TaxTMI 
TaxTMI 
2021 (1) TMI 732
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....profit and loss (return of income) and Rs. 1,25,85,18,744/- u/s. 115JB of the Act. The return of income was processed u/s. 143(1) of the Act and thereafter, the case was selected for scrutiny and notices u/s. 143(2) and 142(1) were issued and served upon the assessee. In response, AR of the assessee attended and filed the relevant information as called for. 5. AO passed the assessment order by making disallowance u/s. 14A, 40A(9) of the Act, disallowance in respect of depreciation and bogus purchases. 6. Aggrieved with the above order, assessee preferred the appeal before Ld. CIT(A) and Ld. CIT(A) after considering the submission of assessee, partly allowed the appeal of the assessee. During appellate proceedings, vide letter dated 02.11.17, assessee raised 4 additional grounds of appeal and since the additional grounds raised by the assessee are legal in nature, therefore Ld. CIT(A) admitted the additional grounds and adjudicated the same. 7. Aggrieved with the above order, both assessee and revenue preferred the appeal before us by raising the respective grounds of appeal. Since many grounds of appeal raised by assessee and revenue, therefore we shall deal the issues gro....
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....1,52,09,273/- and also added back the amount suo moto disallowance made by the assessee while determining the book profit u/s. 115JB. Assessee further submitted that AO considered the whole interest expenditure incurred by the assessee and AO cannot charge the whole interest expenditure. Since assessee has incurred interest expenditure on specific term loan, other interest, processing fees and bank charges. Assessee further pointed out that AO has not recorded his dissatisfaction in respect of claim made by the assessee with regard to suo moto expenditure and relied on the various case laws. Assessee further submitted that investment yielding exempt income have been made out of its own funds and gave a chart in support of its claim for 3 years and relied on various case laws in this regard. Assessee further argued that 14A disallowance cannot be added while computing the book profit u/s. 115JB and lastly, submitted that the disallowance u/s. 14A cannot be more than exempt income earned by the assessee. 13. After considering the submission of the assessee, Ld. CIT(A) however agreed that AO has not recorded any dissatisfaction and observed that ITAT Mumbai Bench in assessee's ....
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....stomers, suppliers, etc. Be that as it may, it is quite evident that the Share Capital and Reserve & Surplus available with the assessee company at the beginning of the year as well as at the close of the year under consideration are enough to cover the investments in question and, therefore, following the ratio of the judgment of the Hon'ble Bombay High Court in the case of CIT vs. Reliance Utilities and Power Ltd., 313 ITR 340(Bom), it gives rise to a presumption that such investments have come out of interest free-funds. The said proposition is equally applicable in the context of section 14A of the Act, as held by Hon'ble Bombay High Court in the case in the case of CIT vs. HDFC Bank Ltd., 366 ITR 505(Bom) and in the case of HDFC Bank Ltd. vs. DCIT, 383 ITR 529 (Born). Therefore, in the above background, we have no hesitation to delete the disallowance of interest made by the AO under section 14A of the Act." 6.7 It could be seen from the table above that the assessee had own funds to cover all the investments made. Respectfully following the hon'ble ITAT's decision in the appellant's own case for AY 2008-09 and that of the Bombay High Court in the ....
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....s of Sec. 14A contained in Chapter IV cannot be imported and incorporated in Sec. 115JB especially considering the fact that clause (f) of Explanation 1 to Sec. 115JB [in respect of increasing the book profit by the amount of expenditure relatable to income to which Sec. 10 (excluding clause 38) or Sec. 11 or 12 apply] contains no reference to disallowance u/s. 14A of the Act. 3.2.28 It is submitted that based on the matching principle of accountancy, only expenses debited to the Profit & Loss account that had direct and proximate nexus with the exempt income credited to the Profit & Loss account should be added back while computing book profit under MAT provisions. 3.2.29 In this regard, the appellant places reliance on the decision in the case of Pr. CIT vs. Bhushan Steel Ltd. (ITA No. 593/2015, order dt. 29-09-2015)(refer Annexure-12) wherein the Hon'ble Delhi High Court has upheld decision of the Hon'ble ITAT in holding that disallowance u/s. 14A r.w. Rule 80 cannot be added while computing book profits u/s. 115JB as Explanation to that section does not specifically mentions Sec. 14A. The Review Petition filed by Revenue against this decision was dismi....
