TaxTMI 
TaxTMI 
2023 (6) TMI 508
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....d herein below. With the consent of both the parties the ITA No. 293/Asr/2015 and 417/Asr/2015 are taken as lead case for revenue & assessee respectively. ITA No.293/Asr/2015 2. The revenue has taken the following grounds: "1. Whether the Commissioner of Income Tax (Appeals), Jammu was right in law to allow deduction u/s 80IB of the Income Tax Act, 1961 on Central Excise Duty refund by relying upon the judgement of the Hon'ble High Court of J & K, in the case of M/s Shree Balaji Alloys & others & ignoring the ratio of the law on the issue as laid down in the case of Ponni Sugar & Sawhney Steel and Press Works Ltd. 2. Whether the Commissioner of Income Tax (Appeals), Jammu committed an error in law in not following the law as laid down by the Hon'ble Supreme Court in the case of Ponni Sugar & Sawhney Steel and Press Works Ltd, wherein similar receipts were held to be revenue in nature as the same had been made after the industries had been set up and not for purpose of setting up of the industries. 3. Whether in law, the Commissioner of Income Tax (Appeal), Jammu was right in not appreciating and applying the purpose test as laid down by the judgements of the Hon'ble Supr....
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.... of a sum of Rs. 11, 26, 386/- on account of other expenses being debited in the Profit & Loss Account and such disallowance is entirely misconceived, incorrect and has arbitrarily been made. 2.1 That the learned Commissioner of Income Tax (Appeals) has further erred in sustaining the aforesaid disallowance purely on assumptions, presumptions, surmises and conjectures and without any evidence or material to the contrary, and hence the addition made is unsustainable and liable to be deleted. 3. That the learned Commissioner of Income Tax (Appeals) has erred in setting - aside the issue of disallowance of a sum of Rs.10, 14, 174/- on account of deduction claimed under section 80IB (11 A) of the Act with respect to CA stores unit at Srinagar to the file of learned assessing officer, whereas after going through the evidences and having accepted that the appellant company has fulfilled the requisite conditions as envisaged under the Act, the said issue should have been decided by learned CIT (A) itself and thus, the set -aside to the file of AO is misconceived and incorrect in law. 3.1 That the learned Commissioner of Income Tax (Appeals) has further failed to appreciate the fa....
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.... 293-ASR-2015 2007-08 YES YES 7 294-ASR-2015 2008-09 YES 8 255-ASR-2015 2008-09 YES 9 470-ASR-2015 2009-10 YES 10 471-ASR-2015 2010-11 YES 11 417-ASR-2015 2010-11 YES YES The assessee is a company and is engaged in business of manufacturing and trading of pesticides, juices and construction. The assessee has various business divisions. The brief description of the various divisions of the assessee is as under: i) Crop Protection Division - This division has three units (unit-1, unit-2 and unit-3) at Jammu. These three units are in the business of manufacturing of pesticides and other agro-chemical products. All three units are capable of manufacturing any of the pesticide product i.e. the product manufactured are not unit specific. ii) Food and beverage division - This division is manufacturing juices and has its setup at Srinagar iii) Consumer Division - This unit is a 100% export-oriented unit for the manufacture of juice concentrates and is located at Srinagar. iv) Warehousing Division: - This unit has controlle....
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....2005-06 date of order 27/06/2012The grievance of the revenue is that the assessee has received the Central Excise Refund which is accepted as nature of "capital receipt" but similar receipts were held to be revenue in nature as the same had been made after the industries had been set up and not for purpose of setting up of the industries.. The ld. CIT DR has pressed this issue and mentioned the relevant para no. 16 of order of ITAT Coordinate Bench which is reproduced as below: "16. We have heard the rival contentions and perused the facts of the case. We are of the considered view that the issue stands covered by the decision of the Hon'ble Jurisdictional High Court of Jammu & Kashmir, in the case of Shree Balaji Allows v. CIT and Another (2011) 333 ITR 335 (J & K) where it has been held that the Excise Duty Refund is to be treated as 'capital receipt' and not liable to be taxed. Respectfully following the said judgment of Hon'ble J & K High Court, refund of excise duty of Rs.4,66,88,681/- is held to be as 'capital receipt'. This ground of the assessee is allowed accordingly." 6.1 The ld. CIT DR further invited our attention in the assessment order and the observation of t....
