AI Drafter 
TaxTMI 
TaxTMI 
2025 (4) TMI 272
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....A), NFAC, Delhi. CIT(A), Delhi -22/10491/2019-20, Dated 05.04.2023 Circle LTU-2, Delhi, date: 30.12.2019 143(3) 1372/Del/2023 2017-18 - Do - Do - - Do - - Do - 1373/Del/2023 2018-19 - Do NFAC/2017-18/10088931, dated 15.03.2023 National Faceless Asstt. Centre, Delhi, dated 30.09.2021 143(3) r.w.s. 144B 1706/Del/2023 2019-20 - Do- NFAC/2018- 19/10133148, Dated, 05.04.2023 National Faceless Asstt. Centre, Delhi, dated 31.03.2022 - Do - 1374/Del/2023 2019-20 - Do- - Do - - Do - - Do - 2. As the grounds in these appeals arise out of similar disallowances the appeals were heard together and are decided together. The assessee is a company engaged in the business of manufacturing of polyester chips, Biaxially Oriented Polyester Film, Biaxially Oriented Poly Propylene Film, Metalised Film and PVDC Film. In the respective years covered by the appeals, certain disallowances were made by the ld. AO in regard to which the assessee had succeeded in some of the issues before the ld.CIT(A). Accordingly, the appeals from both the sides are before this Tribunal. Ld. Counsel of assessee has stated at bar that juridicication and l....
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.... of expenditure with business operations. As for convenient reference, for disposal of the appeals, the facts and impugned orders wherever relevant to be referred shall be picked up from assessment year 2017-18. In the impugned assessment, the ld. AO has mentioned that the assessee did not establish the nature of services obtained by way of relevant evidences. It was also concluded that the payments for services should have been booked on the basis of actual services received and backed by the invoices. The allegation of the AO is that Soyuz is a Calcutta based company and has received major fees from the assessee and there is absence of nexus of the expenditure made by the assessee against the so-called services received from Soyuz. 5.1 The case of the assessee is that in order to strengthen its business capabilities the assessee is availing management/consultancy services from Soyuz covering wide spectrum of operational/administrative areas including production, planning, procurement, project/capital-cum-expansion, quality improvement, marketing research, marketing and sales promotion(domestic and export), financing, auditing, recruitments and training, legal services and info....
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.... 10. On the basis of the aforesaid averments duly established by the relevant pieces of evidence available on the paper book, we are of the considered view that on the principle of consistency alone the disallowance made by the AO is unwarranted and was liable to be quashed by the Ld. CIT(A). The nature of services and the terms of agreement and the nature of trade of the assessee have not changed over the years. It appears that agreements are entered for short period, but, otherwise there is no change in the terms and conditions for provision of services except the compensation part. 11. Further, after going through the impugned orders, it is apparent that the ld. tax authorities have not examined the services rendered by the Soyuz individually and on a very wholesome manner have concluded that the assessee did not require these services. We are of the considered view that when expenditure is being examined on the basis of the business expediency, then, without pointing out specific instances of deficiency or discrepancy in the working, operations and financials of the company, such a disallowance is not sustainable. More importantly when otherwise the expenditure has been acc....
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....led Benefit derived Benefits derived Examples of suggestion/advises given Services in relation to procurement of law material Reduction in cost of raw materials procured from various supplies 24.18 Crore  Negotiated contract with the (potential) suppliers  Negotiated additional discount vis-à-vis discount availed in previous year  Discount @ 20% + 10% quantity discount + 750/MT Services in relation to Sales and marketing Introduction of new customers 7.9 Crore  The service provider identified new customer for export of films (quantity 3147 MT) Services in relation to purchase of capital equipment/ project implementation Benefit due to reduction in cost of capital goods 18.98 Crore  Service provide negotiated with various suppliers by procurement of capital goods at cheapest rates Services in relation to purchase of capital equipment/ project implementation Benefit due to set up of demetalizing plant 6.7 Crore  Service provide was involved in implantation of the dematalizing project Services in relation to purchase of capital equipment/project implementation Benefits....
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....thus eligible to lower of the amount determined as per the fixed capital investment and the payment of relevant taxes over the period of 7 years. The relevant taxes, for the purpose, was defined to mean the amount of tax payable under Maharashtra Value Added Tax Act (MVAT) 2002 and Central Sales Tax (CST) Act, 1956 subject to certain adjustments. For the relevant previous year, the audited financial statements were prepared in accordance with Indian Accounting Standards (in short Ind-AS) as notified by the Ministry of Corporate Affairs pursuant to section 133 of the Companies Act, 2013. The appellant, in its books of accounts, recognized subsidy aggregating to Rs. 55.77 crores as 'Deferred Government Grants' in 'Non-current Liabilities' and amortized/ recognized the same in the statement of profit and loss on straight line method. Accordingly, out of the total amount of Rs. 55.77 crores, an amount of Rs. 2.78 crores (Rs.2,78,04,611) was amortized and recognized as income in the financial statements. For tax purposes, the appellant followed a consistent practice of offering for tax the amount as recognized as income in the financial statements and/ or actual receipt of subsidy, whic....