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....14A read with rule 8 D. Accordingly, the assessing officer is directed not to make this addition while computing the book profit u/s. 115JB of the IT Act. This ground of appeal is partly allowed." 14. Aggrieved with the above, assessee is in appeal before us. 15. Before us, Ld. AR brought to our notice findings of AO and Ld. CIT(A) and submitted that it is fact on record that Ld. AO has not recorded any satisfaction before rejecting the suo moto disallowance made by the assessee in its return of income while determining the exempt income u/s. 14A. He submitted that Ld. CIT(A) has admitted the above facts in his order in para 6.1 and 6.3 and Ld. CIT(A) has taken note the decision of the Coordinate Bench of ITAT in assessee's own case for Assessment Year 2008-09 & 2009-10. After considering the fact that this year also, AO has not recorded any satisfaction, however Ld. CIT(A) proceeded to adjudicate the other alternate plea raised by the assessee in the grounds of appeal and come to the conclusion that satisfaction is not recorded u/s. 14A, still proceeded to sustaining the addition u/s. 14A. He submitted that Ld. CIT(A) gave clear finding that there is no satisfaction and ....
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....notice from the record that no satisfaction was recorded even in the earlier Assessment Year 2008-09 and 2009-10 and based on the above facts on record, Coordinate Bench of ITAT has deleted the disallowance made u/s. 14A with the following observations:- "5.5 In so far disallowance of Rs. 75,71,222/- out of administrative expenses is concerned, the plea of the assessee is based on the requirements of section 14A(2) of the Act. The plea is that the method prescribed in Rule 80 of the rules cannot be straightway invoked to compute the disallowance under section 14A of the Act unless the Assessing Officer has recorded his satisfaction with regard to correctness or otherwise of the assessee's claim in this regard. On this aspect, the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. (supra) has upheld the proposition that section 14A(2) of the Act does not empower the Assessing Officer to apply the method prescribed in Rule 80 of the Rules irrespective of the nature of claim made by the assessee. According to the Hon'ble Bombay High Court, the Assessing Officer has to first consider the correctness or otherwise of the claim of the assessee, havi....
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....ord reasons for his conclusion. These safeguards which are implicit in the requirements of fairness and Fair procedure under article 14 must be observed by the AO when he arrives at his satisfaction under sub-section (2) section 14A. As we shall note shortly hereafter, sub-rule(1) of rule 8D has also incorporated the essential requirements of sub-section (2) of section 14A before the AO proceeds to apply the method. In the absence of the recording of the necessary satisfaction, in our view, it was wrong on the part of the AO to determine the disallowance u/s. 14A by applying Rule 8D(2)(iii) of the Rules. 19. Therefore, respectfully following the decision of Coordinate Bench of ITAT which is applicable mutatis mutandis in the present case, we are inclined to accept the submission of Ld. AR and delete the addition made u/s. 14A by observing that there is no satisfaction recorded by the AO as per the findings of Ld. CIT(A). 20. However, we notice that Ld. CIT(A) after accepting that no satisfaction was recorded by the AO further proceeded to analyse the alternate pleas of the assessee and deleted the additions under rule 8D(2)(ii) and while analyzing the disallowance un....
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....ding community. It also submitted that as there is a business necessity to set up educational institutions for providing educational and other curricular activities to the children of employees and surrounding community, the expenditure incurred is for the purpose of carrying on the business activities of the company and is wholly and exclusively for the purpose of business. 23. After considering the submission of the assessee, AO rejected the submissions made by assessee and observed that the expenses reimbursed by the assessee are relating to educational institution, which is a separate tax entity and the business of the assessee is not relating to carrying out business of the school. Therefore, the provisions of section 40A(9) of the Act are clearly attracted in this case. He further observed that assessee has not submitted any details to prove that the institution is exclusively used by the employees' children and relied on the decision of the Allahabad High Court in the case of Simbholi Sugar Mills Vs. CIT reported at 45 ITR 125, wherein the Hon'ble Court has disallowed the expenditure reimbursed by the assessee. 24. Aggrieved with the above order, assessee prefe....
