TaxTMI 
TaxTMI 
2019 (2) TMI 1061
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....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 is in the nature of sale, exchange or relinquishment ....
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....ax 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 devastating earthquake on 26th January, 2001 and in order to redevelop and rehabilitate Kutch D....
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....anufacturer 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 interest at the rate of twenty four per cent per annum , as if no exemption were available to those clear....
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....rat, 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. (h) The unit availing of incentives under any other scheme of the State Government will not be eligible to receive benefits un....
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....n, 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 which the subsidy is given. If it is given by way of assistance to the assessee in carrying on of his trade or business, it has to be treated as t....
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....sidy 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 was exempted from the payment of sales tax, the notional amount of such sales tax should be reduced from the revenues for the purpose of computing the total income of....
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....n 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, 2a and 2b raised by the Revenue are dismissed." I have given anxious thought on alternate plea of the AO. It is well established that depreciation is allowed on the actual cost incurred by an ass....
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.... 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 Corp Ltd.) where the ITAT, Mumbai has allowed the appeal for the A.Y.2006-07 in favour of the assessee on the same facts vide order ITA No.5608/M/2010 dated 6-11-2013, I allow this ground of appeal in favour of the ap....
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.... 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 notifications and schemes of the Central and State Government respectively. The object of both the schemes was economic development of Kutch District after the earthquake and creation of new employment opportunities and attr....
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.... 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 duty paid through PLA on finished goods cleared from the unit after taking Cenvat credit on the inputs. This amount is credited to the profit and loss account as 'Excise Benefit Received and inadvertently offered to tax. Presently, there is no limit for....
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....tion 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, if the incentive/ subsidy has been given in the form of sales-tax or exemption of excise duty then it directly leads to augmentation of profit of the assessee and hence, it is nothing but revenue receipts. 11. We have carefully considered the rival contentions and also perused the relevant material placed on record. The main issue involve....
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....f 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 Steel & Press Works Ltd. 'S case (supra) lies in the fact that it has discussed and analysed the entire case law and. it has laid down the basic test to be applied in judging the character of a subsidy. That test is that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy ....
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....unities 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 unit and economic development and generation of new employment opportunities in the Kutch District and not for running the industry for augmenting the profit on day-to-day business. This proposition of law has been reiterated by the Hon'ble Bombay High Court in the case of CIT vs Chaphalkar Brothers, reported in 351 ITR 309, wherein the Hon'ble High Court relying....
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....ustry 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 additional duty of excise, as the case may be, leviable. The exemption contained in this notification shall be subject to the following conditions, namely;- (i) It shall apply only to new industrial units, that is to say, units which are set up on or after the date of publication of this notification in the Official Gazette but not later than the 31st day of December,....
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....T 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 sales tax incentives. In the case of violation of one or more conditions, the amount of sales tax incentives availed of shall be recovered as arrears of land revenue. (a) The industrial unit shall have to give a clear undertaking that it shall not transfer or dispose of the assets in any manner, till the expiry of the eligibility period of incentives. (b) The industrial unit availing of the incen....
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.... 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 incentives are capital receipt not exigible to income-tax 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 explanation 10 to Section 43(1) , 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 ....
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....med 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 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 ....
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....inted 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. Case Name Citation 1 Sasisr....
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....herefore, 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 after commencement of production and, therefore, such a subsidy cou....
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....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 the subsidy is for setting up for a industrial unit or running it for profi....
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....utch 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 the Kutch District post devastating earthquakes on 26.01.2001. We also note that Special Bench decision of the Mumbai-tribunal in the case of Reliance Industries Limited(supra) was upheld by Hon'ble Bombay High Court in CIT v. Reliance Industries Limited (2011) 339 ITR 632(Bom.) by holding that no substantial question of law would arises as the object of the subsidy was to set up a new unit in a backward area to generate employment but aforesaid decision of Hon'ble Bombay High court has been set aside by Hon'ble Supreme Court in Civil Appeal Number 7769 of 2011 ( arising....
