'." As we have noted above that it has already been accepted by the Hon'ble High Court in assessee's own case for AY 1990-91 that the subsidy received by the assessee is in the nature of capital subsidy, hence, the same cannot be treated as revenue and thus, the income approach of accounting for capital subsidy received as government grant is not applicable in this case as per AS-12 where in para 5.2 it has been made clear that the capital approach is to be followed in respect of government grants and it is inappropriate to recognize government grants in profit and loss statements because they are not ....
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....onsidering all the materials aspects of the issue, the Tribunal in the Assessment Year 1990-91, had allowed the amount of interest paid by the assessee to the Central Government as revenue expenditure with further findings that the corresponding subsidy is a capital subsidy. The Revenue had preferred appeal against the said order of the Tribunal before the Hon'ble High Court of Delhi but it could not succeed as the Hon'ble High Court dismissed the appeal of the Revenue on the basis that no substantial question of law arises out of the order of the Tribunal The Tribunal has also decided the issue in favour of the assessee in the appeals for the Assessment Years 1993-94, 1944-95 and 1998-99. In the appeals for the Assessment Years 1995-96, 1996-97, 1998-99, 2001-02, 2002-03, 2003-04, 2004-05 and 2005-06, the Tribunal has held that' in the appeals preferred by the assessee, the amount of interest on the Central Government loan cannot be disallowed. In view of this finding of the Tribunal on the issue we are of the view that Ld. CIT(A) was right in deciding the issue in favour of the assessee following the above decisions and was thus justified in deleting the addition in question.....
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....t Laboratories India Private Limited (supra) , the assessee claimed deduction of Rs. 3,24,178/-related to consultation fee paid for engineering services rendered by a consultancy firm. The Assessing Officer found that the services of the said firms were engaged for making proposals related to relocation of the plant and machinery and utility services at the existing facilities with a view to increase efficiency and output of the plant. He also observed that recommendation of the said firm ultimately did not metalize. He, therefore, held that the expenditure was of a capital nature. The Hon'ble Bombay High Court held as under: "8. We have carefully considered the facts of the case. It appears that the object of the exercise for which the services of Messrs. Ralph M. Parsons Co., of Asia were availed of by the assessee was for rationalisation of its administration and modernisation of its machinery with a view to derive maximum benefit out of the existing resources. The object seems to be to improve the productive efficiency. It was not in connection with a new plant or a new project or a new product. It was to improve the production of the existing project with a view to increase....