TaxTMI 
TaxTMI 
2017 (9) TMI 1872
X X X X Extracts X X X X
X X X X Extracts X X X X
.... grounds raised by it. Hence, same stand dismissed, as not pressed. Last two grounds of appeal are general in nature, so, same are not being adjudicated. ITA/815/Mum/2007, A.Y. 2004-05. 2. First Ground of appeal is about sales tax subsidy amounting to Rs. 6.57 crores. During the assessment proceedings, the AO observed that the assessee had filed a revised return of income claiming notional sales tax liability to the tune of Rs. 6,57,91,246/-, as incentive/subsidy in the form of sales tax exemption, that it had claimed that subsidy was capital receipt, that it had relied upon the cases of Balrampur Chini Mills Ltd. (238 ITR 445) and Reliance Industries Ltd. (88 ITD 273, Mumbai Special Bench), that it had claimed that the notional sales tax liability for setting up the unit at Lakampur in district Nashik was in the nature of capital receipt, that it was granted to encourage investment in the backward areas of the State of Maharashtra. The AO observed that the sales tax exemption were applicable right from the A.Y. 1995-96, that the assessee had got eligibility certificate is also certificate of entitlement way back in 1996, that it had not claimed any deduction on notional s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....additional ground before the Tribunal, that in respect of AY. 2002-03 application u/s. 264 for similar claim was spending with the CIT, that until the assessment 2000-01 no claim whatsoever was made by the assessee although it was granted exemption rights from the A.Y. 1995-96, that assessee could make claims in any of the subsequent years even though it had not done so in the earlier years, that it did not claim the exemption for almost 8 years showed that nature of the exemption was not clear even to the assessee, that it was advised in represented by professionals, that the scheme and the certificate granted to the assessee proved that it had got sales tax incentive by way of interest-free unsecured loan, that it had to repay the sales tax liability after 10 years as per the repayment schedule, that there was no mention in the scheme to the effect that the amounts retained by it had to be utilised towards acquisition of any fixed capital, that the perusal of the 1993 scheme revealed that earlier scheme of 1988 was fully revised, that the reliance of the assessee on the decision of the Tribunal in the case of RIL was not correct, that the said decision deliberated upon the earlie....
X X X X Extracts X X X X
X X X X Extracts X X X X
....overnment from time to time lay down different conditions for availing the incentive schemes, so, without analysing the scheme, as a whole, no final conclusion can be drawn. Considering the peculiar facts and circumstances of the case, we are of the opinion, that in the interest of justice matter should be restored back to the file of the AO for fresh adjudication. He is directed to compare the scheme deliberated upon by the Tribunal in the case of RIL and the scheme of 1993 applicable for the year under appeal. He would afford a reasonable opportunity of hearing to the assessee. First Ground of appeal is decided in favour of the assessee, in part. 3. Next effective Ground of appeal (GOA. 2-5) is about income under the head capital gains from sale of plot of land at Mulund. During the assessment proceedings, the AO found that the assessee had sold industrial land pertaining to the Mulund factory, that in the return of income it had claimed Long-Term Capital Loss (LTCL) from sale of plot of land, that it had claimed deduction u/s. 54 of the Act, that in the return of income it had taken value of sale consideration at Rs. 64.92 crores as per the registered agreement of sale of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....i.e. residential land and industrial land, that during the FY. 1994-95 it shifted its industrial undertaking, that it entered into an agreement for development of both types of land with a builder namely Lok Housing Group, as per the agreement sale of residential land started in FY. 1994-95 and accordingly the assessee claimed Long-Term Capital Gain (LTCG) on sale of land, that the land in question was acquired much before 01/04/1981, that the assessee exercised the option of FMV as on that date for the cost of acquisition of land, that the land was valued at the rate of Rs. 60.40 per square feet (Rs. 650/- per sq.mtr.) as on 01/04/1981, that the assessee had filed the valuation report along with the return of income, that the valuation was done by a registered valuer who had inspected the site on 04/02/1991, that in the assessment proceedings the then AO had taken the rate at the Rs. 575/- per sq. mtr. instead of Rs. 650/- per sq. mtr. as claimed by the assessee, that in the appellate proceedings the then FAA had directed the AO to get the property valued from the DVO for the purpose of FMV of the land as on 01/04/1998 and then finalised the assessment. Accordingly, the matter was....