TaxTMI 
TaxTMI 
2019 (2) TMI 1061
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....ssed by the learned Assessing Officer u/s. 143(3) r.w.s. 153A r.w.s. 144C(1) of the Income-tax Act,1961 (hereinafter called " the Act"). 2. The grounds of appeal raised by the Revenue in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called "the tribunal") in ITA no. 5725/Mum/2015 for AY 2008-09, read as under:- 1) "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in holding that backward area incentive consisting of Sales Tax Incentive and excise duty benefits as Capital Receipt." 2) "Alternatively and without prejudice, the CIT(A) should have applied Explanation 10 to Sec.43(1) and should have directed that the backward area incentive should have been reduced from the actual cost." 3) "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the disallowance of Rs. 3,59,88,823/- made u/s.14A read with Rule 8D without appreciating that Rule 8D is squarely applicable." 4) " On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made on account of premature redemption without appreciating that the transaction ....
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....e ld. CIT(A) erred in holding that levy of interest u/s. 234D 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 ground raised disputing initiation of the penalty proceedings u/s.271(1)(c) of the Income Tax Act, 1961 is premature. The Appellant denies its liability for such penalty. The Appellant craves leave to add, alter, amend or delete any or all of the above grounds of appeal." 4. The brief facts of the case are that the assessee is engaged in the manufacturing of terry towels . The search operations were carried out by Revenue in the case of Welspun group of entities u/s. 132 of the 1961 Act on 13th October, 2010 . The assessee was also covered by Revenue in the aforesaid searches conducted by Revenue u/s 132 of the 1961 Act. 5. The first issue which arose before us comprises of chargeability to income-tax of incentives by way of refund of Excise Duty of Rs. 3,65,47,921/- and Exemption of Sales Tax to the tune of Rs. 5,75,56,878/- as revenue receipt or the same are capital receipts not exigible to income-tax. It so happened that Kutch District in Gujarat was hit by devastatin....
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....tant Commissioner or the Deputy Commissioner of Central Excise, as the case may be. (iv) The manufacturer shall also produce a certificate from the said Committee confirming the original value of investment and such a certificate shall be produced within a period of one month from the date of commencement of commercial production, or such extended period as the said Assistant Commissioner or Deputy Commissioner may allow. v) In case on the basis of such certification, or otherwise, the original value of investment in plant and machinery, (a) is found to be less than rupees twenty crore but was declared to be rupees twenty crore or more, the manufacturer shall be liable to pay back the entire amount of duty exemption availed under the notification alongwith interest at the rate of twenty four per cent per annum as if no exemption were available; or (b) is found to be less than the declared value and was declared to be below rupees twenty crore, the manufacture shall be liable to pay duty on the goods cleared ,if any, in excess of twice the actual value of original investment in each of the years during which exemption has been claimed under this notification alongwith in....
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....th June or from time to time as sought by the State Government. (e) As per the employment policy of the Government of Gujarat, the unit availing of the incentives, will have to recruit local persons for a minimum of 85% of the total posts and for a minimum of 60% of the managerial and supervisory posts. The unit shall have to submit the details of fulfilling the conditions of local employment to the concerned authority granting the incentives to his satisfaction. The percentage of the above mentioned employment will have to be maintained by the industrial unit during the eligibility period of the incentives. Otherwise, the amount of incentives availed by the unit can be recovered as arrears of land revenue. (f) Unit will have to invest the amount equivalent to 50% of the sales tax incentives availed in the new projects in the state within a period of 10 years from the date of commencement of commercial production. (g) Unit opting for sales tax deferment scheme for the purpose of deferred amount shall have to give a personal undertaking in the form of security bond as prescribed vide Resolution No.INC-1087-2138-I dated the 1st August, 1990 or equitable charge, second charge....
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....sidy is given to the assessee for assisting him in carrying out the business operations and is given only after commencement of production, such subsidy is to be treated as assistance for the purpose of the trade and would constitute revenue receipt. Though the Supreme Court held that the subsidy received was revenue in nature, it laid down the guiding principles to determine the nature, whether capital receipt or a revenue receipt. The observations made by the Supreme Court in this regard are :- . "It is not the source from which the amount is paid to the assessee, which is determinative of the question whether the subsidy payments are of revenue or capital nature. The first proposition stated by Viscount Simon in Ostime's case [1946] 14 ITR (Suppl.) 45 (HL) is that if payments in the nature of subsidy from public funds are made to the assessee to assist him in carrying his trade or business, they are trade receipts. The sales tax upon collection forms part of the public funds of the State. If any subsidy is given, the character of the subsidy in the hands of the recipient - whether revenue or capital - will have to be determined by having regard to the purpose for wh....
