TaxTMI 
TaxTMI 
2017 (4) TMI 1526
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....ies, we take up the cross appeals for AY 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) ....
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....f Income-Tax (Appeals), Alwar has erred in sustain the same by not giving any finding thereto. 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 ....
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....mmissioner of Income Tax ( Appeals), Alwar has erred in law as well as on the facts and circumstances of the case in deleting the addition of Rs. 27,77,310/- made by 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 a....
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....ding was transferred by M/s Saurabh Agrotech Pvt. Ltd. in favour of Shri Babu Lal Data on 10-04-2008. It is also stated that the working of accumulated profits and computation of deemed dividend 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 ....
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....h provision of section 2(22)e) are applicable." 4.9 The AO made the addition based on the available facts that the ownership of shares which was stated to have been transferred in favour of Sh. Babu Lal Date, which ultimately could not materialize. Therefore, 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 ....
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....the assessee in SAPL stood transferred in favour of Sh. Babu Lal Data on 10.04.2008. Only for the reason that SAPL filed its annual return with ROC with some delay cannot be viewed adversely nor the notes to the account would change the position of law. Thus, when on 10.04.2008, the 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 submit....
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..... Kohler (5th Edn.), the expression "advance" was defined as payment of cash or the transfer of goods for which accounting must be rendered by the recipient at some later date. Loan and advances could only be considered "deemed dividend" for the purpose of section 2(22)(e). It is, therefore, 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, th....
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....ferred in favour of Shri Babu Lal Duta. It is the first transaction which has been made the subject matter of deemed dividend u/s 2(22)(e) of the Act by the AO and confirmed by the ld CIT(A) and under consideration before us. 3.9 In the above factual matrix, we now refer to the provisions 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"....
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.... in the instant case, there is no necessity to examine the third condition in terms of extent of accumulated profits which can attract deemed dividend. 3.12 In light of above, we agree with the contention of the ld AR that provisions of section 2(22)(e) of the Act are not attracted in the instant case. 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/- ....
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....ch investments and therefore no disallowance could be made. 6.5 All these arguments taken by the appellant were also raised before the AO and have been duly considered in the assessment order. I have gone through the same and do find any force in them. Further, It is seen from the Balance Sheet of the appellant that under 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 ....
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....e IT Act." 4.3. During the course of hearing, the first contention raised by the ld. AR is that no disallowance u/s 14A can be made where no dividend is received. The Ld. CIT(A) in this connection has relied on the decision dt. 11.01.2013 of Hon'ble Mumbai Bench in case of Stream International Service (P.) Ltd. (2013) 23 ITR (Trib.) 0070 wherein by relying on 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, Jaipu....
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.... In this case, it was held that share application money is only in the nature of an offer to buy the shares made by the assessee. It is only after the offer is accepted by the company resulting in a concluded contract, the assessee becomes the shareholder in a company. Till the time the assessee becomes a shareholder, the assessee cannot have any rights to claim any dividend that may be declared by 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) -....
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....e the Tribunal to have another inning, particularly when such party had full opportunity to establish its case. Unnecessary remands, when relevant evidence is on record, belies litigant's legitimate expectations and is to be deprecated. Having regard to aforesaid principle, it is necessary to look into records to see whether there is sufficient material on record to dispose of the issue on merit and there is no need to remand the issue to provide a fresh inning 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....
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....thus, not forming a part of the total income, and therefore the interest paid thereon had to be disallowed under section 14A. In the above factual matrix, the Hon'ble Delhi High Court has held that section 14A of the Act will not apply if no exempt income is received or receivable during the relevant previous year and observed that the complete answer is provided by the decision of this very Court in CIT v. Holcim India (P.) Ltd. (2015) 57 taxmann.com 28 and in Para 15 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 Har....
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....orders passed by the Coordinate Benches in earlier years where the matters have been set-aside to the file of the AO, it is noted that neither such contention (in terms of non-applicability of section 14A in absence of dividend income) has been raised by the appellant nor the decision of the Hon'ble Delhi High Court in case of Cheminvest Ltd. has been brought to the notice of the Coordinate Bench. In fact, the decision in case of Cheminvest Ltd. has been pronounced by Hon'ble Delhi High Court on 2nd 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 spa....
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....sessee's claim by holding that the department has not accepted the decision of Bombay High Court in the case of Reliance Industries (supra) and has filed SLP before the Hon'ble Supreme Court who has stayed the operation of the order. Accordingly, the AO disallowed the claim of Rs. 3,24,17,009/-. 5.3. Being aggreived, the assessee carried the matter in appeal before the ld CIT(A) who has confirmed the addition and his findings are as under: "8.3 I have considered the assessment order as well as submissions 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 dis....
