TaxTMI 
TaxTMI 
2018 (7) TMI 209
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....f this consolidated order. 2. We will first take up the Cross Appeals for the Assessment Year 2008-09 and the finding given therein on those issues would apply mutatis mutandis in the appeal for the Assessment Years 2009-10 & 2010-11 also. In the assessee's appeal, the following grounds have been raised:- 1. On the facts and in the circumstances of the case, the lower authority has erred in holding that the Royalty Payment of Rs. 6,00,00,000/- (Rupees Six Crores Only) crores pertains to Jammu Unit. 2. On the facts and in the circumstances of the case, the lower authority has erred in holding that the assessee is not entitled to the exclusion of refund of Excise duty (Self Cenvat Credit) amounting to Rs. 1,31,01,284/-, being Capital in nature, in the determination of total income u/s 115JB of the Income Tax Act, 1961." Whereas in the Revenue's appeal, following grounds have been raised:- "1. On the faces and in the circumstances of the case, the C1T(A) has erred in law and on facts in deleting the disallowance of claim for deduction of Rs. 1,31,01,284/- u/s 80-IB on account of Self Cenvat Credit availment. 2. On the facts and in the circumst....
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....ofits of Jammu Unit. 4. Before the ld. CIT (A), brief and background with regard to payment of such license fee/royalty was stated as under by the assessee:- "License fees paid is for acquiring technical know-how for manufacturing of improved sachet pouches with the additional gusset either on one or both sides of Sachet Pouch with a scoring line in the form of laser cut is not exclusively for Jammu Unit but for the company as a whole with a right to produce such product anywhere in India or abroad. That, the sum of Rs. 6.00 crores had been treated by Ld. AO as an expenditure of Jammu unit instead of Company as a whole and allocable on all the units of the assessee. The basis of doing so as mentioned by the Ld. AO is the reason taken in the Asst. Year 2006-07 stating that the expenditure relates to Jammu Unit. It was further submitted that in the Assessment Year 2005- 06, the appellant entered into an agreement with Mr. Ashok Chaturvedi (hereinafter referred to as AC) for acquiring technical know-how for the manufacture of "improved Sachet Pouches with additional gusset either on one or both the sides of the Sachet Pouch with a scoring line in the form....
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....eat it expenses of corporate/ head office to be allocated to all unit of the appellant." 5. Ld. CIT (A) following the reasoning given by the ld. CIT (A) in the Assessment Year 2006-07, decided the issue against the assessee. 6. Before us, learned counsel submitted that this issue now stands covered in favour of the assessee. On the other hand, learned DR strongly relied upon the order of the ld. CIT (A). 7. On perusal of material on record and findings given in the impugned order, we find that this precise issue whether the royalty expenses pertain to Jammu unit or not has been dealt by the Tribunal in assessee's own case for the Assessment Year 2006-07. The relevant finding on this issue reads as under:- "4.2 The Ld. AR submitted that the Ld. CIT (A) has allowed the netting of the amount to be considered while determining the deduction under section 80 IB in respect of the Jammu unit. The Ld.AR placed is reliance on the decision of Hon'ble Bombay High Court in the case of Zandu Pharmaceuticals Works Ltd. Vs. CIT reported in 259 CTR 253. 5. The revenue in its appeal has raised that the netting of royalty income as directed by the Ld. CIT (A) is not pr....
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....for the purpose of computing the relief under section 80 HHC of the IT Act, 1961? 12 The question is to be charged regardless of this, and the question is whether the intervention of the raw NAPTHA would justify the finding that the said products are not derived from refining of crude petroleum. The refining of crude petroleum produces various products at different stages. Row naphta is one such stage the further refining, or cracking of raw naphta results in the said products. The source of the said products is crude petroleum the said products must therefore be held to have been derived from crude petroleum. 13. We do not think that the source of the import entitlements can be said to be the industrial undertaking of the assessee. The source of the import entitlements can, in circumstances, only be said to be the export promotion scheme of the Central government parent that the export entitlements become available. There must be, for the application of the words derived from, a direct nexus between the profits and gains and the industrial undertaking. In the instant case the nexus is not direct but only incidental. The industrial undertaking exports processed se....