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....e Government, the assessee was not required to charge any sales tax from its customers and to pay any purchase tax on its purchases; (ii) because no amount of subsidy either in cash or in kind had been given by the Government; (iii) because in the invoices, the assessee did not charge any amount separately under the head 'Sales'; (iv) because under the scheme, at no point of time, was the assessee required to pay any sales tax to the Government, and (v) because the assessee did not maintain any separate sales tax account, any separate incentive account nor had shown any amount as outstanding liability under the head. The Special Bench of the Tribunal, relying on the principles laid down by the Supreme Court in the case of Sahney Steel & Press Works Ltd. (supra) came to the conclusion that since the incentives were given for bringing about addition to necessary infrastructure in processing/developing the backward area, the same would be in the nature of capital receipt not liable to tax. The Special Bench, accepting the contention of the assessee, thus, held that the collections made by the assessee would be deemed to include the sales tax amount and since the assessee wa....
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....emained unaltered. Further, in response to the query from the Bench on the subsequent development, if any, on the said question "D", Ld Counsel fairly mentioned that the said question was remanded by the Hon'ble Supreme Court, vide Civil Appeal No.7769/ of 2011 (Arising out of S.L.P. (c) No.9860 of 2010), to the Hon'ble High Court of Bombay to decide the question in accordance with the law. Thus, the said conclusion of the Special Bench, which is followed by the CIT(A), while granting relief to the assessee, remains unaltered. Therefore, the present impugned order of the CIT(A) does not call for any interference. 10. On the other hand, Ld DR relied heavily on the order of the AO. 11. We have heard both the parties and perused the orders of the Revenue Authorities as well as the material placed before us on this issue. On perusal of the order cited before us, we find that the argument made by the Ld Counsel is an order, and therefore, the cited decision of the Special Bench in the assessee's own case is upheld. Therefore, in our opinion, the order of the CIT(A) is fair and reasonable and it does not call for any interference. Accordingly, grounds no.2, ....
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....ods Exports (P.) Ltd. v. ACIT 28 taxmann.com 15 (Mum), Inventa Chemicals Ltd. V/s. Asst. CIT 42 SOT 249(Hyd.) Soham Electroplast Pvt. Ltd. V/s. ITO (ITA No.l578/PN/2008 dated. 28.10.2010) Thus even after insertion of Explanation 10 to section 43(1) the basic principle underlying in the decision of the Supreme Court in the case of P. J. Chemicals 210 ITR 830 still holds the field. It is cash subsidy without reference to any expenditure incurred, it has to be taken as derived from scheme of the Government but if it is given as a refund of excise/ sales tax arithmetically of the same amount, it would be either reimbursement of expenditure not amounting to income at all or it would increase the profits of the undertaking by offsetting it against expense and removing it from debit to profit of the undertaking, i.e., both credit and debit do not enter the profit coffers of the undertaking. Following the order of CIT(A)-13, Mumbai in the case of the appellant for the A.Y.2006-07 which has not been disputed in second appeal by the Department and as such reached to the finality and the decision of the ITAT, Mumbai in the case of Welspun Gujarat Stahl Rohren Ltd. (Now Welspun Cor....
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....um/2014, 6306/Mum/2014 for AY 2009-10, ITA no. 6375/Mum/2014, 6307/Mum/2014 for AY 2010-11, ITA no. 6376/Mum/2014, 6308/Mum/2014 for AY 2011-12, vide common order dated 18.12.2015 , wherein the tribunal has held that the said incentives are capital receipt and further it has been held that the said amount of incentives received by the asseseee shall not be reduced from the cost of the asset of the assessee despite provisions of Section 43(1), Explanation 10 , by holding as under:- " 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 District, Gujarat, the Central Government, vide notification No. 39/2001 dated 7th August, 2001 issued an excise benefit incentive scheme and State Government of Gujarat also vide its Notification dated 9th November, 2001 announced an incentive scheme for Sales-tax exemption known as "Incentive Scheme, 2001 for Economic Development for Kutch District". Both these schemes were for setting-up of a new industrial unit/s in Kutch District after complying with the terms and conditions as set out in the notifi....
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.... 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 industrial plant and the incentive of Excise Duty benefit was given for a period of five years. He further submitted that the nature of incentive under both the notifications and the accounting treatment by the assessee as stated by the assessee before the authorities below was as under:- (a) The nature of incentives under the Notification and the Scheme and the present accounting treatment are summarized as under:- (a) Excise Duty (in view of the Notification) - Refund of the excise....