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....ve extent. Penalty proceedings u/s 271(1) (c) of the I.T. Act, 1961 are, therefore, initiated on this issue." 7. The ld. counsel for assessee filed the paper book which is kept in the record. The ld. Counsel also accepted the fact that the refund from Central Excise is a "capital receipt" and it is no question of tax in the hands of the assessee. 8. We heard the rival submission and perused the documents available in the record. The grievance of the AO related to Capital Subsidy/Central Excise Subsidy is that particular subsidy is a "capital receipt". It cannot be the part of the total income and also not be the part for calculation of deduction u/s 80IB of the Act. As the part of "capital receipt" is "it is not deriving from industrial undertaking", and not the part of the profit. We respectfully relied on the observation of the Hon'ble Supreme Court in the case of CIT vs. Ponni Sugars and Chemicals Ltd. reported in 306 ITR 392.The relevant paragraph is extracted as below:- "6. One more aspect needs to be mentioned. In Sahney Steel & Press Works Ltd.'s case (supra) this Court found that the assessee was free to use the money in its business entirely as it liked. It was no....
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.... Ground No-2 is dismissed. 9. Further, the ld. AO in his order observed that the subsidy of Central Excise which is reproduced here as below: 10. The revenue has agitated the ground -3 as the money received by the assessee on account of central excise was not supposed to be spent in particular manner or for the purpose of substantial expansion of the industry. The nature of subsidy is elaborately discussed by the ld. AO. But ld. CIT-DR was no able to bring any proper fact before the bench. The issue is first agitated before the bench. The ld. Counsel for assessee argued that the ground has no justification. In the result, the Ground no-3 of revenue is dismissed. ITA No. 294/Asr/2015 Claim of 80IB for Two Units. 11. The ld. CIT DR relied on the order of the ld. AO. The issue is well settled in the Coordinate Bench of ITAT, Amritsar in ITA No.415/Asr/2009 date of pronouncement 27/06/2012 the relevant paras 13 to 13.1 are inserted as below: "13. As regards the inquiries made during the assessment proceedings especially with Central Excise Authorities with regard to the reply dated 24.12.2007 of the Central Excise Division, Jammu that there is only unit registered with Central ....
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....is only then three separate assessments for each unit were required to be done. However, when one unit is registered, there is no justification of three assessments are required to be made. From the perusal of record, we are of the view that nothing has been brought on record by the AO or by the Ld. CIT(A) or by the ld. counsel for the Revenue to show that the assessee was required separate registration for claiming deduction under section 80IB of the Act. 13.1 Section 6-A of the Jammu & Kashmir Sales Tax Act, 1962 provides for provisional registration of the business of any person who intends to establish a business in the State of Jammu & Kashmir for the purpose of manufacturing or producing goods. Under this Act, registration is required 54 of the business and not of the each of the separate undertaking at the same place of the assessee. As regards reply of the Inspectors of Factories and Boilers, the same cannot help the Revenue. As regards the Insecticides Act, 1968 and Insecticides Rules, 1971, under Rule 9(2) if manufacturing activities are carried out at more than one place, only then separate registration is required whereas the assessee is carrying out manufacturing onl....
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....principles laid down by the various courts of law, the issue is with regard to formation of industrial undertaking has been examined in the initial assessment year and once the claim has been allowed especially under assessment u/s 143(3), the same cannot be denied in the succeeding assessment year without first recording of any adverse finding of the year of formation. There is no citation referred by the Ld. counsel for the Revenue to take a different view on the matter. Accordingly, we uphold the claim of the assessee u/s 80IB of the Act, which is in accordance with law." 12. We consider the order of both the revenue authorities and followed the observation of the Coordinate Bench. In our considered view, in this point, the appeal of the revenue is dismissed. Claiming Depreciation u/s 32 in Building, Plant and Machinery. 13. The ld. CIT DR placed that the assessee had charged depreciation on the building, plant and machinery head @ 25%, which the rate of depreciation will be @ 10%. So the 15% was disallowed by the ld. AO. The relevant para of the assessment order page 84 to 85 is extracted as below: "On the perusal of the details filed for additions to plant and machinery....
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....f the ld. CIT(A) the relevant paragraph 15 of the CIT(A) order is extracted as below: "15 ISSUE 8: DISALLOWANCEOFDEPRECIATIONOFRS.18,92,163/- ANDRS. 3,10,253/- u/s 32 OF THE ACT. ( ASSESSMENT YEAR 2007-08 & 08-09) 15.1 The Hon'ble Tribunal vide its order dated 27.6.2012 has deleted the identical disallowance of depreciation, wherein it has been held as under: "22 We have heard the rival contentions and perused the facts of the case. This is not under dispute that the construction material in respect of CS Stores was utilized for construction of mezzanine floors which is, in fact, is a part of plant and machinery. Similarly, it has not been disputed that the erection material and construction material in Tetra Division was for the addition to the plant and not to the building. The AO has gone with the assumption and the nature of the expenditure since the expenditure is on the construction material and erection material and therefore, it has to be treated as part of building. Once the said expenditure is part of the plant and machinery, which is not under dispute, such expenditure necessarily has to be part of plant and machinery and depreciation as claimed has to be allowed....
