TaxTMI 
TaxTMI 
2022 (1) TMI 922
X X X X Extracts X X X X
X X X X Extracts X X X X
....y the assessee against the impugned order dated 11.11.2018 passed by the ld. CIT (Appeals), Rohtak of the Income-tax Act, 1961 (for short 'the Act') for the quantum of assessment passed under section 143(3) of the Income-tax Act, 1961 (for short 'the Act') for the Assessment Year 2003-04. 4. In the grounds of appeal, the assessee has taken the following grounds:- "1. That the Commissioner of Income Tax (Appeals) erred on facts and in law in not adjudicating on the claim for exemption of sales tax, entry tax and electricity duty subsidy amounting to Rs. 11,10,63,938 in the absence of previous such claim in the original or a revised return without appreciating the fact that the subject claim is legal in nature and has universal application in earlier as well as in the succeeding years. 2. That the Commissioner of Income Tax (Appeals) erred on facts and in law in upholding the action of the assessing officer in partly disallowing expenditure incurred on aircraft, to the extent of Rs. 1,10,607 alleging that the same was expended for non-business purposes. 3. That the Commissioner of Income Tax (Appeals) erred on facts and in law in setting aside the issue ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... GROUND NO.1 5. Insofar as, issue raised in ground no.1, ld. counsel for the assessee stated following facts and background of the case as culled out from the records :- 5.1 The assessee from the year 2000 onwards had setup new industrial units entailing an investment exceeding Rs. 1,000 crores at Raigarh, which is a backward and tribal area of the then State of Madhya Pradesh. The said units included, inter-alia, the following: • 1.5 lac Ton capacity Rotary Kiln for manufacturing sponge iron setup in 2000-01; • Captive Power Plant. • 5 lac Ton capacity Universal Beam/ Rail Mill setup in financial year 2003-04. The then Government of Madhya Pradesh, vide notifications dated 24.4.2000, exempted the assessee from payment of Central Sales tax and Entry tax involving investment of Rs. 1000 crores or more and from payment of Electricity duty vide notification dated 29.07.2000. Under the aforementioned scheme, the assessee availed exemption on account of sales tax, entry tax and electricity duty aggregating to Rs. 11,10,63,938. The said incentives/ subsidies were claimed as capital receipts by the assessee before the CIT(A) by filing appli....
X X X X Extracts X X X X
X X X X Extracts X X X X
....miss the civil appeal. However, we make it clear that the issue in this case is limited to the power of the assessing authority and does not impinge on the power of the Income Tax Appellate Tribunal under section 254 of the Income-tax Act, 1961. There shall be no order as to costs." 6.3 Further, without prejudice to the aforesaid, he submitted that, alternatively, the aforesaid claim made by the assessee may be adjudicated on merits, by treating the same as a fresh claim made before this Hon'ble Bench of the Tribunal during the appeal proceedings. 6.4. Reliance, in this regard, was placed by the Ld. Counsel on the following decisions wherein the Courts and various Benches of the Tribunal have consistently held that there is no bar/ prohibition on the authority of an authority (other than the assessing officer) to consider fresh claim(s) made by the assessee: • CIT v. Jai Parabolic Springs Ltd.: 306 ITR 42 (Del. HC) • CIT v. Sam Global Securities Ltd: 360 ITR 682 (Del) • CIT v. Sain Processing & Wvg. Mills (P) Ltd.: 325 ITR 565 (Del) • CIT v. Ramco International: 332 ITR 306 (P&H) • CIT v. Pruthvi Brokers and Sha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....paid and squared off in the same account. For Exempted Units: - Total amt. in respect of Sales (including Sales Tax amt.) is credited to Sales Account. Entry Tax General Treatment: - Paid and debited to expenses in the raw material and stores consumption. For Exempted Units: - No separate Accounting Entry was passed in respect of Exempt Entry Tax. Electricity Duty General Treatment: - Paid and charged off to revenue in power & fuel account. For Exempted Units: - No separate Accounting Entry was passed in respect of Exempt Entry Tax." 9. The purpose of grant of subsidy/incentive has been brought on record before us in the tabulation form to demonstrate that intention of State Government of Madhya Pradesh behind providing incentives to integrated steel plants and other mega industries was to promote industrialization of backward areas, development of state, generation of employment, objects in larger public interest: Date/ Period Particulars Remarks 03.06.1993 Government of Madhya Pradesh issued Notification No. A-3-14-92-ST-V(50) granting exemption of sales tax under State Act and Central Act to Rs. 1000 crore p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ut, which primarily includes a balanced regional development, accelerating the pace of industrial development in the State, creating more direct and indirect employment opportunities, etc.. The said para reads as under: "The Policy and Action Plan, 1994 lays special emphasis on responsive administration. It outlines measures to make administration a more result oriented responsive instrument for industrial development. i) Place Madhya Pradesh among the ranks of the industrially developed States. ii) Ensure balanced regional development by giving additional facilities in "No Industry" Development Blocks. iii) Accelerate the pace of industrial development in the State through greater utilization of the State's human and natural resources. iv) Create more direct and indirect employment opportunities v) Encourage entrepreneurship among members of Scheduled Castes, Scheduled Tribes, Other Backward Classes and those below the poverty line. vi) Encourage Women entrepreneurship. vii) Create special opportunities for the accelerated development of rural industries. viii) Create new opportunities for the develop....