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....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. Case Name Citation 1 Sasisri Extractions Limited 122 ITD 428 (Visakhapatnam) 2 M/s Harinagar Sugar Mills Ltd ITA No. 772/Mum/2012 3 Rasoi Ltd. 46 taxman.com214(Kolkata-Trib) 4 Universal Cables Ltd 57 taxman.com95(Kolkata -Trib) 5 Soham Electroplast Pvt Ltd ITA No. 1578/PN/2008 10. On the other hand Ld. DR strongly relied upon the assessment order especially passed by the AO under section 143(3) r.w.s. 153A dated 25.03.2013 and submitted that....
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....d 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 after commencement of production and, therefore, such a subsidy could only be treated as assistance given for the purpose of carrying on the business of the assessee. Consequently, the contentions raised on behalf of the assessee on the facts of that case stood rejected and it was held that the subsidy received by Sahney Steel could not be regarded as anything but a revenue receipt. Accordingly, the matter was decided against the assessee. The importance of the judgment of this Court in Sahney St....
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....eme 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 the subsidy is for setting up for a industrial unit or running it for profitability. Similarly, the Central Excise exemption was given in the public interest for setting up of a new industrial unit in the Kutch District. Accordingly on the facts of the present case, we conclude that the incentive given by the State Government and the Central Government is nothing but capital receipts, because applying the "purpose test" the incentive / subsidy was given only for setting up of new industrial un....
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....and rehabilitate the said Kutch District of Gujarat , the Central and State Government formulated policy with a view to encourage setting up of new industry in said Kutch District wherein certain incentives by way of refund of excise duty as well exemption of Sales Tax incentives were given by Central and State Government to the entrepreneurs for setting up new industry in Kutch District ,as detailed below:- "NOTIFICATION NO 39 /2001 -CENTRAL EXCISE. In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944), read with sub-section (3) of section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957) and sub-section (3) of section 3 of the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 ( 40 of 1978), the Central Government being satisfied that it is necessary the public interest so to do, hereby exempts the goods specified in the First Schedule to the Central Excise Tariff Act,1985 (5 of 1986) other than goods specified in the Annexure appended to this notification and cleared from a unit located in Kutch district of Gujarat from so much of the duty of excise or the ....
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....r cent per annum , as if no exemption were available to those clearances under this notification. (vi) The exemption shall apply for a period not exceeding five years from the date of commencement of commercial production by the unit." The sales tax incentive scheme formulated by State Government of Gujarat is detailed hereunder: "SALES TAX INCENTIVE SCHEME 2001 FOR KUTCH DISTRICT The economic activities in the district of Kutch came to a standstill on account of 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 to 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 incentive. 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. Conditions Under this scheme, following conditions shall be applicable to sale....
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....her scheme of the State Government will not be eligible to receive benefits under this scheme. (i) Expansion, diversification or modernization of the existing industries will not be considered eligible for the benefits under this scheme." We have also observed that the Mumbai-tribunal has dealt with this incentive schemes of Central and State Government for giving incentives by Central Excise Benefits by way of refund and exemption of Sales Tax Incentives for setting up industrial units in District Kutch,Gujarat to redevelop the said Kutch District in the wake of devastating earth quakes on 26.01.2011 in the cases of group concern of the assessee in Welspun Steel Ltd. v. DCIT/ACIT, vide appellate order dated 18.12.2015 , in appeals in ITA no. 7630/Mum/2011 and 8294/M/2011 for AY 2007-08, ITA no. 6371/Mum/2014 for AY 2006-07, ITA no. 6372/Mum/2014, 6304/Mum/2014 for AY 2007-08, ITA no. 6373/Mum/2014, 6305/Mum/2014 for AY 2008-09, ITA no. 6374/Mum/2014, 6306/Mum/2014 for AY 2009-10, ITA no. 6375/Mum/2014, 6307/Mum/2014 for AY 2010-11, ITA no. 6376/Mum/2014, 6308/Mum/2014 for AY 2011-12, vide common order dated 18.12.2015 , wherein the Mumbai tribunal has held that the said ince....
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....reby the Tribunal, vide order dated 28.12.2011 had set aside this issue to the file of the AO on the ground that authorities below have not analysed the scheme of subsidy / incentive granted by the respective governments. It has been informed that, till date no assessment order has been passed in pursuance of Tribunal order. Instead a fresh assessment order has been passed under section 143(3) r.w.s. 153A wherein this issue has been confirmed by the AO again without proper analyzing 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 p....