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....3 held that the incentive received by the assessee under the Scheme framed by Government of Maharashtra to encourage the setting up of industries in the backward area and generating employment therein is a capital receipt. Following this order, the Hon'ble ITAT in a subsequent appeal held that sales tax subsidy is a capital receipt. Against this order, department filed an appeal before the Bombay High Court where Question No. D framed was "whether in the facts and circumstances of the case and in law, the Hon'ble Tribunal was right in holding 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 197....
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..... The Court then proceeded to observe as under: "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 set up 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 of the assistance under the subsidy scheme was to enable the assessee to 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 ....
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....industrial development, improving availability of capital and increase in market access so as to give a fillip to private investment in the State. These fiscal incentives were to be provided to the new industrial units and substantial expansion of existing units. The new industrial units and existing industrial units on their substantial expansion, set up in growth center, industrial infrastructure development centers and other locations like industrial estates, parks, export processing zones, commercial estates, etc., as notified by the Central Government, were entitled to 100 per cent 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 expan....
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....of the commercial production, and that these were not required for creation of new assets cannot be viewed in isolation to treat the incentives as production incentives, as held by the Tribunal, for the measure so taken, appears to have been intended to ensure that the incentives were made available only to the bona fide industrial units so that larger public interest of dealing with unemployment in the State, as intended, in terms of the Office Memorandum was achieved. Thus, the finding of the Tribunal that the excise duty refund, interest subsidy and insurance subsidy were production 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 200....
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....ated 14.10.2016 where the assessee received incentive subsidy in form of reimbursement of 75% of sales tax/VAT paid on the sale of finished products under the 'West Bengal Incentive Scheme 2000' issued by the Commerce and Industries Department, Government of West Bengal by relying on the decision of Supreme Court in case of CIT Vs. Ponni Sugars and Chemicals Ltd., Calcutta High Court in case of CIT Vs. Rasoi Ltd. 335 ITR 438 and various other decisions held that the incentive subsidy in form of refund/reimbursement of sales tax/VAT is a capital receipt not chargeable to tax. 5.9 It was further submitted 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 ad....
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.... generation/diesel generating set, quality certificate Vat, luxury tax, electricity duty, conversion fee, market fee etc. With the implementation of this Industrial Incentive Policy- 2006, it is expected that there will be growth in the per capita income of the state and industrial growth as well as accelerated employment opportunities. 1.2 STRATEGY (I) To create favorable circumstances in order to establish industries in the State so that among the investors, there may be positive communication. (ii) Bihar Single Window Clearance Act- 2006- To promote all round development of the state and industrial growth rapid clearance procedures 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, ....
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.... available provided, the project report is prepared by any of the firms recognized by the Industrial Department. The reimbursement will be made to the unit after commencement of the production. (ii) Incentive Granted on Land/Shed: The Industrial Units Located in Bihar Industrial Area Development Authority/ Export Promotion Industrial Park/Food Park/ Agri Export Zone would be eligible for the following incentive/ subsidy. These facilities/concession to the industrial units will be made available only after the commencement of production. Sl. No. Industrial Grant 1. Small/Tiny units/Financial Limit. 50% or 7.50 lacs (Maximum) 2. All large/medium/mega units/Financial Units 25% or 15 lacs (Maximum) (iii) Financial assistance for Technical-know-how: If an entrepreneur 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 ca....
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....ts working under adverse situation: Such working units which have been working under adverse situation for years will be reimbursed 25 percent of the deposited VAT amount in the account of State Government against admitted VAT amount. This reimbursement will be admissible for five years continuously. (x) Industrial Rehabilitation Fund: In order to revive the sick and closed industry, with the co-operation of the Commercial Banks, the State Government and Bihar Industry Association, a corpus fund will be created. (xi) S.C/S.T./Women/Handicapped: a. Under this category, entrepreneurs will avail 5% additional grant/exemption/subsidy than the limit fixed under this policy. b. UP to a turnover limit of Rs. 30 lakhs per annum S.C/S.T./Women/Handicapped category entrepreneurs who run small and tiny industries will avail 100% subsidy of the deposited amount in the account of Government 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. (....
