TaxTMI 
TaxTMI 
2018 (7) TMI 937
X X X X Extracts X X X X
X X X X Extracts X X X X
....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. 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 o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nment has decided to grant the subsidy by way of financial assistance to tide over the period of crisis for promotion 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....." The case law i.e. Sahney Steel & Press works Ltd vs. CIT reported in 228 ITR 253 relied by the ld CIT(A) is distinguishable 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ernatively, since the said profit does not fall under the definition of "income" at all and since it does not enter into the computation provisions at all, there is no question 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 th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... at 'nil'. In the Profit & Loss Account filed along with the said return, a sum of Rs. 160.67 millions was debited by the assessee on account of amortization of miscellaneous expenditure. In support of its 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cting its plan, the interest incurred before the commencement of production on such borrowed money can be capitalized and added to the cost of the fixed assets created as a result of such expenditure. We are also relying in the 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... A.Y. 2006-07, dividend income earned by the assessee amounting to Rs. 39.30 crores was claimed to be exempt under section 10(34) of the Act. No disallowance on account of expenditure incurred in relation to the said exempt income, however, was offered by the assessee as required by the provisions of section 14A on the ground that 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 subm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....isallowance @ 1% of dividend income. Accordingly, this ground of assessee's appeal is allowed in part". 10. As the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to that of A.Y. 2005-06, we respectfully follow the order of the Tribunal for A.Y. 2005-06 and direct the Assessing Officer to restrict the disallowance 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 mill....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sting liabilities should be adjusted in the light of foreign exchange under mercantile system of accounting. The claim of the assessee cannot be denied merely on the ground that it is just a provision and no amount has been paid. Accordingly the learned CIT(A) has deleted the addition made by the AO by observing as under:- "the appellant's contention in this regard is found to be acceptable, since 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....his juncture we also wish to reproduce the provisions of section 145 of the Act which reads as under:- "3.4 As per section 145 of the Act, '(1) Income chargeable under the head "Profits and gains of business or profession" or "income from other sources" shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. (2) The Central Government may notify in 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed in full due to the competition in the market. Besides, assessee recovered the freight charges from the customers as per the agreed amount but on many occasions the assessee had borne more amount of freight charges over and above the amount agreed due to damages/detention charges, price increased due to increase in fuel cost. Moreover, the freight charges on the stock transfer from factories to depots are to be incurred by the assessee alone. The assessee submitted that for the earlier AYs 2003-04 and 2004-05 the freight charges 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 a....