TaxTMI 
TaxTMI 
2017 (4) TMI 1526
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.... 2009-10 wherein the respective grounds of appeal are as under:- ITA No. 110/JP/2014 (assessee's grounds of appeal): "1.0 Deemed Dividend of Rs. 70,00,000:- 1.1 That the learned assessing officer has erred in law as well as on the facts and circumstances of the case in considering the amount of Rs. 70,00,000 as deemed dividend, whereas the fact remains that the assessee company has not accepted any payment within the meaning of section 2(22)(e) of the Income-Tax Act, 1961. The said credit is on account of purchase of shares from Saurabh Agrotech (P) Ltd, which does not fall within the definition of "receipt of payment" and learned Commissioner of Income-Tax (Appeals), Alwar has erred in sustaining the same. 1.2 That the learned assessing officer has erred in law as well as on the facts and circumstances of the case in considering the assessee company as having voting power in the company Saurabh Agrotech (P) Limited, whereas the fact remains that the assessee company does not have any voting power in the Saurabh Agrotech (P) Ltd, in as much as its entire shareholding got transferred by Saurabh Agrotech (P) Ltd in favour of Sh. Babu Lal Data, on 10.04.2008, which is evidence....
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.... 1.7 That the learned assessing officer has erred in law as well as on the facts and circumstances of the case in considering the accumulated profit as per Balance Sheet, whereas the relevant piece of statute does not requires to consider the accumulated profit as per Balance Sheet, the profit has to be taken as defined under the provision of the Income-Tax Act, 1961 or in other words, for the purpose of working out the profit, depreciation allowed under the provision of Income-Tax Act, 1961 should be taken into consideration and learned Commissioner of Income-Tax (Appeals), Alwar has erred in sustain the same by not giving any finding thereto. 1.8 That the learned assessing officer has erred in law as well as on the facts and circumstances of the case in not deducting the all liabilities due including the income tax liability while working out the accumulated profit for the purpose of deemed dividend within the meaning of Section 2(22)(e) of the Income-Tax Act, 1961 and learned Commissioner of Income-Tax (Appeals, Alwar has erred in sustaining the same by not giving any finding thereto. 1.9 That the learned assessing officer has erred in law as well as on the facts and circums....
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....AO on account of disallowance of deduction under section 80IA claimed on the profits of the Wind Mills." ITA No. 110/JP/14 3. In ground No.1 of assessee's appeal, the assessee has challenged the action of ld CIT(A) in confirming the addition of Rs. 70 lacs under section 2(22)(e) of the Act. 3.1 Briefly the facts of the case are that the assessee was holding 24.70% of the shares of M/s Saurabh Agrotech Pvt. Ltd. (SAPL) which in turn holds 21% shares of Vijay Agro Mills Pvt. Ltd. (VAMPL). On 10.04.2008, assessee purchased 10,000 shares of VAMPL from SAPL for a consideration of Rs. 70 lacs. In support of this, assessee in course of assessment proceedings filed copy of account of SAPL in its books of accounts, copy of share transfer form, copy of resolution of Board of Directors of SAPL, copy of the minutes of the board meeting of VAMPL and annual return of VAMPL filed to the ROC evidencing purchase of 10000 shares of VAMPL by the assessee from SAPL. The AO, in course of assessment proceedings, observed that the auditor in Note No. 11 of the accounts have stated that according to the legal opinion, assessee continues to be the owner of the shares of SAPL since the consideration for ....
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....vidend on 03-01-2009 would have no relevance as the assessee company no longer was a share holder on that date. Accordingly, it is stated that the provisions of deemed dividend are not applicable in this case. 4.5 Further, copies of annual return filed with the Ministry of Corporate Affairs (which were filed in the course of appellate proceedings) reveal that Form No. 20B has been filed only on 27-012009 by M/s Saurabh Agrotech Pvt. Ltd. The form relates to financial year ending on 31-03-2008 but was filed much after the due date along-with the late fee on 27-01-2009. The date of transfer of shares though has been stated to be 10-04-2008. However the appellant failed to justify or explain any reasons for the delay in filing of such documents. 4.6 Further, it is seen from the written submission filed ( Para 4.2 above), that it is further stated by the appellant that- "we beg to submit that the said amount of Rs. 7000000.00 is in relation to the purchase of shares by Deepak Vegpro (P) Ltd from Saurabh Agrotech (P) Ltd. of Vijay Agro Mills (P) Limited and the said shares purchase and sale transaction took place on 10.04.2008 as per the following documents:- Copy of account....