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... as on 01/04/1981, that the registered valuer had given sales instances of flat, godowns and shops of different areas along with two instances of Mulund, that the sale instances were for constructed property and the rate varied from Rs. 250/- to Rs. 300/-, that the rate suggested by the valuer was not reasonable, that it had sold the land in the FY. 2003-04 as a residential land after converting the industrial land, that in the process of conversion it had incurred expenses in nature of compensation to the workers and expenses for obtaining TDR, that the cost of improvement had been separately claimed by it while computing the capital gains, that the amount of such expenses were in the range of Rs. 15-Rs. 16 crores, that if the value of the said amount is on 01/04/1981 was calculated backwards the FMV as on 01/04/1981 would be much lower than what had been reported by the DVO, that the rate of Rs. 200 per sq.ft. has FMV of land could not be accepted, that the principle of estoppel is applicable as the assessee was all along taking the rate of land is on 01/04/1981. Rs. 60.40 per sq.ft. for the A.Ys. 1995-96 till 2001-02, that suddenly for the year under consideration the FMV rate o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... from industrial to residential. Referring to the provisions of section 54, the FAA held that the section could not be interpreted in isolation, that the assessee had claimed and had been allowed the benefit of special deduction u/s. 54 in the earlier A.Ys., that it could not be allowed the benefit of same deduction again in the year under consideration, that to avail the benefit of the provisions of section 54 time period was of material importance. About the area of land sold, the FAA held that the assessee had contended that area of land should be taken at Rs. 7.08 lakhs sq. ft. instead of Rs. 6.38 lakhs sq. ft., that the AO had deliberated upon the figures appearing in the sale agreement entered into by the assessee, that the argument raised by the assessee had to be dismissed. With regard to the brought forward capital losses, the FAA directed the AO to verify the figures and pass necessary orders. 3.2 Before us, the AR argued that during the year under consideration, the assessee had transferred the development rights in respect of its industrial land situated at Mulund to Nirmal Lifestyles (NL) in terms of the development agreement dated 24/02/2004, that in terms of the s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ll as by the AO for residential land, that the AO had not disputed the fact, that for the year under consideration the asset involved was rights in industrial land, that the Rights were not comparable to the nature of assets that was valued in the earlier AY.s, that the assessee had obtained registered valuer's report as on 01/04/1981 pertaining to industrial land, that the assessee had contested the valuation done by DVO for the earlier AY.s, that valuation report had been set aside by the Tribunal for the AY. 1995-96, that the valuation done by the DVO since 1995-96 would not survive any longer, that there was no question of Estoppel in any event, that for computing FMV of the property it had submitted a valuation report from two independent valuers, that the valuer had computed FMV of the assets as on 1/4/1981 based on four well accepted scientific methods which provided a range of values between 200-240 per sq.ft., that on a conservative basis FMV was finalised at Rs. 200 per sq.ft. as a fair approximation of the probable value of land. He referred to India Valuer's Directory and Reference Book and stated that the industrial land was situated in 'T' ward of Muni....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... High Court in the case of Heatex Products (supra) the Tribunal decided the issue in favour of the assessee. We are reproducing the relevant portion of the order and it reads as under: 2. The grievance of revenue relates to deleting the addition of Rs. 41,47,204/- made by AO on account of transfer of lease hold rights in the property u/s. 50C of the IT Act. 3. Rival contentions have been heard and record perused. 4. Facts in brief are that the assessee acquired lease hold rights from Lavasa Corporation Ltd. It was contention of assessee that property rights were acquired on lease basis and the lease amount for the same was to be paid in installments. Since assessee on account of financial difficulties could not make the payment of lease as per the schedule, the lease hold rights were assigned to M/s. Deepak Textiles for consideration of Rs. 28,59,395/-. The AO held that assessee has transferred rights in an immovable property, accordingly he invoked the provisions of Section 50C and made an addition of Rs. 41,47,204/-. 5. By the impugned order, CIT(A) deleted the addition after following the order of the ITAT-Mumbai Bench in case of Atul G Purani....
