TaxTMI 
TaxTMI 
TaxTMI 
2018 (5) TMI 2008
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....dy of Rs. 131,11,00,000/- which is credited to Profit and loss account as capital in nature and thereby reducing it from the total income of the assessee. 3. The Ld. AO has erred in not treating the interest subsidy of Rs. 131,11,00,000/- which is credited to Profit and loss account as capital in nature and thereby reducing it from the book profit while calculating the Minimum Alternate Tax u/s 115JB. 4. The Ld. AO has erred in disallowing an amount of Rs. 10,88,24,112/- u/s 14A of the Act. 5. The Ld. AO has erred in adding the disallowance made u/s 14A read with Rule 8D of Rs. 10,88,24,112/-to the Book Profit while computing the MAT u/s 115JB. 6.The Ld. AO has erred in disallowing interest of Rs. 8,37,01,584/- being proportionate interest expenditure which was alleged to be incurred towards extending interest free loans and advances to sister concerns. 7. The Ld. AO has erred in disallowing employees contribution to Provident Fund to the tune of Rs. 74,37,578/- as the payment in respect of the same was not made within the due date specified in the Act. 8. The Ld. AO has erred in disallowing expenses of Rs. 31,44,360/- by alleging the same to be prior period expenditure. ....
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....observed that bank guarantees are different from corporate guarantees and hence the rate (fee) for corporate guarantee cannot be compared with the rate charged by banks for issuance of guarantee proposed draft order of AO was confirmed by DRP against which assessee is in further appeal before 10. Contention of learned AR was that it is not an international transaction. Without prejudice, he contended that addition should be restricted @0.5% as held by Tribunal in the case of sister concern M/s. Grabal Alok Impex Ltd., 11. As per learned A.R. the learned AO/TPO in his order erred in considering guarantees issued by the assessee to banks on behalf of its AEs as international transcations under section 92B(1) of the Act, without appreciating that the guarantees issued does not have a bearing on its profits, income, losses or assets. Learned AO / TPO further erred in not appreciating that the guarantee issued by the Assessee on behalf of its AEs were in the nature of shareholder's activity and hence the arms length price of the same ought to be NIL. In this regard the, AR has relied on the following judicial pronouncements which have held that arms length rate of corporate guaran....
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....ssion at 0.5%. We direct accordingly. 10.The second ground of appeal is with reference to the transfer pricing adjustment made in the assessment order on account of interest on advances given by the assessee to its AE. During the period under consideration, the assessee had given an advance of Rs. 81,08,748 to its AE Grabal Alok International Limited. The assessee had not benchmarked this transaction on the ground that the said advances had been given in the normal course of its business and were to be regarded as an equity investment. The TPO treated the granting of advance by the assessee to its AE as a short term credit facility as the same were to be adjusted against the payables. Based on the Bond Yield rates corresponding to the credit rating applicable to the concerned AE, interest at the rate of 11.86% was computed by the TPO as the arms length interest expected to be recovered by the assessee from its AE in a similar transaction with an unrelated party. Arms length interest so computed by the TPO at Rs. 9,60,867 was incorporated in the assessment order as the transfer pricing adjustment for this international transaction. The action of the AO was confirmed by the CIT(A), a....
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....in brief are that the company was in receipt of subsidy during the year under consideration under the 'Technology Upgradation Fund Scheme' ('TUF') launched by the Ministry of Textile, Government of India for textile and jute industry. The main object behind the said subsidy was to upgrade & modernize the Indian textile industry by encouraging it to undertake & adopt modern technological process and/or undertake capacity expansion.Under this scheme, the lending agency would reimburse 5 % of the interest cost to the borrower upon fulfilment of certain conditions. The assessee company had availed loans from various banks under the TUF Scheme. The TUF scheme was launched by the Government of India with the objective of providing timely and adequate access of capital to undertake modernization and technology upgradation of the textile industry. The scheme aims at making available funds to the domestic textile industry for technology upgradation of existing units as well as to set up new units with state-of-the-art technology so that its viability and competitiveness in the domestic as well as international markets may be enhanced. 17. During the year under consideration....