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... help develop synergistic linkages between units in this sector and those in the medium and large sector and contribute towards developing ancillarisation based on close and sustained mutual interest. Such linkages will also contribute to employment generation. .......... 7.8 There is a potential for synergistic linkages between the tiny, small medium and large sectors. Medium and large industries an act as centres around which tiny and small scale units can develop. In turn, the tiny and small sector can strengthen the functioning of large and medium industries by catering to their needs of raw materials and intermediate goods. Large and medium industries can also benefit from the upgradation of skills in the tiny and small sector. Synergy from such linkages will contribute to industrial development in a measure far greater, than the sum of their individual efforts. The State Government will encourage the developing and strengthening of such linkages. .............. 7.20 A target for establishing four hundred new large and medium enterprises has been set for the next five years." Again the assessee seeks to refer to and rely upon this notific....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt for setting up of Mini Blast Furnace, Steel Melting Shops and Captive Power Plant involving aggregate investment of more than Rs. 1000 crore in backward areas of MP, as under: • Letter dated 04.07.1998 by the assessee to then Chief Minister requesting for devising a suitable incentive package for proposed mega investment by the assessee. The said request was made since the earlier incentive schemes were no longer applicable; • Letter dated 09.04.1999 sent by the assessee to the Government of Madhya Pradesh along with suggestions of incentive packages, with a request for its implantation in Industrial Policy of Government of Madhya Pradesh; • Letter dated 08.06.1999 to Madhya Pradesh State Industrial Development Corporation submitting circular issued by Government of West Bengal in support of assessee's suggestion for implementation of incentives; • Letter dated 12.10.1999 to the Chief Minister for approval of incentive package. • Letters dated 1.11.99 and 26.11.99 to the State Government for relaxation of certain conditions of the existing notification dated 7.11.97. Considering the long term intention/ motive o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Tax Commissioner for preparing notification to give effect to the decision taken by the Council of Ministers on 03.02.2000 • Letter by Commercial and Industry Department to Controller, Printing Pages, Bhopal for publication of notifications Nos. 40, 41 and 42 dated 24.4.2000 along with copies of the notifications required to be published: - Notification No.40 for exemption from sales tax. - Notification Nos.41 and 42 for exemption from entry tax • Draft undated notification to be issued for publication for granting exemption from electricity duty Preamble of the aforesaid draft notification clearly states that incentive has been granted to the assessee to encourage new industrial units by the appellant in public interest. These are the most important documents which clearly lays down the purpose of grant of incentives to the assessee. Since the industrial units proposed to be set up by the assessee were not covered by earlier notifications, the appellant made repeated requests to the Government for considering and notifying the special incentives to incentivize huge investment in the backward areas. The request of the assessee wa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssued by Department of Commerce and Industry, Government of Chhattisgarh approving the incentive/ subsidies granted vide notifications dated 24.04.2000 issued by the earlier Government of Madhya Pradesh. 17.05.2002 Letter by the assessee to the Secretary Energy, Chhattisgarh requesting for grant of exemption from electricity duty to 110MW Power Plant for a period of 15 years against 10 years allowed by the earlier Government of Madhya Pradesh vide notification dated 29.07.2000. 25.06.2002 Notification issued by Government of Chhattisgarh for granting electricity duty exemption to power plants involving investment of more than 100 crores for a period of 15 years. Year 2000 to 2004 During this period, investment of more than Rs. 1000 crores was made by the appellant in the Raigarh District (Unit-II). In compliance to the conditions specified in the notification, the assessee made investment of more than Rs. 1000 crores. 10. Thus, it has been submitted before us that the incentive/ subsidy was granted to the assessee to advance the larger public interest of ensuring development in the backward/ tribal areas of the then State of Mad....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tting up of industries in backward area and not for supplementing business receipts. It is submitted that the incentives received under the scheme by way of exemption from payment of certain taxes or duty was just a mode adopted to disburse the subsidy by the State Government. 14. Our attention in this regard was also invited to section 8(5) of the Central Sales Tax Act, 1956, and section 10 of the Entry Tax Act, 1976, which empowers the State Governments to exempt sales tax and entry tax respectively for encouraging establishment of industries in the State. 15. Similarly, section 3B of the Madhya Pradesh Electricity Duty Act, 1949, empowers the State Government to exempt electricity duty in certain cases in order to encourage establishment of any particular industry or class of industries in the State. 16. On the basis of the aforesaid, following specific notifications were issued by the State Government specifically exempting the assessee from sales tax, entry tax and electricity duty in the public interest: • Notification dated 24th April, 2000 was issued in respect of Sales Tax under section 8(5) of the Central Sales Tax Act, 1956; • Notificat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ational objective, the same would be in the nature of capital receipt not liable to tax. On the other hand, if the subsidy is granted to supplement trading receipts/profits, the subsidy is taxable as revenue receipt. 