TaxTMI 
TaxTMI 
2024 (5) TMI 1586
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....Income-tax (Appeals) erred in confirming the action of the Deputy Commissioner of Income-tax in not excluding from the total income, incentives received under the New Sugar Industry Promotion Policy, 2004 as capital receipts not exigible to tax (a) incentives in the form of exemption from payment of Value Added Tax (VAT) and Central Sales Tax (CST), administrative charges and entry tax aggregating to Rs. 6,80,45,988/- (b) incentives in the form of exemptions and reimbursements aggregating to Rs. 77,36,00,966/-. The appellant hereby reserves the right to add to, alter or amplify the above grounds of appeal, at any time before or at, the time of appeal, so as to enable the Honourable Tribunal to decide the appeal in accordance with law" Revenue: "1. Whether on the facts and circumstances of the case and in law, the Ld CIT(A) was justified in allowing relief of Rs. 6,34,96,501/- u/s 14A Rule 8D(2)(ii) & 8D(2)(iii), by admitting fresh evidences furnished by the assessee during the course of appellate proceedings in contravention of Rule 46A of the 11 Rules 1962 without providing any opportunity to the AO to represent the same." "2. ....
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....charges Rs. 6,80,45,988/- (iii) Community Development Expenses Rs. 7,10,075/- 4. Aggrieved the assessee filed further appeal before the CIT(A). The CIT(A) reduced the disallowance under section 14A to Rs. 2,32,42,364/- and sustained the disallowance towards Subsidy treated as revenue receipt. The assessee made a fresh plea before the CIT(A) that in the revised return Rs. 7,64,80,000/- on account of provision for FY 2006-07 towards Foreign Exchange Fluctuation reversed during FY 2007-08 has been inadvertently added and that the same is to be allowed as a deduction. The CIT(A) remitted the issue back to the AO to examine and allow the claim. Aggrieved by the order of the CIT(A) both the assessee and the revenue are in appeal before the Tribunal. ITA No. 2059/Mum/2013 - Assessee's appeal Disallowance under section 14A - Ground No.1 5. During the year under consideration the assessee has shown dividend income and income from units amounting to Rs. 19,29,752/- and Rs. 5,25,587/- respectively aggregating to Rs. 24,85,339/-. The AO called on the assessee to explain why the expenditure relatable to exempt income should not be disallowed as per the provisions of sec....
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.... submitted that the investments which is not yielding exempt income cannot be considered for the purpose of making disallowance under Rule 8D(2)(iii) and therefore the disallowance reworked by the CIT(A) is not tenable. 8. The ld. DR on the other hand vehemently argued that the AO has given a detailed finding with regard to why the disallowance under section 14A r.w.r. 8D is to be made in assessee's case. The ld. DR drew our attention to the findings given by the AO in para 7.3 to 7.7 in the assessment order to submit that the AO has recorded a detailed finding as to why he is not satisfied and therefore correctly invoked the provisions of section 14A r.w.r. 8D. The ld. DR further submitted that the investments made by the assessee is huge and therefore the CIT(A) is not correct in considering only the movement during the year for the purpose of reducing the disallowance. Therefore, the ld. DR supported the order of the AO to submit that the disallowance made by the AO should be upheld. 9. We have heard the parties and perused the material on record. The breakup of the exempt income earned by the assessee during the year under consideration is as under: Sl. No. Name....
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....e. In assessee's case it is an undisputed fact that the assessee has not incurred any direct expenses towards earning exempt income and therefore there is no disallowance under rule 8D(2)(i). Coming to the disallowance under rule 8D(2)(ii), it is argued that it is a well-settled position that where the own funds of the assessee are more than the investments which are earning exempt income then no disallowance under section 8D(2)(ii) is warranted. In assessee's case from the perusal of the financial statements for the year ended 31.03.2008 we noticed that the shareholders funds of the assessee is at Rs. 1260,04,51,173/- whereas the total investments of the assessee is at Rs. 451,71,71,819/-. Therefore, there is merit in the contention of the assessee that since the own funds are more than the investments earning exempt income no disallowance towards interest under Rule 8D(2)(ii) is to be made in assessee's case. 12. With regard to disallowance under Rule 8D(2)(iii) we noticed that the assessee has made a suo-moto disallowance of Rs. 10,00,000/-. The AO has rejected the suo-moto disallowance while invoking section 14A r.w.r.8D. The relevant paras which the ld. AR argue....