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....re, the stand later taken by the appellant in the course of assessment proceedings that this amount is on account of transfer of shares of Vijay Solvex Pvt. Ltd. (another concern of the same group_ cannot be accepted in the absence of specific plea raised by the appellant. 4.10 During the course of appellate proceedings no material has been brought on record to contradict the findings of the AO on this issue. Further appellant has failed to explain the reasons to counter the qualification of the auditor given in the Audit Report. The issue for consideration is only the change of ownership and if that continues to be with the company than the amount cannot be considered on account of sale of shares. Further how the sale consideration of the shares has been arrived at has not been explained. What has been the valuation per share of the private company, whose shares are proposed to be transferred. All these factors do not support the stand taken by the appellant. 4.11 In view of the above discussion, I hold that AO has rightly invoked the provisions of section 2(22)(e) of the IT Act and accordingly confirm the addition of Rs. 70 lacs made by the AO under this head." 3.3. During t....
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.... assessee was not holding any voting power in SAPL, the question of application of section 2(22)(e) does not arise for consideration. 3.5 It was further submitted that SAPL has a debit balance of Rs. 28,30,446/- as on 31.03.2009 i.e. assessee has advanced this amount to SAPL. Copy of the account is enclosed. Thus, it is a case where the said amount is due from SAPL against the supply of goods and on the other hand Rs. 70 lacs is payable to SAPL against the purchase of shares of VAMPL. Both these transactions are not loan or advance as envisaged u/s 2(22)(e). Infact in respect of transaction of purchase of shares, assessee has not received any sum of money but it is only a journal entry where investment in share account is debited and SAPL (share account) is credited. Thus, this transaction cannot be said to be a receipt of loan or advance so as to attract section 2(22)(e). 3.6 It was further submitted that it is a settled law that sec. 2(22)(e) is attracted only when payment is made by the company to its shareholder by way of loan or advance. If payment is not on account of loan or advance, the section is not applicable. The word "advance" has not been defined. However, in case o....
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....fore, sine qua non, to ascertain the correct nature of the payments. In the present case the assessee company received application money for the allotment of shares. There is nothing on record to indicate that application money was received or allotment of shares was made contrary to the provisions of Companies Act, 1956. The amount was reflected as such in the Balance Sheet. Accounts were prepared perfectly in accordance with the norms set out under the Companies Act, 1956. These were filed with the Registrar of Companies. The chief ingredient of s. 2(22)(e) is that one should be shareholder on the date the loan was advanced to him. Where such ingredient is not established, the advance could not be taken as deemed dividend under s. 2(22)(e). It is settled rule of interpretation of a fiction that the court should ascertain for what purpose the fiction is created and after ascertaining the purpose, the court has to assume all facts which are incidental to give effect to that fiction. It will not be given a wider meaning than what it purports to do. Law dealing with fiction relates to that breach of jurisprudence which should be narrowly watched, zealously regarded and never to be pr....
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....of section 2(22)(e) of the Act which reads as under:- "any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares ( not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten percent of the voting power, or to any concern, in which such shareholder is a member or a partner and in which he has a substantial interest (hereinafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits". 3.10 On perusal of the above provisions, it provides that any payment by a company (not being a company in which public is substantially interested) of any sum by way of advance or loan to a shareholder, being a person who is the beneficial owner of share holding not less than 10% of voting power....
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.... The addition made by the Assessing Officer under section 2(22)(e) are hereby deleted. In the result ground no. 1 of the assessee's appeal is allowed. 4. In ground No. 2 of assessee's appeal, the assessee has challenged the action of ld CIT(A) in sustaining the disallowance of Rs. 33,90,121 under section 14A read with Rule 8D. 4.1. Briefly the facts of the case are that the assessee has shown investment of Rs. 8,74,13,129/- in shares in its Balance Sheet for the year ended 31.03.2009. All the investments were made in earlier years except for investment of Rs. 70,00,000/- in Vijay Agro Mills Pvt. Ltd. and investment of Rs. 15,68,000/- on account of share application money given to Vijay International Ltd. during the year. No dividend is received during the year. The AO observed that assessee has interest bearing funds in the form of secured and term loan of Rs. 21,46,11,813/- taken from various banks and unsecured loan of Rs. 5,86,70,159/- taken from private parties on which interest has been paid regularly. The assessee submitted that there is no nexus between the interest bearing funds and investment thereof in the shares and also that there is no exempt income from investment a....
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....the head investments an amount of Rs. 8,74,13,129 has been shown for this year as compared to the amount of Rs. 7,88,45,129 in the preceding year. On the other hand secured loans have increased from Rs. 16,26,61,143 (in the last year) to Rs. 21,46,11,813 (in the current year). The un-secured loans are Rs. 5,86,70,159 ( Current year and current liabilities are Rs. 9,12,38,848 as against current assets of Rs. 23,61,91,443. Besides this the loan and advances given by the company stand at Rs. 15,62,61,067. 6.6 During the year share capital and reserves and surpluses stand at Rs. 22,91,26,464 and against this fixed assets are at Rs. 13,64,56,572. This share capital and reserves and surpluses have increased only in this year as in the last year the comparative figure was Rs. 17,61,78,263. The increase of about 5 Crores in the owned funds in on account of issue of shares at a substantial premium during the year. Further, the investments have shown only marginal increase and were of Rs. 7.88 crores in the preceding year. Thus, these investments were financed out of the loaned funds as no linkage could be established between the investments made and sources of fund. Moreover, it is clear ....