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....anufacturing units by the assessee." 8. Since, the entire basis for adverse inference by the Assessing Officer as well as of ld. CIT (A) is upon the assessment order and first appellate order given in the Assessment Year 2006-07, which the Tribunal has reversed by holding that assessee has rightly shown the payment of licence fee/royalty under the corporate unit; therefore, respectfully, following the precedence of the earlier year, we also give the same direction that the licence fee, royalty payment of Rs. 6 crore has rightly been shown under the Corporate Division and accordingly, the finding of the ld. CIT(A) is reversed. 9. Coming to the issue of exclusion of refund of Excise duty (Self Cenvat Credit) amounting to Rs. 1,31,01,284/- being capital in nature, and therefore, same should also be not part of Section 115JB. First of all, we find that the Revenue has also raised the similar issue in ground no.1 and 2, that is, firstly, disallowance of claim for deduction at Rs. 1,31,01,284/- on account of 'Self Cenvat Credit Availment' u/s.80IB; and secondly, challenging the finding that Excise refund is a capital receipt in nature and not liable to tax. 10. The facts in brie....
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....ed the nature of income by way of DEPB/ Refund/ Cenvat Credit/ Duty Draw Back and Assessing Officer was directed to consider the excise duty refund as profit derived from the business of the Industrial Undertaking while computing the eligible deduction u/s.80IB of the Income of the assessee's Jammu unit. Alternatively, it was also claimed that Excise Duty refund is a capital subsidy in view of the decision of Hon'ble Jammu & Kashmir High Court in the case of Shree Balaji Alloys v. CIT [2011] 239 CTR (J&K) 70 wherein it was held that Excise duty refund as granted by the State of Jammu and Kashmir is a capital subsidy. 12. Before us, ld. counsel for the assessee submitted that first of all, the Jammu unit falls within the jurisdiction of Hon'ble High Court of Jammu & Kashmir and if the excise refund has been treated as capital receipt, then the same has to be followed as such. He further pointed out that this decision of Hon'ble Jammu & Kashmir High Court has been affirmed by the Hon'ble Supreme Court vide order dated 19th April, 2016, wherein Hon'ble Apex Court following the ratio of CIT vs. Ponni Sugars & Chemicals Ltd., reported in (2008) 9 SCC 337 has confi....
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....tal subsidy not part of taxable receipts, then entire controversy sets at rest and accordingly, the finding of the ld. CIT (A) that excise refund is a capital in nature stands confirmed. In view of this finding grounds no.1 and 2 as raised by the Revenue are dismissed. 17. Now coming to the issue, whether such capital receipt in the form of excise duty refund should be treated as part income while computing book profit u/s.115JB. Ld. CIT(A) has held assessee is not entitled to the exclusion of the said amount following the judgment of ITAT Hyderabad in the case of Rain Commodities Ltd. Vs. DCIT, [2014] 149 ITD 732 (Hyd.). 18. Before us the learned counsel has strongly relied upon the decision of ITAT Mumbai Bench in the case of JSW Steel vs. ACIT, ITA Nos. 923 & 930/Bang/2009, wherein all the decisions on this issue has been discussed and analysed and on similar capital receipt, ITAT Mumbai Bench in the case has held that such capital receipt cannot be part of book profit. Thus, he submitted that once a receipt itself is not taxable within the provision of the Act, then same cannot be held to be includable while computing the book profit u/s.115JB. 19. On the other hand, l....
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.... is gain on account of waiver of part of obligation to repay the loan. Further, Accounting Standard - 5 also states that, extra-ordinary items should be disclosed separately in the profit and loss account. The objective of AS-5 is to prescribe the classification and disclosure requirements. The relevant text of the standard 5 reads as under: "8. Extraordinary items should be disclosed in the statement of profit and loss as a part of net profit or loss for the period. The nature and the amount of each extra- ordinary item should be separately disclosed in the statement of profit and loss in a manner that its impact on current profit or loss can be perceived." A con-joint reading of the above accounting standards suggests that, there are two types of compulsions while preparing annual accounts, one are accounting compulsions and second are disclosure compulsions. The accounting compulsion comes into play since there is a double entry system of accounting, for instance, when a loan amount is waived, a debit goes to the liability account and a credit has to go to any of the liability/ reserve account, which in the present case has been taken to the Profit and Loss acc....