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....ntum of investment & Interest bearing fund. In this case, the disallowance u/s.14A is required to be made in accordance with the Rule 8D of the I.T. Rules, 1962, which is computed as under:- The disallowance u/s.14A/Rule 8D shall be aggregate of the following: 1. Amount of expenses directly related to such income Amount (Rs.) NIL 2. Amount of the Interest expenses indirectly attributable to such income, in accordance with the formula AxB/C, where A. Total interest expenditure minus direct interest expenditure on such income Rs. 1263387203 - NIL = Rs. 1263387203 (A) B. Average of such investment on the first and last day of previous year 2288594549 +4517171819 = Rs. 3402883184 (B) C. Average of total assets on first and last day of previous year 56877686574+ 61353777915 = Rs. 59115732245 (C) AxB/C = 7,2724449 3. 0.5% of the 'B' above 1,70,14,416 Total disallowance u/s. 14A 8,97,38,865 13. Before proceeding further, we will look at the provisions of section 14A and Rule 8D which are reproduced as follows:- "Section 14A - Expenditure incurred in relation to income not includible in tot....
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....t referred to in clause (i) and clause (ii) shall not exceed the total expenditure claimed by the assessee." 14. From the combined reading of the above provisions, it is clear that for the purpose of application of section 14 r.w.r 8D(2)(iii) the AO has to record reasons as to why he is not satisfied with the correctness of the claim of expenditure by the assessee. We notice that the Hon'ble Bombay High Court in the case of Principal Commissioner of Income Tax v. Godrej & Boyce Mfg. Co. Ltd. [2023] 149 taxmann.com 222/292 Taxman 497 (Bombay) has considered a similar issue where it has been held that - In the present case, the assessee had earned an exempt income of Rs. 84,30,37,423/- from shares and mutual funds and submitted a computation of inadmissible expenditure u/s 14A amounting to Rs. 13,66,635/- . The assessee claimed that the disallowance made u/s14A was as per the books of account attributable to earning of exempt income. On a perusal of the assessment order we find that there is no discussion by the AO with regard to the computation of inadmissible expenditure made by the assessee forming part of the return of income. Further, the AO has not recorded any satisf....
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....licy, 2004 announced by State Government of Uttar Pradesh as not taxable for the reason that the same are capital receipts. The AO called on the assessee to submit that details pertaining to such claim including the relevant documents, terms and condition of the Scheme etc. The assessee submitted a detailed note on the terms and condition of the scheme to submit that the subsidy received is in the nature of capital receipt for the reason that the object behind giving such subsidy is setting up of new unit / expansion of existing business. However, the AO did not accept the submissions of the assessee and relied on the decision of the Hon'ble Supreme Court in the case of Sahaney Steel and Press works Ltd. & Ors. Vs. CIT (228 ITR 253) to make a disallowance towards subsidy received as reimbursement of Society Commission and Freight and VAT/CST charges. The CIT(A) confirmed the disallowance. 17. The ld. AR submitted that as per the terms of the scheme the subsidy is received as an incentive towards setting up of new sugar factories in private sector to speed up the industrialization of the State of Uttar Pradesh. The ld. AR drew our attention to the detailed submission made bef....
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....he well planned Sugar Industry Promotion Policy is required which attract industrialists from private sector to set up sugar industry in the state. In the New Industries Policy 2004 for capital subsidy, following special incentives will be considered for a period of 10 years from the date of establishment over and above the facilities provide: 1. Entry Tax on sugar 2. VAT on Molasses 3. Administrative charge on Molasses Registration fees on land 4. Stamp duty & 5. Purchase tax on cane 6 Reimbursement of Transportation (Exemption / Reimbursement cost (Cane/Sugar) 7. Reimbursement of society Commission 8. Reimbursement of State Cess (Excise Share) The scheme and benefit received were given in the submission made by the assessee during the course of assessment are reproduced as under: "BHL made a capital investment in excess of Rs. 500 crores for commissioning various new sugar plants, distilleries and co-generation plants at several location in the state of UP and commenced production before 31' March, 2008. In terms of the Policy and Notifications issued therein, BHL was granted Eligibility Certificate for five years vide letter....
