TaxTMI 
TaxTMI 
2017 (9) TMI 962
X X X X Extracts X X X X
X X X X Extracts X X X X
....eal reads as follows :- 1. "That on the facts and in circumstances of the case, the CIT(A) erred in law as well as on facts in holding that disallowance of deduction u/s 80IA of Rs. 1,11,89,18,801/- computed by the Assessing Officer due to difference in rate of power was not correct, ignoring the fact that there was huge difference in rate on which power was purchased by the cement units with that of power purchased by the Rajasthan & MP state electricity regulatory authority". This ground can be conveniently decided together with grounds no. 2 to 6 raised by the assessee in its appeal. These grounds read as follows :- "2. That on the facts and circumstances of the case, the Ld.CIT(Appeals) erred in not holding that the appellant company is entitled to claim ofRs.1,11,89,18,801/- made during the year uls.80IA of I.T. Act, 1961. 3. That on the facts and circumstances of the case, the Ld.CIT(Appeals) erred in not holding that the basis of sale price considered by the TPP for sale of power to the cement units of the appellant company is correct and accordingly directing the learned AO to accept the same. 4. That on the facts and circumstances of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....considered as sale price. In his show cause notice dated 5.3.2013 (copy of which is at page 194 of the paper book), the AO proposed to adopt the rates adopted by the Rajasthan Electricity Regulatory Commission, Jaipur, for power purchase by Distribution Licensee which was determined at Rs. 2.44 Ps. Per unit. In the case of power generation by the Madhya Pradesh Unit of the Assessee, the AO proposed to adopt the rate of Rs. 1.39 Ps., which was the rate fixed for purchase of power by M.P.Vidyut Vitran Companies in an order dated 3.3.2010 passed by M.P.Electricity Regulatory Commission. 6. The Assessee submitted before the AO, as follows:- i) Provisions of Section 80lA (8) and the Explanation to the sub-section provide for adoption of the market values "for the purpose of computation of profits and gains of the eligible business where its goods or services are transferred to any other business carried on by the assessee. The explanation defines "Market Value" to mean the price that would ordinarily be fetched in the open market. ii) The price at which State Electricity Boards sell electricity to consumers is representative of the price that electricity would ordinarily fetch ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to whether interest income of Rs. 6,96,85,282/- earned on fixed deposits by the Satna Unit and Rs. 7,18,61,971/- earned on fixed deposits by the Chanderia Unit should also be considered as part of the profits derived from the industrial undertaking for the purpose of allowing deduction u/s.80IA of the Act. The AO held that fixed deposits were made out of surplus funds in bank for short period cannot be considered as "derived" from the industrial undertaking as it has not direct nexus with the industrial undertaking. In coming to the above conclusion the AO relied on the decision of the Hon'ble Supreme Court in the case of Liberty India Vs. CIT (2009) 183 Taxman 349 (SC) wherein it was held that the word "derived from" connotes a direct nexus between the profits and gains of the industrial undertaking and a mere commercial connection in the source does not amount to income derived from the industrial undertaking. 9. On appeal by the assesee the CIT(A) noticed that identical dispute had arisen for consideration in assessee's own case in A.Y.2009-10 and CIT(A) following the order of CIT(A) in A.Y.2009-10 directed the AO to adopt weighted average basis of annual consumption. The fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....earlier years. The said working is enclosed as annexure 'A' to this order. The assessing officer shall verify the figures mentioned therein. The assessing officer will verify the quantity of the units consumed and the figures of the bills from the original documents while giving the appeal effect. In case, there is any variation in the figures as given by the appellant, he will modify it accordingly after giving detailed reasoning for the same. The appellant gets part relief on this point." 10. On the issue of non-consideration of interest income for the purpose of allowing deduction 80lA of the Act, the Assessee submitted before the CIT(A) the interest was earned on temporarily surplus business funds of the thermal power plants deposited with banks and forms part of the profits of the business of the thermal power plants eligible for deduction under section 80IA of the Act. 11. The CIT(A) found that identical issue was considered and decided against the Assessee in AY 2009-10. The CIT(A) following the said order rejected the claim of the Assessee. The following were the relevant observations of the CIT(A). "6.2. This issue was also involved in the earlier as....