TaxTMI 
TaxTMI 
2017 (3) TMI 1383
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....ts manufacturing unit at Sikkim The assessee had debited a sum of Rs. 31,45,986/- in the profit and loss account on account of leave encashment which was outstanding on 31.03.2007. Under the provision of section 43B(f) of the Income Tax Act, 1961 (Act) any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee shall be allowed as deduction in computing the total income only in the year in which the sum is actually paid by him. In other words, the deduction on account of expenditure in the form of leave encashment paid by an employer to the employee cannot be allowed on the basis of the provision or on the basis of accrual under the mercantile system of accounting, made in the books of account and will be allowed only to the extent the leave encashment is actually paid to the employee by the employer. The plea of the assessee before the AO was that since section 43B(f) of the Act was declared unconstitutional by the Hon'ble Calcutta High Court in the case of Exide Industries Limited vs UOI 292 ITR 470 (Cal) provision for leave encashment which is based on proper estimate is a certain liability and should be allowed as deduction. The AO however ....
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....s per Rule 8D does not arise in the instant assessment year. Disregarding the submissions made by the assessee in the order u/s 143(3) of the Act, the AO computed disallowance u/s 14A at Rs. 12,05,250/- by applying Rule 8D (i.e. 0.5% of average investments). 7. On appeal by the Assessee the CIT(A) firstly held that Rule 8D is applicable only from AY 2008-09 and in this regard referred to the decision of Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg.Co. Ltd. (2010) 43 DTR 177 (Bom) wherein it was held that Rule 8D was applicable only from AY 2008-09. The CIT(A) thereafter held that disallowance of 1% of the exempt income prior to AY 2008-09 was reasonable and in this regard relied on the decision of the Hon'ble Kolkata Tribunal in the case of M/s.Civil Engineers Enterprises (P) Ltd. ITA 859/Kol/2010 and ITO Vs. M/S.BPS Securities (P) Ltd. ITA No.123/Kol/2010, wherein it was so held. Aggrieved by the order of the CIT(A) both the Assessee and revenue have raised the aforesaid grounds of appeal before the Tribunal. 8. We have considered the rival submissions and find that in the following orders ITAT Kolkata Bench has taken the view that 1% of the dividend income ca....
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....15JB of the Act by placing reliance on the decision in the case of CIT -vs- Ponni Sugars and Chemicals Ltd. (2008) 306 ITR 392 (SC). The AO in the order u/s 143(3) held that as per the explanation and provisions contained in 115JB refund of excise duty should not be excluded in the computation of book profit u/s 115JB. 12. Before the CIT(A) the assessee submitted that in F.Y.2005-06 the assessee set up a new unit in the State of Sikkim. In terms of Office Memorandum No.14(2)/2002 issued by Government of India, Ministry of Commerce & Industry, Department of Industrial Policy and Promotion dated 31-12-2002, goods manufactured in the notified areas of Sikkim are exempt from payment of excise duty. The Government of Sikkim vide Notification No.G.O./2/DI/2002-2003/901 dated 17-02-2003 has also reproduced office Memorandum No.14(2)/2002 issued by Government of India for the general information of the public. The factory of the assessee was located in Mamring district in the State of Sikkim which is one of the notified areas as per Annexure-II of Office Memorandum No.,14(2)/2002 and thus the assessee was entitled for excise duty exemption. The said exemption was given to the unit for d....
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....ee was not in the nature of income and therefore ought to be excluded from book profits for the purpose of Sec.115JB of the Act. The following were the relevant observations of the CIT(A): "1.0. I have perused the submission made by the appellant. In its submission, the appellant pleaded that the excise duty exemption being in the nature of capital receipt should not form part of the profit & loss account. Hence, it should be excluded in the computation of book profit U/S 11SJB. However, in the order U/S 143(3), AO has held that as per the explanation and provisions contained in 11SJB, refund of excise duty should not be excluded in the computation of book profit U/S 115JB. 1.1 I have carefully considered the assessment order and submission of the appellant. The objective behind granting of excise duty exemption in the present case is to give incentive for industrialization and employment generation in the State of Sikkim which lagged behind in industrial development. The same is evident from the various clauses of Memorandum No. 14(2)/2002 issued by Government of India, Ministry of Commerce & Industry, Department of Industrial Policy and Promotion dated 23-12-2002. The objec....
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....In the present case, the excise duty exemption granted to the appellant is pure and simple capital receipt. Thus, it doesn't have any income or profit element embedded in it, since the incentive has been granted to the appellant to accelerate industrial development and generate employment opportunities in the backward region. Hence, it is held that the excise duty exemption granted is not chargeable to tax under the Income Tax Act as held by the Apex Court in the case of Padmaraje (supra) and in the light of the factual finding as above. Therefore, the same is clearly not includible in P&L account prepared under Part II & Part III of Schedule VI to the Companies Act. 2.2 The genesis of Sec 115J, thereafter section 115JA and now section 115JB was to ensure that the assessee, while making profit from operations, should not enjoy tax free status due to various deductions available under the Income Tax Act. There was never any intention of the legislature to tax what is not income at all. In a recent decision, the Hon'ble Apex Court in the case of Indo Rama Synthetics 0) Ltd -vs- CIT (2011) 330 ITR 363 (SC) has held that the object of MAT provisions is to bring out the real ....