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.... 1. For balanced industrial growth as well as accelerated employment opportunity of the Bihar State. 2. To promote all round development of the state and industrial growth and rapid clearance procedures for establishing industries. 3. To provide for rapid development of physical and social infrastructure in the state. 4. To address the infrastructure, technology skill, setting up of new food processing units and also add in expansion and up gradation of existing industries. Granting of Eligibility Certificate from SICOM (Implementing authority) Effective from date of commencement of commercial production/. Effective from date of commencement of commercial production/. Mode of disbursement of sales tax incentive 1. By way of exemption of purchase tax, sales tax on purchase of raw materials, sales tax payable on sale of finished goods, CST on sale of finished goods as a % of fixed capital investment. 2. By way of interest free unsecured 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, t....
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....f the salient features of which, as noted by the Supreme Court at page 257 of the report, was that "the scheme was not to make any payment directly or indirectly for the setting up of the industries". Under the Andhra Scheme, it was only after the industries had been set up and production had been commenced that the incentives were to be given by way of refund of sales tax and by way of subsidy on power consumed for production. At page 261, the Supreme Court noticed that in the case before them, "payments were made only after the industries have been set up" and in the very next sentence observed that "payments are not being made for the purpose of setting up of the industries". The contrast between the two has been brought out in this paragraph. The Supreme Court also noted that the power subsidy under the Andhra Scheme was confined to the power that was consumed for production and if any power is consumed for setting up the plant and machinery, the incentive was not to be given. 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 ....
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....of the subsidy that must be given primacy over the source of the fund. The second-principle was demonstrated by observing that if any monies are given to the assessee for assisting him in carrying out the business operations and where the money is given only after and conditional upon commencement of production, it should be treated as revenue receipt. The Scheme framed by the Government of Maharashtra in 1979 and formulated by its Resolution dated 5-1-1980 has been analysed in detail by the Tribunal in its order in RIL for the assessment year 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 Tribunal has, at more than one place, stated that the thrust 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....
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....t mere setting up of the industry did not qualify an industrialist for getting any subsidy and that the subsidy was given as help not for setting up of the industry which was already there, but as an assistance after the industry commenced production. This aspect of the matter has been noted by the Tribunal in case of Reliance Industries Ltd. ( supra) in para 112 of its order. In the same paragraph, it has also been noted by the Tribunal that Dusad Industries' case (supra) (assessee before the Madhya Pradesh High Court) had commenced production on 5-1-1973, much before the Government Memorandum sanctioning the Scheme had been issued on 30-8-1973. The Tribunal has further noted that under the M.P. Scheme, an assessee could seek eligibility only after having commenced production, whereas under the Maharashtra Scheme, an assessee could seek eligibility immediately upon having taken some initial steps towards setting up of the industrial unit. "30. The Tribunal was thus aware of the distinction between the subsidy given with the object of setting up the industry and the subsidy given after the industry commences production and conditional upon the commencement of production. F....
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.... 1,350 Rupee loans/Debentures 2,576 Foreign Currency Loan 2,695 Total 6,621 Sales Tax incentive which has been envisaged in the Maharashtra Scheme as an alternative to cash disbursement, by its very nature could be available to the assessee only after the production had commenced. Secondly, it obviously made great sense from the point of view of the State to ensure that the incentive was given to a genuine project and not merely to the projects on paper only." "32. In the very next paragraph, i.e., in paragraph 116, the Tribunal again referred to the observations in Sahney Steel & Press Works Ltd.'s case (supra) at pages 260-261 of the report and held as follows :- "116. We are of the view that the fact that the assessee before us applied for incentive at the stage of blue print of the project and obtained from the State Government a Letter of Intent indicating implementing agency's willingness to grant incentive to the assessee goes a long way to establish that the assessee applied for and obtained the incentive on account of its fixed capital investment. We find strong support to this finding from the following observations of Hon'ble....
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.... scheme of the Government framed with the object of augmenting indigenous sugar production and to provide incentives to new sugar factories and expansion products. The scheme enabled the entrepreneur to initially fund the capital cost by obtaining loans from public financial institutions and discharging them with the help of the incentives after the commencement of production. The incentives were provided exclusively for the purpose of repayment of loans for meeting the capital costs. These incentives were held by the High Court to be capital in nature. The other type of incentives was the subsidy which was linked to the purchase tax and was in no way linked to the expenditure incurred in setting up the sugar industry. The object of the subsidy was to give a concession to the assessee for meeting the cost of running the business after production. There was also no condition to the effect that the subsidy shall be used for a particular purpose only. In these circumstances, the High Court held that this subsidy was a trading receipt in the hands of the assessee. This case emphasises that the object with which the subsidy is given is the prime or foremost consideration while determini....
