TaxTMI 
TaxTMI 
2015 (3) TMI 1336
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.... above expenditure was purely revenue in nature as no new capital asset was acquired by the assessee and thereby ought to have allowed the same as revenue expenditure. 1.2] Without prejudice to Ground Nos. 1 & 1.1 the learned CIT(A) erred in not appreciating that the expenditure incurred by the assessee was allowable u/s 35(1)(i) or section 35(1)(iv) since the expenditure was in the nature of scientific research expenditure. 1.3] The learned CIT(A) erred in holding that the above expenditure incurred by the assessee was not in the nature of scientific research. 2] The learned CIT(A) erred in holding the sale tax / purchase tax subsidy of Rs. 14,08,96,000/- received by the assessee from SICOM as a revenue receipt on the ground that the subsidy given was for increasing the profitability of the assessee. 2.1] The learned CIT(A) ought to have appreciated that the subsidy given in the form of exemption from sales tax / purchase tax was for setting up of an unit in a backward area and hence, in view of the Supreme Court decision in the case of Ponni Sugar & Chemicals Ltd. [306 ITR 392] and Special Bench decision in the case of Reliance Industries Ltd. ....
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.... purpose, it had integrated the ventures jointly with Eicher Motors which was in the same line of business. However, the said project was later abandoned since it did not give the desired results. The assessee had incurred research and development expenditure to the tune of Rs. 38,91,232/- in respect of the said project, which was claimed as a revenue expenditure. However, the Assessing Officer rejected the claim of the assessee on the ground that the purpose of the expenditure was to bring into existence a new product and therefore the same was capital in nature. He further placed reliance on similar disallowance having been made in the earlier year which was confirmed by the CIT(A). The CIT(A) upheld the order of the Assessing Officer in view of the decision of his predecessor against the assessee in assessment years 2003-04 and 2004-05. The Tribunal in ITA No.1416/PN/2006 in an appeal filed by the assessee relating to assessment year 2003-04 vide consolidated order in bunch of appeals with lead order in ITA No.830/PN/2008 relating to assessment year 2003-04, vide order dated 14.05.2012 held the said expenditure incurred on the development of new products was revenue expenditure ....
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....s tax subsidy received from SICOM for establishing a unit in notified backward area i.e. Sanaswadi. Under this Scheme, the assessee was eligible for either exemption from sales tax and purchase tax or deferment of sales and purchase tax collected for a period of 15 years. Initially, the assessee had opted for the Deferral Scheme under which the assessee was authorized for collection of sales tax but payment was to be made after 15 years to the Government but subsequently from the month of September, 2001, the assessee decided to opt for Exemption Scheme and shifted from the Deferral Scheme under which the assessee was exempted from payment of sales tax as well as purchase tax on its purchase. As per the Package Scheme, 1993, there was a ceiling on the benefit of the exemption to the extent of its capital investment. The assessee, during the year under consideration, treated the sales tax subsidy of Rs. 14,08,96,000/- as capital receipt which was assessed as revenue receipt in the hands of the assessee. 14. The Tribunal in assessee's own case relating to assessment year 2006-07 (supra) deliberated upon the issue at length and considered the various legal proposition on the said i....
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....legal issue and it can be decided in this year also. He submits that even though in the preceding year the matter has been set aside, doctrine of estoppel is not applicable to the legal issue and moreover, the issue is seized with the authorities below for deciding the same afresh as per directions of the Tribunal in the preceding year. We have also heard the Ld. DR, who supported the order of the DRP and Assessing Officer. He reiterated the reasons given by the Assessing Officer as his argument to support impugned order and pleaded for confirming the addition. 10. In the case of Reliance Industries Ltd. (supra) the said assessee was exempted from payment of the sales tax as per 1979 Package Scheme of the Govt. of Maharashtra, for setting up a new industrial unit in the notified backward area of Patalganga in Raigarh district. It was claimed by the assessee that the amount of sales tax exemption/subsidiary should be treated as a capital receipt in the hands of the assessee. The assessee was covered for getting the said incentive under the Package Scheme of Incentive 1979 declared by the Govt. which was notified in the GR dated 05-01-1980. It was a contention of the said as....
