TaxTMI 
TaxTMI 
2026 (8) TMI 135
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....n common and overlapping issues, they are being disposed of by this common order. 2. The relevant particulars of the impugned appellate orders and the assessment orders from which they arise are set out below: ITA No. Assessment year Date of order of the learned CIT(A) Assessment order appealed against 1371/Mum/2024 2014-15 23.01.2024 Order dated 14.02.2018 passed by the DCIT (LTU)-1, Mumbai, under section 143(3) read with section 144C(3) of the Act 4014/Mum/2025 2015-16 27.03.2025 Order dated 16.01.2019 passed by the DCIT (LTU)-1, Mumbai, under section 143(3) read with section 144C(3) of the Act 1370/Mum/2024 2016-17 23.01.2024 Order dated 19.02.2020 passed by the DCIT (LTU)-1, Mumbai, under section 143(3) read with section 144C(3) of the Act 4016/Mum/2025 2018-19 28.03.2025 Order dated 13.12.2021 passed by the ACIT, NFAC, Delhi, under section 143(3) read with section 144C(3) of the Act 3. The appeals of the assessee for all the four assessment years were partly allowed by the learned CIT(A). The appellate proceedings for the assessment years 2014-15 and 2016-17 were adjudicated through a consolidated appellate orde....
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....IT(A) was right in ignoring the fact that the royalty paid was a trading expenses and any remission or cessation of such expense on account of refund ought to be treated as revenue receipts? viii. Whether on the facts and in the circumstances of the case and in law, Ld.CIT(A) was right in directing the Assessing Officer to allow pre-operative expenditure of Rs. 26,88,34,218/- by treating the same as revenue in nature without examining nature of expenditure actually incurred and capitalized in books of accounts? ix. Whether on the facts and in the circumstances of the case and in law, Ld.CIT(A) erred in treating the expenses related to expansion and modernisation of existing facilities as revenue expenses ignoring the inherent nature of same being capital expenses? x. Whether on the facts and in the circumstances of the case and in law, Ld.CIT(A) erred in ignoring the fact that the assessee itself had claimed these expenses as capital expenses and added them to its Capital-work-in progress/fixed assets."? xi. Whether, on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was right in confirming the deletion of disallowance of....
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.... respective states. The margin earned by the power distributor for functions performed, assets employed and risks assumed by it are embedded in the said price. As against the same, the assessee does not perform any function relating to distribution, nor does it assume any risk connected with distribution. b. TPO called the information u/s. 133(6) of the Income Tax Act, 1961 and adopted external CUP by using the rates at which state power distribution companies had purchased power from the generating companies which is appropriate as per FAR analysis xvii. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) is erred by following the decision of ITAT in assessee own case for A.Y.2013-14 in allowing the assessee for selecting power consuming unit as a tested party and rejecting TPO"s act of selecting the power generating company as tested party for benchmarking of Specified Domestic Transactions of inter unit transfer of power ignoring the comparability factor and FAR analysis xviii. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the Assessing Officer to exclude the spec....
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....fits availed during the year by assessee in computing book profit u/s 115JB of the Act ignoring the fact that any remission in trading liability in the form of sales tax incentive, excise duty exemption and royalty refund ought to be treated as revenue receipts?" xxvi. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the Disallowances of expenses u/s 14A r.w.r. 8D while computing book profit u/s 115JB of the Act?" xxvii. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting disallowance of tax of Rs. 34,12,177/- on non-monetary perquisites in computing the book profits u/s 115JB without appreciating that the amount paid represented the tax in the hands of assessee which was required to be added to book profit? xxviii. The appellant craves leave to add, amend and/or vary the grounds of appeal before or during the course of hearing. ITA No.4014/Mum/2025, Assessment Year 2015-16 The Revenue has raised the following grounds of appeal, which are reproduced verbatim: i. Whether on the fact and circumstances of the case and in ....
