AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2012 (8) TMI 1175
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....nt of Rs. 22,93,57,398/- as transport subsidy under the transport subsidy scheme 1971 for setting up new industrial unit at Bilaspur in Himachal Pradesh. It was submitted that the purpose of incentive was to promote industrialization in specified areas. The claim of capital receipt was disallowed following the order of immediately preceding year i.e. AY 1998-99 wherein it was held that the subsidy is revenue receipt by AO following the order of the Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd, vs. CIT (1997) 228 ITR 253 (SC). The CIT (A) confirmed this treatment given by AO as assessee did not press the issue at that point of time. This issue was decided in favour of assessee by the orders from 1991-92 by ITAT in following appeals: AY 91-92 in ITA No.1105/M/97 AY 92-93 in ITA No.3961/M/97 AY 93-94 in ITA No.6901/M/97 AY 94-95 in ITA No.3055/M/98 AY 96-97 in ITA No.3783/M/00 AY 97-98 in ITA No.3298/M/01 AY 98-99 in ITA No.6289/M/01 ITA No.6289 & 6320/Mum/2003 for AY 1998-99 vide Para 5 it was decided as under: "5. Learned counsel refers to paper book pages 267 to 273 (Para 9), which contain order of the ITAT in assessee's own ....
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....f industry, it will be capital in nature irrespective of the source of funds or manner of disbursement. It is also pointed out that the Tribunal's decision in the case of Assam Asbestos Ltd (supra) has reached finality as references under section 256(1) and 256(2) have been rejected, and Hon'ble Supreme Court has also dismissed SLP against rejection of 256(2) reference by Hon'ble Gauhati High Court, as reported in CIT Vs. Assam Asbestos Limited (215 ITR 847). Learned counsel then takes us through the nature of subsidy and points out that the subsidy in question is exactly the same as was in the case of Assam Asbestos Limited. In both these cases, the transport subsidy received by the assessee was central transport subsidy, as against HP state transport subsidy receipt in the case of Steel Strips Limited (supra). Learned counsel thus submits that a decision in the context of a different subsidy scheme, i.e. decision in the case of Steel Strips Ltd (supra), will have no application in the matter. We are thus urged to follow the earlier decisions of the coordinate benches in assessee's own case, and not be influenced by coordinate bench decision in the case of HP state....
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....mputation of book profits. At the assessment stage, Assessing Officer took the view that power tariff incentive was to make business more profitable and in appeal CIT(A) confirmed the same. Aggrieved, assessee is in further appeal before us. 41. As far as computation of income under the normal provisions of the Act is concerned, learned representatives agree that identical issue had come up for consideration before the Tribunal in assessee's own case for the assessment year 1996-97 in ITA NO.3783/M/2000 and the Tribunal has decided the issue in favour of the assessee. Learned Departmental Representative, however, relies upon the stand of the authorities below and justifies the same. Having heard both the sides, we find that the issue in respect of power tariff issue was allowed by the Tribunal for the assessment year 1996-97, observing as follows: "We find from the order of this Tribunal in assessee's own case for A.Y. 1996-97 (supra) that power tariff freeze incentive was directed to be treated as capital receipt vide Para 6.1 of the order. The Tribunal had followed the decision of Mumbai Special Bench in the case of DCIT v. Reliance Industries, 88 ITD 273 for ....
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....y the assessee to Rajasthan State Forest Corporation. It was submitted by the assessee that the assessee company had one factory in Lakheri, Rajasthan and as the mining for raw material was done on the forest land, as per the instruction of the Government of Rajasthan, the amount was paid for the Forest Department to compensate them for loss of forest and towards afforestation costs to make good the said loss. It was also submitted that the afforestation was an operation carried out as a part and parcel of the process of extraction of limestone from the mines located in the forest area. It was submitted that as this amount had been expended in the normal course of the business of the company, the same is deductible. The AO did not accept the assessee's contention and treated the amount as capital expenditure. The assessee carried the matter in appeal but without any success. The assessee is in further appeal before us. 9. The main thrust of learned counsel's arguments is that afforestation was carried out as a part and parcel of the process of extraction of limestone from the mines located in the forest area. Our attention is invited to the provisions of Forest (Conserva....