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Assessee's case for AY 09-10 was heard by the Tribunal, the revenue pointed out before the Tribunal that the very basis of allowing relief to the Assessee was the decision of the Tribunal in the case of ITC Ltd., and that the Hon'ble Calcutta High Court had reversed the order of the Tribunal in the case of ITC Ltd., reported in CIT v ITC Ltd., (2016) 236 Taxman 612 (Cal). In ITC's case (supra) it was held by the Hon'ble Calcutta High Court, that the quantum of benefit u/s 80IA of the Act was to be worked out with reference to the market rate at which electricity could have been sold to the distribution licensee by a generating company and that benefit cannot be claimed on the basis of rate chargeable by the distribution licensee from the consumer. The Assessee however pointed out to the Tribunal that the view taken by the Hon'ble Calcutta High Court in the case of ITC Ltd. (supra) was taken on the basis of the the provisions of Indian Electricity Act, 1910 and Electricity (Supply) Act, 1948 that were in force upto the year 2003. It was pointed out before the Tribunal that The Electricity Act, 2003 (hereinafter referred to as "the 2003 Act") repealed the erstwhile legislation and t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ricity could be sold by the captive power plant was the one fixed by the tariff regulatory commission. However, such position has undergone sea change inasmuch as during the relevant previous years it was open to the assessee to sell even to a consumer and the price for sale to a distribution company or to a consumer that could be mutually agreed upon notwithstanding the tariff fixed by the State Regulatory Commission. We find that during the previous year relevant to the Asst Year 2009-10, the assessee in fact sold electricity at rates higher than that charged from it by the State Electricity Board. The assessee nevertheless made the computation for the purpose of section 80IA of the Act with reference to the price charged from it by the State Electricity Board. In such circumstances, we hold that, when it was permissible for the assessee to sell electricity to consumers and distribution licensees at rates higher than that paid by it to the State Electricity Board, the price charged by the State Electricity Board would be a very good indication of the market value of electricity and the assessee did not commit any error in adopting such price for working out the amount eligible fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....so to be considered as part of the price. The following were the relevant observations of the Tribunal. "5.6.5. Exclusion of Electricity Duty and Cess as directed by ld CITA Now coming to the decision of the ld CITA to exclude electricity duty and cess, we find that the same has been addressed by the Hon'ble Gujarat High court in the case of CIT vs Shah Alloys Ltd in Tax Appeal No. 2092 of 2010 dated 22.11.2011, which approved the view taken by the Ahmedabad Tribunal in ITA Nos.844, 2072 and 2073/Ahd/2006 dated 8.1.2010, that the price charged by the Electricity Board inclusive of the amount of Electricity Duty represented the market value even though the assessee was not required to charge electricity duty. 5.6.6. In view of our aforesaid findings, we direct the ld AO to accordingly modify the earlier years profits also which were modified by him, in the same lines as directed for Asst Years 2008-09 and 2009-10 herein. Accordingly, the grounds raised by the assessee in this regard deserve to be allowed and that of the revenue deserve to be dismissed." 16. The aforesaid decision of the tribunal would apply to the present AY also. Respectfully following....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e order of the AO, the Assessee preferred appeal before the CIT(A). Before CIT(A), the Assessee contended that identical disallowance was made in the assessment year 2006-07 and in first appeal, the CIT(A) by order dated July 9, 2010 deleted the addition made by the AO. Against the said order, the revenue preferred further appeal before the Hon 'ble Tribunal, being ITA No. 1936 (Kol) of 2010. The said appeal has since been rejected by the Hon'ble Tribunal by order dated July 29,2011 (Page 71 to 87 the Paper Book - paragraphs 10-15 at page-77 to 84). The said decision was rendered after considering the judgment of the Hon'ble Supreme Court in Enterprising Enterprises v Deputy Commissioner, (2007) 293 ITR 437 (SC). The said order of the Hon 'ble Tribunal has been followed in first appeal for the assessment years 2007-08 (page 3, para 4), 2008-09 (page 55, para 4) and 2009- 10 (page 110, para 5). It was submitted that in this year also, the compensation amount of Rs. 23,71,3401- should be held to be revenue in nature and an admissible deduction. 21. The CIT(A) deleted the addition made by the AO by following the order of the Tribunal in ITA No. 1936/Kol of 2010. Agg....