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....ncome 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 Section 153A rws 144C(1) of the 1961 Act. 6.3 The assessee carried the matter further in appeal before learned CIT(A), wherein Ld. CIT(A) was pleased to grant partial relief by holding as under , vide appellant order dated 10.09.2015:- " 8.4 I have considered the facts of the case together with reasons assigned by the AO and contention of the appellant. It is seen that the AO has disallowed proportionate interest and an amount equal to 0.5% of average investment in shares on account of administrative expenses relating to exempt income and in doing so he relied upon Godrej & Boyce M....
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....ment 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/Mum/2012) dated 26-3-2014 for the A.Y.2009-10. Considering the fact that the appellant added back a sum of Rs. 81,30,975/- being proportionate interest under s. 14A in respect of investment in mutual funds and shares of companies other than Group companies . I do not find any reason for disallowing further interest under S.14A since the primary object of investment in Subsidiary and Group companies is holding controlling stake in group concerns. It is seen that the AO has disallowed expenses under S.14A as per rule 8D relying on the decision of Godrei & Boyce Mfg. Co. Ltd. In this case it is held that provisions of se....
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.... 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 companies while computing disallowance u/s 14A r.w.r. 8D has already been rejected by Hon'ble Supreme Court in a recent decision in the case of Maxopp Investment Limited v. CIT reported in (2018) 402 ITR 640(SC) . Before us , Ld. Special Counsel had pleaded that the matter can be restored and set aside to the file of the AO for re-computation of disallowance u/s 14A of the 1961 Act. The learned counsel for the assessee on the other hand has drawn our attention to the availability of own funds with the assessee which it is claimed is much higher than investments made in the shares and mutual funds, including investments made ....
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....e 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 the assessee used its own interest free funds available with it for making investments in shares and securities capable of yielding exempt income. We are guided by the decision of Hon'ble Bombay High Court in the case of CIT v. Reliance Utilities and Power Limited (2009) 313 ITR 340(Bom.) and HDFC Bank Limited v. DCIT (2016) 383 ITR 529(Bom.) to hold that there will be presumption in favour of the assessee. The Revenue is not able to rebut the aforesaid presumption in favour of the assessee even before us. Thus this disallowance as was made by the AO by invoking Section 14A of the 1961 Act read with Rule 8D(2)(ii) of the 1962 ....
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....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 aside and restored to the file of the AO to be adjudicated afresh/denovo on merits in accordance with law in the light of Special Bench decision of ITAT, Delhi in the case of Vireet Investment Private Limited(supra). Needless to say that the AO shall provide proper and necessary opportunity of being heard in accordance with principles of natural justice in accordance with law. Needless to say that the AO shall provide proper and necessary opportunity of being heard in accordance with principles of natural justice in accordance with law. This disposes of ground no. 2 of the assessee's appeal and ground number 6 raised by the Revenue in....
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....ed 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 after noting that there were unabsorbed loss of the merged entity. No doubt it is true that learned CIT(A) has no power to set aside and remand the matter to the AO keeping in view provisions of Section 251(1)(a) of the 1961 Act and learned CIT(A) ought to have adjudicated the issue on merits in accordance with law. The power of learned CIT(A) are co-terminus with powers of learned AO. Be as it may be, this issue requires investigation of facts as to scheme of merger and accumulated losses of the said merged entity and application of law to those facts for which we at this stage are of the considered view that the matter need to be restored to t....
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....nt 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 is subjudice while it is submitted that no appeal is filed against penalty levied under FEMA. The AO observed that the penalty was levied for contravention of Section 18(2) of the FERA Act,1973 read with Section 39(3) and (4) of the FEMA,1999 while Sales Tax penalty was levied u/s 45(6) and 46(1) of Gujarat Sales Tax Act,1969 . Thus, by invoking provisions of explanation 1 to Section 37(1) of the 1961 Act, the AO disallowed the said penalty of Rs. 35,51,835/- by making additions to the income of the assessee. 16.2 The matter reached learned CIT(A) at the behest of the assessee, who was pleased to dismiss the appeal of the assessee , by holding as under:- "....
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....n 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 of trading operation for the purpose of the business carried on by the Appellant. It is normal incident of the business and as such the same cannot be disallowed merely because the name of the payment is assigned as penalty by the Sales Tax and FEMA." 9.4 I have considered the facts of the case together with reasons assigned by the Assessing Officer and submissions of the appellant. Normally, penalty for infraction of law is not allowable, if penal in nature. However compensatory penalty may be allowable. In this case the auditor has reported these penalties under Tax audit report. At the same time the appellant could not produce any document in support of penalties being in the nature of compensatory....
