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TaxTMI 
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2019 (12) TMI 1299
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....d 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 cases and in law, the Ld.CIT(A) erred in deleting the disallowance made u/s.14A 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 on account pF depreciation on fixed assets u/s.40a(ia) read with section 37 in respect of capitalization of professional fees capitalized of certain expenses, FCCB Premium and FCCB Issue Expenses," 5. "On the facts and in the circumstances of the case and in law, the Ld.ClT(A) erred in deleting the addition by way of disallowing FCCB Premium." 6. "On the facts and in the circumstances of the case and in law, the Ld.ClT(A) erred in deleting the addition of by way of disallowing depreciation In respect of FCCB premium first debited to pre-operative expenses and thereafter capitalized in the fixed assets." 7. "On the facts and In the circumstances of the case and in law, the Ld.CIT(A) erred In deleting the addition by way of disallowance of foreign exchange loss incurred in issue....
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.... out of business strategy and there was no major change in such investment. c) In reaching to the conclusion and confirming such addition the Id. CIT(A) omitted to consider relevant'' factors, considerations, principles and evidences while he was overwhelmed, influenced and prejudiced by irrelevant considerations and factors. 4. On the facts arid in the circumstances of the case and in law, the Id. CIT(A) erred in confirming the addition to the extent of Rs. 1,00,000/- made by the AO to the book profit of the Appellant by way of adding back disallowance made u/s.14A and thereby erred in enhancing the book profit artificially. 5. The Id. CIT(A) erred in holding that levy of interest u/s, 234B, 234C, 234D and 220(2) of the Income Tax Act, 1961 is consequential. The Appellant denies its liability for such interest. 6. The Id. C1T(A) erred in holding that ground raised disputing initial urn of the penalty proceedings u/s.271 (l)(c) of the Income Tax Act, 1961 is premature. The Appellant denies its liability for such penalty 4. The first issue that came up for our consideration from ground No.1 of assessee appeal is challenging the validity of assessment order passed by the....
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....e assessment u/s 147 of the I.T.Act 1961, by issuing notice u/s 148 on 26/02/2010. The time limit for completion of re-assessment u/s 143(3) r.w.s. 147 ends on 31/03/2011. Further, search and seizure action was carried out in this case on 13/10/2010. Since, the date of search is well within date of completion of assessment u/s 143(3) r.w.s. 147of the Act, the assessment for the impugned year is abated and consequently, the Ld. AO is entitled to assess or re-assess total income, including undisclosed, if any found as a result of search. Therefore, there is no merit in the contention of the assessee and hence, the same needs to be rejected. 7. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. It is a settled position of law that in case of search and seizure assessment, the assessment can be framed only qua incriminating material found as a result of search, where the assessments are unabated/concluded as on the date of search. Further, in case of abated assessments, the Ld. AO is empowered to asses or reassesses total income, including undisclosed income, if any found as a result of search. Similarly, the conc....
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.... 10. The next issue that came up for our consideration from ground No.2 of assessee's appeal is disallowances of additional depreciation claimed on fixed assets of Rs. 32,84,67,070/-. The assessee has claimed additional depreciation of Rs. 32,84,67,070/- u/s 32(1)(iia) @ 20% of the cost of plant and machinery of Rs. 164,23,35,348/-, which were purchased, installed and put to use in the proceeding previous year. The Ld. AO has disallowed the claim of additional depreciation in the second year, on the ground that said claim is allowable in the year in which said plant and machinery was purchased/installed and put to use and also, it is one time claim. 11. The Ld. AR for the assessee submitted that the Ld.CIT(A) was erred in confirming the additions made by the Ld. AO towards disallowances of depreciation, ignoring, the fact that after amendment to section 32(1)(iia) of the Act, by the Finance Act, 2005, the conditions regarding previous year, which was present in the pre amended provision of section 32(1)(iia) of the Act, has been deleted and therefore, the assessee is eligible for additional depreciation for subsequent years, also in absence of any reference to a specific previous....
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....his legal background, the question that needs to be answered is whether, an assessee can claim additional in the subsequent years in absence of any reference to a specific previous year after amendment by the Finance Act, 2005 in section 32(1)(iia) of the Act. We noted that on a literal reading of section 32(1)(iia), the additional depreciation is restricted to one time deduction and there is no explicit provision entitling the assesee to claim additional depreciation in subsequent year or years, when the additional depreciation was allowed in the year, when plant and machinery has been put to use. Therefore, we are of the considered view that it is illogical and irrational to presume so, when the legislation intention is to allow one time additional depreciation u/s 32(1)(iia) in a previous year in which plant and machinery is installed and put to use. The Ld.CIT(A) after considering relevant facts has rightly noted that there is no error in the findings recorded by the ld. AO in disallowances of additional deprecation on plant and machinery for second year. Therefore, we are of the considered view that the findings recorded by the Ld.CIT(A), while confirming additions made by the....