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....me, profit or gain. This view is further reiterated by the interpretation clause 7 appearing in Part III of Schedule VI of the Companies Act which reads as under:- "7(1) For the purpose of Parts I and II of this Schedule, unless the context otherwise requires._ (a .................................... ) (b .................................... ) (c) the expression "capital reserve" shall not include any amount regarded as free for distribution through the profit and loss account; and the expression "revenue reserve" shall mean any reserve other than a capita! reserve; " A capital surplus thus, in respect of waiver of loan amount cannot be regarded as being amount available for distribution through the profit & loss account. This follows from the very definition of expression 'capital reserve' that it must be accounted directly to the credit of the capital reserve account instead of being credited to the profit & loss account so as to ensure that it is not left for being distributed through the profit & loss account. 16. From our above analysis and discussion of the various provisions of the Companies Act as well as Account....
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....ck of certain principal amounts and certain interest dues, as a part of a restructuring package with its tenders Out of these amounts, the Company has not considered the write-back of principal amounts (amounting to Rs. 228,46,76,328) as a taxable income since the same is in the nature of capital receipt in the hands of the Company. Further, these amounts do not represent the revers al of any amount allowed as a deduction in any earlier year. Hence the provisions, of section 41(1) do not apply in respect of this write-back. As regards the write-back of the balance amount relating to waiver of interest dues, the Company has offered for tax those amounts which had been claimed as a deduction in earlier years on provision basis amounting to Rs. 76,27,96,973 (refer clause A(l) of Annexure 8 of TAR). The balance amount of Rs. 86,01,30,698 had not been allowed as a deduction in earlier years due to the provisions of Section 43B of the Act and consequently, the write- back of this amount is not considered as a taxable income in this year Accordingly, the loss computed has been increased to the extent of the provision written-back. In connection with the above contentions....
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....assessee sans any authority by law. The court and taxing authorities have bounden duty to decide as to whether a particular category of assessee is to pay a particular tax or not. Even if we agree that Assessing Officer could not have entertained such a fresh claim but in view of the decision of Hon'ble Supreme Court in the case of Goetz India Ltd. vs. CIT (supra) as heavily relied upon by the Ld. CIT D.R., however, it does not impinge upon the powers of the appellate authorities including Ld. CIT (A) and Tribunal. This has been clarified by the Hon'ble Supreme Court itself in the concluding part of the said judgment. There is no such bar or statutory restrain on the appellate authorities to permit/entertain such additional claims which has been raised by the assessee before them. This proposition is strongly supported by the decision of Hon'ble Jurisdictional High Court in the case of CIT vs. Pruthvi Brokers and Shareholders Pvt. Ltd., (2012) 349 ITR 336 (Bom.). It is also equally a salutary principle of tax laws that entries in the books of account or in the profit & loss account is not a determinative factor for taxing the income because income can be taxed only by t....
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.... Rs. 1,31,01,284/- being capital in nature, cannot be part of book profit. 20. In the result, the appeal of the assessee is allowed whereas the appeal of the Revenue is dismissed. 21. In the appeal for the Assessment Year 2009-10 following grounds have been raised by the assessee:- 1. On the facts and in the circumstances of the case, the lower authority has erred in holding that the Royalty Payment of Rs. 6,00,00,000/- (Rupees Six Crores Only) crores pertains to Jammu Unit. 2. On the facts and in the circumstances of the case, the lower authority has erred in disallowing of Rs. 35,78,530/- u/s 14A read with Rule 8D. It is contended that Section 14A is not applicable in the case of the appellant. 3. On the facts and in the circumstances of the case, the lower authority has erred in not appreciating the difference between a "simple investment" to earn income from dividend and a "Business Investment" made with a commercial motive of acquiring controlling interest. 4. On the facts and in the circumstances of the case, the lower authority has erred in applying Section 14A read with Rule 8D, without establishing the requisite nexus between the e....
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....ere availed. Accordingly with this finding, he held that no disallowance of interest should be made. However for certain verification, he has given to the Assessing Officer as per the direction given at pages 21 and 22 of the order. However with regard to the calculation of administrative cost @0.5% under Rule 8D (2)(iii), he upheld the action of the Assessing Officer. 25. Before us, the learned counsel submitted that, first of all there was only one dividend cheque received during the year and all investments were made in the earlier years. This aspect was clearly stated before the Assessing Officer that no expenditure has been incurred for the purpose of earning the dividend income. In so far as the disallowance of interest is concern, he submitted that there is a categorical finding by the CIT(A) which is also borne out from the record that no borrowed funds have been diverted for the purpose of investment and hence no disallowance can be made on account of interest. 26. On the other hand, learned DR strongly relied upon the order of the Assessing Officer and ld. CIT (A) and submitted that, once the assessee has a dividend income which is claimed as exempt then expenditure....