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....ed as not relatable to the year under consideration. The appellant has contended that there is no concept of deferred revenue expenditure and once the expenditure has been incurred, the said expenditure is allowable as deduction. In the judgment of the Hon'ble Delhi High Court in the case of CIT vs. Citi Financial Consumer Finance Ltd. 335 ITR 29. The facts were that in the assessment year 2001-02, the assessee company claimed an expenditure of Rs. 3.95 crores on account of advertisement and publicity expenses as revenue expenditure. The Assessing Officer was of the view that expenditure could not be termed expenditure relevant exclusively for the period of twelve months under consideration during the assessment year 2001-02. Such expenditure had a bearing on a period of five years and therefore, assessee could not claim the benefit in the year in which, expenditure was incurred. He accordingly, allowed l/5th of the expenditure and the balance was disallowed. Furthermore, the Assessing Officer also noticed that assessee had been financing hire-purchase of vehicles and homes etc. and the periods of such financing not less than one year up to five years. He noticed that on such trans....
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....ents on which reliance is placed by the learned counsel for the Revenue would be of no avail in the instant case. The learned counsel for the Revenue had strongly argued that matching concept is to be applied, as per which part of the expenditure had to be deferred and claimed in the subsequent years and, therefore, approach of the Assessing Officer was correct. However, this argument overlooks that even in Madras Industrial Investment Corporation Ltd. [1997] 225 ITR 802 (SC), on which the reliance was placed by Ms. Bansal, the general principle stated was that ordinarily revenue expenditure incurred wholly and exclusively for the purpose of business can be allowed in the year in which it is incurred. Some exceptional cases can justify spreading the expenditure and claiming it over a period of ensuing years. It is important to note that in that judgment, it was the assessee who wanted spreading the expenditure over a period of time as was justifying such spread. It was a case of issuing debentures at discount; whereas the .assessee had actually incurred the liability to pay the discount in the year of issue of debentures itself. The court found that the assessee could still be allo....
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....er. The court was conscious of the principle that normally revenue expenditure is to be allowed in the same year in which it is incurred, but at the instance of the assessee, who wanted spreading over, the court agreed to allow the assessee that benefit when it was found that there was a continuing benefit to the business of the company over the entire period." 12. This court, thus, explained in no uncertain terms that the normal rule accepted by the Supreme Court in the said judgment was that the expenditure is to be allowed in the year in which it was incurred. Only at the instance of the assessee who wanted to spread over, the court had agreed to allow the assessee the benefit after finding that there was a continuing benefit to the company over the entire period. The ratio of this judgment was thus summarized in the following manner: "What follows from the above is that normally the ordinary rule is to be applied, namely, revenue expenditure incurred in a particular year is to be allowed in that year. Thus, if the assessee claims that expenditure in that year, the Income- tax Department cannot deny the same. However, in those cases where the assessee himself wants to spre....
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....t chose to claim the entire expenditure in the year in which it was spent/paid by invoking he provisions of section 36(l)(iii) of the Act. Once a return in that manner was filed, the AO was bound to carry out the assessment by applying the provisions of that Act and not to go beyond the said return. There is no estoppels against the Statute and the Act enables and entities the assessee to claim the entire expenditure in the manner it is claimed." 12.4 From the above judgment, it is crystal clear that expenditure is to be treated as revenue allowable fully in the year in which, it is incurred and no part of the expenditure can be deferred or claimed in the subsequent years. In view of the above judgment, the claim of expenditure is held to be eligible for deduction and disallowance made of Rs. 38,31,384/- is deleted. The ground raised is thus allowed." 18. In our considered view that the ld. CIT(A) has taken a correct view in relation to the bank guarantee charges paid on bank amount of Rs.38,31,384/-. We are not intervening in the order of the ld. CIT(A) and accordingly ground No-4 of the revenue is dismissed. ITA No. 417/Asr/2015-Ground-1, 1.1 & 1.2. Disallowance on acco....
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....ssee would be entitled to 25% of the back ended capital investment subsidy scheme. It will be seen that such subsidy is given irrespective of the actual cost incurred by the appellant company. In other words, subsidy so released has no connection with the actual cost incurred by the appellant company. It is submitted that even as per the sanction letter as available, the assessee has been sanctioned subsidy of Rs. 4.00.00.000/- in the new store and Rs, 10.00.000/- in the old store which is equivalent to Rs, 4.10,00,000/- out of which, Rs, 1.54.42,626/- was released in the instant year. However, total investment by the appellant company as would be evident from the financial statement is Rs. 64.24 crores at the close of the year. It may be added here that the total aggregate investment before depreciation for the cold storage is as under: Sr. No. Particulars Amount (pages of Paper Subsidy received (pages of Paper Book) i) Old storage 5,75,87,552/- (139) 10,00,000/- (Received in the AY 2009-10) ii) New Storage 58,48,50,242/- (145) 20000000/- (Received in the AY 2009-10) 1,54,42,626/- (Receipt in the instant 1.8 It may be thus, evident that such subsidy cann....