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..... The issue is no longer res integra, as in an identical situation and for an identical subsidy, the Courts have ruled that the same constitutes capital receipt and therefore not chargeable to tax. The issue under consideration is also covered by the decision of the Co-ordinate Bench in case of Grabal Alok Impex Limited [Sister concern of the assessee] which has been merged with the assessee with effect from 01.04.2011 having similar facts. We found that against the decision of Tribunal dated 08/07/2016 through the department has filed a further appeal before the Honble High Court, however the decision of Tribunal on the issue of TUF subsidy was accepted by department and no further appeal on this issue was filed before the High Court has been accepted. 20. For the TUF subsidy being capital in nature, reliance can be placed on the following decisions:- Decision ITAT / HC Citation / ITA No. Type of Subsidy received under TUF Scheme Relevant Para of the decision Grabal Alok (now merger with Alok Industries Ltd.) for AY 2010-11 Mumbai ITAT ITA No. 1776/Mum/2015 Interest Subsidy 22 to 27 2 Sham Lal Bansal P & H HC 200 taxman 14 Credit Linked Capital Subsidy 6 3 Dicitex Home Furnis....
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....ade before the Appellate authority. Further the Bombay High Court in the case of CIT vs Pruthvi Brokers & Shareholders Pvt. Ltd (349 ITR 336), having considered the decisions of the Supreme Court in the case of Goetze India Ltd. (supra) and also National Thermal Power Company Ltd. v CIT (supra), held that the Appellate authorities are entitled to consider the new claim of the assessee and adjudicate upon the same on merits of the case. As all the facts are available on record, we adjudicate assessees claim of TUF subsidy.From the record we found that the assessee has received reimbursement of interest cost as per TUF scheme. The object of the scheme was to encourage the upgradation of technology. Therefore, the income to the extent of duty credit and reimbursement of interest cost under TUF scheme, which though credited to profit and loss account, should be treated as capital receipt, not chargeable to tax. The issue under consideration is squarely covered by the decision of Honble Punjab & Haryana High Court in the case of Shri Sham Lal Bansal (200 Taxman 14)(P&H).We find that identical issue under the Technology Upgradation Fund Scheme (in short TUFS) of Ministry of Textiles was ....
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....e subsidy has been given after commencement of production and, secondly that it was for repayment of loans. Both these factors do not distract from the nature of the subsidy being treated as capital, as explained by the Honble Supreme Court in the case of CIT vs. Ponni Sugars Chemicals Ltd. [2008] 306 ITR 392 (SC). 3. We have heard learned counsel for the appellant. 4. Learned counsel for the revenue submitted that the subsidy was not given at the time of setting up of the industry but after commencement of production for repayment of loan. In such situation, the amount should have been treated as revenue receipt as per judgment of the Honble Supreme Courtin Sahney Steel & Press Works Ltd. & Ors. v. CIT (1997) 228 ITR 253. 5. We are unable to accept the submission. 6. The purpose of scheme under which the subsidy is given, has been discussed by the Tribunal. To sustain and prove the competitiveness and overall long term viability of the textile industry, the concerned Ministry of Textile adopted the TUFS scheme, envisaging technology upgradation of the industry. Under the scheme, there were two options, either to reimburse the interest charged on the lending agency on purch....
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....vour of the assessee. 25. In DCIT vs. Gloster Jute Mills Ltd (ITA 766/Kol/2010) order dated 2nd July 2014, Kolkata Tribunal held that in order to sustain competitiveness in the domestic as well as international markets and overall long-term viability of the industry, the concerned Ministry adopted the TUFS scheme envisaging Technology Upgradation of the Industry. Hence the subsidy received in this regard falls into capital field. 26. Similar view has been taken by Delhi Bench of the Tribunal in the case of DCIT vs M/s. Sutlej Textiles & Industries Ltd (ITA No 5142/Del/2013) dated 3 July 2015; and by Chennai Bench of the Tribunal M/s CNV Textiles Pvt Ltd vs OCIT (ITA 746/Mds/2014) dated 21-11-2014. The issue is also covered by the decision of ITAT Mumbai Bench in the case of SVG Fashions Ltd., ITA No.8565/Mum/2010, order dated 23-12-2015. Recently Honble Supreme Court in the case of Shree Balaji Alloys held that subsidy by way of refund of excise duty and interest for setting up new industrial undertaking is capital receipt and not taxable as income. 27. In view of the above, respectfully following the decisions of Honble Supreme Court, High Court and the Tribunal, as discusse....