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....sugar produced by such 36,852,585 Total 68,970,08 4. The incentives in the form of exemptions and reimbursements referred to in 'C' above amounting to Rs. 560,779,698 are in the nature of capital receipts not eligible to tax and accordingly, ought to be excluded from the total In this connection on behalf of BHL, we wish to make the following submissions:- The Government of UP introduced the now Sugar Industry Promotion Policy, 2004, inter alia, with the avowed objective of promotion of establishment of new sugar factories in the private sector to speed up industrialkation of the State. The preamble to the Policy states the proposed objectives as follows. "to attract private investment in the field of the Cane Development and sugar industry by establishing sugar mills in private sector to augment the industrial Development in the State. Under the Policy, now sugar factories are given incentives. The period/ quantum of various concessions/ incentives have been linked to the amount of fresh investment made for the establishment of the new sugar mill, although the incentives are to be disbursed after the establishment of the unit. T....
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....increase demand the country's two big sugar producing States up and Maharashtra would have to come forward Since in Maharashtra the percentage utilization of sugarcane for producing sugar is at the maximum possible, therefore, UP is the only State when' by increasing the drawal percentage of sugarcane, the increased demand for sugar in the country can be met. Keeping in view the State's limited financial resources, the sick condition of the mills belonging to the Corporation, stagnation in the mills of the Co-operative sector and the inability of the mills in the private sector to completely utilize the sugarcane produced, the need is being felt for encouraging the private sector to invest funds for setting up sugar mills which are of global standards, having sugarcane crushing capacity of 5000 TCD or more. In order to meet the domestic consumption of sugar at 6% GDP growth rate, it would be required to set up mills having approximately one lakh tonne per day capacity and thus create additional capacity. The requirement of sugarcane for this increased capacity can be met by increasing the current drawal percentage of sugarcane from 5 to 7% It must also be clarified that....
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....cial pronouncements referred by the counsel in the case of CIT Vs. Ponni Sugar & Chemical Ltd. (2008) 174 taxman 87 (SC) it is held that the test is that the character of receipt in the hands of the assesse 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 purpose test. The point of time at which the subsidy is paid is not relevant. The form of subsidy is immaterial. In the case of Everest Industries Ltd. Vs. Joint CIT (2018)19 taxman.com 330 (Mumbai Tribunal) held that sale tax incentive received by the assesse was considered as capital receipt by the A.O same was not required to be reduced from cost of assets for purpose of computing depreciation. In the case of CIT Vs. Shri Balaji Alloys & Other (2016) 181 CTR (SC) 459 held that excise refund and interest subsidy received by the assessee in pursuance of incentive announced and sanctioned by the Government of India is capital receipt. In the case of Shri Balaji Alloys Vs. CIT (2011) 198 taxman.com 122 (Jammu & Kashmir), it is held that amount of excise refund and interest subsidy received by industrial unit in pursuance of incentives announced i....
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....is merit in the contention that the issue is covered by the decision of the Co-ordinate Bench in assessee's own case for AY 2007-08. Further the incentives received by the assessee for the year under consideration, viz., Reimbursement of society commission and freight amounting to Rs. 77,36,00,966/- and exemption from VAT/CST entry tax and admin charges to the tune of Rs. 6,80,45,988/- are received under the same New Sugar Industry Promotion Policy 2004 and therefore respectfully following the above decision of the Co-ordinate Bench, we hold that the disallowance made are not tenable and accordingly be deleted. 20. We notice that the assessee has raised additional ground with regard to adjustment of incentives received under Sugar Industry Promotion Policy to Book Profits under section 115JB in case the same is held in the nature of capital receipt. However the ld.AR during the course of hearing did not press for the admission of the additional ground for the reason that the book profits as per the assessment order is negative and therefore the same is not admitted for adjudication. Nevertheless the assessee is at liberty raise the issue in any other assessment year based on....
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....he ld. DR accordingly argued that the addition made in the year under consideration should be upheld. 24. We have heard the parties and perused the material available on record. We noticed that the Co-ordinate Bench of the Tribunal while considering the issue of gain on foreign exchange fluctuation has held that "25. In this regard, the ld. Counsel submitted that during F.Y. relevant to the year under consideration gain on foreign exchange fluctuation amounting to Rs. 7,64,80,000/- arose on account of restatement of ECB and FCCB which had been credited to the profit and loss account. He submitted that the borrowing in the nature of ECB & FCCB were utilized for the purpose of acquiring fixed assets, therefore, the notional gain on foreign exchange fluctuation on restatement of aforesaid loans ought to be excluded while computing the total income. The ld. D.R has contended that no such issue has been brought before the A.O and ld.CIT(A) during the course of assessment and appellate proceedings and the claim required verification. In the light of the above facts and circumstances we restore this issue to the file of the assessing officer for deciding the same after verific....