X X X X Extracts X X X X
X X X X Extracts X X X X
....round No.3 raised by the revenue reads as follows :- "3. "That on the facts and in the circumstances the case, the CIT(A) erred in law as well as on facts in holding that subsidy received of Rs. 13,59,12,890/- for Industrial promotion assistance from State Govt. was capital in nature, ignoring the fact that the said subsidy was not used for the purpose of acquisition of capital assets". 25. This ground can be conveniently decided with ground no.7 raised by the assessee which reads as follows :- "7. That on the facts and circumstances of the case, the Learned CIT(Appeals) though holding that Industrial Promotion Assistances ofRs.13,59,12,890/- allowed by State Government is in the nature of capital receipt but erred in directing the Assessing Officer (AO) to reduce the same from the cost of Fixed Assets for the purpose of computing depreciation by applying the Explanation 10 ofSecA3(1) of the I.T.Act." 26. During the previous year relevant to AY 2010-11, the Assessee received Industrial Promotion Allowance provided to one of its unit Durgapur Hi-tech, Durgapur under West Bengal Investment Scheme, 2000 to the tune of Rs. 13,59,12,890/-. It was the claim of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....venue subsidy and whole of it has been added as income. However, following the judgment of the Hon'ble Jurisdictional High Court in the case of CIT vs. Rasoi Ltd. (supra), this ground of appeal has been partly allowed and IPA has been considered as capital subsidy, the issue of depreciation is to be considered accordingly as per Explanation 10 to Section 43 w.e.f. 01-04- 1999 provides that "actual cost" means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority and further provides that where such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee." The Hon'ble jurisdictional High Court has not considered the amendment carried out as per explanation 10 to subsection 5 of section 43 in the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h it may not be possible to exactly quantify the amount directly or indirectly used for acquiring the asset. For the purpose of applying the proviso, also it has to be found that the asset was acquired by directly or indirectly using the subsidy. It is apparent from the provisions of the 2000 Scheme and the certificate of registration and eligibility certificate that the assistance was to be made available after the commencement of commercial production without any financial cap and was to be adjusted against the sales tax liability of the year of claim. The industrial promotion assistance was clearly not used directly or indirectly to acquire the assets nor any part of the cost of the assets was met directly or indirectly from the industrial promotion assistance. We find that the issue under dispute is squarely covered by the decision of this tribunal in assessee's own case for Asst Year 2007-08 in ITA No. 683 & 581 /Kol/2011 dated 8.12.2014 wherein the grounds raised by the assessee as well as by the revenue were as under:- Assessee Ground No. 1 That on the facts and circumstances of the case, the learned CIT(Appeals) though holding that sales-tax incentive of R....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ets while claiming depreciation. It is also a fact that revenue during scrutiny assessments of the assessee for AY s 2002-03 to 2006-07 added the subsidy amount as revenue receipt but Tribunal has considered the receipt as 'capital', accepting the contention of the assessee. Even Hon'ble Supreme Court in the case of PJ. Chemicals. Ltd. (supra) has considered this issue and held that where Government subsidy is intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, the specified percentage of the fixed capital cost, which is the basis for determining the subsidy, being only a measure adopted under the scheme to quantify the financial aid, is not a payment, directly or indirectly, to meet any portion of the actual cost. Therefore, the said amount of subsidy cannot be deducted from the actual cost under sec. 43(1) for the purpose allowing depreciation. It is further held that if Government subsidy is an incentive not for the specific purpose of meeting a portion of the cost of the assets, though quantified as a percentage of such cost, it does not partake the character of payment intended either directly or indirectly to mee....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and the proviso thereto do not dilute the finding of the Hon'ble Supreme Court in the case of P. J. Chemicals Ltd.(supra) that asset-wise subsidy alone can be reduced from the actual cost. The above Explanation and the proviso therein to explain the law. They are not bringing any new law different from the law considered by Hon'ble Supreme Court in the above cases. 