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....ed as deduction in computation of business income. Learned Departmental Representative then submits that Kirkend Coal Co decision (supra), on which reliance has been placed by the learned counsel, is not at all relevant in this context. It is submitted that in the said case, there was a categorical finding by the Tribunal that stowing is an integral part of the operation of coal mining, and it was for this reason that expense was held to be allowable as revenue expenses. As against this position, in the present case, afforestation has no bearing on the actual mining operation carried out. It is an independent activity which is for the purpose of maintaining the lease rights which are capital assets. As regards coordinate bench's decision in the case of Orissa Forest Corporation (supra), learned Departmental Representative submitted that in the said case assessee was engaged in the business as a forest corporation, and such decision in the case of a forest corporation's case can not be compared with a case in the assessee is engaged in business of extracting limestone. There is no direct link between assessee's business and the expenses so incurred. The link, if at all, ....
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....o Laboratories India Limited (181 ITR 59), even expenses to increase the capital base has been held to be revenue expenditure because increasing the share capital base was necessary precondition for continuance of technical collaboration arrangement by the assessee. The following analysis of legal position by Hon'ble Bombay High Court, in support of the above conclusions, is of great relevance in this context: "7. That the Court must look to the object and purpose of the expenditure, and that from the point of view of the businessman, is well established. 8. It was laid down in Anglo-Persian Oil Company v. Dale 16 TC 253, that it was the object of the expenditure alone that counted. It was not necessary that the expenditure should have the result of bringing an asset into existence. The fact that the expenditure had in fact resulted in the coming into existence of some advantage which would endure for several years was not of consequence. 9. The Supreme Court in Bombay Steam Navigation (1953) (P.) Ltd. v. CIT [1965] 56 ITR 52, laid down the test in these words: "Whether a particular expenditure is revenue expenditure incurred for the purpose of business must be dete....
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....see was reinforced on a permanent basis and this was the main purpose of the assessee. It was submitted before the Calcutta High Court that the object and purpose of the expenditure was to strengthen the capital structure and, only as an incidental result, more funds had flowed to the assessee making more working funds available to it. The High Court held that that could not change the essential object and purpose of incurring the expenditure and the resultant fact, that is to say, the fundamental change in the income-earning machinery and structure. It held that, therefore, the Tribunal had been right in disallowing the expenditure. In its exhaustive judgment the High Court said that if the main object, purpose and nature of the transaction was to affect the income-earning machinery or structure as such and not only to make the inflow of more funds available then the expenditure would be on the capital side. It was true that the alteration in the capital structure by raising the share capital would make more funds available, but that was not decisive. The essential object and purpose of incurring the expenditure and the resultant fact was the fundamental change in the income- earn....
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....r issue was in dispute in earlier years and was pending at various appellate forums. The CIT (A) analyzed the claim of assessee vis-à-vis utilization of the borrowed funds and partly confirmed the disallowance to the extent borrowed funds were utilized for new advantages/facility and not for expansion of existing business. 7.2 It was fairly admitted that in earlier years similar claim in assessee's own case has been allowed by the ITAT in the following appeals: i) AY 83-84 ITA 2844/Bom/86 ii) AY 84-85 ITA 4507/Bom/88 iii) AY 85-86 ITA 5830/Bom/89 iv) AY 88-89 ITA 1225/Bom/92 v) AY 89-90 ITA 68/Bom/93 vi) AY 90-91 ITA 1926/Bom/95 vii) AY 91-92 ITA 647/Mum/97 7.3 It was further submitted that assessee's claim was supported by the decision of the Hon'ble Bombay High Court in the case of CIT vs. Tata Chemicals Ltd (2002) 256 ITR 395 (Bom.) in which while allowing the interest on borrowings gas held that the decisive test is unity of control which is indicated by the inter-lacing, interdependence and inter connection between the businesses and the dovetailing of one into the other. Further the learned Counsel relied on the following case laws: i) S....