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....n 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 to file revised return under MVAT Act, 2002 while search and survey operations were still underway after paying additional tax as well paying interest as stipulated u/s. 30(2) and 30(4) of the 1961 Act. The assessee chose not to enter litigation with MVAT department as it wanted to buy peace and end litigation under the MVAT Act, 2002 and chose second option of paying additional tax which was earlier underpaid due to alleged wrong claim of input tax credit availed on alleged bogus purchase bills, which additional tax is now paid along with payment of interest u/s. 30(2) and 30(4) of the MVAT Act, 2002. This interest liability u/s. 30(4) was computed @ of 25% on additional tax payable by the assessee due to w....
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.... 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 furnishing of such return and accordingly, if he has not paid the full amount of such tax or has paid only the part of the amount of such tax by such date, he shall be liable under this clause for payment of interest after such date on the full or part, as the case may be, of the amount of tax which has not been paid by such date and where a dealer has furnished a 4[fresh return or revised return] and the amount of tax payable as per the 4[fresh return or revised return] exceeds the amount of tax payable as per the original return, then for the purposes of this sub-section, the dealer shall be deemed to have been required to pay the excess amount of tax at the time he was required to pay the tax as per the original return and accor....
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.... 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 and search of any place of business or any other place where the dealer has kept his accounts, registers, documents pertaining to any period or stock of goods, (b) in consequence of any intimation issued under sub- section (7) of section 63, the dealer files one or more returns or, as the case may be, revised returns in respect of the said period, then he shall be liable to pay by way of interest, in addition to the amount of tax, if any, payable as per the return or, as the case may be, revised return, a sum equal to 25 per cent. of the additional tax payable as per the return or, as the case may be, revised return.] 7[Provided that, interest under this sub-section shall not be payable on account of the additional tax liability arising due to non-production of declarations or, as t....
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....on 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 produced any document including a false bill, cash memorandum, voucher, declaration or certificate by reason of which any transaction of sale or purchase effected by him or any other person or dealer is not liable to be taxed or is liable to be taxed at a reduced rate or incorrect setoff is liable to be claimed on such transaction, the Commissioner may, after giving, the person or dealer a reasonable opportunity of being heard, by order in writing, impose on him in addition to any tax payable by him, a penalty equal to the amount of tax found due as a result of any of the aforesaid acts of commission or omission. 3[(5) Where a dealer has sold any goods and the sale is exempt, fully or partly, from payment of tax by virtue of any provision contained in sub-section (3), (3A), (3B) or (5) of section 8, and the purcha....
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....s 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 and shall make such order as he thinks fit. When any order of forfeiture is made, the Commissioner shall publish or cause to be published a notice thereof for the information of the persons concerned giving such details and in such manner as may be prescribed.] 11[(11) No order levying penalty under the foregoing provisions of this section shall be passed in respect of any period after 12[eight years] from the end of the year containing the said period.] 13[(11A) Notwithstanding anything contained in sub-section (11), penalty under this section may be imposed while passing an order under this Act.] 14(12)** ** ** (13) For the purposes of this section, Commissioner includes any appellate authority appointed or constituted under this Act." Now the moot question before us is whether this interest payable u/s. 30(2) and 30(4) of MVAT Act, 200....
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..... 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 the MVAT Act 2002. We have observed that Section 29 of the MVAT Act, 2002 prescribes penalties for various offences/defaults under MVAT Act, 2002, while sections 30 of MVAT Act, 2002 which is immediately succeeding Section to Section 29 of MVAT Act, 2002 deals with the interest for various delays in making payment of VAT. We have observed that Section 30(2) of the MVAT Act, 2002 stipulates payment of simple interest in case VAT is not paid within due date as prescribed under MVAT Act, 2002. However, Section 30(4) of MVAT Act, 2002 prescribes interest which is in addition to interest payable u/s. 30(2) of MVAT Act, 2002 and is to be paid after commencement of some special event such as audits, inspection, survey, search etc under MVAT Act, 2002 by MVAT authorities and the statute has given dealer an opportunity to come clean and end litigation with MVAT department by co....