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....n the decision dt. 05.08.2009 of Special Bench of the Delhi Tribunal in case of Cheminvest Ltd. Vs. ITO (2009) 124 TTJ 577, it was held that disallowance u/s 14A can be made even if no dividend income is received. It was submitted that this decision of Special Bench has been overruled by the Hon'ble Delhi High Court vide order dt. 02.09.2015 reported at 378 ITR 0033 where it was held that the expression 'does not form part of total income' in sec. 14A envisages that there should be an actual receipt of income, which was not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, sec. 14A will not apply if no exempt income is received or receivable during the relevant previous year. Further, the Hon'ble ITAT, Jaipur Bench in case of M/s Vijay Industries Vs. DCIT in ITA No. 673/JP/2015 for A.Y. 06-07 order dated 17.06.2016 wherein also no dividend income was received during the year, deleted the disallowance made by the AO u/s 14A by relying on the Delhi High Court decision in case of Cheminvest Ltd. (supra). Reliance was also placed on the following judgments of the Hon'....
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....the company. Therefore, while working out the average value of the investment under rule 8D(2)(iii) the share application money should not be included. Further, the lower authorities have not established that any borrowed funds have been used for making investment in the shares. In various cases, it has been held that if there are funds available both interest free and over draft and/or loans taken, then a presumption would arise that investments would be out of the interest free fund generated or available with the company, if the interest free funds were sufficient to meet the investments. For this, reliance is placed on the following judicial precedents:- - CIT Vs. Karnataka State Industrial & Infrastructure Development Corpn. Ltd. (2016) 237 Taxman 240 (Kar.) (HC) - HDFC Bank Ltd. Vs. DCIT & Ors. (2016) 132 DTR 89 (Bom.) (HC) - CIT Vs. Taikisha Engineering India Ltd. (2015) 370 ITR 338 (Del.) (HC) - CIT Vs. HDFC Bank Ltd. (2014) 107 DTR 140 (Bom.) (HC) - CIT Vs. UTI Bank Ltd. (2013) 215 Taxman 8 (Guj.) (HC) (Magz.) - CIT Vs. Suzlon Energy Ltd. (2013) 354 ITR 630 (Guj.) (HC) - CIT Vs. Reliance Utilities & Power Ltd. 313 ITR 340 (Bom.)(HC) 4.5 It was further submit....
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....ing to the Revenue." 4.6 It was further submitted that similar issue came before Hon'ble ITAT in case of Vijay Industries for A.Y. 06-07 in ITA No. 673/JP/15 order dt. 17.06.2016 where also the disallowance of interest made by AO was set aside by the Hon'ble ITAT but again AO made the disallowance which is confirmed by CIT(A) but considering the fact that assessee has sufficient reserve and surplus to make investment in shares and in the absence of direct nexus between interest bearing funds and investment in shares, the disallowance made by the lower authorities was deleted. In deleting the disallowance, Hon'ble ITAT placed reliance on the decision of Bombay High Court in case of CIT Vs. Reliance Utilities and Power Ltd. 313 ITR 340 and also on various other decisions cited by the assessee. 4.7 It was further submitted that the Hon'ble Supreme Court in case of Hero Cycles Pvt. Ltd. Vs. CIT 379 ITR 347 (PB 112-115) which is in context of allowance of interest u/s 36(1)(iii) in has held that "in so far as the loans to Directors are concerned, it could not be disputed by the Revenue that the assessee had a credit balance in the bank account when the said advance of Rs. 34 lakhs was....
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.... of its order, it observed as under: "15. ...In that case, a similar question arose, viz., whether the ITAT was justified in deleting the disallowance under section 14A of the Act when no dividend income had been earned by the assessee in the relevant AY. The Court referred to the decision of this Court in Maxopp Investment Ltd.'s case (supra) and to the decision of the Special bench of the ITAT in this very case i.e. Cheminvest Ltd. v. ITO (2009) 121 ITD 318. The Court also referred to three decisions of different High Courts which have decided the issue against Revenue. The first was the decision in CIT v. Lakhani Marketing Inc. (2014) 226 Taxmann 45/49 taxmann.com 257 of the High Court of Punjab and Haryana which in turn referred to two earlier decisions of the same Court in CIT v. Hero Cycles Ltd. (2010) 323 ITR 518/189 Taxman 50 and CIT v. Winsome Textile Industries Ltd. (2009) 319 ITR 204. The second was of the Gujarat High Court in CIT v. Corrtech Energy (P.) Ltd. ( 2014) 223 Taxman 130/45 taxmann.com 116 and the third of the Allahabad High Court in CIT v. Shivam Motors (P.) Ltd.(2015) 230 Taxman.com 262. These three decisions reiterated the position that when an Assessee ....