20. Here in this case, the incentives were given in order to encourage the establishment of new industrial units in the private sector to result in development of rural economy and backward areas of the State and creation of employment opportunities. All the Notifications issued by the State Government for different reimbursements/ remissions, are pursuant to the Policy and are in furtherance of the avowed objectives of the State Government in issuing the Policy. Appreciating the objectives of the Policy discussed above, the subsidy being made available to the new units, are clearly in the nature of capital receipt not liable to tax under the Act. The manner in which the concession is given is not material. Even if any concession/ rebate is given in respect of revenue items, the intent of the concession/rebate being the development of the rural economy and upliftment of backward areas, the same would, in our view, be in the nature of capital receipt not liable to ta....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to be revenue in nature. The assessee, on the other hand, contended that the character of the incentive had to be decided on the basis of the purpose test, i.e., the character of the receipt had to be determined, with respect to the purpose for which the subsidy was given and the mechanism for computing such incentives is totally irrelevant. The Court, agreeing with the contention of the assessee, held that the incentive was in the nature of capital receipt, not liable for tax. 24. Before us, reliance was also placed on the decision of Hon'ble Jammu & Kashmir High Court in the case of M/s Shree Balaji Alloys vs. CIT: 198 Taxman 122 (J&K), wherein excise refund and interest subsidy received by industrial units in pursuance of incentives announced in terms of new industrial policy for accelerated industrial development in State of Jammu and Kashmir, for creation of such industrial atmosphere and environment, employment generation was held to be capital receipts. The relevant observations of the Court are as under: "24. A close reading the Office Memorandum and the amendment introduced thereto with para No. 3 appearing in the Central Excise Notification Nos. 56 and 57 of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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. 29. The other factors, which had weighed with the Tribunal in determining the incentives as Production Incentives may not be decisive to determine the character of the incentive subsidies, when it is found, as demonstrated in the Office Memorandum, amendment introduced thereto and the statutory notification too that the incentives were provided with the object of creating avenues for Perpetual Employment, to eradicate the social problem of unemployment in the State by accelerated industrial development. 30. For all what has been said above, the finding of the Tribunal on the first issue 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 & Press Works Ltd.'s case (supra) and Ponni Sugars & Chemicals Ltd.'s case (supra). 31. The finding of the Tribunal that the incentives were ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Tribunal totally misconstrued the decision of the apex Court in the case of Sahney Steel (supra) and held the on similar facts subsidy/ incentive was held to be revenue receipt by the apex Court; • The Tribunal got swayed by the fact that there was no stipulation in the Scheme/ Policy for utilization of subsidy/ incentives for repayment of outstanding loans; • The Tribunal concluded that the decision of the Special Bench of the Tribunal in the case of Reliance Industries (supra) was not binding since the Supreme Court had remitted the matter back to the Bombay High Court; • In para 49 the Tribunal observed that "taxation of subsidy under Income-tax Act cannot be intended to be used for achieving state objectives. 29. The reasoning given by the Tribunal has been rebutted in detail before us. 30. Since we have already observed that the incentives/ subsidies granted for the assessee is a capital receipt not to be taxed. However, we are unable to reach to the same conclusion as given by the Tribunal in assessee's own case for the reason that now there are catena of judgments of Hon'ble High Courts and Hon'ble Supreme Court wherein similar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o 10% 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 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 brining into existence any new asset. " 36. Insofar as, the decision of Ponni Sugar (supra) as noted by the Tri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ure of subsidy, it will be appreciated would remain the same. The stipulation/regulation to utilize the incentive/subsidy for repayment of loan in the scheme, considered by the Supreme Court in Ponni Sugar (supra), does not mean that subsidy/ incentive under only those schemes, where such stipulation is there would qualify as capital receipt, and not in any other case. 39. Thus, the decision of the Tribunal is contrary to the decision of Hon'ble Supreme Court in case of Ponni Sugar (supra). Apart from that, Hon'ble Jammu & Kashmir High Court in the case of Shree Balajee Alloys (supra) rejected the identical contention of the Revenue that there is no embargo on the utilization of subsidy, the amount received is in the nature of revenue receipt. Hon'ble Court held that the said factor is irrelevant or immaterial criteria to determine the nature of subsidy in the hands of the assessee. 40. Hon'ble Apex Court has already dismissed the appeal filed by the Revenue against the said judgment of Hon'ble Jammu & Kashmir High Court. 41. Further, Hon'ble Apex Court in the latest judgment in the case of CIT vs. Chaphalkar Brothers in Civil Appeals Nos. 6513-6514 0f 2012, judgement date....