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....which does not have the character of income at all. 26. Further, from the judgments as discussed above, it becomes crystal clear that the subsidy received by the company under the TUF Scheme of the Ministry of Textile, Government of India is for helping the growth of textile industries and therefore capital in nature and outside the ambit of section 4 of Income Tax Act. Accordingly, the said receipt cannot be taxed as income of the Company. Article 265 of the Constitution of India lays down that no taxes shall be levied or collected except with the authority of law. Further, entry 82 of the Seventh Schedule to the Constitution of India lays down that the Central Government has the right to levy tax on income. Further, section 4 of the Income Tax Act 1961 which provides for the charge, specifies that every assessee shall be charged for any assessment year income tax in respect of the total income of the previous year. 27. The main charging section provides for levy of income tax only in respect of income of the assessee. Once an item is not considered as income of the person as the same constitutes capital receipt, it shall not be subjected to tax under this Act, Therefore, once t....
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....t. Ltd. Kolkata ITAT ITA No. 883/Kol/2014 Interest Subsidy being a capital receipt 19 to 21 2. Shree Cement Ltd. Jaipur ITAT 614, 615 & 635/JP/2010 Sales Tax Subsidy for substantial expansion Para 13.1, 13.4 & 13.8 3 Shree Cement Ltd. Jaipur ITAT 152 ITD 561 Sales Tax Subsidy and Receipt from Carbon Credit 4 Sicpa India (P.) Ltd. Kolkata ITAT 80 taxmann.com Excise Duty Subsidy (Exemption) 24 to 26 5 JSW Steel Ltd. Mumbai ITAT 923/Bang/2009 Waiver of loan taken for acquisition of a capital asset 21,23 29. More importantly, the decision of the Jaipur Tribunal in the case of Shree Lement Ltd. (ITA No. 614 / JP / 2010) has exhaustively discussed the issue under consideration and also referred to the order of Rajasthan High Court wherein the ground taken up by the revenue 6 L.H. Sugar Factory Lucknow ITAT 46 CCH 354 Sale of carbon credit being a capital receipt 50 7 Binani Industries Ltd Kolkata ITAT 178TTJ 658 Forfeiture of Share Warrants 4.3.1, 4.3.2, 4.4, 4.5 & 4.6 Nilgiri Tea Estate Ltd. Cochin ITAT 65 SOT 14 Profit on sale of agricultural land which is not a capital asset 9 Shivalik Venture Pvt. Ltd. Mumbai ITAT 173TTJ 238 Profit arising on transfer of development right....
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....nt Total 2,53,51,446 32. It is clear from the above chart that the investment of Alok Industries Limited was a strategic investment. During the year, Grabal Alok Impex Limited has been merged with M/s. Alok Industries Ltd., as per the High Court order dated 03rd February 2012 with the appointed date of 01.04.2011. Both the companies have declared dividend during the year under consideration. As there was cross holding, both the companies have received dividend from each other. Company had suo-moto considered salary of employee and related cost as expenses in relation to earning of exempt income and accordingly, disallowed the said amount under section 14A of the Act in the computation of total income. Particulars Amount Demat Charges 1,28,488 Salary paid to one employee 15,42,847 Other overheads being 50% of salary 7,71,424 Total 24,42,749 33. From the record we also found that the entire dividend has been earned from the investments made by the Company out of its own fund. Thus, there was no cost or interest attached to investment and investing activities. In fact sufficient interest free funds were available with the Company, which is evident from the following: Part....
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....f interest expenditure can be disallowed since the entire interest expenditure has been incurred for the purpose of earning taxable income. Since no amount is specifically borrowed for investment in shares, proportionate interest on borrowed funds should not be disallowed. 36. Learned AR relied on the following judicial pronouncements.:- i. Cheminvest Ltd., v. CIT (Delhi High Court) -378 ITR 33 (Del) ii. JM Financial Ltd., v ACIT' - ITA No. 4521/Mum/2012 - (Mum.)(Trib.) iii. Garware Wall Ropes Ltd. v. ACIT- 65 SOT 86 (Mum.)(Trib.) iv. Asst. CIT vs. Smart Chip Ltd. -ITA No. 1923/Mum/2012 v. M/s. Twinkle Enviro Tech Ltd. v DCIT - ITA Nos. 1752 to 1754/Mum/2013(Mum)(Trib.) vi. CIT vs. Oriental Engineers Pvt. Ltd - ITA 605/2012 (Delhi)(HC) vii. CIT v. HDFC Bank Ltd.- (2014) 366 ITR 505(Bom.) viii. HDFC Bank Ltd. vs: DCIT - Writ Petition No. 1753 OF 2016(Bom)(HC) ix. Daga Global Chemicals Pvt. Ltd .. v. ACIT - ITA No.5592/MUM/2012 (Mum.)(Trib.) 37. We have considered rival contentions and gone through the orders of the authorities below. As per the judicial pronouncements, where the investments are Strategic investment, then such investments cannot be taken into ....