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....of September, 2015 which is subsequent to the latest decision of the Coordinate Bench for AY 2008-09 which was passed on 2nd of December, 2014. Given that such contention was not raised earlier, the undisputed fact that no dividend income was received during the year and in light of decision of the Hon'ble Delhi High Court in case of Cheminvest Ltd which squarely applies in the instant case, no useful purpose would be served in setting aside the matter to the file of the AO as has been done by the Coordinate Benches earlier and in this regard, we are also guided by the decision of Coordinate Bench in case of Zuari Leasing (supra) where the power to remand has to be stated to be used sparily and in only exceptional cases. 4.13 In the light of above discussions and in the entirety of facts and circumstances of the case, disallowance u/s 14A is hereby deleted and the ground no. 2 of the assessee's appeal is allowed. 5. Now, coming to ground no. 3 of the assessee's appeal wherein the assessee company has challenged the action of the ld CIT(A) in not allowing the claim of the assessee company of Rs. 3,24,17,009 being VAT reimbursement and in the nature of capital receipt in view of th....
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.... made by the AR along-with judicial citations given therein. The Income Tax Return was filed by the appellant on 2709-2009 for A.Y. 2009-10 i.e. the period under consideration. Subsequently, a revised return was filed on 21-03-2011 (after the time permissible under the law) showing the VAT reimbursement of Rs. 3,24,17,009 as capital receipt and hence not taxable. The claim made in the revised return is not valid as it has been filed after the time limit permissible under the provisions of the IT Act. 8.4 The claim was made by the appellant in view of the judgment of the Hon'ble Bombay High Court in the case of Reliance Industries Ltd. this judgment has been discussed and reproduced above. The Hon'ble Supreme court has vide its order dated 09-092012 stayed the operation of said judgment to the Bombay High Court and has remitted the matter back to the High Court for consideration. 8.5 I have gone through the judgment stated above in detail and find that the facts in the case of the appellant are on a different footing. The sudden u-turn taken by the appellant is not acceptable and is not based on acts. The appellant has himself treated the receipt as a revenue in nature and also ....
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....ing that sales tax incentive is a capital receipt". The Hon'ble High Court of Bombay in case of CIT Vs. Reliance Industries Ltd. 339 ITR 0632 order dated 15.04.2009 decline to admit the above question. The relevant Para 4 to 6 of this order is reproduced as under:- "4. So far as question (D) is concerned, the Tribunal relied upon the Tribunal Mumbai Bench "J" (Special Bench) decision in the case of assessee itself in Dy. CIT vs. Reliance Industries Ltd. (2004) 82 TTJ (Mumbai)(SB)765 : (2005) 273 ITR 16 (Mumbai)(SB)(AT). We may gainfully reproduce the following portion: "The scheme framed by the Government of Maharashtra in 1979 and formulated by its resolution dt. 5th Jan., 1980, has been analysed in detail by the Tribunal in its order in RIL for the asst. yr. 1985-86 which we have already referred to in extenso. On an analysis of the scheme, the Tribunal has come to the conclusion that the thrust of the scheme is that the assessee would become entitled for the sales-tax incentive even before the commencement of the production, which implies that the object of the incentive is to fund a part of the cost of the setting up of the factory in the notified backward area. The Tribun....
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....o set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account." Therefore, let us apply the purpose test based on the findings recorded by the Special Bench. The object of the subsidy was to set up a new unit in a backward area to generate employment. In our opinion, the subsidy is clearly on capital account. In that view of the matter, question (D) as framed, would also not arise." Against this order of Bombay High Court, Department filed a civil appeal and SLP to the Supreme Court. The Hon'ble Supreme Court vide its order dated 09.09.2011 by allowing the civil appeal, set aside the order of the Hon'ble High Court and remitted it to the High Court to decide the question in accordance with law. Thus, as on date, the decision of Hon'ble Special Bench holds the field. The AO has not allowed the claim of the assessee by wrongly stating that Hon'ble Supreme Court has stayed the operation of the order passed by the High Court whereas the fact is that after the order of the Hon'ble Supreme Court, this issue is pending for decision as per law before the High Court. Therefore, once there is a decision of Special Bench, the same would pre....