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....ence AO has rightly applied section 14A of the Act r.w. rule 8D of Rules?" v. Whether on the facts and in the circumstance of the case and in law the Ld. CIT(A) erred in treating sales tax incentive subsidy as capital receipts not liable to tax ignoring the fact that sales tax is a trading liability and any remission in that aspect is revenue receipt? vi. Whether on the facts and in the circumstance of the case and in law the Ld. CIT(A) erred in ignoring the fact that sales tax subsidy was granted for the purpose to operate existing business affairs and accordingly the same falls under the rubric of revenue receipts? vii. Whether on the facts and in the circumstance of the case and in law the Ld. CIT(A) erred in ignoring the exclusive findings given by Apex Court in case of Sahney Steel and Press Works Ltd with regard to treatment of sales tax subsidy as Revenue receipts"? viii. Whether on the facts and in the circumstances of the case and in law, Ld.CIT(A) erred in directing the Assessing Officer to exclude the amount of royalty refund of Rs. 31,18,38,263/- received by assessee in respect of unit located in the state of Maharashtra, from total i....
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....at basis of allocation of head office expenses as turnover is not really correct and reasonable, and hence the allocation should be based on expenditure incurred by the units vis-a-vis overall expenditure on the basis of expenditure of respective units excluding directors remuneration and auditors fees? xviii. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting CENVAT credit adjustment while computing deduction u/s. 80-IA on captive power plants, rail system and port facility developed by the appellant without appreciating the fact that debiting expenditure in individual units without considering CENVAT credit results in distortion of profits of that particular unit? xix. Whether, on the facts and in the circumstances of the case and in law the Ld CIT(A) erred in allowing deduction u/s. 80-IA on rail system ignoring the fact that said "rail system" served no means of public utility manifestly an infringement of conditions prescribed u/s. 80-IA? xx. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in ignoring the fact that "rail system" of assessee did not have any....
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....hich have yielded dividend income, without appreciating the fact that appellant has already made suo-moto disallowance of Rs. 44,04,678/- in the return of income, thus no disallowance is required to be made. 3. In law and facts and circumstances of the case, the Ld. CIT(A) has erred in upholding the disallowance of provision of leave encashment amounting to Rs. 5,67,83,788/- without appreciating the fact that same is based on actuarial valuation report. 4. In law and facts and circumstances of the case, the Ld CIT(A) has erred in upholding the apportionment made by AO of indirect Head Office expenses aggregating to Rs. 220,24,55,943/- and adjustment of such allocated amount of Rs 62,79,96,792/- in computing Tax Holiday u/s 80IA for eligible Captive Power Plants and for rail system, without establishing any nexus between the nature of expenses and such eligible units of the Appellant. 5. In law and facts and circumstances of the case, the Ld. CIT(A) has erred in denying the Appellant's claim of exclusion of profit on sale of investments and loss on sale of fixed assets amounting to Rs. 25,45,47,728 and Rs. 14,03,93,156/- respectively, being capital in natu....
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....stances of the case and in law, Ld. CIT(A) is correct in allowing the claim of the assessee with regard to services availed by the assessee from its AE merely on the basis of Agreement and relying on some invoices even though the assessee has failed to produce any concrete evidences by following the decision of ITAT in assessee's own case of A.Y.2013-14?. viii. Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) was correct in holding that TNMM method adopted by the assessee has not been examined by the TPO when the TPO after carefully examining the submission of the assessee and having held that assessee had failed to prove that any services were availed by it and any benefit was derived by it on account of provisioning of the claimed services, have rejected the TNMM method adopted by the assessee by following the decision of ITAT in assessee's own case of A.Y.2013-14 ? ix. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) is erred by following the decision of ITAT in assessee own case for A.Y.2013-14 in allowing the internal CUP adopted by the assessee for benchmarking of Specified Domestic Transacti....
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....ssing Officer to exclude the specific expense of cost audit fees and subscription to CMA in respect of Cement manufacturing units for the purpose of computing deduction u/s. 80IA/ 80IC without considering the fact that the same forms an integral part of expenses mandatorily meant for conducting any business? xv. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in confirming the apportionment of the indirect Head Office expenses while computing deduction u/s. 80IA/80IC? xvi. Whether, on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was right in deleting CENVAT credit adjustment while computing deduction u/s. 80-IA on captive power plants, rail system and port facility developed by the appellant without appreciating the fact that debiting expenditure in individual units without considering CENVAT credit results in distortion of profits of that particular unit?" xvii. Whether, on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was right in allowing the claim of balance 10% additional depreciation amounting to Rs. 22,75,66,963/- in A.Y.2016-17 in respect of assets acq....