X X X X Extracts X X X X
X X X X Extracts X X X X
....) held that Section 50C of the Act would apply only to a capital asset being land or building or both and it cannot apply to transfer of lease rights in a land. 5. It appears the Revenue has accepted the decision of the Tribunal in Atul G. Puranik (supra). This inference is drawn as no evidence of filing an appeal from the order of the Tribunal in Atul G. Puranik (supra) is produced. The fact situation in both Atul G. Puranik (supra) and this case is identical as no distinction in facts of the present case from those arising in Atul Puranik (supra) has been pointed out. 6. In above view the question as framed does not give any rise to any substantial question of law and thus not entertained." 10. Respectfully following the proposition of law laid down by Hon'ble Bombay High Court, we do not find any infirmity in the order of CIT(A) for deleting addition by holding that Section 50C is not applicable in case of lease hold rights." 3.3.2 Now, we would take up the issues of not referring the matter to the DVO for determining the market value of the assets. Perusal of pages 122-23 reveal that vide its letter dtd. 18.01.2006, the assessee had disputed th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... held that it had not challenged the FMV determined by the DVO for the period 1995 to 2001, that the FAA was of the opinion that rate computed by the valuer was not supported by documentary evidences. As far as FVM of AY. 1995-96 is concerned it is sufficient to say that valuation report for that period has been set aside by the Tribunal and thus it does not survive. A perusal of the Indian Valuers Directory and Reference Book (Pg. 340 of the PB) reveal that the market value of land located in the adjoining areas of Mulund on 01.04.1981 was Rs. 400-480/- per Sq. feet. Tribunal, in the case of Kumar K Chabaria (ITA/5347/Mum/2008, has considered the said Reference Book as a reliable source for valuation of capital assets. So, in our opinion, FMV adopted by the assessee as on 01.04.1981 cannot be brushed aside-rather it is quite reasonable. As far as reference to the DVO u/s. 55A of the Act is concerned, we would like to say that after the judgments of the Hon'ble Bombay High Court in the cases of Daulal Mohta (360 ITR 680) and Pooja Prints (360 ITR 697) there is no doubt that the AO cannot make a reference to the DVO for purpose of valuation, where the value of the property, d....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 54G of the Act, that shifting of original industrial undertaking was complete before 01/01/2002 itself, that the provisions of section 54G did not intend to give exemption for any further expansion in the capacity or investment in plant and machinery subsequent to original shifting of industrial undertaking, that the computation of income for the A.Ys. 2000-01 and 2001-02 indicated that the assessee had sold part of residential land during the previous year relevant to those A.Ys. also, that there was no mention of any claim u/s. 54 for the said A.Ys. in the notes submitted with the computation of income. Finally, he held that claim made by the assessee for deduction u/s. 54G was not admissible for the year under consideration. 4.1 After considering the submission of the assessee and the assessment order, the FAA held that the section 54G had to be read as a whole, that the phrase 'in consequence of' related to the period of 3 years after the date of transfer of the capital asset referred to in the provisions of section 54G(1) of the Act, that the assessee had already claimed and had also been allowed the benefit of special deduction u/s. 54G in the earlier years, that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er, it would be useful to consider the background of the section 54G of the Act. Section 280 ZA of the Act, dealing with the shifting of an assessee from an urban area to another area, was omitted from 01.04.1987 and on the same day section 54G was introduced in the Act. In his budget Speech, Hon'ble Minister of Finance, while introducing the Finance Act, 1987 stated as under: "83. Concentration of industries in many of our urban areas poses serious problems of congestion, pollution and hazards. In order to encourage industries to shift out of such areas, I propose to exempt capital gains made on the sale of land and buildings in such areas provided these are reinvested in approved relocation schemes." Notes on clause