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....ent excise duty exemption for a period of 10 years from the date of commencement of commercial production. All new industries in the notified locations were eligible for capital investment subsidy @ 15 per cent of their investment in plant and machinery, subject to a ceiling of Rs. 30 lacs whereas the existing units were entitled to subsidy on substantial expansion. Besides these and other concessions, interest subsidy of 3 per cent on the working capital and insurance premium to the extent of 100 per cent on capital investment too was permissible to the new and existing units on their substantial expansion for a period of 10 years. The Office Memorandum dt. 14.06.2002 was later amended to achieve the government's object, as conveyed by the Hon'ble Prime Minister at Srinagar, for creation of one lacs employment and self employment opportunities in Jammu & Kashmir. On these facts, the Hon'ble High Court held that perusal of the Office Memorandum indicating New Industrial Policy and other concessions for the State of Jammu & Kashmir, makes it explicit that the concessions were issued to achieve twin objects viz. (i) Acceleration of industrial development in the State of Jammu & Kash....
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.... incentives, hence revenue receipt cannot be sustained, being against the law laid down by Hon'ble Supreme Court of India in Sahney Steel and Ponni Sugars case. The finding of the Tribunal that the incentives were revenue receipt was accordingly set aside holding the incentives to be capital receipt in the hands of the assessees. 5.7 It was further submitted that the Hon'ble Mumbai Tribunal vide its order dt. 22.06.2016 in ITA No. 5675/Mum/2014 in case of DCIT Vs. M/s Harinagar Sugar Mills Ltd. wherein also the assessee received reimbursement of VAT on molasses under the Bihar Incentive Package 2006 for setting up distillery unit in Para 6 held as under:- "In the instant assessment year, the assessee company has received subsidy by way of reimbursement of commercial taxes (VAT) paid under Bihar Incentive Scheme 2006 of Rs. 43,89,465/- on purchase of molasses. It is not disputed that the subsidy scheme formulated by the Government of Bihar is for the purpose of attracting capital investment and to encourage setting up the industry/expand the existing unit. It is pertinent to mention that the character of a subsidy in the hands of the tax-payer has to be determined with respect to....
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....ubmitted that the Ld. CIT(A) has incorrectly held that the revised return filed by the assessee on 21.03.2011 is not valid as it is filed after the time limit permissible under the IT Act. It is submitted that the time limit available for filing the revised return u/s 139(5) is one year for the end of the relevant assessment year i.e. 31.03.2011 and therefore the revised return filed by the assessee is as per law. Further, non-mentioning of the subsidy amount as capital receipt in Form No. 3CD by the auditor is not relevant to decide the nature of receipt of subsidy. The Ld. CIT(A) has admitted that the purpose of subsidy is to encourage all round development of state but still he treated it as a revenue subsidy for the reason that it is linked to the production and sales made by the unit. In holding so, he ignored the decision of purpose test laid down by the Supreme Court in case of Ponni Sugars and Chemicals Ltd. (supra) where it is categorically held that form or the mechanism through which the subsidy is given is irrelevant. Once, it is accepted, that the purpose of subsidy is all round development of the state, the nature of the subsidy clearly is a capital receipt. In view o....
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....ocedures for establishing industries, to issue license and certificates, to provide a congenial atmosphere to the investors of Bihar State and in this regard and for other concerned subjects Bihar Single window Clearance Act-2006 has been enacted. (iii) Bihar Infrastructure Development Enabling Act-2006- To provide for rapid development of physical and social infrastructure in the State and to attract private sector participation and to provide for a comprehensive legislation for designing, financing, construction, operation, maintenance of infrastructure projects, so that administrative and procedural delays are reduced, for identifying generic project risks, Bihar Infrastructure Development enabling Act, 2006 has been enacted. (iv) In order to simplify the inspection of factories, provision of selfcertification will be made. (v) Industrial growth is adversely affected due to the complicated labour laws. Such labour laws will be made simple and development oriented. (vi) Human resources will be developed in such a way, which can promote and create industrialization of high degree. Besides existing different institutions will be strengthened to improve skill. (vii) Land B....
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....ntrepreneur obtains Technical Know-how from any recognized National research center/ laboratory or institution to establish or to expand his industry, he will be reimbursed 30% (maximum) Rs. 15.00 lacks) of the fee paid to the institution/organization for the technical know-how. This facility will be provided to the unit after commencement of production. (iv) Incentive Grant for capital investment on Captive Power Generation/ Diesel Generating Set.: 50% (fifty percent) of the amount spent on plant and machinery in the establishment of Captive Power Generation/Diesel Generating set will be granted to the industry. No upper limit for this amount has been fixed. This facility will be made available after the unit comes into production. (v) New industrial units will be granted relief from payment of electricity duty under the Bihar Electricity Duty Act, 1948 for the generation and for own consumption of electricity from D.G. Set and Captive Power Units. (vi) Subsidy/Incentive on VAT: This facility will be available to Small/large/medium industries. The industrial unit will get a passbook from the State Government in which the details of the tax paid under Bihar VAT would be enter....