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....ion receipts are normally regarded as trading receipts." The Madras High Court also referred to the judgment of the Supreme Court in Sahney Steel & Press Works Ltd.'s case (supra) and held that the Supreme Court "clearly recognised the possibility of the payments being made not directly but indirectly for the setting up of the industries" and that since in the case before the Supreme Court the payments "had been made post production and were in no way linked to the steps that had been taken by the assessee therein in setting up the industry, it was observed that the incentives had been given only after production had commenced". These observations of the Madras High Court (at page 612 of the report) recognise the possibility, depending upon the nature and object of the scheme, of even post-production payments being linked, albeit indirectly, to the steps taken by the assessee to set up the industry. The High Court also observed earlier at page 611 of the report, which we have extracted above, that what is of vital significance is the purpose and object of the scheme and that the decided cases which turn upon the special facts cannot predetermine the outcome of another case....
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....ferentials, the character of the impugned incentive in this case was revenue and not capital in nature. On the other hand, according to the assessee, what was relevant to decide the character of the incentive is the purpose test and not the mechanism of payment. 14. In our view, the controversy in hand can be resolved if we apply the test laid down in the judgment of this Court in the case of Sahney Steel & Press Works Ltd. (supra). In that case, on behalf of the assessee, it was contended that the subsidy given was up to 10 per cent of the capital investment calculated on the basis of the quantum of investment in capital and, therefore, receipt of such subsidy was on capital account and not on revenue account. It was also urged in that case that subsidy granted on the basis of refund of sales tax on raw materials, machinery and finished goods were also of capital nature as the object of granting refund of sales tax was that the assessee could set up new business or expand his existing business. The contention of the assessee in that case was dismissed by the Tribunal and, therefore, the assessee had come to this Court by way of a special leave petition. It was held by thi....
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....anism through which the subsidy is given is irrelevant." 5.15 In light of above discussion, the legal proposition which has been laid down by the Special Bench in case of Reliance Industries after taking into consideration the decision of the Honb'le Supreme Court in case of Sahney Steel & Press Works Ltd and by the subsequent decision of the Hon'ble Supreme Court in case of Ponni Sugar and Chemical Ltd, the character of the subsidy in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. The point of time at which the subsidy is not relevant. The source is immaterial. The form or the mechanism through which the subsidy is given is immaterial. If the object of the subsidy scheme was to enable the assessee to run business more profitably, then the receipt is on revenue account. On the other hand, if the object of the subsidy scheme was to enable the assessee to set up a new unit or to expand the existing unit, then the receipt of subsidy was on capital account. 5.16 In the instant case, the subsidy in the form of VAT reimbursement is provided to the assessee company in terms of the Industrial Incentive Policy of state of Bih....
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....te employment opportunities in the state of Bihar. To this effect, the quantum of subsidy is linked to capital invested and also the disbursement thereof is linked to VAT which is collected and deposited on goods actually produced and sold. By its very nature, the subsidy would thus be payable after the commencement of production but that would not make it a revenue receipt as it was only a mode of disbursement and had nothing to do with the object for which the subsidy was given. The object for which the subsidy is granted, would takes primacy over the fact that it was given after the commencement of production and conditional upon the same. The subsidy is thus on capital account. 5.18 It is noted that a similar view has been taken by the Coordinate Bench in case of Harinagar Sugar Mills (supra) while examining the reimbursement of VAT on molasses under the Bihar Incentive Package 2006. 5.19 Further, we have noticed that the Finance Act, 2015 w.e.f. 1-42016, has enlarged the definition of income given u/s 2(24) by inserting sub-clause (xviii), which reads as under:- "(xviii) assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or....
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.... department reported in 389 ITR 5 (Statute.) filed against the order of Madras High Court in case of ACIT Vs. Velayudhaswamy Spinning Mills (P) Ltd in T.C.A. No. 909 of 2009 reported in 340 ITR 477 whereby the High court held that in the computation of special deduction under section 80 IA loss in the year earlier to initial assessment year already absorbed cannot be notionally brought forward and set off against profits of eligible business and where the Department did not dispute finding of the Commissioner (Appeals) as to the initial assessment year it was not entitled in the assessee's appeal to dispute it. 6.4 The ld AR further brought to the notice of the Bench that the Hon'ble Supreme Court has dismissed the SLP of the Department reported in (SC ) 2016 ITL 4951 filed against the order of Madras High Court in case of Commissioner of Income-tax Vs. Best Corporation Ltd. (2016) 76 taxmann.com 286 which has followed the earlier decision in case of Velayudhaswamy Spinning Mills (P) Ltd and the head notes read as under: "Deductions- profits and gains from infrastructure undertakings (computation of deduction) assessee claimed deduction under section 80-IA-Tribunal foll....
