TaxTMI 
TaxTMI 
2015 (12) TMI 1783
X X X X Extracts X X X X
X X X X Extracts X X X X
.... r.w.s. 153A. For the sake of ready reference grounds raised by the revenue in ITA No. 8294/Mum/2014 are being reproduced hereunder:- "a. On the facts and circumstances of the case and in law, the CIT(A) erred in deleting the addition the addition of Rs. 35,33,23,171/- as revenue receipt holding that the same represents capital receipts not chargeable to tax. b. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in giving relief to the assessee by allowing the claim of prior expenses, to the extent of Rs. 83,55,190/-, without appreciating the fact that the assessee could not furnish complete details regarding this amount either during the assessment proceedings or appellate proceedings". 4. The main issue involved here which is permeating in all the appeals in all the aforementioned assessment years is, whether the incentive/subsidy received from the Central & State government is treated as revenue receipt or capital receipt. 5. The brief facts qua the issue involved is that, assessee is engaged in the business of manufacturing of sponge Iron, Steel Ingots and rolled product. In the wake of devastating earthquake in Kutch Dist....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nalyzing the 'purpose test' of the scheme. 8. The Ld. Counsel for the assessee submitted that, now there is catena of decisions not only of the Tribunal but also of the various High Courts including that of the jurisdictional High Court, in favour of the assessee that if the subsidy is given for setting up for a new industrial unit or plant then it is on capital account. In support of this contention a separate compilation of case laws have been filed before us. Explaining the nature of scheme, he submitted that the fundamental object for both the schemes was to set up an industrial plant for economic development and creation of new employment opportunities. From the perusal of these schemes which have been placed in the paper book from pages 35 to 47, he submitted that it can be seen that they were purely for assisting the entrepreneur for setting-up new industrial units and not for running of any industry for profit. He refer to preamble as given in the "Incentive Scheme of 2001 for Economic Development of Kutch District" issued by Government of Gujarat dated 09.11.2001. Even in the Central Excise Notification, the same was issued in a public interest for setting up of a new i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2012 9. Ld. Counsel further pointed out that in the case of the assessee, a search and seizure action had taken place on 30.10.2010 in Welspun Group of cases and in pursuance of that notice u/s 153A was issued for the impugned assessment years. The Ld. AO besides treating the said incentives as revenue receipts had taken an additional point by way of an alternative observation that in case, the said receipts are treated as capital receipts, then same shall be reduced from the costs of assets and depreciation claimed on the net cost of the assets will be allowed after reducing the amount of incentives in terms of Explanation 10 to section 43(1). He submitted that such a contention of the AO cannot be upheld, because the same is not applicable in the present case at all, because there is no direct acquisition of asset from the Government subsidy. The subsidy is received in the form of excise tax benefit and sales-tax incentive only when the assessee had set up the whole industrial unit and starts manufacturing and commenced its business of sale. Thus, the said provision is not applicable and in support of his contention, he relied upon the following Tribunal decisions:- Sr.No. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ulated on the basis of the quantum of investment in capital and, therefore, receipt of such subsidy was on capital account and not on revenue account. It was also urged in that case that subsidy granted on the basis of. refund of sales tax on raw materials, machinery and finished goods were also of capital nature as the object of granting refund of sales tax was that the assessee could set up new business or expand his existing business. The contention of the assessee in that case was dismissed by the Tribunal and, therefore, the assessee had come to this Court by way of a special leave petition. It was held by this Court on the facts of that case and on the basis Of the analyses of the Scheme therein that the subsidy given was on revenue account because it was given by way of assistance in carrying on of trade or business. On the facts of that case, it was held that the subsidy given was to meet recurring expenses. It was not for acquiring the capital asset. It was not to meet part of the cost. It was not granted for production of or bringing into existence any new asset. The subsidies in that case were granted year after year only after setting up of the new industry and only aft....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ame to a standstill on account of the devastating earthquake in the State on 26th January, 2001. New employment, opportunities could be created if new Investment takes place. The Government is committed to attracting industries in the district to make the industrial and economic environment live. Government of India have announced excise duty exemption for new industries to promote large scale investment in the district, along with which the State Government has also decided to announce the scheme of sales tax incentives. Since the scheme is aimed at making the economic environment of Kutch district live, it has been decided to confine the same only to Kutch district". 