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....ernment in the form of VAT for a period of ten years. (xii) Exemption from AMG/MMG: working units at present and new units will avail exemption from AMG/MMG from the date of declaration of the new Industrial Policy. This facility will be granted for five years. (xiii) Central sales Tax (CST): only 1% CST will be payable on the items produced by the registered small and medium units in Bihar." 5.11 We now refer to decision of Special Bench of the tribunal in case of Reliance Industries Ltd. (supra) wherein sales tax incentive was held in the nature of capital receipt and not liable to tax. The said decision was subsequently relied upon by another Coordinate Bench in case of Reliance Industries for a subsequent year and the said latter decision has been challenged by the Revenue before the Mumbai High Court wherein it has declined to admit the substantial question of law. The said decision has since been the subject matter of SLP before the Hon'ble Supreme Court wherein it was held that Hon'ble High Court out not to have dismissed the appeal without considering the following questions which did arise for consideration. The matter was accordingly remitted back to the Hon'ble High....
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....cured loans or refunds. 1. By way of reimbursement of VAT amount deposited in the account of the Govt. as % of fixed capital investment. Your Honour will observe while going through the above comparative table, that both the scheme viz. 1979 scheme and 2006 scheme are materially stands on the same footing and the decision given with reference to the 1979 scheme finds its applicability to the cases covered by the 2006 scheme of the Bihar Govt." "7 The State of Maharashtra has also formed packaged scheme of incentive from time to time to grant sales tax exemption and other fiscal benefits to new and existing industries for setting up units in undeveloped and under-developed regions. In the preamble to the sales tax incentive scheme there is a sufficient pointer that the incentive under the 1979 scheme is given to encourage the setting-up of new industrial units during a particular period in certain backward areas of Maharashtra as well as for dispersal of the industries. The object of the 2006 scheme of Bihar Govt. also stands in agreement with the object of the 1979 Maharashtra Govt. scheme as is evident from the copy of the scheme enclosed wherein the maximum quantum of i....
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....The Supreme Court held that such subsidies were operational subsidies and were given "to encourage setting up of industries in the State of Andhra Pradesh by making the business of production and sale of goods in the State more profitable". It is in this background that we will have to consider the further observations of the Supreme Court at pages 262-263 of the report, which we have extracted in the preceding paragraph. These observations, in our humble understanding of the judgment, constitute the ratio of the judgment. It is here that the Supreme Court has laid down the following principles :- (1) The character of the subsidy (whether revenue or capital) in the hands of the recipient will have to be determined by having regard to the purpose for which the subsidy is given. (2) If the subsidy is given as assistance to the assessee in the carrying on of his trade or business, it is a trading receipt. (3) In determining the character of the subsidy, the source of the fund is immaterial. The Supreme Court itself gave an example to demonstrate how the ratio is to be applied. The Supreme Court supposed that if under the scheme, the assessee obtained a refund of sales tax on p....
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....rust of the Maharashtra Scheme was the industrial development of the backward districts as well as generation of employment thus establishing a direct nexus with the investment in fixed capital assets. It has been found that the entitlement of the industrial unit to claim eligibility for the incentive arose even while the industry was in the process of being set up. According to the Tribunal, the Scheme was oriented towards and was subservient to the investment in fixed capital assets. The sales tax incentive was envisaged only as an alternative to the cash disbursement and by its very nature was to be available only after production commenced. Thus, in effect, it was held by the Tribunal that the subsidy in the form of sales tax incentive was not given to the assessee for assisting it in carrying out the business operations. The object of the subsidy was to encourage the setting up of industries in the backward area." "29. Thus, the interpretation of the Tribunal, of the ratio laid down in the judgment of the Supreme Court in Sahney Steel & Press Works Ltd.'s case (supra) cannot be stated to be erroneous. The Tribunal did recognise, as the Supreme Court itself recognised, that t....
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....en with the object of setting up the industry and the subsidy given after the industry commences production and conditional upon the commencement of production. Factually, the Tribunal found that the assessee's case which fell under the Maharashtra Scheme, was a case where the subsidy was given for the purpose of facilitating the assessee to set up an industry in Patalganga, Raigad District, which is a notified area. The actual disbursement took place after the assessee commenced production, but, according to the Tribunal, it was only a mode of disbursement and had nothing to do with the object for which the subsidy was given. In paragraph 115 at the bottom of page 121 of its order (page 336 of the paperbook No. 1), the Tribunal observed as follows :- "On a detailed consideration of various schemes of Government of Maharashtra and 1979 Scheme in particular, we find that the investment in fixed capital assets is not merely a measure of the amount of incentive. The entire Scheme of incentive has been oriented and is subservient to investment in fixed capital assets in the specified districts of the State. The importance of this aspect has been emphasised in the judgment of Hon'ble ....