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....l. 16. The CIT(A) has granted the relief to the assessee by holding as under:- the decision of Goldmine's case as relied upon by the Assessing Officer, is no more a good source of law, in as much as in a subsequent decision of Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P.) Ltd. Vs. ACIT 231 CTR 368, as rightly relied upon by the counsel, the issue is decided in favour of the assessee after considering the decision of Goldmine's case. The main issue is as to when the provision of section 80IA will become applicable upon the appellant. The appellant has opted to claim the deduction u/s 80IA w.e.f. assessment year 2007-08, though the production commenced from the assessment year 2003-04, therefore provision is made applicable from the assessment year 2007-08. The option to claim the deduction u/s 80IA rests with the appellant to claim it in 10 years out of 15 years. The initial assessment year for the appellant is assessment year 2007-8 and from such assessment year, the eligible industrial undertaking will be considered as independent source of income of the appellant and not prior to that. The Assessing Officer has made applica....
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....." 6.7 Undisputedly, there is no change in the facts and circumstances of the case or in the legal position. The Coordinate Bench in assessee's own case for A.Y. 2007-08 has already taken a view in favour of the assessee following the decision of Hon'ble Madras High Court in case of CIT Vs. Velayudhaswamy Spinning Mills (P) limited and an SLP filed against the said decision has been dismissed by the Hon'ble Supreme Court. In a similar case of Best Corporation Limited (supra) wherein the decision of Hon'ble Madras High Court in case of Velayudhaswamy Spinning Mills (P) limited was followed, an SLP has again been dismissed by the Hon'ble Supreme Court. In light of above, we do not see any infirmity in the order of the Ld. CIT(A). In the result, the deduction of Rs. 27,77,310 as claimed by the assessee company u/s 80IAis hereby allowed. In the result, the ground taken by the revenue is dismissed. ITA No. 704/JP/2014 & 705/JP/2014 7. In ITA No. 704/JP/2014 and in ITA No. 705/JP/2014 pertaining to AY 2010-11, admittedly, the ground of appeal no. 2 taken by the Revenue and all the grounds of appeal taken by the assessee are similar to grounds of appeal under identical facts and ....
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....iii) No explanation has been furnished by the assessee regarding not showing any shortage in the month of May 2009 to Feb 2010. (iv) No laboratory reports have been produced. Accordingly, the AO by holding that assessee has sold the mustard oil out of the books and the same has been shown in the garb of excess claim of shortage, made lump-sum trading addition of Rs. 5 lacs by applying provisions of section 145(3) of the Act. 8.3 The Ld. CIT(A) after considering the submission of the assessee deleted the same by holding that AO has failed to bring on record any adverse material before rejecting the book results declared by the assessee and also considering the fact that the G.P. rate declared by the assessee at 8.32% for the year under consideration is better than 7.16% declared for the preceding year. 8.4 During the course of hearing, the ld. AR submitted that the assessee maintains day to day books of accounts, which is subject to audit. These books are duly supported with bills and vouchers. The AO has not pointed out any sales or purchase which is out of the books or not vouched. Day to day stock records is also maintained. The shortage of mustard seeds claimed....
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....o other defect was noticed by the AO in quantitative details. Once stock register had been held to be properly maintained and had been held to be proper, no trading addition could have been made and rightly so, even otherwise, minor discrepancies could result into rejection of books of accounts. Merely because there was some deficiency of quality wise record in books of accounts or merely because of rejection of books of accounts, it did not mean that it must necessarily lead to addition in return of income of assessee. Even AO estimated the income by making estimated addition by applying particular GP Rate also CIT(A) reduced it , therefore, those two authorities even while resorting to best judgment had no basis for coming to conclusion reached and even in case of estimated/adhoc addition, prima-facie, some material was required to be brought on record. Thus, order of Tribunal was just and proper and no substantial question of law arose out of order of Tribunal. 8.7 The ld AR further submitted that the G.P. rate of the assessee is better as compared to the last year. The Hon'ble Rajasthan High Court in case of CIT Vs. Inani Marbles Pvt. Ltd. 316 ITR 125 has observed that in th....