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.... No. Case Law Citation 1 Sahney Steel & Press Works Ltd 228 ITR 253 (SC) 2 Ponni Sugars & Chemicals Ltd. 306 ITR 392 (SC) 3 Bougainvillea Multiplex Ent. Centre (P) Ltd 373 ITR 14 (Trib) 4 Chaphalkar Brothers 351 ITR 309 (Bom) 5 Birla VXL Ltd. 32 taxmann.com330(Guj) 6 M/s Ajanta Manufacturing Ltd. ITA No. 793/Rjt/2010 7 M/s Mihir Packaging ITA No. 5629/M/2011 8 M/s Nikomom Finance Pvt Ltd. ITA No. 3580/M/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 uph....
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....he business more profitably then, the receipt is on revenue account. The relevant observation of the Hon'ble apex Court in this regard given in para 14 reads as under:- "14. In our view, the controversy in hand can be resolved if we apply the test laid down in the judgment of this Court in the case of Sahney Steel & Press Works Ltd. (supra). In that case, on behalf of the assessee, it was contended that the subsidy given was up to 10 per cent of the. capital investment calculated 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 t....
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....rinciple laid down by the Hon'ble Supreme Court, we shall examine the nature of subsidy provided to the assessee. The "Incentive Scheme 2001 for Economic Development of Kutch District of the Gujarat Government" gives the fundamental preamble which highlights the basic objective and the purpose for which the incentive by the State Government as well as Central Government is being given has been highlighted in the following manner:- "The economic activities in the district of Kutch came 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 ....
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....rectly or indirectly to meet any portion of the actual cost and hence it does not fall within the purview of Explanation 10 to section 43(1). Thus, this alternative plea as raised by Ld. AO is rejected. Accordingly, the ground raised by the revenue on this score stands dismissed." We are in agreement with the aforesaid decision of the tribunal dated 18.12.2015 in the case of Welspun Steel Ltd(supra) as the said incentives by way of excise duty refund and sales tax incentives were given to encourage setting up of new industrial unit in Kutch District to redevelop the Kutch District in the wake of devastating earthquake on 26.01.2001 albeit the said incentives are given post commencement of manufacturing and the said subsidy shall be capital in nature as it is for promoting setting up of new industry in Kutch District which was devastated by earthquake even if the subsidy is given post commencement of commercial production by way of refund of Central Excise and Exemption of Sales Tax which is not material keeping in view purposive test and the fact that the said incentives were given to encourage making capital investments in Kutch District in setting up new industry to redevelop ....
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.... Section 14A of the 1961 Act. The assessee had incurred an amount of Rs. 67.68 crores during the impugned assessment year towards interest expenditure on loans/debentures, working capital and other interest expenditure. The AO held that the assessee could not prove that the assessee made investments totally out of surplus money and contentions of the assessee to that effect were rejected by the AO. The learned AO also held that the assessee could not establish and provide any basis /method to compute disallowance of expenditure incurred in relation to earning of an exempt income u/s 14A of the 1961 Act. The AO worked out disallowance of expenditure incurred in relation to earning of an exempt income u/s 14A of the 1961 Act by invoking Rule 8D of the Income-tax Rules, 1962 r.w.s. 14A of the 1961 Act, wherein disallowance was worked out by the AO as under:- Since, the assessee company had already disallowed an amount of Rs. 81,30,975/- under Section 14A of the Act, the remaining amount of Rs. 3,92,83,170/- was disallowed by the AO u/s. 14A of the 1961 Act and added back to the total income of the assessee, vide assessment order dated 26.03.2013 passed u/s 143(3) read with Secti....
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....reign currency loans, working capital loans. Further unsecured loans of Rs. 182.32 million were short term loans from banks. It is seen that the appellant added back a sum of Rs. 81,30,975/-being proportionate part of interest under s. 14A worked out in respect of investment in mutual funds and shares of companies other than Group companies. The AO has not contravened the proportionate part of interest as worked out and added back to income. It is observed that investment in subsidiary and Group companies to the extent of Rs. 68,95,45,956/- are long term investment and no decision is required in making these investment or disinvestment on regular basis because these investments are strategic in nature and therefore no direct or indirect expenditure is required. It is pointed out by the appellant that in Garware Wall Ropes Ltd. V/s. ACIT (ITA No.5408/Mum/2012) dated 15-1-2014 it is held that a disallowance under S.14A cannot be made if primary object of investment is holding controlling stake in group concerns. The appellant also pointed out the similar decisions of Oriental Structural Engineers Pvt. Ltd. 35 taxmann.com 210 (Del.) and J. M. Financial Ltd. V/s. ACIT (ITA No,4521/M....