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....re the Tribunal. 17. We have considered the rival submissions in the light of the decision of the Hon'ble Jammu & Kashmir High Court in the case of M/S.Shree Balaji Alloys 333 ITR 335 (J & K) ITA No.2 of 2010 Judgment dated 31.01.2010, rendered in the context of identical scheme under which the excise duty exemption subsidy was received by the Assessee in the present case. In the case of Balaji Alloys (supra), the Hon'ble Jammu & Kashmir High Court has set out of the objects of the scheme under which the excise duty exemption subsidy and interest subsidy were received by the Assessee in the present case in the following words: "Before coming to the issues, which need determination, regard needs to be had to the salient features of the New Industrial Policy, amendment introduced thereto and the statutory Central excise notifications issued in this respect governing the refund of excise duty and interest subsidy, as incentives to the industrial units, pursuant to the New Industrial Policy. The statement and objects, which had lead to the New Industrial Policy and other concessions for the State of Jammu & Kashmir floated vide Office Memorandum of 14th June, 2002 and the sali....
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....rmissible to the new and existing units on their substantial expansion for a period of 10 years. 6. Office Memorandum dt. 14th June, 2002 referred to hereinabove was later amended vide notification of 28th Nov., 2003 issued by the Government of India, Ministry of Commerce and Industry, Department of Industrial Policy and Promotion. It reads thus : "No. 1(11)/2002-NER-In pursuance of the announcement by the Prime Minister on 19th April, 2003 at Srinagar for creation of one lakh employment and self-employment opportunities in Jammu & Kashmir, the Government of India had set up a Task Force under Cabinet Secretary. The recommendations of Task Force were submitted to the Cabinet. To achieve this object of employment generation, the Cabinet has inter alia, approved following definition of the term 'substantial expansion' for the purpose of incentives/subsidies notified as per OM No. 1(13)/2000-NER dt. 14th June, 2002. 2. The Central Government, therefore, hereby makes amendment in the Central Interest Subsidy Scheme, 2002 notified in the notification of the Government of India in the Ministry of Commerce and Industry, Department of Industrial Policy and Promotio....
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....cerned District Industries Centre to the jurisdictional Dy. CCE or the Asstt. CCE, as the case may be, to the effect that the unit has created such additional regular employment. Explanation-For the purposes of this notification : (a) 'base employment limit' means maximum number of regular employees employed at any point of time by the concerned industrial unit, during last five years; (b) 'regular employment' shall not include employment provided by the industrial unit to daily wagers or casual employees; (c) 'new investment' shall not include investments which are used for paying off old debts or making payments for the plant or machinery installed prior to the 14th day of June, 2002, or paying salaries to the employees. [Above cl. (b) has been substituted vide NTF No. 11/2004- CE, dt. 29th Jan., 2004]. Old : (b) Industrial units existing before the 14th day of June, 2002, but which have undertaken substantial expansion by way of increase in installed capacity by not less than twenty five per cent on or after 14th day of June, 2002.] 4. The exemption contained in this notification shall apply to any of the said uni....
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....it then the receipt of the subsidy was on capital account. Therefore, it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form or the mechanism through which the subsidy is given are irrelevant." 16. Perusal of the judgments in Sahney Steel (supra) and Ponni Sugars (supra), therefore, reveals that the apex Court had applied the above quoted dictum to determine the purpose, which the two schemes had intended to achieve by the incentive subsidies, permissible under the schemes in question in those cases. It was, therefore, in the context of respective subsidy incentive schemes in the two cases, that the subsidy in Sahney Steel (supra) was held to be revenue receipt whereas the subsidy in Ponni Sugars & Chemicals Ltd. (supra) was held as capital receipt. 17. We are supported in taking this view by the observations made by the Hon'ble Supreme Court of India in a later decision reported as Mepco Industries Ltd. vs. CIT & Anr. (2009) 227 CTR (SC) 313 : (2009) 31 DTR (SC) 305 : 2009 (7) SCC 564, where the above dictum was reiterated as follows : ".......Sahney Steel & Press Works Ltd. Etc. (supra) was a case w....
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....not be any necessity of referring to the judgments of other High Courts of the country referred to by the appellants' learned counsel, some of which had been considered by Hon'ble Supreme Court of India in the above-referred cases. 21. Thus, finding that the New Industrial Policy and other concessions for the State of Jammu & Kashmir have not been correctly appreciated by the Tribunal, we proceed to examine the true intent and purpose underlying the Policy and concessions contemplated by the Office Memorandum of 14th June, 2002 and the statutory notifications issued in this behalf. 22. Perusal of the Office Memorandum dt. 14th June, 2002 indicating New Industrial Policy and other concessions for the State of Jammu & Kashmir, makes it explicit that the concessions were issued to achieve twin objects viz. (i) Acceleration of industrial development in the State of Jammu & Kashmir, which had been found lagging behind in such development and (ii) Generation of employment in the State of Jammu & Kashmir. Amendment introduced to the Office Memorandum vide notification of 28th Nov., 2003 of the Government of India, Ministry of Commerce and Industry (Department of Industrial Policy....