9. In view of the above facts and circumstances of the case and legal position explained by Hon'ble Supreme Court in the case of P.J. Chemicals Ltd. (supra), we are of the vie that subsidy receipt should not be reduced from the actual cost of fixed assets for computing depreciation under the provisions of the Act. Accordingly, this issue of revenue's appeal is dismissed and that of the assessee is allowed". Respectfully following the aforesaid decision of this tribunal supra, we hold that the IPA received by the assessee would have to be construed as a Capital Receipt and the same need not be reduced from the cost of assets in terms of Explanation 10 to Section 43(1) of the Act. Accordingly, the grounds raised by the revenue are dismissed and grounds raised by the assessee are allowed. 30. Respectful....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd he invoked Rule 8D according and worked out the disallowance at Rs. 4,23,49,000/-. He accordingly made disallowance of Rs. 4,17,62,918/- over and above disallowance offered by the Assessee. 34. Aggrieved by the aforesaid addition the Assessee preferred appeal before CIT(A). Before CIT(A), the Assessee submitted that the assessee was in the business of manufacturing cement, jute goods, vinoleum, auto trim parts, etc. From time to time, the assessee makes investments out of its own funds in shares of companies and units of mutual funds. The assessee does not borrow any funds for making such investments. The mutual fund investments of the assessee are not in equity oriented funds as defined in the explanation to section 10(38) of the Act and disposal/redemption thereof attracts capital gains tax. Substantial part of the mutual fund investments of the assessee are in growth schemes which do not provide for payment of any dividend during the currency of the scheme. Only some of the mutual fund schemes in which the assessee invests provide for payment of dividend. Such dividend is usually reinvested in the respective schemes without being actually received by the assessee. The asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....charges, telephone charges, stationery and printing charges and conveyance and other expenses. The aggregate expenditure as per the said statement for management/maintenance of the assessee's investment portfolio was Rs. 5,84,022/-, which included appropriate proportion of the emoluments of the employees involved in such management/maintenance. A statement and also another statement listing the job profile of the assessee's Chief Financial Officer and Manager (Finance & Accounts) were filed before the CIT(A). 36. It was submitted that the AO in his order arbitrarily rejected the assessee's figure of expenditure. The disallowance under section 14A of the Act was worked out by Assessing Officer by invoking rule 8D at 0.5% of the assessee's average investment of Rs. 846.97 crores amounting to Rs. 4,23,49,000/-. It was submitted that almost the entire expenditure incurred by the assessee is in connection with its business of manufacturing diverse goods. Only the surplus business funds of the assessee are invested by it in safe and liquid investments, which activity is looked after by the aforesaid three officers of the assessee to the extent specified in the assessee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....any dividend and disposal/redemption of such investments was liable to tax. The amount of disallowance under rule 8D could have at best been 0.5% of Rs. 21521.25 lakh i.e. Rs. 107.61Iakh and not Rs. 423.49 lakh as computed by the Assessing Officer. It was made clear that the said contention of the assessee was strictly without prejudice to its contention that the formula in rule 8D cannot be applied in its case at all. 39. It was pointed out that for the assessment year 2009-10 the Commissioner (Appeals), by his order dated December 7, 2012, accepted the above alternative plea of the Assessee and disallowed 0.05% of Rs. 12444.14 lakh that is Rs. 62.22 lakh, being the average of the investments which provided for payment of exempt dividend income. 40. The CIT(A) found that the issue of disallowance of expenses u/s 14A of the Act was also a recurring issue in the Assessee's case. He found that in the AY 2009-10 his predecessor had considered various contentions made by the Assessee Vide his order dated 07.12.2012 and he rejected the claim that disallowance offered by the Assessee was reasonable and upheld the action of the assessing officer in invoking Rule 8D of the Rules.