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....e assessee failed to establish that bad debts written off were proper and legitimate debts" iv. The appellant craves leave to add, amend and/or vary the Grounds of Appeal before or during the course of hearing. The assessee has filed a cross-objection(CO No. 197/Mum/2025) in the aforesaid Revenue appeal(ITA No. 4016/Mum/2025) and has raised the following grounds: 1. In law and in the facts and circumstances in the case of the Appellant, the Assessment Order passed under section 143(3) r.w.s 144C(3) of the Act dated 13.12.2021 is time barred in view of provision of Section 153 of the Act and bad in law in view of the Decision of Hon'ble Madras High Court in the case of Roca Bathroom Products (P.) Ltd. [2021] 127 taxmann.com 332. 2. In law and in the facts and circumstances in the case of the Appellant, the Assessment Order passed under section 143(3) r.w.s 144C(3) of the Act dated 13.12.2021 is time barred in view of provision of Section 144C(4) as the assessment order was not passed within one month from the end of the month in which acceptance is received. 3. In law and in the facts and circumstances of the appellant's case, appellant c....
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....reatment of royalty refund as a capital receipt under the normal provisions Grounds iv to vii Grounds viii to xi Not involved Not involved 11 Deduction under section 32AC in respect of capital work-in-progress capitalised during the year Ground xxiv Ground xxii Not involved Not involved 12 Exclusion of sales tax incentive, excise duty exemption and royalty refund while computing book profit under section 115JB Ground xxv Ground xxiii Not involved Not involved 6. The following issues are confined to a single assessment year and will require separate consideration: Assessment year Ground Issue 2014-15 Grounds xi and xii Deduction under section 80-IA in respect of TG-3 Power Plant 2014-15 Ground xxvii Tax paid on non-monetary perquisites while computing book profit under section 115JB 2015-16 Ground xii Treatment of excise duty exemption as a capital receipt under the normal provisions 2016-17 Ground xvii Balance 10% additional depreciation on assets put to use for less than 180 days in the preceding year 2018-19 Ground iii Allowability of bad debts under section 36(1)(vii) 7. A....
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....he assessee benchmarked the same under the Comparable Uncontrolled Price method. The power-consuming units were considered as the tested parties. The assessee adopted the rate at which the respective State electricity distribution companies supplied electricity to those consuming units as an internal CUP. On this basis, the assessee adopted an average rate of Rs. 6.71 per unit and determined the aggregate value of the electricity transferred at Rs. 906,88,83,255/-. 13. The TPO rejected the benchmarking carried out by the assessee. According to the TPO, a State electricity distribution company performs substantial distribution functions, employs specialised assets and assumes risks connected with transmission and distribution of electricity. The captive power-generating units of the assessee neither performed such distribution functions nor employed the corresponding assets or assumed the associated risks. Therefore, the retail tariff charged by a distribution company to an end-consumer was held not to be comparable with the price receivable by a power generator. 14. The TPO further held that the captive power-generating unit, being the unit whose profits were eligible for ded....
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....ed the power-generating unit as the tested party. Since reliable internal comparable transactions were available at the level of the cement-manufacturing units, the consuming units were rightly selected as the tested parties. Selection of the power-generating unit as the tested party ignored the functional profile of the captive power plants, their risks, geographical factors and the regulatory framework applicable to generation and distribution of electricity. 20. It was further contended that the State power-generating companies and State distribution companies were regulated entities and the rates between them were determined or influenced by the respective State Electricity Regulatory Commissions. Such rates could not be regarded as uncontrolled market prices for benchmarking the assessee's captive transfer of electricity. 21. The assessee also objected to the information collected by the TPO under section 133(6), contending that the complete details and underlying documents were not made available to it and that no proper opportunity was afforded to examine the basis, relevance and comparability of those rates. 22. Relying upon section 80-IA(8), the assessee contended....