13. From the perusal of the above, it is amply clear that the schemes launched was for setting up of new industries in the district of Kutch for the purpose of new employment opportunities and to make industrial and economic environment live. Thus, the scheme of incentives provided by the respective Governments was setting-up of a new unit and not for running of the business more profitably. As laid down by the Hon'ble Supreme Court, the form and the source of subsidy are immaterial and what is material is whether....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n discussed in details either by the AO or by the CIT(A). Before us, the Ld. Counsel submitted that, the assessee has given a detailed submissions with regard to the prior period expenses which have been noted by the CIT(A) in para 4.1. However, the Ld. CIT(A) have failed to appreciate the issue in a proper prospective. In the assessment year 2006-07, the Tribunal has set aside this issue to the file of the AO. Ld. DR also admitted that the matter relating to prior period expenses which has been raised by the revenue as well as by the assessee in the cross appeal should be set aside to the file of the AO. 17. Accordingly, in view of the submissions made by both the parties, we are of the opinion that the whole issue relating to prior period expenses, as raised by the Department vide ground no. 1 & 2 and by the assessee vide ground no. 1 is set aside to the file of the AO to be decided afresh after giving due opportunity to represent its case. Accordingly, appeal as raised by the revenue and the assessee are partly allowed for statistical purposes. ITA No. 7630/Mum/2011 Assessee's appeal For AY 2007-08: 18. In assessee's appeal for AY 2007-08, so far as ground no. 1 whic....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... clear that, these additions can be made only in one assessment only, if at all, and cannot be roped in both the assessment. 25. Ground no. 2 is with regards levy of interest under section 234B and 234C, the same is consequential in nature. 26. Ground no. 3 is with regard to penalty proceedings u/s 271(1)(c), the same is premature and does not call for any interference and same is dismissed as such. 27. In the result, assessee's appeal is partly allowed for statistical purposes. ITA No. 6304/Mum/2014 Revenue's appeal For AY 2007-08: 28. The revenue in the cross appeal in relation to the quantum of assessment u/s 143(3) r.w.s. 153A has raised following grounds of appeal:- "1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in Deleting the addition by way of a sum of Rs. 35,33,23,171/- made by the AO relating to incentives received from Government as Revenue Receipts. 2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in Deleting the addition of Rs. 1,26,90,512/- made by the AO by disallowing prior period expenditure as claimed by the assessee". 29. Since these ident....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stake apparent from record. c) In reaching to the conclusion and not disallowing the claim of the Appellant, the ld. CIT(A) omitted to consider relevant factors, considerations, principles and evidences while he was overwhelmed, influenced and prejudiced by irrelevant considerations and factors. 3. The ld. CIT(A) erred in not disposing off the ground No.3 raised disputing levy of interest u/s 234B, 234C, 234D and 220(2) of the Income Tax Act, 1961. The Appellant denies its liability for such interest". 31. So far as issue raised in ground no.2, the same has already been decided in favour of the assessee in the appeal for the assessment year 2007-08 and accordingly, this ground raised by the assessee is treated as allowed and AO is directed to treat the subsidy / incentive received from the Government as a capital receipts. 32. So far as issue relating to ground no. 1, the same has become purely academic as the addition on merits stands deleted. 33. As regards ground no. 3 is levy of interest which have been admitted by both the parties that it is consequential in nature, hence it is dismissed. 34. In the result, appeal of the assessee is partly allowed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eciate that- (i) having regard to the accounts there is no reason and basis in reaching to dissatisfaction with the correctness of the claim of the Appellant that no expenditure was incurred in relation to dividend income which does not form part of the total income; (ii) the disallowance worked out by the AO u/s. 14A is excessive and unreasonable; and (iii) the AO has committed certain mistakes in working out the disallowable part of such expenses. c) In reaching to the conclusion and confirming such addition the Id. CIT(A) omitted to consider relevant factors, considerations, principles and evidences while he was overwhelmed, influenced and prejudiced by irrelevant considerations and factors. 3. The Ld. CIT(A) erred in holding that levy of interest u/s.234B and 234C of the Income Tax Act, 1961 is consequential. The Appellant denies its liability for such interest. 4. The Ld. CIT(A) erred in holding that the ground raised disputing initiation of penalty proceedings u/s.271(1)(c) of the Income Tax Act, 1961 is premature. The Appellant denies its liability for such penalty". 36. Ground no. 1 is similar to the grounds raised in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....terest disallowance is concerned. Further, the AO is also directed to apply the principles laid down by Delhi High Court in the case Chem Invest inasmuch as if there is no exempt income then, no disallowance should be made. Accordingly, with this direction this ground raised by the assessee is treated as partly allowed for statistical purposes. 