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....es. These are nothing but electricity charges but paid for additional drawal of power than the sanctioned load at that particular point of time. The amounts are compensatory in nature and not penalty for surcharge violation. The same cannot be disallowed by invoking Explanation to section 37(1). In view of this, we direct AO to allow the amount. Ground is allowed. 9. Ground No.7 pertains to claim of contribution to PF on account of delay in depositing the amount. 9.1 Assessee made contribution to provident fund amounting to Rs. 2,04,297/- and Rs. 2,06,182/- within the due date. But the delay occurred in realization of the cheques which were not deposited soon after the receipt by the Regional Provident Fund Commissioner. Both the payments of Rs. 2,04,297/- and Rs. 2,06,182/- were realized on 31-07-1998 and 2-11-1998 respectively i.e. within the due date of filing of returns. According to AO assessee violated the provisions of section 36(1)(iv)(va) by not depositing the payment on time. The learned CIT (A) confirmed on the reason that the cheque was not encashed within 15 days from the due date of payment, both the payments were considered as delayed payments. 9.2 After consid....
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....ssets of enduring nature was brought into existence and hence was claimed as revenue expenditure. AO disallowed the expenditure relying on the Tax Audit Report. The same was upheld by the CIT (A) following the decision in the case of Lake Palace Hotels and Motels Pvt. Ltd vs. CIT (1995) 213 ITR 735 (Raj.). Similar issue in assessee's own case has been allowed by the ITAT Mumbai in the following appeals: a) AY 91-92 - ITA No.1105/Mum/97 b) AY 92-93 - ITA No.3961/Mum/97 c) AY 96-97 - ITA No.3783/Mum/00 d) AY 97-98 - ITA No.3298/M/01 12.2 Respectfully following the decision in earlier years, which have not been challenged by the Revenue, we allow assessee's claim. We also hope that the Revenue will not make similar disallowances in later years as it has accepted the decision of the ITAT in earlier years. Ground is considered allowed. 13. Ground No.12 Non Exclusion of payment/reversals of expenses disallowed under section 43B in prior years. 13.1 During the instant assessment year assessee had paid/reversed the amounts in respect of bonus, sales tax and entry tax pertaining to earlier years i.e. assessment year 1995-96 to 1998-99. These expenses were disallowed due to....
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....iving effect to the order of the CIT (A). Since an amount was not originally added to the assessment, assessee did not contest the amount even though it contested similar disallowances made to HPSEB considered in Ground No.6 above. It was the contention that the payments are similar to the amounts already considered, considering the rectification passed to the original assessment order, assessee raised an additional ground of appeal. 14.2 Considering the facts of the case, we admit the additional ground and since similar amount was considered by AO together in the body of the assessment order, following the discussion in ground no 6 above, we direct AO to allow the expenditure as revenue expenditure as the payment is not penal in nature but compensatory in nature. Accordingly additional ground is considered allowed. 15. Ground No.14. Claim for provision of additional gratuity and gratuity on sold units on accrual basis. 15.1 In the return, following the stand adopted by the Revenue in earlier years, assessee had offered provision for additional gratuity for employees retired during the year and credited on sold units. However, the ITAT finally allowed the deduction in earlier....
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.... admitted and allowed in favour of assessee by ITAT in assessment year 1996-97 in ITA No.3783/M/00 (Para 20-21), AY 1997-98 in ITA No.3298/M/01 (Para 33-34) and AY 1998-99 in ITA No.6289/M/03 (Para 39-45). It was further submitted that exclusion is further supported by the fact that the incentives are capital in nature and do not have any income character in view of the "Purpose Test" & principles laid down by Hon'ble ITAT Mumbai SB in DCIT vs. Reliance Industries Ltd (2004) 88 ITD 273 (Mum)(SB) which states that "if a subsidy is given for setting up or expansion of industry, it will be capital irrespective of source of funds or mode of disbursement". 16.3 To adjudicate on this ground of appeal, only a few material facts need to be taken note of. The assessee had availed sales tax and power tariff incentive, under Himachal Pradesh Incentives Scheme 1991, for setting up new unit in HP. The purpose of these incentives was to promote growth of industries and generation of employment. In the income tax return, power tariff incentive was excluded in computing total income but sales tax incentive was excluded. Exclusion of both was omitted in computation of book profits. At the ass....