for the Finance Bill, 1987 reads as under: "The new section 54G provides for exemption of capital gains on transfer of assets in cases of industrial undertaking shifting from urban area. Sub-section (1) provides that if an assessee transfers a long-term capital asset in the nature of machinery, plant, building or land used for the purposes of the business of the industrial under taking situated in an urban area in connection with the shifting ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d subsequent years." On a conjoint reading of the aforesaid Budget Speech, Notes on clauses and Memorandum Explaining the Finance Bill of 1987, it becomes clear that the idea of omitting section 280ZA and introducing on the same date section 54G was to do away with the tax credit certificate scheme together with the prior approval required by the Board and to substitute the repealed provision with the new scheme contained in section 54G of the Act. 4.3.2 The opening portion of section 54G reads as follow: Subject to the provisions of sub-section (2), where the capital gain arises from the transfer of a capital asset........" In our opinion, the most important and decisive factor for claiming the deduction, arising of capital gain, is transfer of capital asset. In other words, capital gains and transfer of specified assets should have a direct and live link. Shifting of undertaking is also important, but the tax incidence will come into picture only after assets are transferred. The purpose behind the section is to decongest the urban areas and to shift the industries from the cities. In that sense it is a welfare legislation. As per the settled principles of taxat....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... potential of 7.08 lakhs sq. ft. for computing the cost in the hands of the assessee, that in the development agreement it had mentioned that saleable land was 6.38 lakhs sq.ft., that the FAA had reduced the cost of acquisition and cost of improvement. He referred to the Pgs. 274, 207-267 of the PB. The DR supported the order of the FAA. 5.2 In our opinion, both these facts needs further verification on part of the AO. So, in the interest of justice we direct the AO to decide both the issue afresh. He is directed to consider all the facts and figures produced by it, before us, during the appellate proceedings. Both the grounds stand partly allowed. 6. Next effective Ground of appeal (GOA. 13-16) is about ad hoc disallowance of various expenses. During assessment proceedings, the AO had made disallowance under various heads namely electricity expenses (7.20 lakhs); sales promotion expense (Rs. 4 lakhs); repairs and maintenance (25 lakhs); and legal and professional charges (10 lakhs). 6.1 During the appellate proceedings, the FAA remanded back the issue of electricity expenses to the file of AO. With regard to other disallowances, he held that the same were only meager disa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ness of the expenses was asked for during the course of assessment proceedings. On this factual matrix, we hold that the ad hoc disallowance is nothing but a sheer surmise and such disallowance cannot be sustained. In the result, this addition is deleted." Following the above, we allow grounds of appeal No. 13-16. ITA/1365/Mum/2009,2004-05: 7. The assessee has filed the above appeal against the order of the AO passed u/s. 143(3) r.w.s. 250 of the Act. During the course of hearing before us, the AR did not press GOA 1-5. Hence, same stand dismissed. GOA 6 is consequential in nature, so, we are not adjudicating it. ITA/1366/Mum/2009,2005-06: 8.Grounds No. 2, 3, 5 and 6 were not pressed by the AR of the assessee, so, we dismiss the same as not pressed. 9. Ground No. 1 is about sales tax incentive scheme. Following our order for earlier AY. (paragraph 2.3 of the order), we restore back the issue to the file of the AO and allow the ground partly. 10. Ad-hoc disallowance of Rs. 61.26 lakhs is the subject matter of Ground four. During the assessment proceedings, the AO found that the assessee had claimed sales promotion expenses incurred under a scheme namely Shubh Ut....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that same was not a contingent liability. He referred to the cases of Exide Industries Ltd. (supra), Bharat Earth Movers (245 ITR 428) and Aditya Birla Nuvo Ltd. (68 SOT 403). The DR left the issue to the discretion of the bench. 