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....tal investment. We find strong support to this finding from the following observations of Hon'ble Supreme Court in the case of Sahney Steel and Press Works Ltd. at pages 260-261 : Mr. Ganesh strongly relied on Seaham Harbour Dock Co.'s case [1931] 16 TC 333 (HL) which does not come to the assistance of his contention in any way. In that case application for assistance was made even before the work of expansion of dock commenced. The money was for extension of the docks of the company. The extension would have enabled some persons to be kept in employment who would otherwise have lost their jobs. Money was given for the express purpose which was named. It was found by the House of Lords that it had nothing to do with the trading of the company." "33. The above observations of the Tribunal made on the basis of the observations of the Supreme Court in Sahney Steel & Press Works Ltd.'s case (supra) also show that the Tribunal was alive to the distinction between the character of the subsidy given with the object of promoting industrial growth in a particular area and the subsidy given conditional upon the commencement of production and after actual commencement of production. In ou....
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....bsidy is given is the prime or foremost consideration while determining the nature of the receipt. The High Court held as under :- "The nature of the receipt of the incentive, therefore, has to be examined in the light of that object. Law has to keep up with the newer devices and methods adopted in the world of business as also in the several schemes that policy makers draw up from time to time to ensure the desired development in the different sectors of industry. If the Government found it convenient to adopt a policy of enabling the entrepreneurs to initially fund the capital cost of the project by obtaining loans from the public financial institutions by inducing the entrepreneur and the lender institution to rely upon the incentives provided under the scheme for discharging such loans, it cannot be said that the incentive given being post production, though meant exclusively for meeting the capital cost, the amount of the incentive would be a trading receipt in the hands of the recipient. The fact that the time of payment is subsequent to the commencement of production would not in the larger perspective make a difference. As observed by the Supreme Court in the case of K.C.....
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.... predetermine the outcome of another case merely on the ground that post-production receipts are normally regarded as trading receipts. In other words, the High Court has held that merely because the monies are received after production commences, it cannot be said, irrespective of the purpose and object of the scheme, that the receipt is of revenue nature. This observation of the Madras High Court and the manner in which the judgment of the Supreme Court in Sahney Steel & Press Works Ltd.'s case (supra) has been explained at page 612 of the report also show that the Tribunal in the case of Reliance Industries Ltd. (supra) for the assessment year 1985-86 correctly interpreted the judgment of the Supreme Court in Sahney Steel & Press Works Ltd.'s case (supra). The observations of the Madras High Court lend support to the view that the purpose and object of the Scheme under which the subsidy is given is of more fundamental importance than the fact that the subsidy was received after the commencement of production or conditional upon it. Therefore, in our view and with respect, the Tribunal in the case of Reliance Industries Ltd. ( supra) had correctly interpreted and understood the r....
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....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 Work's Ltd.'s case (supra) lies in the fact that it has discussed and analysed the ent....
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....f state of Bihar formulated in the year 2006. The objective of the policy was to establish new industries and to revive the sick and closed units in the state of Bihar and to create favorable environment to attract the investors of state and from abroad. The thrust of the policy was growth in the per capita income of the state and industrial growth as well as accelerated employment opportunities. Under this Industrial Incentive Policies-2006, there are provisions for granting pre-production incentive of subsidy/exemption from stamp duty and registration fee and post production incentive of grant/exemption for preparation of project reports, purchase of land/shed, technical know-how, captive power generation/diesel generating set, subsidy/incentive on Vat, exemption in luxury tax, electricity duty, conversion fee, market fee etc. 5.17 Under the said policy, one of subsidy/incentive available to the new units, which is under consideration before us, is the reimbursement to the extent of 80% against the admitted VAT amount deposited in the account of the Government for a period of 10 years. The maximum subsidy/incentive amount was restricted to 300% of the capital employed. Applying ....
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....r concession or reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee other than the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (1) of section 43." 5.20 In light of above amendment in the definition of income, any subsidy given by the Central Government or a State Government or any authority etc. for any purpose, except where it is taken into account for determination of the actual cost of the asset under Explanation 10 section 43(1), has become chargeable to tax. Even if a subsidy is given to attract industrial investment or expansion, which is a otherwise a capital receipt under the pre-amended era, shall henceforth be treated as income chargeable to tax, except where it has been taken into account for determining the actual cost of assets in terms of Explanation 10 to section 43(1). This amendment is with effect from 1-4-2016 and is prospective in its application. In the instant case, as the assessment year under consideration is 2009-10, Section 2(2....