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....d.AO to make an adhoc disallowances of Rs. 1 Lack to meet the expenditure incurred in relation to exempt income. Aggrieved by the Ld.CIT(A) order, the assessee, as well as the revenue are in appeal before us. 15. The Ld. DR submitted that the Ld.CIT(A) was erred in restricting disallowances of expenditure u/s 14A to an adhoc amount of Rs. 1 Lac without appreciating the fact that provisions of section 14A and Rule 8D are interconnected and hence, said disallowances needs to be worked out, as per the prescribed method provided under Rule 8D of Income Tax Rules 1962. 16. The Ld. AR for the assessee, on the other hand, submitted that this issue is squarely covered in favor of the assesse by the decision of Hon'ble Bombay High Court in assessee own case for AY 200910, where the Hon'ble High Court held that provisions of Rule 8D has no completion prior to assessment year 2008-09. Therefore, there is no reason for the Ld. AO, as well the Ld.CIT(A) to make an adhoc disallowance of expenditure. 17. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. No doubt, the Hon'ble Bombay High court, in the case of Godrej ....
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.... Ld. AO and also, referred AS-2 and AS-10 issued by the ICAI for valuation of inventory and accounting of fixed assets and submitted that as per the provision of section 43(1) and Explanation (10), the same needs to be reduced from actual cost of assets. 20. We have heard both the parties, perused the material available on record and gone though orders of the authorities below. We find that an identical issue has been considered by the co-ordinate bench of ITAT, in the case of Welspun India Ltd. Vs DCIT in ITA No. 5376/Mum/2015, where under identical set of facts, the Tribunal held that sales tax incentives and excise duty benefit received by the assessee is in the nature of capital receipts not liable to tax. The relevant findings of the Tribunal are as under:- "5.2. This issue of chargeability to income-tax of incentives by way of refund of excise duty and exemption of sales tax incentive which were given post commencement of production after the new industrial unit was set up by entrepreneurs in Kutch District has now reached before the tribunal at the behest of the Revenue and both the parties have advanced detailed arguments including written submissions filed by Revenue. T....
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....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 attraction of large scale investments. During the previous year, the assessee had received following incentives by the State government and Central government:- (i) Sales-tax incentive - Rs. 12,95,99,499 (ii) Central Excise benefit - Rs. 22,37,23,672 ------------------------------ Total -Rs. 35,33,23,171 The amount of incentive received was credited to the profit and loss account, however, the assessee claimed that the said receipts are not taxable as they are capital receipts. The AO while making the assessment has rejected the claim of the assessee on the ground that in the assessment year 2006-07, the assessee's claim was rejected by the AO on....
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....ations 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 the quantum of such incentive. (b) Sales Tax/Value Added Tax (in view of the Scheme) - Purchase of inputs without sales tax and sales without charging of sales tax thus, claiming exemption. However, after the introduction of VAT, refund of VAT paid on inputs and remission of VAT collected on sales is available. Both these components are credited to the profit and loss account as 'Sales Tax Incentives Received' and inadvertently offered to tax. There is a monetary limit specified for the quantum of this incentive linked to investment that is eligible under the Scheme. (c) The incentive can be availe....
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....ectroplast Pvt 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 involved is, whether the incentive / subsidy provided by the State Government in the form of sales-tax incentive and in the form of Central Excise benefit by the Central Government for sums aggregating to Rs. 35,33,23,171/- is to be treated as capital receipts or revenue receipts. The Hon'ble Supreme Court in the case of Ponni Sugars & Chemicals Ltd vs CIT, reported in [2008] 306 ITR 392 after referring to the earlier decisions of the Supreme Court in the case of Sahney Steel Works Ltd v CIT, reported in [1999] 228 ITR 253, held that the ―purpose for which subsidy is given is the crucial factor". The purpose is to be judged from the characte....
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....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 is given. In other words, in such cases, one has to apply the purpose test. The point of time which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. The main eligibility condition in the scheme with which we are concerned in this case is that the incentive must be utilized for repayment of loans taken by the assessee to setup new units or for substantial expansion of existing units; On this aspect there is no dispute. If the object of the subsidy scheme was to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object ....
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.... 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 upon the principles laid down by the Supreme Court in the case of Ponni Sugars & Chemicals Ltd has held that if the object of the subsidy was to promote construction of multiplexes, theater complexes then, it would be on capital account. Similarly, views have been taken by the various other High Courts and Tribunal in the decision as referred and relied upon by the Ld. Counsel as above. Thus, We hold that the amount of incentive received by the assessee cannot be taxed as revenue receipt as it is purely on capital account. 14. As regards the other plea raised by the AO in the order passed u/s 143(3) r.w.s. 153A, we agre....