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....ernment grant referred to in paragraphs 6, 8 and 9 shall be applied first against any unamortised deferred credit remaining in respect of the Government grant. To the extent that the amount refundable exceeds any such deferred credit, or where no deferred credit exists, the amount shall be charged to profit and loss statement. 12. The amount refundable in respect of a Government grant related to a depreciable fixed asset or assets shall be recorded by increasing the actual cost or written down value of block of assets by the amount refundable. Where the actual cost of the asset is increased, depreciation on the revised actual cost or written down value shall be provided prospectively at the prescribed rate." (emphasis supplied) The provisions of the Act recognize government grant (and its variants) as income under section 2(24)(xviii) except for grants in relation to depreciable assets (which are reduced from actual cost). There are no explicit provisions in the Act which pinpoint the year in which such treatment should be given. Although, section 43(1) mandates reduction of grant from cost of asset in the year of acquisition, there is no guidance available in the....
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.... incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee other than the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (1) of section 43 of the Income-tax Act. 5.2 As mentioned in Press Release dated 5th May, 2015, the amended definition of income shall not apply to the LPG subsidy or any other welfare subsidy received by an individual in his personal capacity and not in connection with the business or profession carried on by him. 5.3 Applicability:- This amendment takes effect from 1st April, 2016 and would accordingly apply to assessment year 2016-17 and subsequent assessment years." (emphasis supplied)" In line with the aforesaid amendment, the legislature also inserted section 145B of the Act vide Finance Act, 2018 (w.r.e.f. 01.04.2017) which provided that income referred to in sub-clause (xviii) of clause (24) of section 2 shall be deemed to be the income of the previous yea....
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....ccrued nor being due to the appellant in the year under consideration was not taxable as income in terms of Section 2(24)(xviii) of the Act read with ICDS-VII. Further, in the impugned assessment order, the assessing officer also made addition of Rs. 3.60 crores (Rs.3,60,70,000), being subsidy relatable to assessment year 2015-16, which was already offered to tax in the said year, resulting in double taxation of the very same amount. It was submitted that merely determination of the entitlement of the appellant to receive subsidy on the basis of the investment made does not result in crystallization of the same as an accrued amount to be taxed as income. Moreover, mere recognition of the amount in the financial statements also does not result in crystallization of claim/ amount as 'income'. 23. Now what is material is that PSI was linked to fixed capital investment and the payment of the relevant taxes for a tenure of 7 years. Moreover, receipt of any amount as subsidy from the government was subject to and hedged by various conditions, including but not limited to continued compliance of all terms and conditions stipulated in the Scheme/Eligibility Certificate, furnishing of re....
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....n is done and the amount of disbursement is finally made. Further, in a situation where the documentation furnished by the assessee is not to the satisfaction of the concerned authorities, further documentation may be called for and/or the provisional sanction can be withdrawn and no disbursement would be made till the filing of the documents to the satisfaction of the authorities. 25. In view of the above, it is established that there is uncertainty of receipt of subsidy until the stage of complete verification of documents by concerned authorities post issuance of provisional sanction, which is followed by its disbursement. Therefore, the subsidy amount crystallizes and actually accrues as 'income' in favour of the appellant only on the happening of the said events and not prior thereto. Thus, it is not a situation where the appellant is guaranteed or even for that matter assured that subsidy applied for, will in effect be automatically sanctioned/received by the appellant despite having an operational Eligibility Certificate since the monitoring agency is empowered to cancel the Eligibility Certificate, or direct recovery of the incentives drawn / availed in the instance any ....
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....res) Subsidy offered to tax in AY Subsidy Offered to Tax Pertaining to AY Total Subsidy Offered to Tax 2017-18 2018-19 2019-20 2017-18 2.96 - - 2.96 2018-19 2.96 21.49^# - 24.45 2019-20 42.41^# 3.20 28.30^# 73.91 2020-21 9.86^# 33.91^# 5.68 49.45 2021-22 - - 39.14^# 39.14 2022-23 - - 27.83^# 27.83 Total 58.19 58.60 100.95 217.74 # - Includes subsidy actually received 28. Thus we are inclined to accept the case of assessee that the aforesaid treatment being in accordance with the provisions of ICDS and the Act the alleged income can be said to accrue when the assessee acquires vested right to receive the amount, on fulfilment of condition of scheme to the satisfaction of competent government. 29. Even otherwise, it is undisputed that the appellant has ultimately offered the entire amount of subsidy to tax in the subsequent assessment year(s) 2019- 20 and 2020-21. Thus, the only academic issue which remains is with respect to the year of taxability of such income, which, it is submitted, is merely a timing difference. Since the appellant is a compa....
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.... the disallowance was made in a mechanical manner. Thus, the issue deserves to be decided against the Department. 34. Issue No.4: The issue arises out of ground raised by the Department in AY 2017-18 as the assessee had credited an amount of Rs. 16,53,23,037/- as exceptional item in its statement of Profit & Loss Account on account of gain arising due to exchange difference on transaction/settlement of long-term foreign currency loans for acquisition of fixed assets. Admittedly, the gain on account of foreign exchange fluctuation was deducted by the assessee while computing its taxable income. The ld. AO has made addition of this amount on the ground that the assessee had failed to furnish details of loan taken, purchase agreement, etc., and no corresponding adjustment was made to the value of fixed assets on account of change in rate of exchange. In appeal, the ld.CIT(A) has directed the AO to verify necessary documentary evidence in support of loans availed for purchase of fixed assets and necessary adjustments to block and thereafter, allow reduction of such foreign exchange fluctuation gains. The case of the assessee is that as the foreign currency fluctuation gain was purel....