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....allowed in the assessment, the same cannot be reduced in arriving at WDV of fixed assets for calculation of depreciation in future years. However, AO rejected the contention of the assessee and proceeded to make disallowance. 28. Aggrieved with the above order, assessee preferred the appeal before Ld. CIT(A) and Ld. CIT(A) after considering the submission of assessee observed that the issue under consideration has already been decided by the Coordinate Bench of ITAT in assessee's own case for Assessment Year 2005-06 and 2009-10. Accordingly, Ld. CIT(A) by following the said decision of Coordinate Bench of ITAT in assessee's own case, allowed the ground of appeal raised by the assessee. 29. Aggrieved with the above, revenue is in appeal before us. 30. After considering the submission of both Ld. Counsels on this issue, we notice that the Coordinate Bench of ITAT in assessee's own case for Assessment Year 2005-05 to 2007-08 has already decided this issue in favour of the assessee. For the sake of clarity, relevant portion of the said decision is reproduced below:- 5.2.1 "As the outset, it is respectfully submitted that the aforesaid issue is squarely cov....
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.... (SC) 27: (2006) 284 ITR 548 (SC), relying upon Circular No. 621 :, dt. 19th Dec., 1991 [(1992) 101 CTR (St) 1] issued by the CBDT, has held that the amendment in question is prospective in nature and the same is binding on the Revenue. In view of Circular No. 621 dt. 19th Dec., 1991 issued by the CBDT and the aforesaid judgment of this Court, the appeals were accepted and the orders passed by the Hon'ble High Court of Bombay were set aside leaving the parties to bear their own costs, thus, we affirm the stand of the Ld. Commissioner of Income Tax (Appeal) and dismiss the impugned ground, raised by the Revenue." In view of the above, it is respectfully submitted that the appellant's claim for depreciation amounting to Rs. 3,61,03,53,497/- should not be disturbed.." 31. Therefore, respectfully following the decision of Coordinate Bench of ITAT which is applicable mutatis mutandis in the present case, we are inclined to dismiss the ground raised by the revenue. 32. Ground No. 6 raised by revenue is general in nature, therefore, no needs for adjudication. Ground No. 2(a) & 2(b) raised by assessee in respect of VAT subsidy. 33. The brief facts relating to t....
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....chalk out special packages for removing industrial sickness. (g) To integrate the different employment oriented schemes in order to provide employment opportunities on a sustainable basis, (h) To rationalize commercial tax rates to make the state's industries competitive vis-a-vis industries in other states, (i) To provide direction to industrialization, keeping in view the available local resources and the existing industrial base. (j) To ensure private sector participation in the state's industrialization, (k) To financially strengthen the undertakings of Department of Industries, enabling them to play a pivotal role in the promotion of industries. 36. With reference to the above objectives of the Scheme, it was submitted that the key objective of granting sales tax exemption is to accelerate industrialization and maximize employment prospects in Madhya Pradesh and creation of infrastructure is the basic requirement for setting any industrial unit. It is the responsibility of the State to provide such infrastructure and the subsidy given in the form of government contribution to the industrial units to subsidize the portion ....
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....ee from MP trade and Investment Facilitation Corp. Ltd., which is placed on record at page no. 130 of the paper book and submitted that this sanction order was received by the assessee as Industrial Investment Promotion Assistance under the MP Industrial Investment Promotion Scheme 2004. He further brought to our notice that this new industrial promotion policy is effective for the industries commencing commercial production on or after 01.04.2004 and submitted that this scheme is promoted by the MP Govt. in order to increase the rate of economic development in the State and in order to improve the infrastructure and power and due to sharp decline in capital in the State. The Industrial Promotion Policy is to aim to address the issue for providing, developing quality infrastructure, reviving the industries and providing maximum support and facilities to the industries. He also brought to our notice the objectives of the Industrial Promotion Policy and the frame work of granting industrial investment promotions assistance under this scheme. He submitted, as per the scheme, there were two types of assistance to the industries in the range of 1 to 10 crores and above 10 crores. Since ....