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.... and local people should be given preference. All these facts have not been disputed before us. The Departmental authorities have relied on the assessment and appellate order for the earlier years they have not brought any new fact or material on record. Even before us, with respect to counsel who appeared for both the sides, no new arguments were advanced other than the arguments which had been advanced by the assessee and the Department before the Tribunal in the appeal for asst. yr. 1985-86. The preliminary argument of the Department before us that the assessee did not collect any sales-tax and therefore there is no question of any exemption or incentive being given is an argument which has been advanced before the Tribunal both in the asst. yrs. 1984-85 and 1985-86. In fact, in para 74 of its order for the asst. yr. 1985-86, the Tribunal has referred to this aspect of the matter and after noting that the argument has already been found against the Department in the order for the asst. yr. 1984-85, further observed that no fresh material was brought to their notice either in the course of the arguments or in the orders of the Departmental authorities. The position before us, wit....
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....n and not for the setting up of the factories and it was given only to tide over the difficulties that might be experienced by the management in the actual running of the sugar factories. It was further held that though the amount of subsidy is equivalent to the quantum of purchase tax, the object behind the grant of the subsidy is not to set up a new sugar factory, but to run the factory efficiently. In other words, the subsidy is given so that the management may not be in trouble in running the factories in the initial year. In this background of facts, the Madras High Court applied the decision of the Supreme Court in Sahney Steel. In doing so, the High Court noted that in Sahney Steel's case, the payments were made directly or indirectly not for the setting up of the industries, but were made only after the production was commenced. It was therefore held, applying the ruling of the Supreme Court, that the subsidy received by the assessee, which was not for the setting up of the sugar factory, is a revenue receipt. In the other judgment, which is of the Madhya Pradesh High Court in CIT vs. S. Kumar's Tyre Manufacturing Co. (2003) 183 CTR (MP) 590, the subsidy was express....
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.... "The nature of the receipt of the incentive, therefore, has to be examined in the light of that object. Law has to keep up with the newer devices and methods adopted in the world of business as also in the several schemes that policy makers draw up from time to time to ensure the desired development in the different sectors of industry. If the Government found it convenient to adopt a policy of enabling the entrepreneurs to initially fund the capital cost of the project by obtaining loans from the public financial institutions by inducing the entrepreneur and the lender institution to rely upon the incentives provided under the Scheme for discharging such loans, it cannot be said that the incentive given being post production, though meant exclusively for meeting the capital cost, the amount of the incentive would be a trading receipt in the hands of the recipient. The fact that the time of payment is subsequent to the commencement of production would not in the larger perspective make a difference. As observed by the Supreme Court in the case of K.C.P. Ltd. vs. CIT (2000) 162 CTR (SC) 320 : (2000) 245 ITR 421 (SC), it is not the name given by the assessee or even the Reve....
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....ally regarded as trading receipts. In other words, the High Court has held that merely because the monies are received after production commences, it cannot be said, irrespective of the purpose and object of the Scheme, that the receipt is of revenue nature. This observation of the Madras High Court and the manner in which the judgment of the Supreme Court in Sahney Steel (supra) has been explained at p. 612 of the report also show that the Tribunal in the case of RIL for the asst. yr. 1985-86 correctly interpreted the judgment of the Supreme Court in Sahney Steel (supra). The observations of the Madras High Court lend support to the view that the purpose and object of the Scheme under which the subsidy is given is of more fundamental importance than the fact that the subsidy was received after the commencement of production or conditional upon it. Therefore, in our view and with respect, the Tribunal in the case of RIL had correctly interpreted and understood the ratio of the judgment of the Supreme Court in Sahney Steel (supra). 38. In this view of the matter, we answer the question referred to us in the affirmative. Since there are other grounds in the appeal of the ass....
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...., the facts relating to the issue are that, the assessee had incurred SAP maintenance and other system expenses totaling to Rs. 24,37,500/-. During the year under consideration, the said expenditure was incurred on use of SAP R/3 i.e. System Applications and Products, ERP package for day-to-day efficient functioning and controlling of various operations by implementing different types of SAP modules for Finance, Sales & Distributions, Material Management and Product Planning, etc.. The said expenditure was being incurred since 1999 and pertained to the services provided by L&T Infotech Ltd. for day-to-day technical and functional support in all types of modules. The claim of the assessee was that these were purely maintenance support charges paid to L&T Infotech Ltd.. The authorities below disallowed the said expenditure in view of similar expenditure having been disallowed in assessment years 2003-04 and 2004-05. 19. The Tribunal in ITA No.145/PN/2002 relating to assessment year 2003-04 in an appeal filed by the Revenue vide a consolidated order decided on 14.05.2012 with lead order in ITA No.830/PN/2008 relating to assessment year 2003-04, held that the said expenditure was re....
