TaxTMI 
TaxTMI 
2018 (7) TMI 937
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....d by the Appellant under the Incentive Scheme 1999 from the GOWB is a capital receipt and consequently not liable for Incometax. B. On assessment under MAT 2. Without prejudice to the grounds of appeal already submitted, the Appellant submits that the incentives received by the Appellant under the Incentive Scheme 1999 from the GOWB is a capital receipt and consequently not liable for Incometax u/s 115JB of the Income-tax' Act. " 5. We find the issues raised in the additional grounds are covered by the decision of the Coordinate Bench of this Tribunal in the case of DCIT vs South Asian Petrochem Ltd in ITA No.1222/Kol/2014 for A.Y.2006-07 dated 03.05.2017 placed at page 156 of paper book. The relevant portion of which is reproduced herein below :- "9. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case as also the applicable legal position. The issue in the instant case relates to the taxability of subsidy received by the assessee from the Government of the West Bengal. There is no dispute with regard to the facts of the case of which have been elaborated in the foregoing paragraphs and therefore the same ....
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....omotion of the industries mentioned in the scheme which have the manufacturing units in West Bengal and which are in need of financial assistance for expansion of their capacities, modernization, and improving their marketing capabilities and such subsidy for the financial year in question was only for that year and was equivalent to ninety per centum of the amount of sales-tax paid by the industry concerned, for any quarter under the Sales-tax Act in respect of sales of such goods. The object of the subsidy is for expansion of their capacities, modernization, and improving their marketing capabilities and thus, those are for the assistance on capital account. Similarly, merely because the amount of subsidy was equivalent to 90 per cent of the salestax paid by the beneficiary does not imply that the same was in the form of refund of sales-tax paid. It is the quality of the payment that is decisive of the character of the payment and not the method of the payment or its measure, and makes it fall within capital or revenue. Thus, the amount paid as subsidy was really capital in nature.--CIT vs. Ponni Sugars & Chemicals Ltd. & Ors. (2008) 219 CTR (SC) 105 : (2008) 13 DTR (SC) 1 : (200....
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....e from the instant facts of the case. In that case the subsidy was provided to assist/ enable the assessee in carrying on its trade or business in more profitable manner. The subsidy was provided only after the set up of industry. Payments were not being made in the form of subsidy for the purpose of setting up of the industries. Similarly the Kolkata Tribunal in the case of DCIT vs Teesta Agro Industries Ltd. in ITA No. 1237, 1053, 1753/Kol/2010 vide order dated 07.01.2011 has observed that the subsidy given in the form of the remission of sales-tax under the West Bengal State Incentive Scheme 1999 is in the nature of capital receipt and therefore not assessable to income tax. In view of above, we are of the opinion that the impugned subsidy is capital in nature and therefore not liable to tax. Simply the assessee has inadvertently offered the same to tax does not mean the capital receipt has become taxable. 9.2 Similarly the impugned receipt of subsidy will not be taxable being capital in nature under the provisions of MAT. Under the Act, income is chargeable to tax when it comes within the definition of income as specified u/s 2(24) of the Act. The Hon'ble Supreme Cour....
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....estion of including the same in the Book Profit as per the scheme of the provisions of sec. 115JB of the Act. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to exclude the above said profit from the computation of "Book Profit" for the reasons discussed above. In the instant case, the assessee also has duly disclosed the fact of forfeiture of share warrants amounting to Rs. 12,65,75,000/- in its notes on accounts vide Note No. 6 to Schedule 11 of Financial Statements for the year ended 31.3.2009. Hence respectfully following the aforesaid decision of the Mumbai Tribunal, the profit and loss account prepared in accordance with Part II and III of Schedule VI of Companies Act 1956, includes notes on accounts thereon and accordingly in order to determine the real profit of the assessee as laid down by the Hon'ble Apex Court in the case of Indo Rama Synthetics (I) Ltd vs CIT reported in (2011) 330 ITR 363 (SC), adjustment need to be made to the disclosures made in the notes on accounts forming part of the profit and loss account of the assessee and the profits arrived after such adjustment , should be considered for the purpose of computat....
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....s claim for the said deduction, it was explained by the assessee that indirect expenditure of Rs. 805.65 millions was incurred by it before the commencement of commercial production on 01.08.2001 and the same was written off over a period of five years beginning from assessment year 2002-03. It was claimed that the expenditure so incurred was in the nature of revenue and the same, therefore, was allowable as deduction being deferred revenue expenditure. The Assessing Officer did not find merit in the claim made by the assessee on this count and disallowed the deduction claimed by the assessee on account of deferred revenue expenditure holding that there was no provision in the Act for allowing such deduction. On appeal, the ld. CIT(Appeals) confirmed the disallowance made by the Assessing Officer on this issue. . At the time of hearing before us, the ld. representatives of both the sides have agreed that this issue is squarely covered in favour of the assessee by the decision of this Tribunal rendered in assessee's own case for A.Y. 2005-06 vide its order dated 13.04.2016 passed in ITA Nos. 581 & 587/KOL/2009, wherein the alternative claim of the assessee as raised in Ground....