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....e in relation to income which did not form part of total income and if so to quantify the extent of disallowance. However, certain part of administrative expenses should be disallowed in accordance with rule 8D i.e. @ 0.5% of average investment in units of mutual funds and shares other than shares of Group companies. The average of such investment comes to Rs. 65,88,69,431/-(i.e. 21,52,05,969/- + 1,10,25,32,893/- / 2). Hence I confirm the addition to the extent of Rs. 32,94,347/- being 0.5% of Rs. 65,88,69,431/-(i.e. average investment in mutual funds and shares of the companies other than Group companies). The appellant gets relief of Rs. 3,59,88,823/- . This ground of appeal is partly allowed. 6.4. The learned CIT(A) granted relief of Rs. 3,59,88,823/- while disallowance to the tune of Rs. 32,94,347/- were confirmed by learned CIT(A) by invoking provisions of Section 14A of the 1961 Act r.wr. 8D2(iii) of the 1962 Rules . The learned CIT(A) also excluded investments made by the assessee in group companies while confirming aforesaid disallowance of Rs. 32,94,347/- . It is pertinent to mention here that the said proposition of exclusion of investments in subsidiary/ associated....
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....invested in securities capable of yielding an exempt income. There is no adverse finding of the lower authorities to rebut such claim and it is on the theory of mixed fund use, the disallowance was made of interest expenditure u/s 14A of the 1961 Act read with Rule 8D(2)(ii) of the 1962 Rules. As we have seen earlier, the assessee's own funds are more than the investments made by the assessee and hence no disallowances are warranted u/s 14A read with Rule 8D(2)(ii) of the 1962 Rules., keeping in view that there is no incriminating finding recorded by Revenue that any specific interest bearing borrowings were used by the assessee for making investments in shares while the assessee has claimed that interest bearing borrowings were used for specific purposes for which they were granted and no part of the said interest bearing borrowings were used for making investments in securities which are capable of yielding interest free income and the AO concluded that it is infact mixed funds which were available with the assessee and on that basis disallowance of expenditure was made u/s 14A of the 1961 Act read with Rule 8D(2)(ii) of the 1962 Rules . The presumption in such cases will be that....
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....tural justice in accordance with law. The evidences/explanations produced by the assessee in its support shall be admitted by the AO in the interest of justice in accordance with law. This disposes of ground no. 3 of the Revenue appeal and also ground no. 1(a),(b) and (c) of the assessee's appeal . We order accordingly. 7. This takes us to the next ground raised by assessee vide ground number 2 which concerns itself with additions made by the AO to the tune of Rs. 4,74,14,145/- u/s 14A which was added while computing book profits u/s 115JB , which additions were later confirmed by learned CIT(A) to the tune Rs. 1,14,25,322/- , including voluntary disallowance of Rs. 81,30,975/- made by the assessee u/s 14A , while computing book profits of the assessee u/s 115JB. On the other hand Revenue is aggrieved by the relief granted by learned CIT(A) which is agitated by Revenue in its appeal vide ground number 6. We have heard rival parties . The issue is consequential to our decision in the case of disallowance of expenditure incurred in relation to earning of an exempt income u/s 14 A in the preceding para's of this order. We are of the view that this issue is required to be set asi....
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.... justice in accordance with law. This disposes ground no. 4 raised by Revenue in its appeal filed with the tribunal . We order accordingly. 9. The next issue agitated by Revenue in its appeal filed with the tribunal is with respect to challenge to the decision of learned CIT(A) in deleting additions made to the book profit without appreciating that there is no brought forward book loss available to the assessee. The assessee had claimed set off of unabsorbed carry forward of depreciation and business loss of Rs. 152.49 crores. The AO referred to the provisions of Section 115JB explanation (iii) to disallow aforesaid set off. The AO observed that the assessee incurred losses only in three years namely AY 1999-00, 2000-01 an 2001-02 and such losses were already set off against the income of AY 2002-03, 2003-04 and 2004-05. Since, these losses were already set off in earlier years , no brought forward loss was available to the assessee for reducing from the profits for computing the book profit u/s 115JB of the 1961 Act during the current year. The learned CIT(A) restored the matter to the file of the AO for re-adjudicating the issue after considering the claim of the assessee afte....