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....e 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, 2004; (ii) In order to avail of this exemption, the manufacturer shall produce a certificate from a Committee consisting of the Chief Commissioner of Central Excise, Ahmedabad and the Principal Secretary to the Government of Gujarat, Department of Industry, to the jurisdictional Assistant Commissioner or the Deputy Commissioner of Central Excise, as the case may be, that the unit in respect of which exemption is claimed is a new unit and has been set up during the time period specified in condition (i) above. (iii) Before effecting clearances under this notification, the manufacturer shall also furnish a decla....
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....aking 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 incentives under the scheme, shall have to install, effectively use and maintain the pollution control equipments as per the standards prescribed and approved by the competent authority. (c) The industrial unit shall have to continue production up to the period of eligibility. However, if the unit does not remain in continuous production on account of the reasons beyond the control of the management, the unit shall present its case before the State Level Committee as an individual case on which the committee can take decision to waive the period of discontinuation of production based on the represent....
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..../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 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 Cent....
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....mpilation 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 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 u....
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.... 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:- S.No Case Name Citation 1 SasisriExtractis Limited 122 ITD 428 (Visakhapatnam) 2 M/s Harinagar Sugar Mills Ltd ITA No. 772/Mum/2012 3 Rasoi Ltd. 46taxman.com214(Kolkata-Trib) 4 UniversalCabls Ltd 57 taxman.com95(Kolkata -Trib) 5 SohamElectropl ast Pvt 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 for....
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....this Court by way of a special leave petition. It was held by this Court on the facts of that case and on the basis Of the analyses of the Scheme therein that the subsidy given was on revenue account because it was given by way of assistance in carrying on of trade or business. On the facts of that case, it was held that the subsidy given was to meet recurring expenses. It was not for acquiring the capital asset. It was not to meet part of the cost. It was not granted for production of or bringing into existence any new asset. The subsidies in that case were granted year after year only after setting up of the new industry and only after commencement of production and, therefore, such a subsidy could only be treated as assistance given for the purpose of carrying on the business of the assessee. Consequently, the contentions raised on behalf of the assessee on the facts of that case stood rejected and it was held that the subsidy received by Sahney Steel could not be regarded as anything but a revenue receipt. Accordingly, the matter was decided against the assessee. The importance of the judgment of this Court in Sahney Steel & Press Works Ltd. 'S case (supra) lies in the fact....
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....ing the economic environment of Kutch district live, it has been decided to confine the same only to Kutch district 13. From the perusal of the above, it is amply clear that the schemes launched was for setting up of new industries in the district of Kutch for the purpose of new employment opportunities and to make industrial and economic environment live. Thus, the scheme of incentives provided by the respective Governments was setting-up of a new unit and not for running of the business more profitably. As laid down by the Hon'ble Supreme Court, the form and the source of subsidy are immaterial and what is material is whether the subsidy is for setting up for a industrial unit or running it for profitability. Similarly, the Central Excise exemption was given in the public interest for setting up of a new industrial unit in the Kutch District. Accordingly on the facts of the present case, we conclude that the incentive given by the State Government and the Central Government is nothing but capital receipts, because applying the ―purpose test" the incentive / subsidy was given only for setting up of new industrial unit and economic development and generation of new employme....
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....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 out of SLP (C) No. 9860 of 2010) dated 09.09.2011 and the matter is remitted back to Hon'ble Bombay High court to decide the question of law framed thereon in accordance with law. This revives the Special Bench decision of the tribunal in the case of Reliance Industries Limited(supra) , which has already held that subsidy which is given for setting up or expansion of industry in a backward area , will be capital in nature, irrespective of modality or source of funds through or f....
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.... deduction of tax at source was considered in AY 2005-06 in u/s 263 proceedings in ITA No. 3375/Mum/2010. We, further noted that although, the Tribunal has quashed 263 proceedings, but not discussed the issue on merits. Subsequently, in 153A assessments, the Ld. AO has made similar additions. But, the ITAT has deleted said additions in ITA No. 5371/Mum/2015, on technical ground without discussing the issues on merits. Therefore, it is necessary to examine the issue on merits, whether the claim of the assessee with regard to depreciation on fixed assets, in respect of that expenditure for non deduction of tax at source is in accordance with law. The provisions of section 40(a)(ia) of the Act, is applicable, where any expenditure is debited into profit and loss account without deduction of tax at source, then to that extent, the expenditure on which TDS was not deducted is not allowable as deduction. Similarly, if any amount as capitalized to fixed assets and depreciation was claimed thereon, if no TDS is deducted, in respect of those capitalized fixed assets, then depreciation to that extent is not allowable. The Ld. AR for the assessee has failed to bring on record any evidence to ....