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rted to computation mechanism provided in Rule 8D of the Rules and made disallowance thereon under the third limb of Rule 8D(2)(iii). Alternatively he prayed that 0.5% of dividend bearing investments alone be considered ( i.e investments from where dividends were actually received by the assessee alone excluding the dividends that were reinvested) and also prayed for exclusion of investments made in subsidiaries as they are apparently strategic investments. We find that the ld AO had given a finding in the assessment order as to why the workings of disallowance u/s 14A of the Act need to be rejected . Hence it cannot be said that the ld AO had mechanically applied Rule 8D(2) of the Rules for making disallowance u/s 14A of the Act. It was argued by the ld AR that 69.07% of the assessee's investments (including in non-equity oriented mutual funds growth schemes) did not provide for payment of any dividend. Upon redemption / disposal of such investments, the assessee would be liable to capital gains tax and income from such investments is not exempt under the provisions of the Act. He argued that even in respect of the assessee's investments in other schemes of mutual funds providing ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... been applied properly in respect of the assessment year 2008-09. This aspect has been considered by the Tribunal in detail and it has observed as under:- 6.3. We have carefully considered the submissions and perused the records. We find that Ld. Commissioner of Income Tax (Appeals) has given a finding that only interest of Rs. 2,96,731/- was paid on funds utilized for making investments on which exempted income was receivable. Further, Ld. Commissioner of Income Tax (Appeals) has observed that in respect of investment of Rs. 6,07,75,000/- made in subsidiary companies as per documents produced before him, they are attributable to commercial expediency, because as per submission made by the assessee, it had to form Special Purpose Vehicle (SPV) in order to obtain contracts from the NHAI and the SPVs so formed engaged the assessee company as contract to execute the works awarded to them (i.e SPVs) by the NHAI. In its profit and loss account for the year, the assessee has shown the turnover from execution of these contracts and therefore no expense and interest attributable to the investments made by the appellant in the PSVs can be disallowed u/s 14A r.w. Rule 8D because it ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....0% initial depreciation to the extent of Rs. 13,83,17,412/- u/s 32(1)(ii) on Plant & Machinery put to use for a period of less than 180 days during the financial yer 2008-09 relevant to Asst. Year 2009-10." 47. During the financial year 2008-09 (Asst.Year 2009-10). the assessee had purchased & installed new plan & machinery for its manufacturing business. Some of such plant & machinery were put to use for a period of less than 180 days during the said financial year and in respect of such plant & machinery the assessee claimed only 50% of Additional Depreciation u/s.32( 1) (iia) in view of the second proviso to section 32(1) of the IT Act. Now during the year under reference, the assessee claimed further depreciation (balance 10%) on those Plant & Machinery on the plea that it is entitled to get the balance depreciation this year also. In support of its claim, the assessee submitted that, clause (iia) of section 32( 1) of the Act, as it presently stands after substitution by the Finance Act, 2005 w.e.f. the Asst.Year. 2006-07, provides for allowance of further depreciation equal to 20% of the actual cost of new plant and machinery acquired and installed after March 31, 2005 by a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....extent of Rs. 13,83,17.412/- pertaining to additions made during assessment year 2009-10 and used for period of less than 180 days was not accepted by the AO. The AO also observed that in the assessment for assessment year 2009-10 also, the department has not accepted the above claim of balance additional depreciation. 49. The Assessee during the course of the assessment proceedings, also submitted before the AO that since the department has not accepted the claim of the assessee on identical claim for additional depreciation during assessment year 2009-10, the claim of depreciation on those assets on which additional depreciation was to be computed as per written down value of the assets as per department's records. The claim of the assessee was accepted and the depreciation was allowed according to the revised computation of depreciation entitlement as filed by the Assessee. 50. Before CIT(A) the Assessee reiterated submissions made before the AO and further submitted identical claim was rejected on first appeal in the assessee's case for the assessment year 2009-10 by order dated December 7, 2012, for the assessment year 2008-09 by order dated March 29, 2012 and fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to use less than 180 days during the said financial year. During the previous assessment year (2006- 07) the assessee claimed 50% of depreciation and it was allowed. Now for the year under consideration, the assessee claimed further 10% depreciation to the extent of &.20, 97, 495/- under second proviso to Sec. 32(1)(iia) of the Act. The AD denied the same on the ground that the Act does not have option where assessee can claim remaining depreciation in subsequent year. The CIT(A) confirmed the order of the AD. however, directed the AD to recalculate the amount of depreciation on writ/en down value (WDV). 