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....-10 are partly allowed as indicated above. Assessment Year 2010-11- ITA no. 5718/Mum/2015 & 5374/Mum/2015 16. We have observed that all the issue raised in cross appeals filed by Revenue and the assessee are similar to the issues raised in the cross appeals for AY 2008-09, except one issue raised by the assessee vide ground number 3(a) and (b) in its appeal is concerning confirming of the addition to the income of the assessee of Rs. 35,51,835/- by learned CIT(A) , arising out of the additions made by the AO to the income of the assessee by disallowance of the penalty of Rs. 35,51,835/- levied during the previous year relevant to the impugned assessment year on the assessee under Sales Tax and FEMA laws. The AO observed from the tax-audit report that the auditors have specified that expenses on account of Sales Tax Penalty amounting to Rs. 26,51,835/- and FEMA penalty amounting to Rs. 9,00,000/- were debited to Profit and Loss Account . The AO observed that the assessee did not suo motu disallowed the said penalty while filing return of income with Revenue. The assessee on being asked by the AO submitted that the appeal against sales tax penalty is preferred and the appeal....
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....not allowable and the penalty which is for infraction of contractual obligation is allowable. The payment of penalty was not one for breach of law and therefore the same is allowable u/s.37(l). b) The Explanation to section 37(1) reads as under:- "For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such explanation." The plain reading of the Explanation shows that the expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession. It is submitted that the penalty paid towards certain technical non-compliances will not amount to an offence or prohibited by law. Hence, the penalty paid by your Appellant is not hit by .the Explanation of section 37(1). The penalty paid by the Appellant does not involve any moral obliquity. Even otherwise also the need for making payment of penalty arose out o....
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.... in the last week of September 2011. During the course of search and survey operations conducted by the Enforcement Branch of Maharashtra VAT Authorities, it transpired that the assessee indulged in alleged bogus purchases by way of accommodation entries wherein the assessee had wrongly claimed input tax credits on these alleged bogus purchases and these inadmissible input tax-credits was set off by the assessee against its output VAT liabilities which led to short payment of output tax by the assessee to MVAT authorities in the return of VAT originally filed by the assessee. The MVAT authorities during the course of search and survey operations while it was underway directed assessee to file revised return of VAT after removing alleged bogus inadmissible input-tax credit set off towards output tax liabilities towards VAT as originally claimed by the assessee and to pay additional tax arising from such withdrawal along with interest as stipulated u/s. 30(2) and 30(4) of the MVAT Act, 2002. At this stage, the assessee had two choices either to contest these allegations of availment of wrong input tax credit by entering into litigation with MVAT department and the other option was....
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....x is reduced, the interest shall be reduced accordingly and where the said amount is enhanced, 1[the interest on the enhanced amount shall be calculated mutatis mutandis upto the date of such order]: Provided that, in respect of any of such years, 2[the amount of interest payable] under this sub-section shall not exceed the amount of tax found payable for the respective year. (2) A registered dealer who has failed to pay the tax within the time specified by or under this Act, shall be liable to pay by way of simple interest, in addition to the amount of such tax, a sum calculated at the prescribed rate on the amount of such tax for each month or paid thereof after the last date by which he should have paid such tax: Provided that, in relation to the tax payable according to 3[the return, fresh return or as the case may be], 4[fresh return or revised return], the said dealer shall, notwithstanding anything contained in any other provision of this Act, be deemed not to have paid the amount of such tax within the time he is required by or under the provisions of this Act to pay it if he has not paid the full amount of such tax on or before the last date prescribed for furnish....
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....s remained unpaid upto one month after the end of the period of assessment, such dealer shall be liable to pay by way of simple interest, 5[a sum calculated at the prescribed rate on the amount of such tax] for each month or part thereof from the date next following the last date of the period covered by an order of assessment till the date of the order of assessment and where any payment of such unpaid tax whether in full or part is made on or before the date of the order of assessment, the amount of such interest shall be calculated by taking into consideration the amount and the date of such payment. If, as a result of any order passed under this Act, the said amount of tax is reduced, then the interest shall be reduced accordingly and where the said amount is enhanced, then interest on the enhanced amount shall be calculated mutatis mutandis up to the date of such order from the said date next. 6[(4) If,- (a) after the commencement of,- (i) audit of the business of the dealer in respect of any period, or (ii) inspection of the accounts, registers and documents pertaining to any period, kept at any place of business of the dealer, or (iii) entry ....
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....ns of this Act, then the Commissioner may, after giving the dealer a reasonable opportunity of being heard, impose upon him, by way of penalty, a sum equal to the amount of tax payable by the dealer for the period during which he has carried on business as a dealer without being registered in contravention of the provisions of this Act.] (3) 2[While or after passing any order] under this Act, in respect of any person or dealer, the Commissioner, on noticing or being brought to his notice, that such person or dealer has concealed the particulars or has knowingly furnished inaccurate particulars of any transaction liable to tax or has concealed or has knowingly misclassified any transaction liable to tax or has knowingly claimed set-off in excess of what is due to him, the Commissioner may, after giving the person or dealer a reasonable opportunity of being heard, by order in writing, impose upon him, in addition to any tax due from him, a penalty 2a[not exceeding the amount of tax due but not less than twenty five per cent. of] the amount of tax found due as a result of any of the aforesaid acts of commission or omission. (4) Where any person or dealer has knowingly issued or ....