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....ssment year 1998-99 following the decision in the case of Rain Commodities Ltd vs. DCIT (2010) 41 DTR 449 (Hyd) (SB). It was submitted that the decision in the case of Rain Commodities (Supra) is not applicable to the case of assessee since the said decision was in relation to taxability of the capital gain in computing the book profits under section 115JB of the Income Tax Act and not taxability of the capital receipts which does not have any element income embedded in it. The learned Counsel also further relied in the case of Indo Rama Synthetics (I) Ltd vs. CIT (2011) 330 ITR 363 (SC) and the decision of the Bangalore ITAT Bench decision in Syndicate Bank vs. ACIT (2006) 7 SOT 51 (Bang.) to distinguish the earlier year order. 17.2 After considering the rival submissions, we are of the view that so far as the exclusion of these items from book profits under section 115JB is concerned, we find that even though there are Coordinate Bench decision in favour of assessee, this precedence no longer hold good law in view of the Special Bench decision of this Tribunal in the case of Rain Commodities (Supra). Respectfully following the Coordinate Bench decision in assessment year 1998- ....
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.... by Finance Act 2008. We see no reasons to take any other view of the matter than the view so taken by the coordinate bench, and we are in considered agreement with the same. 51. Ground No. 9 is thus allowed". 18.3 Respectfully following the above, we allow the ground. 19. Ground No.17b. Exclusion of provision for contingencies in computing book profit under section 115JA. 19.1 This was not pressed in view of the amendment made by the Finance Act 2009 with retrospective effect, hence treated as withdrawn. 20. Ground No.18 pertains to relief under section 91 in respect of tax deducted on the fees received from Yanbu Cement Corporation, Saudi Arabia. 20.1 It was submitted that assessee received an amount of Rs. 30.48 crores being fees from project from Yanbu Cement Corporation, Saudi Arabia, net of tax deducted at source. The said fees was duly accounted in Profit & Loss A/c and was included in the taxable income. On the fees received, assessee omitted to claim relief under section 91 in respect of tax deducted at Saudi Arabia. 20.2 In view of the decision of the Coordinate Bench on identical issue in earlier years, more preferably assessment year 1998-99 in ITA No.628....
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....o.6320/M/03 - Para 72-72 22.3 It was directly covered by the decision of jurisdictional High Court in CIT vs. Bhor Industries Ltd (2003) 264 ITR 180 (Bom). 22.4 Since the CIT (A) followed earlier years' order which was upheld by the ITAT, we do not see any reason to interfere with the orders of the CIT (A). Ground is rejected. 23. Ground No.2 pertains to allowance of interest on amount borrowed for expansion and modernization of business as revenue in nature. 23.1 This issue is covered by Ground No.5 in assessee's appeal. As stated there, the CIT (A) allowed the amount partly out of the total disallowance made by AO. The Revenue is aggrieved on the issue to the extent allowed by the CIT (A). This issue was covered in favour of assessee and the Revenue appeal was rejected by the following orders. - AY 83-84 - ITA 2844/Bom/1986 - Para 24 - AY 84-85 - ITA 4507/Bom/1988 - Para 3 - AY 85-86 - ITA 5830/Bom/1989 - AY 88-89 - ITA 1225/Bom/92 - Para 14-15 - AY 89-90 - ITA 68/Bom/1993 - Para 15-17 - AY 90-91 - ITA 1926/Bom/1995 - Para-2-3 - AY 91-92 - ITA 647/Mum/1997 - Para 13-15 23.2 Since this issue is elaborately discussed and allowed in favour of assessee ....