5. . The Ld AR before us submits that the case in hand is squarely covered by the decision of the Hon 'ble Karnataka High Court in the case of CIT & Anr Vs. Rittal India Pvt. Lid reported in (2016) 380 ITR 423 (Karn). 6. The Ld. Sr. DR relied on the orders of the authorities ' below. 7. Heard both the parties and perused the relevant material on record. In this regard, we may refer to the decision of the Hon 'ble High Court of Karnataka in the case of CIT and another vs Rittal India Private Ltd (supra). The facts of the case therein are that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....reading of Clause (iia) to sub-section (1) of section 32 provides for allowance of initial depreciation equal to 20% of the actual cost of new plant and machinery acquired and installed after March 31, 2005 with effect from the assessment year 2006-07 to those who engaged in the business of manufacture or production of any article or thing. Therefore, the assessee is entitled to claim 20% of depreciation equal to the actual cost of plant and machinery, but, where as the 2nd proviso to section 32(1) of the Act restrains the authority to allow depreciation to 50% of such 20% if the subjected plant and machinery acquired during the previous year and is put 10 use for a period of less than 180 days in that previous year. According to AO in his order at page no-4 referred that the assessee put to use new plant and machinery for less than 1BO days and confirmed by the CIT-A in para-8 of impugned order and it is a requirement under 2nd proviso to section 32(1) which lifts the restriction on AO allow the further depreciation of 10% of which remained unclaimed out of20% as referred in Clause (iia) to sub-section (1) of section 32 of the Act. The facts of the present are similar to the decis....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Legislature was free to make such amendments, reasons therefor should be inferable and such reasons should be consistent with the provisions of the Constitution and the laws of the land. When legitimate business expenditure is denied without reason, when reason was available for other disallowances under sec 43B, clause (f) of sec 43B is arbitrary and unconscionable as the amendment is to nullify the Supreme Court decision in the case of Bharat Earth Movers v. CIT (supra).The Calcutta High Court further held that leave encashment is neither a statutory liability nor a contingent liability and it is a provision to be made for the entitlement of an employee achieved in a particular financial year. Testing clause (f) with the objects sought to be achieved by the introduction of sec 43B, it was held that the same could not have any nexus with the object sought to be achieved by the original enactment. Sec 43B was originally inserted to plug evasion of statutory liabilities and the introduction of clause (f) was found to be inconsistent with the said object. The Judges held that the amendment brought in could not have nullified the dictum laid down in Bharat Earth Movers case (supra). ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d circumstances of the case, the Ld. CIT(Appeals) erred in holding that provision for sick leave liability of Rs. 10,35,870/- is notional and contingent liability and therefore covered by the provisions of section 43B(f) of the I.T.Act, 1961 ." 63. Ground no. 12 relates to addition of Rs. 10,35,870/- in respect of provision for sick leave. The assessing officer observed that the Assessee had made the provision of Rs..1 0,35,870/- towards sick leave and claimed that the same should be allowed as deduction while computing income from business. The Assessee claimed that provision had been made as per guidelines given in Accounting Standard AS-15. The assessing officer, however, made disallowance by invoking the provision of section 438(f) of the 1.T.Act, 1961. 64. Before CIT(A), the Assessee submitted that liability on account of provision for sick leave liability of Rs. 10,35,870/- was wrongly rejected the claim of the assessee without citing any reason and without considering the submissions of the assessee. In respect of provision for sick leave liability, the Institute of Chartered Accountants of India has issued Accounting Standard (AS) 15 (Revised 2005). In accordance with....