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..... After considering the submission of both Ld. Counsels on this issue, we notice that the Coordinate Bench of ITAT in the case Parle Agro Pvt. Ltd. vrs. ACIT (ITA No. 6209/Mum/2013) has already decided this issue in detail. For the sake of clarity, relevant portion of the said decision is reproduced below:- 19. We have heard rival contentions and gone through the finding given in the impugned orders. The subsidy given by the MP Government in pursuance of "Madhya Pradesh Udyog Nivesh Samvardhan Yogana" was for setting-up of an industrial unit in the backward area of state of Madhya Pradesh and subsidy offered was in the form of refund of VAT/CST paid. The said subsidy was purely for investment in the setting-up of industrial unit. The Ld. CIT(A) and the AO have treated it as a 'revenue receipt' on the ground that subsidy has been granted to promote industries in the state and in the form of a refund of commercial taxes paid. Since the subsidy was for augment of profit and hence it has to be treated as revenue receipt. While adjudicating such kind of cases, what is to be seen is the purpose for which subsidy is given and not the form or manner in which subsidy is giv....
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....s no necessity to remit this issue back to the AO for further verification. 43. Therefore, respectfully following the decision of Coordinate Bench of ITAT which is applicable mutatis mutandis in the present case, we are inclined to allow the ground nos. 2(a) and 2(b) raised by the assessee. Ground No. 3(a) & 3(b) raised by assessee in respect of Sales Tax exemption. 44. This issue is relating to Sales Tax exemption scheme by the Maharashtra Govt. Since this issue is made for the first time during appellate proceedings, Ld. CIT(A) with reference to Jurisdictional High Court decision, considered the additional grounds raised by the assessee and this claim of the assessee submitted first time before him, therefore Ld. CIT(A) has accepted the additional grounds and adjudicated the same. 45. The brief facts relating to this ground are, the HRJ division of the assessee is the manufacturing units at various locations. One of the said manufacturing units of HRJ division is at Penn, district Raigad, Maharashtra. Due to its location, the assessee has enjoyed sales tax incentive from the government of Maharashtra in the form of sales tax exemption under the package scheme of incen....
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.... subsidy are having revenue character and he relied in the case of Sahney Steel and press works 228 ITR 253 (SC). He further submitted that Ld. CIT(A) has decided the issue based on the facts on record but primarily, the documents and facts were not verified by any authority and for that purpose, he prayed that the issue may be remitted back to the AO for further verification and AO may be given proper opportunity to verify the issue whether it is capital or revenue. 50. Considered the rival submission of both Ld. Counsels on this issue and material placed on record, we notice that Coordinate Bench of ITAT in the case ACIT v. Mihir Packaging (ITA No. 5629/Mum/2011) and in the case of John Deere India Pvt. Ltd. v. ITO (ITA No. 828/Pun/2014) has already decided this issue in detail. For the sake of clarity, relevant portion of the decision of Mihir Packaging case is reproduced below:- 14. We have carefully considered the rival contentions, perused the findings given by the authorities below and the material available on record. It is an undisputed fact that the assessee has established a small scale industries undertaking in a duly notified backward area in the District o....