X X X X Extracts X X X X
X X X X Extracts X X X X
....-business purposes. 47. It is also pointed out before us that this issue stands decided in favour of the assessee in assessee's own case in ITA Nos.3257/Del/2005 & 3485/Del/2005 for AY 2001-02 wherein the Tribunal has held that expenditure relatable to trips to meet the customers and/or prospective customers are directed to be allowed. Since it is purely an ad hoc addition, therefore, we direct to disallow the addition and the ground is accordingly allowed. GROUNDS NO.3 & 4 48. Insofar as the issue with regard to commission amounting to Rs. 6,55,809/- paid to M/s. Shree Ganesh Steel Rolling Mills Pvt. Ltd., Hisar. 49. It is seen that the AO disallowed the aforesaid claim of the assessee on the ground that the assessee was unable to adduce evidence of services having been rendered by the said party. The assessing officer allegedly made certain exparte enquires at the back of the assessees, which were not at all confronted to the assessee before making the impugned disallowance. Similar disallowance was also made in the assessment for the assessment year 2004-05, i.e. the immediately succeeding assessment year. 50. The above disallowance was challenged before the CIT(A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the existence of the company at the given address is in doubt is beyond comprehension. Therefore, the disallowance made by the AO is directed to be deleted and the grounds of appeal are allowed. 6. In the result, the appeal is allowed." 54. In view of relief being allowed to the assessee in the second round, it is respectfully submitted that the present grounds of appeal challenging the disallowance of commission of Rs. 6,00,000 is rendered infructuous, hence dismissed. GROUND NO.4 55. Ground No.4 qua levy of interest u/s 234B of the Act needs no specific finding being consequential in nature. 56. Insofar as additional ground under section 80HHC taken by the assessee is as under :- "That on the facts and circumstances of the case and in law the assessing officer may kindly be directed to allow deduction of Rs. 34,90,377, instead of Rs. 17,45,188 as claimed in the original return of income, while computing 'book profits' in terms of clause (iv) of Explanation 1 to section 115JB of the Act. 1. That on the facts and circumstances of the case and in law the assessing officer erred in restricting the deduction of export profits allowable in term....
X X X X Extracts X X X X
X X X X Extracts X X X X
....before us. 59. Since it is a purely legal ground, therefore, the same is being admitted. 60. On merits, we find that now in the light of the decision of Hon'ble Supreme Court in the case of Ajanta Pharma Ltd. (supra), the assessee is eligible for deduction of 100% export profits as computed under section 80HHC while computing book profits in terms of clause (iv) of Explanation to section 115JB of the Act. Further, the aforesaid issue is squarely covered in favour of the assessee by the other decision of the Tribunal in the assessee's own case for the assessment year 2004-05 in ITA No. 3319/Del/2008. Accordingly, this additional ground raised by the assessee is allowed. 61. Insofar as, the issue relating to additional coal levy, the facts in brief are that the assessee had been allotted coal mines at Raigarh, M.P. in the year 1996 by the Government of India, coal extracted wherefrom is used for captive consumption. The assessee was regularly paying royalty @ 14% on value of coal extracted from the coal mines in accordance with the applicable provisions of Coal Mines and Minerals (Development and Regulations) Act, 1957 ("CMM Act"). 62. The Hon'ble Supreme Court had vide o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....evy of Rs. 62,42,42,420 relates to the year under consideration. In fairness, it was clarified that the said amount of Rs. 62,42,42,420 has been claimed as deduction by the assessee in the return of income for assessment year 2015-16. It has been submitted that since levy of Rs. 62,42,42,420 related to the coal extracted/ mined by the assessee during the relevant year, the said levy is directly linked to the business of the assessee for the year under consideration, and hence allowable as business deduction for the year under consideration. 66. Further, it has been stated that under mercantile system of account, deduction of any expenditure is allowable in the year to which the expenditure relates, as has been held in the following decision: • Perfect Equipments v. DCIT: 85 ITD 50 (Ahd.):- In that case, debit notes for commission issued by selling agent was received by assessee in assessment year 1991-92 but deduction was claimed in assessment year 1992-93. The assessing officer disallowed that claim without considering alternative contention of assessee that claim may otherwise be allowed for assessment year 1991-92. In these facts, the Tribunal held that the expen....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., the Ld. CIT(A) has erred in law in allowing deduction u/s 80-IA at Rs. 112,76,27,767/- as against at Rs. 65,93,67,681/- allowed by the AO. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in allowing depreciating of Rs. 1,60,52,491/- under section 32 of Income-tax, Act against Rs.l,59,10,047/- straight line method adopted by the AO. 3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in allowing depreciating of Rs. 2,36,30,757/-under section 32 of Income-tax, Act against Rs. 49,81,364/- straight line method adopted by the AO on 220 KV Transmission line. 4. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in allowing the appeal w.r.t. addition made on account of forfeited shares application which was treated as income from other sources of Rs. 1,00,00,000/-. 5. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in allowing the appeal w.r.t. disallowance of interest expenditure of Rs. 78,70,148/-. GROUND NO.1 70. The facts in brief are that During the relevant previous year, the assessee claimed deduction under section 80IA of the Ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s available with reference to the profits derived from the eligible undertakings. The said section provides that in case of an assessee having multiple units, the profits derived by the eligible units has to be computed as if the eligible unit(s) were separate and distinct entity, dealing with the other unit owned by the assessee at arm's length. 74. In the case of assessee, since part of the power produced was captively consumed by the manufacturing units owned by the assessee, the rate of transfer of the power was accordingly recorded at the market rate i.e., the rate at which the electricity is supplied by the SEB's to the industrial consumers. Accordingly, sale of power to other units was recorded at Rs. 3.29/3.72 per unit. The transfers were not recorded at the rate at which the surplus electricity was sold by the assessee to the SEB, i.e. Rs. 2.32 per unit on the ground that the price of Rs. 2.32 was the price determined and dictated by the SEB and thus, could not be treated as the 'market value' of power. 75. Thus, deduction allowable to the assessee under section 80-IA of the Act was computed by taking the price charged by the SEB to the industrial consumers including....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ricity being the monopoly of the State, the producers of power were therefore not allowed to sell the same in the open market. Thus the assessee was not in the position to bargain the rate at which the power would have been otherwise sold to the State Electricity Board; on the contrary, the assessee was obliged to sell the surplus power to the State Electricity Board at the price mandated by the said Board. 80. In the present case, in terms of the Power Purchase Agreement entered into by the company with SEB the power generated by the captive plants was required to be consumed by the manufacturing units of the assessee. The company was restricted to sell the power to other consumers, which stipulates that the surplus electricity generated by the captive power plant shall be fed into the transmission system of Grid. In terms of the wheeling agreement entered into by the company with MPEB/CSEB, where the units consumed by the company are less than units wheeled/fed into the transmission system of the Board, the excess is to be treated as deemed sale to the MPEB by the company at the stipulated rate. 81. The rate of purchase of power is a rate determined and dictated by the Powe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....see as a condition precedent to sell excess power to the only purchaser, i.e. SEB. It is the price at which power is supplied to the SEB under compulsion. The same cannot be regarded as indicative of free market price. To put it differently, it is the price at which, the assessee without any option was to sell excess power generated under duress/compulsion. 85. It was thus submitted by the assessee that Rs. 2.32 cannot, by any stretch of imagination be treated/ considered as the price of power in the open market. 86. It has been further submitted that the Tribunal in assessee's own case for the AYs 2000-01 & 2004-05 in ITA Nos.3663/ Del/ 2005 and 3319/ Del/ 2008 respectively has decided the issue in favour of the assessee and appeal filed by the Revenue against the said decision has been dismissed by the Hon'ble jurisdictional High Court vide orders dated 02.09.2008 in ITA nos. 544/ 2006 and 53/ 2008 respectively. Further, the Tribunal in AYs 2002-03 7 2005-06 in ITA Nos.608/Del/2009 and 221/Del/2009 respectively vide consolidated order dated 06.03.2014 also decided this issue in favour of the assessee. 87. Accordingly, respectfully following the aforesaid precedent, and t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n or after 1st day of April, 1997 shall be calculated at the percentage specified in the second column of the Table in Appendix IA of these rules on the actual cost thereof to the assessee as are used for the purpose of the business of the assessee at any time during the previous year: Provided that the aggregate depreciation allowed in respect of any assert for different assessment years shall not exceed the actual cost of the said asset: Provided further that the undertaking specified in clause (i) of sub-section(1) of section 32 of the Act may, instead of the depreciation specified in Appendix IA, at its option, be allowed depreciation under sub-rule(1) read with Appendix I, if such option is exercised before the due date for furnishing the return of income under sub-section(1) of section 139 of the Act, (a) for the assessment year 1998-99, in the case of an undertaking which began to generate power prior to 1st day of April, 1997; and (b) for the assessment year relevant to the previous year in which it begins to generate power, in case of any other undertaking: Provided also that any such option once exercised shall be final and sha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....smission Line in the previous year relevant to assessment year under consideration and being the initial operational year, the assessee in the return of income had claimed depreciation on the basis of Written Down value at the rates as prescribed in Rule 5(1) of the Income Tax Rules. Since the assessee, as stated above, claimed depreciation on fixed assets of the power generating unit/undertaking in accordance with Rule 5(1), in the initial assessment year the assessee thereby exercised the option available under second proviso to Rule 5(1A) of the Rules and was hence bound to claim depreciation in the succeeding years on the same basis as well. Accordingly, in the subsequent years, including the year under consideration, the assessee continued to claim depreciation in accordance with Rule 5(1) read with Appendix 1 of the Rules. It was thus respectfully submitted that the assessee has no choice in the matter and was obliged in law to claim depreciation on the basis opted for earlier and accepted by the Revenue. 