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gnition of income and expenditure for purpose of accounting. However, that does not determine the allowability of any such provision for the purpose of income tax assessment. The latter is to be decided strictly as per provisions of I.T.Act, 1961. It is well settled that in the assessment for income tax purpose, allowance can be made only in respect of actual liability and not the contingent or notional one. The provision for un-availed sick leave as discussed above does not relate to any actual liability but was a provision for notional and contingent liability. The same is also covered by the provisions of sec ion 438 (f) of the I.T.Act. The addition of Rs. 10,35.870/- was accordingly confirmed. 66. Aggrieved by the order of CIT(A) the assessee has raised ground no.9 before the Tribunal. The ld. Counsel for the assessee reiterated the submissions as were made before CIT(A) and also filed before us a chart showing as to how the provision for sick leave liability was computed by the assessee and as to how in a case where there was excess provision made it was being written back in the books of account as AS-15 of ICAI, on the basis of which the liability in question is claimed a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t of sales tax and the amount of subsidy shall be subject to a maximum of 50% of the additional amount of Rajasthan Sales Tax & CST and VAT payable or deposited by the unit over and above the highest tax payable or deposited whichever is higher, in any of the three immediately preceding years. Subject to above clause interest subsidy shall be 5% on maximum side. 70. The said subsidy was considered by the assessee as capital receipt. The ld AO was of the view that the said subsidy was in the form of relaxation of tax and was more for encouragement to entrepreneurs to establish / expand industrial unit in the state of Rajasthan rather than towards acquisition of specific capital assets in that industrial unit. The intention was with the object of supplementing trade receipt and profits of the assessee rather than to assist the assessee in acquiring a capital asset and accordingly the said subsidy is incidental to the carrying on the business of the assessee. Based on these observations, he treated the interest subsidy as a revenue receipt. 71. Before CIT(A), the assessee reiterated the submissions made before the ld AO and also tried to distinguish the earlier order of the ld C....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ction therefrom by the appellant. The subsidy was not intended to be contribution towards capital outlay of the industry or directly related to it. The receipt of the incentives from the State Government was incidental to carrying on the business of the assessee and not the primary source of capital investment. This subsidy was to be received year after year by reimbursement from payment of additional sales tax subject to maximum 50% of additional sales tax paid by the industry. The significant fact that under the scheme framed by the Government, no subsidy was given until the time production had actually commenced. Mere setting up of the industry did not qualify an industrialist for getting any subsidy. The subsidy was given as help not for the setting up of the industry which was already there but as assistance only after the industry commenced production and that too minimum three years prior to it. 19. The interest subsidy was @ 5% of capital as interest out of interest paid by the industry on the money borrowed for this purpose. The appellate courts have held that the sales tax subsidy is a revenue receipt and this is also indirectly exemption out of sales tax in the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessee. Based on this, the ld AR argued that the interest subsidy also takes the character of sales tax subsidy and hence to be treated as capital receipt. We find that this issue was subject matter of adjudication in assessee's own case for the Asst Year 2007-08 in ITA No. 686 & 581/Kol/2011 dated 8.12.2014 wherein it was held that the said interest subsidy would have to be treated as a capital receipt but with a direction to reduce the same from the cost of assets as per Explanation 10 to section 43(1) of the Act. Later this order was modified by this tribunal in ITA No. 683/Kol/2011 (assessee appeal) dated 9.7.2015 for Asst Year 2007-08, wherein the issue as to whether the said interest subsidy is to be reduced from the cost of assets as per Explanation 10 to section 43(1) of the Act was restored back to the file of the ld CITA for fresh adjudication. We find that with regard to treatment of Industrial Promotion Assistance (IPA) as capital receipt or revenue receipt supra in Para 4 above, we have already held it to be a capital receipt and the same need not be reduced from the cost of assets as per Explanation 10 to Section 43(1) of the Act. We find that the subsidy amount was....