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....tch of reasoning, be construed as production or operational incentives for the benefit of assessees alone. 27. Thus, looking to the purpose of eradication of the social problem of unemployment in the State by acceleration of the industrial development and removing backwardness of the area that lagged behind in industrial development, which is certainly a purpose in the public interest, the incentives provided by the Office Memorandum and statutory notifications issued in this behalf, to the appellant-assessees cannot be construed as mere production and trade incentives, as held by the Tribunal. 28. Making of additional provision in the scheme that incentives would become available to the industrial units, entitled thereto, from the date of commencement of the commercial production, and that these were not required for creation of new assets cannot be viewed in isolation to treat the incentives as production incentives, as held by the Tribunal, for the measure so taken, appears to have been intended to ensure that the incentives were made available only to the bona fide industrial units so that larger public interest of dealing with unemployment in the State, as intended, in t....
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....ble industrial units from the date of commencement of commercial production and that these are not to be allowed for creation of new assets cannot be viewed in isolation to treat the incentives as production incentives. Such provisions are intended to ensure that the incentives are made available only to the bona fide industrial units so that the larger public interest of eradicating unemployment is achieved. The Court finally concluded that the incentives received by way of excise duty refund and interest subsidy are capital receipts in the hands of the assessee and therefore not chargeable to tax. 20. The ratio laid down in the aforesaid decision is squarely applicable to identical subsidy received under identical scheme of the State of Sikkim as the objective of both the schemes are identical. We therefore find no grounds to interfere with the conclusions of the CIT(A) that the subsidy in question is a capital receipt not chargeable to tax. 21. The main issue that arises for consideration on the basis of the grievance projected by the Revenue in the aforesaid ground No.2 is as to whether the excise duty refund which were held by the CIT(A) to be capital receipts not charge....
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....it as shown in the profit and loss account for the relevant previous year prepared under subsection (2), as increased by- certain items debited in the profit and loss account in arriving at the net profit and as reduced by- certain items that are credited in the profit and loss account. In other words, all that one has to do, while computing book profits is to take the profit as per profit and loss account prepared in accordance with Companies Act, 1956 and make additions or subtraction as is given in the explanation to Sec.115JB(2) of the Act. 23. We have already seen that the issue whether subsidies in question can be regarded as income at all is no longer res integra and has been concluded by the Hon'ble Jammu & Kashmir High Court in the case of Balaji Alloys (supra). In the aforesaid decision the Hon'ble J & K High Court on identical facts held that excise duty subsidy and interest subsidy were capital receipts not chargeable to tax. In view of the aforesaid decision of the Hon'ble High Court rendered on identical facts as that of the Assessee's case, there can be no doubt that subsidies in question does not have any character of income. 24. When a receipt is not in th....
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.... the Act and thereafter, AO had to make adjustments for additions/deletions contemplated in Explanation to section 115JB of the Act. 25. The Tribunal in the aforesaid decision made a reference to the decision of the Special Bench of the ITAT in the case of Rain Commodities (supra) which in turn was based on the ratio laid down in the decision of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (supra) as a case in which the income in question was taxable but was exempt under a specific provision of the Act and but for the exemption, the income would be chargeable to tax and such items of income should also be included as part of the book profits. But where a receipt is not in the nature of income at all it cannot be included in book profits though it is credited in the profit and loss account. The Bench followed the decision of the Lucknow Bench in the case of L.H.Sugar Factory Ltd.(supra), where receipts on account of carbon credits which were capital receipts not chargeable to tax and hence not in the nature of income were held not included in the book profits. The Bench also referred to the decision of the Mumbai Bench of the ITAT in the case of Shivalik Venture Pvt....
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....garded as income even for the purpose of book profits u/s.115JB of the Act though credited in the profit and loss account and have to be excluded for arriving at the book profits u/s.115JB of the Act. We hold accordingly and confirm the order of the CIT(A) in this regard. In light of the aforesaid discussion, we are of the view that the subsidies in question should be excluded for the purpose of determination of book profits u/s.115JB of the Act. We hold accordingly and dismiss Gr.No.2 raised by the Revenue. 27. Gr.No.3 raised by the revenue reads as follows: "3 That on the facts and in the circumstances of the case and in law, the Ld. CIT(A} erred in granting depreciation @ 10% on landscaping & development charges which is capitalized in nature of land thereby allowing depreciation on land which is not permitted as per I TAct." 28. The assessee has claimed the landscape expenses of Rs. 35,23,301/- incurred on the leasehold land situated at Sikkim Unit to level the uneven land for construction of factory building as revenue expenditure. The AO held that landscaping and development charges are not related to regular repair & maintenance but for better utility of land and it....