93. Even otherwise, we notice that the mode of exercising option in terms of second proviso to Rule 5(1A) of the Rules is not specified. In terms of the said proviso, the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....AO is directed to allow the depreciation as per WDV of impugned assets as opposed to straight line method adopted in the assessment order. Accordingly, grounds no.2 & 3 taken by the Revenue are dismissed. GROUND NO.4 101. Brief facts are that the assessee forfeited Rs. 1,00,00,000 received in respect of 20 lacs preference shares of Rs. 100 each allotted to Oswal Agro Mills Ltd. with a paid-up capital of Rs. 5 each. The assessee credited the said receipt in the capital reserve account as per the provisions of the Companies Act, 1956. The assessing officer, treating the said receipt as revenue in nature, taxed the same under the head 'Income from other sources'. The assessing officer observed that at the time of receipt of preference share application money, the same is capital receipt but legal ownership and the character of the money had been changed after forfeiture of shares and hence made an addition of Rs. 1,00,00,000. The CIT(A) deleted the aforesaid addition following the decision of the Delhi Bench of the Tribunal in the case of Impsat Pvt. Ltd. vs. ITO reported in 91 ITD 354 which held that receipt of share application money did not connote income. 102. Reliance in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erest payments in respect of the debentures which also devolved upon the assessee pursuant to restructuring, and (iii) the assessee has itself charged interest on the said loan outstanding in the financial year 1999-2000. On appeal, the CIT(A) deleted the disallowance. 106. After considering the relevant finding given in the impugned orders, we find that the grounds given by the assessing officer for disallowance of interest are not tenable for the following reasons: 1. Jindal Holding Limited is not a related company in terms of section 40A(2)(b) of the Act; 2. The assessee had not divested interest bearing funds to Jindal Holding Limited free of interest inasmuch as: (i) the amount had originally been advanced by Jindal Strips Limited and not the assessee; and (ii) loan was interest bearing and interest was also recognized upto financial year 1999-2000; 3. Jindal Holdings Ltd. had, as a matter of fact, huge accumulated losses and had no effective source to service the interest payment. This is evident from the following: • On perusal of the audited financial statements of M/s Jindal Holdings Limited for the year ended 31st March, 2001, 31....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the other party to pay the amount to the assessee; and, (c) the probability or improbability of realization of the income by the assessee considered from a realistic and practical point of view. Further, since the recovery of principal itself was doubtful, the assessee had not accrued any interest on illusionary basis. 109. That apart, we find that no interest was accrued by the appellant on the aforesaid loans for immediately two preceding years and the said stand was accepted by the Department. 110. Since there being no change either in facts or in law in this regard, as compared to the earlier years, the position accepted by the Department has to be followed even as per the principle of consistency. 111. In view of the aforesaid settled legal position, there could be no accrual of notional / imputed interest on the given facts and circumstances of the case, and, therefore, disallowance of interest paid to the extent of such notional / imputed interest was rightly been deleted by the CIT(A). Consequently, ground no.5 is determined against the Revenue. 112. In the result, the appeal filed by the Revenue for AY 2003-04 is dismissed. ITA NO.413/DEL/2010 (AY 2006....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... " Additional Ground That on the facts and circumstances of the case and in law the assessing officer may kindly be directed to allow deduction of Rs. 18,68,15,848 while computing 'book profits' in terms of clause (iv) of Explanation 1 to section 115JB of the Income Tax Act, 1961 ('the Act'). Additional Ground Deduction of Additional Coal Levy That on the facts and circumstances of the case and in law, additional coal levy relatable to year under consideration amounting to Rs. 156,64,61,210 paid on account of extraction of coal pursuant to the order(s) of the Hon'ble Supreme Court, be directed to be allowed as business deduction." GROUNDS NO.1, 2, 3 & 4 114. Since we have already decided this issue in assessee's own case for AY 2003-04 in ground no.1, respectfully following the same, grounds no.1 to 4 taken by the assessee are allowed. GROUND NO.5 115. This issue is also decided by us in assessee's own case for AY 2003-04 in ground no.2 and respectfully following the same, ground no.2 taken by the assessee is allowed. GROUND NO.6 116. Facts in brief are that the assessee during the relevant previous year incurred expen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al grounds have also been decided by us in the assessee's appeal for AY 2003-04 above and following the same, these additional grounds are determined in favour of the assessee. 