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....self consistent], then the Commissioner may, after giving the dealer a reasonable opportunity of being heard, impose on him, by order in writing, a penalty of rupees one thousand. The levy of penalty shall be without prejudice to any other penalty which may be imposed under this Act. 10[(10) Where a person or dealer has collected any sum by way of tax in contravention of the provisions of section 60,- 1. he shall be liable to pay a penalty not exceeding two thousand rupees, and 2. in addition, any sum collected by the person or dealer in contravention of section 60 shall be forfeited to the State Government. If the Commissioner, in the course of any proceeding under this Act or otherwise, has reasons to believe that any person has become liable to a penalty or forfeiture or both penalty and forfeiture of any sum under this sub-section, he may serve on such person a notice in the prescribed form requiring him on a date and at a place specified in the notice to attend and show cause why a penalty or forfeiture or both penalty and forfeiture of any sum as provided in this sub-section should not be imposed on him. The Commissioner shall thereupon hold an inquiry an....
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....; ** **" The assessee is claiming that the interest paid u/s. 30(2) and 30(4) of MVAT Act, 2002 to be compensatory in nature and claiming that the same be allowed as business deduction while computing income from business but the Revenue is claiming the same to be penal in nature being hit by explanation 1 to Section 37(1) of the 1961 Act and not allowable as business deduction. We are also conscious of the fact that nomenclature or description used by law makers in the statute is not decisive of its true nature and character and the fact whether the said levy is compensatory or penal in nature is to be decided after going through various provisions of the statute and to see the intentions of law makers behind placing of such provisions in the statute. This interpretation of the statute is well settled legal proposition which has been so held by catena of judgments of Hon'ble Superior Courts which case laws are also cited in preceding para's of this order and are not repeated here. We have also carefully gone through the provision of sections 29 and 30 of th....
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.... return originally and with interest u/s. 30(2) of MVAT Act, 2002 for withholding/ delay in payment of VAT beyond prescribed due date under MVAT Act, 2002 but the assessee in such adverse eventuality of losing out the legal battle with MVAT authorities would have also been additionally visited and burdened with Penalty as is stipulated u/s. 29(3) of the MVAT Act, 2003 which shall not be less than 25% but which may extend to 100% of the additional tax sought to be concealed or evaded by the assessee. Thus, it is very clear that the lawmakers have provided for a mandatory penal interest by virtue of provisions of Section 30(4) of the MVAT Act, 2002 to the tune of 25% of the tax sought to be evaded although nomenclature 'interest' is used in MVAT Act, 2002 which is in-fact penal in nature having germane to infraction of law while filing of original return of VAT which led to under payment of VAT originally. The reason is not far to seek as the liberty of paying 25% of additional tax u/s. 30(4) of the MVAT Act, 2002 of its own even after commencement of special event such as audit, inspection, survey and search etc is given by way of one more opportunity to the dealer to come c....
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....g claim in the original return filed with MVAT authorities. It is also pertinent to mention that this interest u/s. 30(4) of MVAT Act, 2002 @25% of additional is penal in nature because once the audit, inspection, survey, search etc. starts, then it is very difficult for the dealer to get away with any concealment or incorrect filing of particulars in the return of VAT originally filed and hence being cornered with the commencement of special event, an opportunity is provided in the statute itself to come clean otherwise the dealer will be burdened later with penalty as provided u/s. 29(3) of the MVAT Act which can extend to 100% of the tax evaded. So, the fact remains that this is penal interest to come clean from the infraction of law earlier committed whether knowingly or not while filing original return of VAT under MVAT Act, 2002. The assessee in the instant case came after the commencement of search and survey operation being conducted against assessee in the last week of September 2011 by MVAT authority came forward to file revised return by withdrawing inadmissible and wrong credit of input tax credit set off against output VAT payable in order to come clean and buy peace w....