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.... of Velayudhaswamy Spinning Mills (P.) Ltd. v. Asstt. CIT, which was pending appeal before Supreme Court, held that assessee was entitled to deduction under section 80-IA without setting off losses/unabsorbed depreciation pertaining to windmill, which were set off in earlier year against other business income. It also held that initial assessment year in section 80-IA(5) would only mean year of claim of deduction under section 80-IA and not year of commencement of eligible business. It further held that assessee had option to choose first/initial assessment year of claim for deduction under section 80-IA- Revenue filed appeal before High Court - High Court held that since it has consistently followed decision in case of Velayudhaswamy Spinning Mills (P.) Ltd. (supra) and on basis of said decision CBDT had issued Circular No. 1 of 2016, dated 15.02.2016 clarifying term 'initial assessment year' in section 80-IA(5), order of Tribunal deserved to be upheld and SLP filed against order of High Court was to be dismissed." 6.5 The findings of the ld CIT(A) are reproduced as under:- "I have considered the assessment order as well as submissions made by the AR along-with judicial citatio....
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....llant has not even claimed the deduction under the said provision. The assessing Officer has misunderstood the first year of commencement of production and initial assessment year as synonymous. The year of commencement of production and initial assessment year bears the different connotation. For this proposition, strength is drawn from the statutory audit report format in form number 10CCB as relied upon by learned counsel. I have no hesitation in giving a finding that the initial assessment year for the appellant is assessment year 2007-08 and from such assessment year, it will be considered as independent source of income. While giving this finding I also draw strength from Taxmann's ready recknor by Dr. Vinod K. Singhania 33rd edition from page number A-241 to A-244. Further, Hon'ble Rajasthan High Court in case of Mewar Sugar Mills 271 ITR 311 have decided that it is not at all required that losses or other deduction which have already been set off against the income of the previous year should be reopened again for the purpose of computing admissible deduction u/s 80IA of the Income Tax Act, 1961. There is no provision under the Income Tax Act, 1961 or any iota of refere....
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..... 110/JP/14 & 116/JP/14 shall therefore apply mutatis mutandis to all these grounds of appeal. 8. We now come to Revenue's ground of appeal no. 1 in ITA No. 705/JP/2014 wherein the Revenue has challenged the action of the ld CIT(A) in deleting the addition of Rs. 5,00,000/-/- made by AO after invoking the provisions of section 145(3) of the Act. 8.1 In this regard, the brief facts of the case are that the assessee is engaged in the business of trading and manufacturing of edible oil, oil cake and vanaspati ghee. It is also engaged in the business of power generation from windmills. During the year, it declared gross profit of Rs. 2499.58 lacs on turnover of Rs. 30026.09 lacs giving a G.P. rate of 8.32% as against gross profit of Rs. 2308.05 lacs on turnover of Rs. 32232.71 lacs giving a G.P. rate of 7.16% in the immediately preceding year. The N.P. rate declared during the year is 0.99% as against N.P. rate of 0.31% declared in the last year. 8.2 The AO observed that assessee has claimed shortage of mustard seed of 1.610 MT in the month of April, 2009 and 34.536 MT in the month of March, 2010 whereas no shortage has been claimed in the months of May, 2009 to February, 2010. Acco....
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....day to day basis whenever the same has occurred. The reason as to why the shortage has been claimed in the month of April 09 and March 10 and not in the months of May 2009 to Feb 2010 has been duly explained before the AO. So far as non-production of laboratory test reports are concerned, it is submitted that every lot of seeds contain different quality of oil and considering the content of oil in the seed, payment is made to the supplier. The maintenance of laboratory test report has thus no relevance for application of section 145(3). The Ld. CIT(A) after considering all these facts held that AO has no material for rejecting the book results declared by the assessee. The department has not challenged this finding of the CIT(A) where it is held that section 145(3) is not applicable. Hence, on this account itself, the ground of the department be liable to be dismissed. 8.5 It was further submitted that in A.Y. 03-04 to 07-08 also, the AO rejected the books of accounts by making various observations including the non maintenance of laboratory test report and shortage of mustard seed claimed by the assessee and made trading addition. However, the Hon'ble ITAT accepted the books of a....
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....gross profit. In the present case, the result declared by the assessee in the preceding year has been accepted. The G.P. rate declared during the year is better as compared to the preceding year. Not only the G.P. rate but the N.P. rate is also better as compared to earlier years. It is a settled law that, no trading addition is called for if the result declared is better as compared to the result declared in earlier year. 8.8 We have heard the rival contentions and pursued the material available on record. It is noted that on similar ground of shortage of mustard seeds and the reasoning adopted by the AO, the additions have been made in the earlier years and the matter after been examined has been decided in favour of the assessee company by the Coordinate Benches. Further, we donot see any infirmity in the order passed by the Ld. CIT(A) and his following findings remain uncontroverted before us and which are hereby confirmed: "4.3 I have perused the Assessment order as well as submissions made by the appellant and find that a lump sum trading addition of Rs. 5,00,000/- was made by the AO on the ground that claim of shortage by the assessee is quite excessive. AO has also noted....