121. In the result, the appeal filed by the assessee for AY 2006-07 is partly allowed. ITA NO.341/DEL/2010 (AY 2006-07) FILED BY THE REVENUE 122. In the grounds of appeal, the Revenue has taken the following grounds of appeal :- "1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was right in restricting the claim of deduction made u/s 80IA of the Act, 196] from Rs. 3,65,71,39,107/- to Rs. 2,53,05,43,080/- by following his earlier order, without appreciating the additional facts and arguments brought on record by the AO for the first time in the assessment order, which is a subject matter of appeal. 1(a) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was right in holding that electricity rates charged by Chhattisgarh State Electricity Board from consumers constituted market price for the assessee also, when the later is not incurring any infrastructural expenditure on account of electricity transmission and distribution and ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....acts in brief are that during the relevant previous year the assessee incurred expenditure of Rs. 2,68,33,219 and Rs. 2,49,42,909 relating to construction of Hospital and School Auditorium respectively in the district of Raigarh, in terms of understanding entered into with the Society owning the same, for the benefits of its employees and their children and also as part of its corporate social responsibility initiatives. 125. The assessing officer disallowed the aforesaid expenditure holding the same to be capital in nature. On appeal, the CIT(A) held that such expense was related to employee welfare and is accordingly allowed under section 37(1) of the Act. 126. The assessee, is carrying on the business/ manufacturing activities in the backward and small city of Raigarh in the State of Chhattisgarh. Further such small town is not equipped with other necessary facilities that may be necessary to meet the regular/basic needs of the residents of that city including employees of the assessee company. The city of Raigarh also did not have any good school or hospital. The assessee was therefore, also finding it difficult to attract qualified employees/ technicians since they were ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....school and also fees charged by hospital, priority services to the employees of the assessee, etc, in lieu of assessee giving financial assistance; (b) Fee structure of O.P. Jindal School, Raigarh during the session 2005-06 to 2009-10 along with a list of students of employees of the assessee and other students during the financial year 2005-06. On perusal of the same, it will be kindly noticed that substantial concession in fees is given to the employees of the assessee vis-à-vis the other students; (c) A graph showing growth in strength of the school and its composition into students of the employees of the assessee vis-a-vis other students. (d) Certain photographs showing usage of school auditorium for various meetings by the assessee; (e) Patient Admission report for the year 2008 depicting treatment of employees of the assessee and other persons. 131. On perusal of the same, it was pointed out that a large number of employees use the services of the hospital run by JEWS. On perusal of the aforesaid details/ documents, it can be gauged that substantial benefits flowed to the employees of the assessee as a result of the assessee incu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat the assessing officer has, in the assessment order, while holding the impugned subsidy as revenue receipt, simultaneously reduced the same from cost of fixed assets, while applying provisions of Explanation 10 to section 43(1) of the Act resulting in double taxation of same amount of subsidy. 137. It has been submitted by the assessee that even assuming, without admitting, that the subsidy received is a revenue receipt, the action of the assessing officer in reducing such subsidy from cost of fixed assets by applying the provisions of Explanation 10 to section 43(1) of the Act is patently erroneous as the same resulted in double taxation of the very same amount, viz., (i) by bringing the amount received to tax as income; and (ii) by reducing the claim of depreciation on account of reduction of the very same amount from the cost of the depreciable assets. Ld. Counsel submitted that the assessing officer, , cannot blow hot and cold in the same breadth and, therefore, the action of the assessing officer in making reduction of the amount of subsidy from the cost of fixed assets was not called for and accordingly rightly reversed by the CIT(A). 138. Further, if its to be held ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct. 141. Ld. DR supported the order of the Assessing Officer and pointed out that the nature and manner in which subsidy was received is nothing but for acquisition of assets. 142. After considering the aforesaid facts as well as order of the AO and ld. CIT (A), we find that if the purpose of subsidy was for industrialization of the backward state, employment generation, etc. and is in the form of capital nature, such subsidy is not required to reduced from the cost of asset u/s 10 to section 43(1) of the Act. Hon'ble Supreme Court in the case of CIT v. P.J. Chemicals Ltd. reported in 210 ITR 830 has observed that in that case, the assessee had received a capital subsidy, which was claimed as capital receipt, not exigible to income-tax. In the assessment proceedings, the assessing officer held that such subsidy is liable to be reduced form the cost of assets, in terms of the provisions of section 43(1) of the Act. The appeal preferred by the appellant before the Commissioner of Income-tax (Appeals) was dismissed. The Tribunal, however, allowed the assessee's claim. The Hon'ble High Court decided the matter in favour of the Revenue. On further appeal preferred by the asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....145. Facts in brief are that during the previous year 2004-05, the assessee had taken an aircraft on lease from GE Capital Services India ('GE'). In accordance with Accounting