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....unit, was admissible as a grant after completion of all initial and final effective steps and will be computed on the basis of fixed capital investment actually made by the eligible SSI unit. The maximum ceiling for "D+" category has been put at Rs. 20,00,000. 16. The assessee had fulfilled the eligible criteria and also complied with the effective steps to be taken and thereafter, it has received the subsidy under special capital incentive for SSI unit based on its capital investment, which finally worked out to Rs. 20,00,000. Thus, from the preamble and also various other terms, it is seen that the purpose of the subsidy was to set-up a new unit in the notified backward areas particularly those between Bombay, Thane, Pune, belt for the development of the remote area. The said scheme provide special capital incentive for SSI unit and, therefore, the subsidy received under the scheme is clearly on account of capital only. This has been also mentioned in the eligible certificate dated 29th June 2000, issued by the District Industrial Centre, implementing agency for the SSI unit. The Hon'ble Supreme Court in Ponni Sugars and Chemicals Ltd. (supra), after relying upon the....
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..... The importance of the judgment of this Court in Sahney Steel & Press Works Ltd.'s case (supra) lies in the fact that it has discussed and analysed the entire case law and it has laid down the basic test to be applied in judging the character of a subsidy. That test is that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, one has to apply the purpose test. The point of time which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. The main eligibility condition in the scheme with which we are concerned in this case is that the incentive must be utilized for repayment of loans taken by the assessee to setup new units or for substantial expansion of existing units; On this aspect there is no dispute. If the object of the subsidy scheme was to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object 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 su....
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....the state of Madhya Pradesh and to accelerate the pace of industrialization and the same is capital in nature, hence is liable to be excluded in computing total income. Ld. CIT(A) observed that in the preceding paragraphs while deciding the issue of sales tax subsidy received by the assessee from the Madhya Pradesh state government, by applying the same ratio, the entry tax exemption is held to be revenue in nature and is liable to tax. Accordingly, he dismissed this ground raised by the assessee. 55. Aggrieved with the above assessee is in appeal before us raising this ground of appeal. 56. Before us, Ld. AR brought to our notice the Scheme of Madhya Pradesh Govt. at page 78 and 98 of the paper book. He further brought to our notice at page no. 99 of the Scheme as per which, the new industrial units will be exempted from the payment of entry tax for a period of 5 years from the date of first purchase of raw material. The scheme was similar to the Sales Tax Exemption Scheme and the industries were given incentives not only based on exemption in Sales Tax. Further, incentives were given based on entry tax on purchase of raw material. This is also given for promotion of new ind....
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....her verification and AO may be given proper opportunity to verify the issue whether it is capital or revenue. 58. Considered the rival submissions of both Ld. Counsels on this issue and material placed on record, we notice that assessee was awarded a certificate of eligibility for exemption of entry tax considering the fact that assessee has made investments in the Units established in the State of Madhya Pradesh and the Industrial Development Scheme clearly states that the incentive awarded only because, the assessee has made the investments and also the Scheme of incentive clearly based on the range of the investment made by the respective industries. As held in the various decisions, it is not relevant what mechanism was adopted by the State Govt. to award the incentive, but for what purpose this incentive were awarded whether these were awarded to benefit the units to function profitably or in order to bring capital inside the State in order to improve the industrial development in the State. As per the scheme, it is clear that incentives were awarded only because of new industrial units were commenced after 2004. Therefore, we are in agreement with Ld. AR by following the v....
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....yoto protocol commits to certain development countries to reduce their GHG (green house gases) emissions and for this, they will be given carbon credits. He further observed that a reduction in emission entitles the entity to credit in the form of a Certified Emission Reduction (CER) certificate. The above said CER is tradeable and its holder can transfer it to an entity which needs carbon credits to overcome an unfavourable position on carbon credits and as per Article 6 of the Kyoto Protocol provides for achieving these reduction norms, the parties may "acquire from any such other party emission reduction units resulting from projects aimed in reducing and throw anthropogenic emissions by sources or enhancing anthropogenic removals by sinking of green gas house in any sector of the economy" provided, inter alia, "in such project as the approval of the parties involved" and "in such project provides a reduction in emission by sources, or of enhancing by removal of sinks, i.e. additional to any that would otherwise occur". Ld. CIT(A) confirmed that these CERs are tradeable and the entities trade in and facilitate transfer of these credits from one entity to another entity. In affec....
