TaxTMI 
TaxTMI 
2012 (8) TMI 1175
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....pital receipt: 3.1 Assessee received an amount 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....
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.... (88 ITD SB 273), wherein it was held that if the subsidy is given for setting up or expansion of 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 ass....
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....tive was excluded in computing total income but sales tax incentive was excluded. Exclusion of both was omitted in computation 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 ....
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....essment proceedings, the Assessing Officer noticed that the assessee has claimed a deduction of Rs. 1,21,38,100 on account of compulsory afforestation. This amount was paid by 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 ....
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....curred on afforestation are also integral part of expenses incurred for acquiring the lease. We are thus urged to hold that these expenses are capital in nature and cannot be allowed 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 wit....
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.... are incurred and even if the expenses result in some benefit of enduring nature, that benefit would not be decisive of holding the expenses as capital expenditure. In the case of CIT Vs. Glaxo 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 ....
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....R 272 (Cal.) the assessee had issued shares and incurred expenditure which had been claimed as a revenue deduction. The Tribunal had found that the assessee had itself stated that by the expenditure the capital base of the assessee 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 st....
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.... AO has considered it as capital expenditure for expansion of business. This expenditure is claimed under section 36(1)(iii). AO rejected the claim relying on the decision in the case of JCT Ltd vs. ACIT (1997) 65 ITD 169 (Cal.) and similar 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 inter....
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....) 27 SOT 469 (Mum.) b) Prakash Cotton Mills Pvt. Ltd vs. CIT (1993) 201 ITR 684 (SC). c) ACIT vs. Taurin Iron & Steel Co. Pvt. Ltd (ITA No.1613/Mum/2010). 8.3 We have examined the issue. What assessee has paid is additional charges for overdrawing the power sanctioned to it which the HPSEB has levied as peak load infringement charges. 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....
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....ove principles laid down by the Hon'ble High Courts (supra), these grounds are considered allowed for statistical purposes. 12. Ground No.11. Claim of expenditure incurred on cost of dismantling of assets. 12.1 The expenditure of Rs. 7,95,594 was incurred for dismantling old and unserviceable assets in phased manner. By incurring expenditure no new assets 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 e....
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....al in the body of assessment order AO had disallowed an amount of Rs. 41,54,952/- and Rs. 3,90,390/- on account of penal charges paid to MPSEB and KSEB respectively. However, while computing the total income these two amounts were not added to the total income of the assessee company. In response to notice under section154 assessee has given no objection for carrying out the modification and accordingly AO increased the amount while giving 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 compensa....
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....1,84,272 10,75,44,724 4.00% 8.00% 1,27,371 86,03,578 87,30,949 Annexure-1 B Kymore Central Sales 23,70,16,522 4.00% 94,80,661 Annexure-2 C Tikaria Local Sales 31,70,59,600 12.00% 3,96,32,450 Annexure-3 D Sindri Bihar Local Sales 33,49,90,795 13.32% 4,46,20,774 Annexure-4 Total 99,97,95,913 10,24,64,834 16.2 It was submitted that identical additional ground was 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 adjud....
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..... Assessee succeeds in its additional ground No.7." 16.6. We see no reasons to take any other view on the matter than the view so taken by the coordinate bench, and we are in considered agreement with the same. To this extent, grievance of the assessee is upheld. 17. Ground Nos. 16a & 16 b: Claim of sales tax incentive, power tariff freeze, Electricity duty, Road Transport subsidy as capital receipt in computing book profit under section 115JA. 17.1 It was fairly admitted that this issue was covered against assessee in assessment 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 ....
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....ed in Explanation (a) to sub-section (2) of Section 115JA. Therefore, we direct that dividend distribution tax of Rs. 4.11 crores shall not be considered as income tax for the purpose of computing book profit u/s.115JA. Hence assessee succeeds its additional ground number 12. As pointed out by the learned counsel, while amendments have been made in section 115JB, with retrospective effect from 1st April 2001, by the Finance Act 2008, no such amendments have been made in section 115 JA. The decision of the Tribunal thus remains unaffected by the amendments made 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 f....
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....ion 10(10C). AO's contention was that the payment made under the scheme would give benefit of enduring nature and hence the same is capital expenditure. The learned CIT (A) however did not agree as such expenditure did not bring any benefit of enduring nature and was a normal commercial payment. Reliance was also placed on various judicial pronouncements. 22.2 It was submitted that on identical issue, Revenue's appeal was rejected by ITAT in - AY 1988-89 - ITA No.1225/Bom/92 - Para 11-13 - AY 1989-90 - ITA No.68/Bom/93 - Para 24-26 - AY 91-92 - ITA No.647/M/97 - Para 8 - AY 98-99 - ITA No.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....
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....udit report filed along with the revised return of income. The CIT (A) deleted the disallowance after verifying the statement of position of liabilities under clause (b) of section 43B. 25.2 After considering the rival submissions, we do not see any merit in Revenue appeal as assessee rectified the mistake by filing the revised return along with the amended tax audit report. Therefore, the provisions of Rule 46A are not applicable as the learned CIT (A) has not admitted any fresh evidence. Since the relief has given on the evidence already filed along with the revised return before AO, we dismiss the Revenue ground raised on the issue of admitting fresh evidence in contravention of Rule 46A. Ground rejected. 26. Ground No.5 pertains to disallowance of Rs. 150,68,960/- being the amount of interest paid on funds borrowed in connection with earning incomes exempt under section 10(33). 26.1 Assessee earned dividend income of Rs. 258,24,114/- which was claimed as exempt. AO disallowed the amount of Rs. 150,68,960/- on proportionate basis. On consideration of the facts that the investments are much less than the profit in each year and assessee had sufficient own funds to make i....