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....ect cost and not the actual cost incurred by the appellant company. It is thus evident from the sanction letter and application furnished by the appellant company. A copy of the sanctioning letter and application letter placed at page 419 to 432 of of Paper Book. -II for AY 2009-10. In other words, the submission is that disallowance of depreciation of Rs. 23,16,393/- on the basis of invoking explanation 10 to section 43(1) of the Act is highly unjustified and uncalled for. Reliance is also placed on the following judicial pronouncements: i) 65 SOT 58 (Kofi DCIT vs. Rasoi Ltd. I. Section 43(1), read with section 32 of the Income-tax Act, 1961 - Actual cost (Subsidy) - Assessment year 2007-08 - Whether in order to invoke Explanation 10, it is necessary to show that subsidy was directly or indirectly used for acquiring an asset - Held, yes - Whether relatable subsidy to an asset can be reduced from its cost only if it is found that cost of acquiring that asset was directly or indirectly met out of subsidy - Held, yes - Whether likewise in proviso to Explanation 10, it is necessary to show that subsidy has been directly or indirectly used to acquire an asset but it is not possib....
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.... business of production of cement, received sales tax subsidy under a scheme of Government -Whether sales tax incentive was capital in nature as very scheme under which subsidy was received was for incurring expenditure for installation of plant and machinery and for fixed capital investment - Held, yes - Whether further, said subsidy receipt should not be reduced from actual cost of fixed assets for computing depreciation - Held, yes [Paras 7 and 9] [In favour of assessee] v)I.T.A No. 679/Kol/2013 dated 27.02.2015 Universal Cables Ltd. vs. PC1T In view of the above facts and circumstances of the case and legal position explained by Hon'ble Supreme Court in the case of P. J. Chemicals Ltd. (supra), we are of the view that subsidy receipt should not be reduced from the actual cost of fixed assets for computing depreciation under the provisions of the Act. Accordingly, this issue of revenue's appeal is dismissed and that of the assessee is allowed. 1.10 It is thus prayed that in nutshell, no disallowance is warranted in respect of the subsidy received of Rs. 1,54,42,626/- of the C.A. Store New. The purpose of the subsidy was only to setting up the project and not to ....
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....nt, as such, no relief can be claimed. However, a look at the ld. AO's order at page 5, would make it amply clear that adverse observations have been made by learned AO, and once learned CIT (A) in principle agreed to allow the said claim, the said observations so recorded by learned AO should have also been expunged. It is prayed accordingly from Hon'ble ITAT to direct learned AO to expunge the said observations. It is further, submitted that the said finding of ld. CIT (A) is also factually incorrect, whereas, the deduction so made by learned AO under section 80 IB of a sum of Rs. 2,11,80,352/-, includes the aforesaid figures of Rs. 10,14,174/- and Rs. 91,014/-. 22.2. We heard the rival submission & observed the documents. There is factual difference in both the orders of the revenue. The ld. CIT-DR only relied on the orders of the revenue. We remit back the matter to the ld. CIT(A) and adjudicate the issue considering the submission of assessee. 22.3. In the result the appeal of the assessee ground no 3 & 3.1 and 4 & 4.1 are allowed for statistical purpose. ITA 417/Asr/2015- Ground-5regards to disallowance on account of prior period expenditure: - 23. the ld. Counsel argue....
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....ellant. As such, there remains no justification to sustain the disallowance u/s 80HHC of the Act. Therefore, the same is deleted and the ground raised is thus allowed." 24.2. We heard the rival submission and considered the order of revenue. The order of the ld. CIT(A) is explanatory & in remand report also in favour of assessee. We upheld the order of the ld. CIT(A). So, the ground of revenue in this issue is dismissed. In the result the appeal of the revenue inground no. 5 of ITA No. 290/Asr/2015 is dismissed. ITA No. 255/Asr/2015 25. In the appeal of the assessee, the following grounds are raised: - "Grounds 1. The learned Commissioner of Income Tax (Appeals) has grossly erred both on facts and in law, in confirming the order of assessment framed under section 143(3) framed by the Additional Commissioner of Income Tax, Range-3, Srinagar. 2. That the learned Commissioner of Income Tax (Appeals) has erred in sustaining the partial disallowance of expenditure incurred when he has failed to appreciate that, the aggregate expenditure incurred of Rs. 5, 30, 421/- was on account of Directors Foreign Travelling expenses, which expenditure had been incurred by the assessee i....