11.2 We find that the FAA has not adjudicated the issue, though a specific ground was raised before him with regard to provision for leave encashment. As per the Hon'ble Bombay High Court additional claim can be raised before the appellate authorities (349 ITR 336-Pruthvi Brokers and Shareholders Private Ltd.). Therefore, we are of the opinion matter should be restored back to the file of the FAA for fresh adjudication, who would decide the issue after affording a reasonable opportunity of hearing to the assessee and after considering the cases relied upon before us. Fifth ground of appeal is allowed in favour of the assessee, in part. ITA/1971/Mum/2013, A.Y. 2007-08: 12. First ground of appeal deals with deduction in respect of provision for leave encashment, amounting Rs. 1.69 crores. During the assessment proceedings the AO found that the assessee had debited Rs. 1,69,22,101/- towards provision for leave encashment in P&L account. However,....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Finance Act, 2005, the additional depreciation was allowable in the previous year in which the Industrial undertaking began to manufacture or produce any article or thing, that the additional depreciation was allowable only in the previous year in which the New P&M were purchased and installed subject to certain conditions, that by the Finance Act, 2005, section 32(1)(iia) has been amended, that the additional depreciation was allowable only in respect of any New P&M and the Machinery & Plant acquired in earlier year could be said to be a new Plant & machinery in the subsequent years,. He referred to the Explanatory note to Finance Act 2005, (Circular No. 3 dt. 27/2/2006) and held that additional depreciation would be admissible only at the time of investment in new P&M and not in any of the subsequent years. Finally he upheld the order of the AO. 13.2 Before us the AR referred to the case of Gloster Jute Mills Ltd. (ITA/95/Kol/2011, dated 01/03/2017) and argued that as per the amended provisions of section 32(1) the restriction previously imposed of allowing additional depreciation only in the year of installation of machinery had ceased to exist as an from 01/04/2006, tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cts are that the original cost of the new machinery purchased and installed by the Assessee after 31.3.2005, but before 1.4.2006 in the 100% EOU and DTA unit Rs. 29,77,470 and Rs. 2,41,30,615. The WDV of these machineries as on 1.4.2006 was Rs. 24,51,920/- and Rs. 1,81,50,266/- respectively. The Assessee availed of additional depreciation @ 20% on the original cost of the machinery at Rs. 5,95,494/- and Rs. 48,26,123/- respectively in AY 2006-07. In AY 2007-08 also the Assessee claimed additional depreciation at 20% of the original cost viz., Rs. 5,95,494 and Rs. 48,26,123 respectively in all depreciation totaling Rs. 54,21,617/-. 26. According to the AO, the deduction u/s. 32(1)(iia) of the Act is granted only to "new" plant and machinery and once depreciation is granted in the 1st year in which the machinery is installed or put to use, the machinery ceases to be a new machinery and therefore additional depreciation cannot be allowed. The plea of the Assessee however was that Section 32(1)(iia) of the Act merely provides that further to the normal depreciation at the prescribed rates, an additional depreciation shall be allowed to the assessee at the rate of 20% on new pl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e on the written down value thereof as may be prescribed: Section 32(1)(iia) of the Act was originally introduced by the finance (No. 2) Act, 1980 w.e.f. 1.4.1981 reads thus (the sub-section existed upto 31.3.1988 and was deleted thereafter): XXXXX Sec. 32(1)(iia) as substituted by Finance Act, 2005, (w.e.f. 1-4-2006) reads as follows: "(iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2005, by an assessee engaged in the business of manufacture or production of any article or thing, a further sum equal to twenty per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause(ii): 29. It can be seen from the provisions of Sec. 32(1)(iia) as it existed from 1.4.1981 to 31.3.1988 and reinserted subsequently from 1.4.2003 that the benefit for claiming additional depreciation was restricted only to the initial assessment year. However the provisions of Sec. 32(1)(iia) as substituted by the finance Act, 2005 w.e.f. 1-4-2006, the benefit for claiming additional depreciation was not so restricted to only to the init....