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.... stipulated time as prescribed in the statute and this levy of interest u/s. 30(2) is compensatory in nature. Thus, we hold that the ld. CIT (A) has rightly concluded that the interest payable u/s. 30(2) of MVAT Act, 2002 is not penal in nature but rather it's compensatory in nature for delaying / withholding payment of VAT beyond the time prescribed under MVAT Act, 2002 and is an allowable deduction as business deduction for withholding statutory dues from the MVAT department. But so far as interest u/s. 30(4) of the MVAT Act, 2002 is concerned, in our considered view, the learned CIT(A) erred in holding the same to be compensatory in nature while in our considered view, interest paid by the assessee u/s. 30(4) of MVAT Act, 2002 which is in addition to interest payable u/s. 30(2) of MVAT Act, 2002 is penal in nature and cannot be allowed as business deduction keeping in view provisions of Explanation 1 to Section 37(1) of the 1961 Act, vide our detailed discussions and reasoning as set out above. Our view is strengthened by the fact that interest u/s. 30(4) of MVAT Act, 2002 is in addition to interest payable u/s. 30(2) of MVAT Act, 2002 which is held by us to be compensatory ....
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....tended to use harsh word 'penalty' in the statute itself against such dealers who wanted to come clean with a view to buy peace even post commencement of special events such as audit, inspection, survey, search etc by paying up additional tax, interest u/s. 30(2) and 30(4), as the word used in Section 30(4) is instead 'interest'. The Penalty is defined as punishment imposed for violation of law, rule or contract while interest is to compensate for use of money. The State of Maharashtra is considered to be business friendly state and this gesture of using word 'interest' as against 'penalty' is reflection of the trust reposed by State in business community as every error or wrong claim in the original return may not be intentional and knowingly made to evade taxes and it could be due to an unintentional error while interpreting law or due to ignorance of law etc.. It is also well settled proposition of law that ignorance of law is not an excuse and dealer has to be cautious and well versed with law before filing its VAT returns. It is also pertinent to mention that before special event commences as is stipulated u/s. 30(4) by way of audit, inspection,....
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.... u/s. 30(2) and 30(4) of the MVAT Act, 2002 respectively and allow interest paid u/s. 30(2) of MVAT Act, 2002 as deduction from income computed under the head 'Profits and Gains of Business or Profession', while interest paid by the assessee u/s. 30(4) of MVAT Act, 2002 shall be disallowed while computing income chargeable to tax under the head 'Profits and Gains of Business or Profession'. We order accordingly." Thus, we are of the considered view that this issue is to be restored to the file of the AO for fresh/denovo adjudication of the issue afresh on merits in accordance with law. The assessee is directed to produce all the surrounding facts concerning levy of penalty under FERA/FEMA and Gujarat Sales Tax Act including orders of the authorities levying the said penalty before the AO. The AO to analyse all the relevant facts to ascertain whether such penalties are penal or compensatory in nature to arrive at the decision whether these penalties are hit by explanation 1 to Section 37(1) of the 1961 Act and thereafter to pass well reasoned order in accordance with law on merits. Needless to say that the AO shall provide proper and necessary opportunity of being....
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....ication and putting on record and without giving an opportunity of cross examination, the Purchases from such suspected parties cannot be disallowed. The third party information or evidence should not be the sole basis for conclusion of a matter. It is an accepted principle of law that if an AO is relying on a statement and/or books of account of a third party, the assessee is entitled to receive copy of all material which have been collected at the back of an assessee alongwith statement which is being referred, relied upon and considered and to allow an opportunity to cross-examine such third parties. In the case of the appellant no such materials were provided nor any opportunity was allowed to cross-examine Shivamani Traders Pvt. Ltd. Principles of natural justice require that before charging a person with financial liability, he should be informed of the material on which the charge was going to be imposed and the assessee must be given an opportunity to rebut the effect of the material, if he can. The Supreme Court in the case of State of Kerala V/s. K.T. Shaduli Yusuff 39 Sales Tax Cases 478 observed that one of the rules which constitutes a part of the principles of natural....
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.... determination of the issue on merits in accordance with law. Needless to say that the AO shall provide proper and necessary opportunity of being heard to the assessee in accordance with principles of natural justice in accordance with law. The evidences/explanations produced by the assessee in its support shall be admitted by the AO in the interest of justice in accordance with law. This ground of appeal bearing number 6 raised by the Revenue in its memo of appeal filed with the tribunal is allowed for statistical purposes. We order accordingly. 20. The other grounds except ground number 6 raised by the Revenue in its appeal and all the grounds raised by assessee in memo of appeal filed with the tribunal are similar to the issues raised in cross appeals filed by the assessee and revenue for AY 2008-09 and our decision for AY 2008-09 shall apply mutatis mutandis to the issues raised by the assessee and revenue in their respective grounds for AY 2011-12 except ground number 6 raised by the Revenue in its appeal filed with the tribunal which is separately adjudicated by us in preceding para's of this order. We order accordingly. 21. In the result appeal of the assessee and reve....