AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (4) TMI 1320
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....nce and brevity. 2. Briefly stated, the facts giving rise to the appeal for A.Y 2007-08 are that the case was selected for scrutiny and the AO made certain additions and framed assessment u/s 143(3) of the Income tax Act, 1961 [for short, 'the Act'] at Rs. 24,34,92,800/- as against the returned income of Rs. 23,21,09,140/- by making seven additions under different heads. Aggrieved, the assessee preferred appeal before the ld. CIT(A) who upheld the addition pertaining to Sales Tax Subsidy and restricted the disallowance u/s 14A of the Act to Rs. 2 lakhs. The assessee has filed appeal against these additions which were partly upheld by the ld. CIT(A). The Revenue has also filed appeal against the order of the ld. CIT(A) for A.Y 2007-08 agitating the other five issues wherein the ld. CIT(A) deleted the additions made by the AO. For A.Y 2008-09, the assessee has raised similar grounds of appeal which have been raised in 2007-08 viz. issue of disallowance of Sales Tax Subsidy and the issue of disallowance u/s 14A of the Act r.w.r 8D of the Income-tax Rules, 1962. Ground Nos. 1 to 1.2 of the assessee for A.Ys 2007-08 & 2008-09 3. Similarly worded grounds of the assessee read a....
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.... AR placing reliance of the judgment of the Hon'ble High Court of Gujarat in the case of CIT Vs. Birla CXL Ltd reported as 2013- TIOL 229-Guj-IT submitted that after examining the various terms and conditions of granting subsidy held that the sales tax subsidy is capital receipt which cannot be treated as revenue receipt. The ld. AR pointed out that however, the assessee had not treated the amount of sales tax subsidy as revenue receipt and had reduced the same from cost of the fixed assets and had claimed depreciation on the reduced cost of fixed assets arrived thereafter but he AO as well as the ld. CIT(A) ignored this accounting treatment given by the assessee in its books of account. The ld. AR vehemently contended that the ld. CIT(A) has not applied correct law to hold that the amount of subsidy was of revenue nature and there was no justified reasoning or basis for the authorities below to disturb the regular accounting treatment given by the assessee and accepted by the department. 6. The ld. AR placing reliance on the judgment of the Hon'ble Supreme Court in the case of Ponni Sugars and Chemicals Vs. CIT 306 ITR 392 [SC] submitted that the Hon'ble Apex Court has la....
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....y but the same is of the revenue receipt and the same has to be treated as profits and gains of business or profession u/s 28(iv) of the Act. The ld. DR has also pointed out that the Hon'ble Supreme Court in the case of Ponni Sugars and Chemicals [supra], has laid down that the "purpose test" needs to be applied to determine the true character of a subsidy. He further submitted that as per the subsidy policy it is amply clear that the main intention of the Haryana State Government while giving sales tax exemption was to promote industry in the backward area of the State and part of sales tax which was not deposited by the assessee with the exchequer and retained as subsidy has to be treated as revenue receipt. Therefore, the view taken by the authorities below should be upheld. 9. On careful consideration of the above submissions, at the very outset, we observe that there is no dispute regarding the amount of claim of the assessee i.e. Rs. 60,70,404/- for A.Y 2007-08 and Rs. 59,37,3018/- for a y 2008-09. The authorities below as well as the ld. DR has also not disputed this fact that the assessee was allowed tax concession from 3.11.2004 to 2.11.2009 of Rs. 451.30 lakhs u/r 28....
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....computed in terms of percentage of fixed capital investment and benefits were to last for specified periods and upto exhausting minimum limit computed in terms of the percentage of the fixed capital investment. 13. In the present case, as per Table 2 of Rule 28C of the Rules applicable to the industrial unit, tax concession for medium/large scale industrial units have been linked with fixed capital investment and also in Table 2 applicable to industrial unties the tax concession has been linked with additional investment in plant and machinery which clearly shows that the purpose of sales tax subsidy by the Haryana Government by way of tax concession/subsidy was to contribute towards the capital investment made by entrepreneurs and the amount of subsidy has been clearly defined as capital subsidy. In view of the above, in the instant case while we apply the purpose test laid down by the Hon'ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd [supra], it is clear that the purpose of the Haryana Government to grant sales tax subsidy to the unit was capital contribution and therefore. the assessee reduced the amount of sales tax subsidy from the opening amount of fixe....
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....ught out any allegation or facts to allege that that the income does not reflect true factual income of the assessee. In this situation, we are inclined to hold that the authorities below flaunted the Rule of consistency without any justified cause or basis and in view of the proposition laid down by the Hon'ble Supreme Court in the case of CIT Vs. Woodward [supra] and CIT Vs. Realist Builders [supra] a system of accounting following by the assessee and accepted by the Revenue during the earlier years, consistency cannot be disturbed without any reasonable cause or justified reasoning. 17. On the basis of foregoing discussion, we have no hesitation to hold that in the present facts and circumstances of the case wherein the provisions of Rule 28C of the Haryana Government General Sales Tax Rules, as reproduced hereinabove, are self speaking and clearly mandates that the sales tax subsidy given to the industrial unit for promotion of industry for a specified period of item as per specified percentage to the limited amount, the same has to be treated a capital subsidy as per the purpose test laid down by the Hon'ble Supreme Court in the case Ponni Sugar Mills [supra]. Finally....
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....o disallowance should be made u/s 14A r.w.r 8D of the Rules. 21. Per contra, the ld. DR strongly supported the action of the authorities below and fairly submitted that while making disallowance u/s 14A of the Act, the AO has relied on the decision of the Delhi ITAT Special Bench in the case of Chem Invest Ltd Vs. ITO [2009] 317 ITR [AT] 86 [Delhi Spl. Bench] which has been reversed by the Hon'ble Jurisdictional High Court in the case of Chem Invest [supra]. 22. In view of the submissions made by both the sides, admittedly and undisputedly, the assessee has not earned any dividend income during the A.Ys 2007-08 and 2008-09 and as per the dicta laid down by the Hon'ble Jurisdictional High Court in the case of Chem Invest [supra], no disallowance can be made in the situation when no exempt income was earned by the assessee in the relevant A.Y and since in the present case the AO as well as the ld. CIT(A) has not brought out any allegation or fact to allege or disturb or doubt the genuinety of the expenditure incurred by the assessee, therefore, no disallowance can be made u/s 14A of the Act in A.Y 2007-08 u/s 14A r.w.r 8D of the Rules for A.Y 2008-09. Respectfully following....