X X X X Extracts X X X X
X X X X Extracts X X X X
....out of context the same as held by Apex Court in the case of Orissa State Warehousing Corporation, Mohammad Ali Khan and Madurai Mills Co. Ltd. (Referred to by the Appellant.) Further, it is also imperative to state that Section 32(1)(iia) is a beneficial provision enacted with the view to provide benefit to the assessee. The same is also evident from the Explanatory Notes to the Finance Act, 2005 wherein it has been clarified that in order to encourage investment the provisions of sec. 32(1)(iia) have been amended. In so far as the language used in the provision in concerned one has to construe the language beneficially and in favour of the assessee as held by the Jurisdictional High Court in the case of Indian Jute Mill Association in 134 ITR 68. There is little merit in the contention of the AO that the asset is not new in the second year. In my view for claiming additional depreciation the assessee has to acquire and install the plant & machinery after 31-03-2005 and the same should be new in the year of installation. There is no requirement that the assets should be new in the year of claim of additional depreciation. For the reasons aforesaid I am of the view that in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fect. It was argued that the legislature has consciously not restricted the allowance of additional depreciation on the original cost for AY 2006-07 till AY 2013-14 to one year only and therefore the additional depreciation should be allowed on the original cost of the asset for the second and subsequent years as well. It was submitted that the condition imposed by the relevant provisions was that Plant and Machinery must be new at the time of installation to be eligible for additional depreciation u/s. 32(1)(iia) and not new in subsequent years. 32. We have given very careful consideration to the rival submissions and are of the view that the provision of section 32(1)(iia) as amended w.e.f. 01.04.2006 by the Finance Act 2005, there is no restriction that the additional depreciation will be allowed only in one year or that it would be allowed only on the written down value. The law as it prevailed prior to the said amendment imposed such a condition that additional depreciation will be allowed only in the year of installation of machinery or plant or the year in which it is first put to use or the year in which the concerned undertaking begins to manufacture or produce an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....GOA-3(a) before us. He would decide the issue raised in both the sub grounds after affording reasonable opportunity of hearing to the assessee. Grounds 3(a) and 3(b) are allowed partly. ITA/1885/Mum/2013, A.Y. 2007-08: 15. The effective Ground of appeal, filed by the AO, for the year under consideration is deleting an amount of Rs. 4.23 crores, being disallowance of claim of sales tax incentive. While deciding the appeal field by assessee, for earlier years, we have restored back the issue of sales tax incentive to the file of FAA for fresh adjudication. Following the same we direct him to decide the issue afresh. Effective Ground of appeal is allowed in his favour, in part. ITA/1972/Mum/2013, A.Y. 2008-09 16. First Ground of appeal, filed by assessee, is about provision for leave encashment debited to P&L account amounting to Rs. 67.98 lakhs. Following our order for the earlier year, we decide the first ground against the assessee. 17. Second Ground deals with additional depreciation u/s. 32(1)(iia) amounting to Rs. 7.14 crores in respect of eligible P&M acquired and installed during AY. 2005-06 and 2006-07. Following our order for earlier year, (Paragraph 13 of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of foreign exchange on the basis of exchange rate prevailing on 31/3/2008, that assessee was consistently following the same practice, that in the subsequent year when there was profit on similar transactions the AO had taxed it. The DR supported the order of the FAA. 18.3 We have heard the rival submissions and perused the material before us. During the year under consideration the assessee had accounted for foreign exchange loss of Rs. 350.18 lakhs, that it was net of foreign exchange gain, that the loss mainly comprised of swap loss of Rs. 493.50 lakhs, that the assessee was consistently booking loss or gain on Foreign exchange on the basis of the foreign exchange rate as on the last date of particular year. In the subsequent year i.e. AY 2011-12 when the assessee had shown surplus the AO had taxed the same. In our opinion the AO should follow uniform policy for taxing or not taxing the foreign exchange loss/gains. If gains are to be taxed of a particular transaction the losses arising out of same cannot be denied to the assessee. The AO/FAA has not commented upon the fact that assessee was following AS-11. Considering the above, we are of the opinion that FAA was not justif....