Standard 19 (AS-19) on 'Leases' issued by the Institute of Chartered Accountants of India ('ICAI'), the said lease qualified as finance lease for the purpose of accounting treatment. AS-19 on Leases provides that in case of "finance lease", lessee has to capitalize the leased asset at an amount equal to the present value of future lease payments and a corresponding amount is recognized as a liability. Accordingly, out of total lease rental of Rs. 7,94,22,735, Rs. 1,04,47,179 was charged to the P&L account and the balance amount of Rs. 6,89,75,556 was adjusted against the outstanding liability towards value of the aircraft. In the return of income, total lease rental amounting to Rs. 7,94,22,735 was claimed as an admissible deduction under section 37(1) of the Act. Further, no depreciation was claimed on cost of aircraft under the provisions of the Act. 146. The assessing officer held that the aforesaid expenditure of lease rent of Rs. 6,89,75,556 was towards cost of the aircraft and accordingly, disallowed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ndard issued by ICAI creating distinction between finance lease and operating lease will have no implications under the provisions of the Act. The relevant excerpt of the said Circular are reproduced herein below: "Under the Income-tax Act, in all leasing transactions, the owner of the asset is entitled to the depreciation if the same is used in the business, under section 32 of the Income-tax. The ownership of the asset is determined by the terms of the contract between the lessor and the lessee....... .................... "It has come to the notice of the Board that the New Accounting Standard on 'Leases' issued by the Institute of Chartered Accountants of India require capitalization of the asset by the lessees in financial lease transaction. By itself, the accounting standard will have no implication on the allowance of depreciation on assets under the Act." 149. The legal position that emerges from the aforesaid is that Accounting Standard 19 issued by ICAI, by itself, has no implication on the allowance of depreciation on assets under the provisions of the Act. The owner, i.e. the lessor, is ordinarily eligible to claim depreciation under section 32 of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "1. That the Commissioner of Income Tax (Appeals), Rohtak has grossly erred on facts and in the circumstances of the case and in law in holding the subsidy of Rs. 932,188,629/- being a capital receipt as trading receipt. 2. That the Commissioner of Income Tax (Appeals) , Rohtak has grossly erred on facts and in the circumstances of the case and in law in holding the capital subsidy amounting to Rs. 932,188,629/- as revenue receipt for the reason that benefit of the subsidy part became operative only at the time of commencement of the production, in defiance of the settled law that the point of time when the subsidy is paid is irrelevant. 3. That the Commissioner of Income Tax (Appeals), Rohtak has grossly erred on facts and in the circumstances of the case and in law in not adjudicating the inter-connected additional ground in respect of exemption of capital subsidy of Rs. 11,55,71,730/- on account of exemption from entry tax in respect of New Industrial Unit No.III. 4. That the Commissioner of Income Tax (Appeals), Rohtak has grossly erred on facts and in the circumstances of the case and in law in disallowing a sum of Rs. 2,49,722/- out of the expe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sions of section 32(1)(i) and Appendix 1A of the Income-tax Rules, 1962. 3. Whether On the facts and in the circumstances of the case, the Ld. CIT(A) has was right in treating the capital expenditure of Rs. 99404674/- made on construction of Auditorium, Hospital, School etc. as admissible u/s 37 of the Income-tax Act, 1961 without appreciating the legal position that the capital expenditure is specifically excluded from the purview of section 37 and the MOU between the assessee and its employees cannot convert capital expenditure to revenue expenditure." GROUNDS NO.1 & 1(a) 161. Since we have already decided this issue in Revenue's case for AY 2003-04 in ground no.1, respectfully following the same, grounds no.1 & 1(a) taken by the Revenue are dismissed. GROUND NO.2 162. We have already decided this issue in Revenue's case for AY 2003-04 in ground no.3, respectfully following the same, ground no.2 taken by the Revenue are dismissed. GROUND NO.3 163. This issue has already been decided by us in Revenue's case for AY 2006-07 in grounds no.2 & 2(a), respectfully following the same, ground no.2 taken by the Revenue are dismissed. 164. In the result, the ap....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 2006-07 in ground no.6 and respectfully following the same, ground no.5 taken by the assessee is allowed. 169. In the result, the appeal filed by the assessee for AY 2008-09 is allowed. ITA NO.4067/DEL/2011 (AY 2008-09) FILED BY THE REVENUE 170. In the grounds of appeal, the Revenue has taken the following grounds of appeal :- "1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was right in allowing the claim of deduction made u/s 80IA of the Act, 1961 from to Rs. 4,28,94,98,566/- as against the deduction of Rs. 2,23,80,25,060/- given by the AO by following his earlier order, without appreciating the additional facts and arguments brought on record by the AO for the first time in the assessment order, which is a subject matter of appeal. 1(a) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was right in holding that electricity rates charged by Chhattisgarh State Electricity Board from consumers constituted market price for the assessee also, when the later is not incurring any infrastructural expenditure on account of electricity transmission and distribution and had also not incurred any establishme....