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....efore the Assessing Officer that no addition can be made. The Assessing Officer made the addition by giving the reason that as the Department has not accepted decision of Ld. CIT(A) and took issue before the ITAT, Pune. 4. We have heard the parties and perused the record. The Ld. Counsel submits that the issue stands covered in favour of the assessee by the decision of the Hon'ble ITAT, Pune in the assessee's own case in preceding year i.e. A.Y. 2001-02. The assessee also filed the copy of the Tribunal's order in ITA No. 1658/PN/2004 dated 30-11-2009. We find that the identical issue has come for the consideration in the assessee's own case in the A.Y. 2001-02 and the issue was decided in favour of the assessee confirming the order of Ld. CIT(A) allowing the relief to the assessee in that assessment year. The operative part of the decision is as under: "6. On hearing me submissions of both the sides we have found that the nature of expenditure pertained to the year under consideration of "technical consultancy fees" was made in accordance of an agreement dated 31-03-2000 which was signed by one MD of John Deere India Pvt. Ltd. On the other hand; from the side ....
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....by it over various years. As per the SICOM scheme, sales tax collected by L&T from its customers was required to be paid to authorities after a period of 10 years in 5 equal installments i.e. M/s Larsen & Toubro Ltd. had availed the benefit of deferral sales tax scheme. Against this, L&T had assigned deferral sales tax amount to LTJD, by discounting @ 12.5% per annum, the future value of L&T's repayments (i.e. deferral amounts) to the sales tax authorities. Later on, the assessee company had entered into a tripartite financial arrangement dated 31.01.2002 with M/s Larsen & Toubro Ltd. and M/s L&T Finance Ltd.. Vide this agreement, the assessee company had undertaken an obligation of Larsen & Toubro Ltd. for payment of its sales tax liability of Rs. 215.89 crores over a period of few years on receiving Rs. 85.99 crores from L&T Finance Ltd., which had earlier accepted this liability from L&T Finance Ltd.. For the financial year 2004-05, the assessee company had accrued discounting charges of Rs. 12,66,14,233/- in its books of account in respect of the liability of L&T Ltd. and the said was claimed as business expenditure by the assessee company while computing the total income. The ....
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....(Vol. 2). Accordingly, the assessee received Rs. 85.98 Crore and had to repay Rs. 215.89 Crores to L& T after 10 to 15 years. The assessee made a provision of Rs. 5,88,952/- as interest in its books and the said amount was claimed as revenue expenditure while computing the income. The A.O disallowed the said amount on the ground that the assessee had undertaken the sale tax liability of L & T and hence the same can be allowed as a deduction only when the same is actually paid as per Sec. 43B of the Act. The Ld CIT(A) has held that the amount of Rs. 5,88,952/- represents interest. He has further stated that the assessee had taken a loan from L & T which was to be repaid after agreed years and therefore, the amount is nothing but interest. The Ld CIT(A) has accordingly deleted the disallowance. 16. Before the Tribunal, the Ld D.R. submitted that the payment was made to the State Government at the behest of the assessee. The Ld CIT(A) did not appreciate that beneficiary was L& T and not the assessee. The revenue is aggrieved with the observation of Ld CIT(A) that it appears to be a loan arrangement. The ld. D.R submitted that it is only presumption of the Ld CIT(A) . He was t....
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....wance following decision of its predecessor on an identical issue under similar facts in the appeal for A.Y. 2002-03. The ld CIT(A) held that the arrangement entered into by the assessee with M/s. Larsen & Tubro was purely a loan arrangement and it may be stated that the assessee had availed a loan of Rs. 85,98,69,933/- and it was to pay a total sum of Rs. 215.89 Crores over a period of time and this amount consisted of principal amount with interest accrued thereon. He accordingly held that the sum of Rs. 10,75,57,361/- represents the interest component pertaining to the loan taken at Rs. 85,98,69,933/-. The ld. CIT(A) held further that the Sales Tax liability of Larsen & Tubro first remained the Sales Tax liability of M/s. Larsen & Tubro only and assessee could not be held liable for clearing the dues of Sales Tax and liability of assessee will be towards the amount taken as loan from Larsen & Tubro together with the interest accrued thereon. The Ld CIT(A) accordingly held that the provision created in respect of Rs. 5,88,952/- for the immediately preceding A.Y., which for the present year is Rs. 10,75,57,361/- would only be considered as the interest pertaining to the loan taken....