43. As regards ground no. 3, which is consequential in nature and ground no. 4 is premature. 44. In the result of the assessee is partly allowed for statistical purposes. ITA No. 6305/Mum/2014 Revenue's appeal For AY 2008-09: 45. The revenue has raised following grounds of appeal:- "1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in Deleting the addition by way of a sum of Rs. 46,52,53,662/- made by the AO relating to incentives received from Government as Revenue Receipts. 2. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A)has erred in excluding the discounting and banking charges of Rs. 7,43,909/-while taking the figure of interest for computation of disallowance u/s 14A of the IT Act. "Whether on the facts and circumstances o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....given to the units for the reason of promotion of industrial development in the State or for economic development of certain industries in a State or for generation of employment and not to reimburse the cost of any fixed asset, the amount so received cannot be reduced from the actual cost. c) In reaching to the conclusion and holding so, the ld. CIT(A) omitted to consider relevant factors, considerations, principles and evidences while he was overwhelmed, influenced and prejudiced by irrelevant considerations and factors. 2.a) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in confirming the addition of Rs. 28,05,070/- made by the AO to the income of the Appellant by way of disallowing certain expenditure claimed to have been incurred relating to exempt income invoking the provisions of section 14A. b) The Ld. CIT(A) failed to appreciate that- (i) having regard to the accounts there is no reason and basis in reaching to dissatisfaction with the correctness of the claim of the Appellant that no expenditure was incurred in relation to dividend income which does not form part of the total income; (ii) the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rred in Deleting the addition of Rs. 28,05,070/- made by the AO to the book profit u/s 14A read with rule 8". 53. From the perusal of the aforesaid grounds, they are similar to grounds raised in AYs 2007-08 & 2008-09, in view of the finding given therein, which will apply mutatis mutandis here in this appeal also being identical on facts, therefore, grounds are decided accordingly. 54. In the result, ground no. 1 is dismissed and ground no. 2 is partly allowed for statistical purpose. ITA No. 6375/Mum/2014 Assessee's appeal For AY 2010-11: 55. In its appeal, the assessee have raised following grounds of appeal:- "The ground or grounds of appeal are without prejudice to one another. 1.a) On the fact and in the circumstances of the case and in law, the ld. CIT(A), having accepted the claim of the Appellant in respect of incentives of 19,8571,842/- granted by the Governments for setting up a Unit in Kutch District as capital receipts, erred in holding that such incentives shall be reduced from the cost of the asset and depreciation thereon be allowed on net value/cost of asset in terms of Explanation 10 to Section 43(1). b) The ld. CIT(A) fail....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he facts and in the circumstances of the case and in law, the ld. CIT(A) erred in confirming the addition of Rs. 84,475/-, made by the AO to the income of the Appellant by way of disallowing prior period expenditure. b) The ld. CIT(A) failed to appreciate that the expenses have been crystallized during the previous year and as such deduction for the same is allowable. 4. The Ld. CIT(A) erred in holding that levy of interest u/s.234B and 234C of the Income Tax Act, 1961 is consequential. The Appellant denies its liability for such interest. 5. The Ld. CIT(A) erred in holding that the ground raised disputing initiation of penalty proceedings u/s.271(1)(c) of the Income Tax Act, 1961 is premature. The Appellant denies its liability for such penalty". 56. From the perusal of the aforesaid grounds, they are similar to grounds raised in AYs 2007-08, 2008-09 & 2009-10, in view of the finding given therein, which will apply mutatis mutandis here in this appeal also being identical on facts, therefore, grounds are decided accordingly. 57. In the result, ground no. 1 is allowed in favour of the assessee, ground no. 2 is partly allowed in view of the direction....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sets, then such subsidy is not required to be reduced from the cost of various assets since the subsidies are received for encouraging investment in backward area; and (iii) in the cases of subsidies by way of incentive/subsidy in the form of reimbursement of tax given to the units for the reason of promotion of industrial development in the State or for economic development of certain industries in a State or for generation of employment and not to reimburse the cost of any fixed asset, the amount so received cannot be reduced from the actual cost. c) In reaching to the conclusion and holding so, the ld. CIT(A) omitted to consider relevant factors, considerations, principles and evidences while he was overwhelmed, influenced and prejudiced by irrelevant considerations and factors. 2.a) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in confirming the addition of Rs. 12,33,67,994/- made by the AO to the income of the Appellant by way of disallowing certain expenditure claimed to have been incurred relating to exempt income invoking the provisions of section 14A. b) The Ld. CIT(A) failed to appreciate that- ....