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....Power Transmission Ltd. (supra), decided this issue against the assessee. We further notice that this issue was already considered by Hon'ble AP High Court and Karnataka High Court in favour of the assessee. Our attention was also drawn by Ld. AR to the case of Dodson Lindblom Hydro Power Ltd. Bom HC and Dy. CIT v. Dodson Lindblom Hydro Power Ltd., which are similar to the facts of the present case, wherein the Hon'ble Jurisdictional High Court held that the sale of carbon credit is to be considered as capital receipt, therefore not liable to tax. The same reasoning was followed by Hon'ble Allahabad and Rajasthan High Court. Therefore, considering the consistent view of the different High Courts in the country, we see no reason to take a different stand since the different High Courts has decided this issue in favour of the assessee. Respectfully following the aforesaid decisions of various High Courts which are applicable mutatis mutandis in the present case, we are inclined to allow the ground no. 5 raised by the assessee. Ground No. 6 & 7 raised by assessee in respect of exclusion of VAT subsidy, sales tax exemption, entry tax exemption and income from sale of car....
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....round of appeal with plea that assessee while filing the income tax return for this Assessment Year, assessee has not claimed deduction of education cess as allowable expenditure. Assessee has come across the decision in the case of Chambal Fertilizers and Chemicals Ltd. vrs. JCIT (ITA No. 52/2018)-(Raj. HC), wherein the Hon'ble Rajasthan High Court has held that 'cess' is not part of tax and based on the said decision, assessee is seeking to claim Educational Cess paid. 74. Similarly, assessee has debited an amount towards Debenture Redemption Reserve should be excluded in the computation of book profit u/s. 115JB of the Act as it is a provision made towards a known liability. In this regard, assessee relied on the decisions of Hon'ble Apex Court in the case of National Rayon Corporation Ltd. Vrs. CIT (1997) 227 ITR 764 (SC), wherein it was held that 'the basic principle is that an amount set part to meet a known liability cannot be regarded as reserve.' Similarly, he relied on the decision of Hon'ble Bombay High Court in the case of CIT vrs. Raymond Ltd. (2012) 209 taxmann 65 (Bom), wherein it was held that Debenture Redemption Reserve is not a rese....
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....ture incurred during the year as Revenue expenditure in its income tax return & hence the same is not considered as "Addition to Fixed Asset" for reporting under clause-14. When the assessee was asked to substantiate the said claim, assessee vide letter dated 16.12.14 submitted as below: "(a) During the previous year relevant to assessment year 2012-13, the company has incurred a sum of Rs. 24,90,46,960/- as Mines Development Expenses. In its books of account the company has treated the same as capital expenditure to be depreciated over a period of five years. However, while computing the total income, the company has claimed the entire amount of Rs. 24,90,46,960/- as revenue expenditure. (b) The company submits that the aforesaid expenses were incurred for removal of overburden etc in respect of new mines. The company submits that in order to reach the mineral, it becomes necessary to remove the overburden of the earth. Removal of overburden in the case of existing pits is a continuous process and is to be carried out simultaneously from year to year. (c) The company submits that the process of removal of overburden does not result in any enduring benefi....
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....nly to reach the coal under that and not any further. If any further surface had to be exposed, further overburden had to be removed. The expenditure is not made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business but is incurred for running the business with a view to produce profits and therefore, it is revenue expenditure. b) In the case of CIT vs. Katras Jharia Coal Co. Ltd.[ (1979) 118 ITR 6](Cal), the Hon'ble Calcutta High Court held that the expenses incurred in removing the overburden for reaching the coal seam did not result in any enduring benefit as the process had to be repeated immediately, the expenditure was, therefore, allowable as revenue expenditure. c) In the case of United Commercial Bank-vs.-CIT [ (1999) 240 ITR 3551 (SO, the Hon'ble Supreme Court held that whether an assessee is entitled to a particular deduction or not will depend on the provisions of law and not on the existence or absence of entries in the books of account. It was further held that preparation of balance sheet/accounts in accordance with the statutory provisions would not disentitle an assessee in submitting the i....