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.... guidance note issued by the Institute of Chartered Accountant of India on treatment of expenditure during construction period where it was recommended that the indirect expenditure incurred during the construction period should be capitalized as part of indirect construction cost to the extent to which the expenditure is indirectly related to construction or if incidental thereto. An illustrative list of such possible items of expenditure which would qualify for inclusion for the purpose of capitalization has been provided including the following:- "(a) Expenditure on employees who are either assigned to construction work or to supervision over construction work including salaries, provident fund and other benefits, staff welfare expenses, etc. (b) Expenditure on technical and other consultants. (c) General administrative and office expenditure which is indirectly related or incidental to construction, including, as may be appropriate, stationery and printing, rent, rates and taxes, postage and telegrams, travel and conveyance etc. (d) Appropriate insurance charges. (e) Appropriate expenditures on maintenance and operation of vehicles. (f) Appropriate expenditure....
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....t no such expenditure was actually incurred by it. The Assessing Officer did not accept the stand of the assessee and computed the expenditure incurred by the assessee in relation to the exempt dividend income by applying Rule 8D at Rs. 48.34 million and made a disallowance to that extent under section 14A. On appeal, the ld. CIT(Appeals) confirmed the disallowance made by the Assessing Officer on this issue. 9. At the time of hearing before us, the ld. representatives of both the sides have agreed that a similar issue relating to the disallowance made under section 14A has already been decided by the Tribunal in assessee's own case for A.Y. 2005-06 vide paragraph no. 25 of its order dated 13.04.2016 (supra), which reads as under:- "25. We have heard rival contentions and perused the materials available on record. Before us Ld. AR submitted that under section 14A(1) disallowance can be made only in respect of "expenditure incurred." Here the assessee has not incurred any expenditure in relation to dividend income. Hence Provision of section 14A do not apply at all. Assessee has relied on citation of the following cases: 1.CIT vs. Hero Cycles Ltd [ 323 ITR 518]- P&H Hig....
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....wance under section 14A to 1% of the exempt dividend income. Ground No. 4 of the assessee's appeal for A.Y. 2006-07 is thus partly allowed." 11. On perusal of the impugned order, we find that the CIT(A) by placing reliance on the decisions of ITAT Kolkata in the case of Civil Engineers Enterprises Pvt. Ltd in ITA No.859/Kol/2010 directed the AO to disallow 1% of dividend income at Rs. 18,14,470/-. Therefore we find no infirmity in the order of CIT(A) . Ground no.2 raised by the assessee is dismissed. 12. Now we shall take up appeal of the Revenue in ITA No.168/Kol/2016. 13. Ground No.1 raised by the revenue challenging the action of CIT(A) in directing the AO to allow deduction u/s 35D of the Act. On perusal of page no.3 of AO's order we find the AO himself allowed deduction of Rs. 6.50 million u/s 35D of the Act and was confirmed by the CIT(A) which is evident from para-3 of page-2 of impugned order. Therefore, ground No.1 raised by the revenue is misconceived and is dismissed. 14. Ground No.2 raised by the Revenue is relating to delation of disallowance of Rs. 7,23,60,000/- made on account of loss for re-statement of foreign exchange. We find the issue is covered by the ....
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....ce the AR of the assessee vide his letter dt. 15.01.2009 has confirmed that the sundry creditors under this account were on revenue account and not on capital account. Since, it is submitted that such exchange fluctuation has arisen on account of normal business transactions of material procurement etc., it is an allowable deduction u/s. 37(1). I agree with the contention of the appellant and hence this ground is allowed." Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. 30. We have heard rival contentions and perused the materials available on record. Before us Ld. DR vehemently supported the order of AO and on the other hand the learned AR relied on the order of Ld CIT(A) and filed a paper book which running from pages 1 to 97. From the aforesaid discussion, we find that the AO treated the difference arising on account of foreign exchange in the value of sundry creditors as notional loss and contingent liability which the assessee has not incurred so it was disallowed. However we strongly disagree with the view of the AO on the ground that this year and adjustment was made by the assessee in terms of AS 11 issued by ICAI and in pursuance of mercan....
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.... the Official Gazette from time to time accounting standards to be followed by any class of assessees or in respect of any class of income. (3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144." 31. We also find support from the decision of Hon'ble Delhi High Court in the case of CIT vs Woodward Governor India Private Limited [2007] 294 ITR 451 (Del) where it was held that:- "We affirm the decision of the Income-tax Appellate Tribunal in Oil and natural Gas Corporation Ltd. V. Deputy CIT (Asstt.) [2003] 261 ITR (AT) 1 (Delhi) which rightly follows the settled position as explained in the judgment of the Hon'ble Supreme Court which we have referred to. We, therefore, reject the submission of the Appellant in these appeals that the increase in liability on account of the fluctuation in the rate of foreign exchange remaining on the last day of the fi....
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....s were shown as receivable in the balance sheet of the respective years so the question of disallowance of freight expenses does not arise. However, in the instant case the freight expenses have been debited in the profit and loss account and nothing has been shown in the balance sheet as receivable. Finally, assessee prayed that these expenses are incurred in connection with the business only and are eligible for ITA No.581 & 587/Kol/2009 A.Y. 2005-06 Haldia Petrochemicals Ltd. V. JCIT, Rng-12 Kol. Page 25 deduction while computing the income under the head of "business". Accordingly the learned CIT(A) has deleted the addition made by the AO by observing as under:- "This ground of the appellant is against disallowance of expenses of freight of Rs. 13,55,80,000/-. The appellant during the relevant previous year has debited to the P & L a/c Rs. 135.58 million under the heading 'freight charges'. Out of the said amount 46.99 million represents the element of freight cost in excess of recovery and 86.59 million representing freight charges on stock transfer which is not for any recovery or otherwise. The AO has disallowed the freight expenses on the ground that the freight ....