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.... 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 clean voluntarily after the commencement of audit, inspection, survey, search etc. as stipulated u/s. 30(4) of the MVAT Act, 2002 by paying this penal interest computed @25% of tax sought to be evaded in addition to paying up the tax sought to be evaded and interest u/s. 30(2) of MVAT Act, 2002 towards delayed payment of VAT which interest u/s. 30(2) is compensatory in nature. It is also pertinent to mention that before special event commences as is stipulated u/s. 30(4) by way of audit, inspection, survey and seizure etc. and the dealer observes that there is some omission or incorrect statement in original return of VAT filed with MVAT authorities, the dealer can always come forward and file revised returns after complying with stipulated conditions u/s. 20(4) of the MVAT Act, 2002, for which there is only stipulation to pay interest u/s. 30(2) of the MVAT Act,2002 ....
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....e 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 with MVAT department with a view to end litigation and the assessee also paid compensatory interest u/s. 30(2) to MVAT department for delay in payment of this additional tax under MVAT computed from the original due date of payment of this MVAT liability due to availment of wrong input tax credit on alleged bogus purchases till the said additional tax liability of VAT was paid to MVAT department and the assessee also paid penal interest u/s. 30(4) of the MVAT Act,2002 in terms of the scheme of the Act to buy peace and to end litigation as also to safeguard against possible levy of penalty u/s. 29(3) of the MVAT Act, 2002 which would in any case be minimum 25% but which could extend to 100% of the tax so evaded in the event of having adverse outcome of litigation with MVAT department. This levy of interest u/s. 30(4) of the MVAT Act, 2002 has germane to detection of sh....
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....eping 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 in nature and secondly in case the assessee choses path of litigation with MVAT authorities wherein additional tax liability had arisen after commencement of audit, inspection, survey, search instead of filing revised return along with payment of this interest u/s. 30(4) in addition to additional tax and interest u/s. 30(2) of MVAT Act, 2002, then in the eventuality of the assessee losing out in the legal battle with MVAT Authorities, the assessee will, inter-alia, be visited with penalty u/s. 29(3) of MVAT Act, 2002 which shall be not less than 25% of the amount of tax found to be evaded and which may extend to 100% of the said tax so sought to be evaded apart from interest u/s. 30(2) and additional tax so sought to be evaded. Thus, by asking assessee to pay this interest @25% of additional tax u/s. 30(4) of MVAT Act,2002 voluntarily while filing revised return alon....
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....ue 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, survey and seizure etc., and the dealer observes that there is some omission or incorrect statement in original return of VAT filed with MVAT authorities, the dealer can always come forward and file revised returns after complying with stipulated conditions u/s. 20(4) of the MVAT Act, 2002, for which there is only stipulation to pay interest u/s. 30(2) of the MVAT Act,2002 for delayed payment of VAT apart from paying additional tax liability u/s. 20(5) of MVAT Act, 2002 which was originally short paid due to such omission or incorrect statement in the original return filed with the MVAT authorities and no further interest such as stipulated u/s. 30(4) of the 1961 Act is stipulated under the aforesaid circumstances of filing revised return voluntarily by the dealer before the commencement of audit, inspection, search, survey etc.. This also clearly indicates that no ....
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....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 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 3(a) and (b) raised by the assessee in its memo of appeal filed with the tribunal is allowed for statistical purposes. We order accordingly. 17. The other grounds except ground number 3(a) and (b) raised by the assessee in the memo of appeal filed with the tribunal and all the grounds raised by revenue 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 except ground numb....
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....he 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 justice is the rule of audi alteram partem which requires that no man should be condemned unheard. In this case the Assessing Officer has not assigned any other reason but relied on the information in the possession of Income Tax Department without any independent investigation in this regard. In the case of Jagdamba Trading Co. V/s. ITO 16 SOT 66 (URO) it is held that the statements made before the Sales tax authorities which do not have concern with the income tax proceedings of the assessee hardly have any evidentiary value against the assessee. It is seen that the purchases are supported by proper bills and payment by account payee's cheque. On the facts of the case a reasonable and convincing inference which could be drawn is that the appellant had purchased mobile handsets from the party when nothing could be brought on record by the Assessing Officer. In DCIT V/s. S....