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....ssment order was deleted and the corresponding grounds of the assessee were allowed. 28. The learned AR submitted that the CIT(A) had deleted the adjustment by following the decision of the Co-ordinate Bench in the assessee's own case for A.Y. 2013-14 in ITA Nos. 800 and 1171/Mum/2022, order dated 30.06.2023.The learned AR referred to paragraphs 78 to 82 of the said order and submitted that the Revenue had raised an identical ground in A.Y. 2013-14 challenging the acceptance of the internal CUP adopted by the assessee for benchmarking the specified domestic transaction of inter-unit transfer of power and the rejection of the external CUP adopted by the TPO. It was submitted that the facts, benchmarking method, comparables adopted by the respective parties and the objections raised by the Revenue in the present years were identical. Therefore, no interference with the orders of the CIT(A) was warranted and the corresponding grounds raised by the Revenue for all the years under consideration deserved to be dismissed. 29. The learned DR, on the other hand, relied upon the orders of the AO and the TPO. 30. We have considered the rival submissions and perused the material place....
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..... 33. The Co-ordinate Bench rejected the aforesaid contention of the Revenue. It observed that the decision in the case of Reliance Industries Ltd.(ITA 4361/M/12, order dated12/04/2017) covered A.Y. 2009-10 and other preceding assessment years and, therefore, it could not be accepted that the relevant amendments, including the provisions of section 80A(6), had not been considered. The decision of the Co-ordinate Bench in Reliance Industries Ltd.(supra) had subsequently been approved by the Hon'ble jurisdictional High Court in CIT v. Reliance Industries Ltd. [2020] 421 ITR 686 (Bom.). The Tribunal observed that the jurisdictional High Court had accepted the rate at which the manufacturing unit purchased electricity from the State Electricity Board as the appropriate market value of the electricity generated by the eligible captive power plant. 34. The Co-ordinate Bench also referred to the subsequent decision in Reliance Industries Ltd. v. ACIT [2022] 143 taxmann.com 194, wherein it was held that the meaning of "market value" would not undergo a change merely because the transaction was covered by the domestic transfer-pricing provisions. It was reiterated that the market valu....
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....king the captive sale of electricity. 38. On the basis of the aforesaid judicial precedents, the Co-ordinate Bench in A.Y. 2011-12 held that the market value of the electricity generated by the captive power plants was required to be determined at the rates at which the cement-manufacturing units situated at different locations purchased electricity from the respective State Electricity Boards. Since the detailed location-wise working furnished by the assessee required verification, the AO was directed to verify the same for the limited purpose of computation. The Co-ordinate Benchalso recorded that the assessee had conceded the exclusion of units lost in transmission while computing the turnover of the captive power plants. 39. Thereafter, in paragraph 82 of the order for A.Y. 2013-14, the Co-ordinate Bench found that there was no distinguishing feature in the facts or in the legal position for that year. Respectfully following the decision for A.Y. 2011-12 and applying the principle of consistency, the Tribunal dismissed the ground raised by the Revenue challenging the acceptance of the internal CUP adopted by the assessee. 40. In the years under consideration also, the ....
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....nterest-free funds and in restricting the disallowance under Rule 8D(2)(iii) by considering only those investments which had actually yielded exempt income during the relevant year. The Revenue has also raised the applicability of the Explanation inserted in section 14A by the Finance Act, 2022. 44. The second limb of the controversy is whether the amount computed under section 14A read with Rule 8D can be directly added while computing book profit under section 115JB. The CIT(A) deleted the adjustments by following the decisions in the assessee's own case and the principle that the computation prescribed under Rule 8D cannot be imported into clause (f) of Explanation 1 to section 115JB. 45. We will take both aspects together as one composite issue.The year-wise particulars are as under: Particulars A.Y. 2014-15 A.Y. 2015-16 A.Y. 2016-17 Revenue's grounds Ground Nos. i and ii under normal provisions; Ground No. xxvi under section 115JB Ground No. iii under normal provisions; Ground Nos. iv and xxiv under section 115JB Ground Nos. i and ii under normal provisions; Ground No. xviii under section 115JB Exempt dividend income Rs.5,52,03,281/- Rs.9,85....
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....expenditure attributable to the activities of the Treasury and Investment Group. The allocation was also reported in the tax audit report. 49. During the assessment proceedings, the AO called upon the assessee to furnish details of the dividend income earned and the expenditure incurred in relation thereto and to explain why Rule 8D should not be applied. In response, the assessee furnished its explanation. The assessee submitted that it had not incurred any expenditure having a direct and immediate nexus with the earning of dividend income. It further submitted that sufficient own funds and internal accruals were available and the investments had been made out of such interest-free funds. According to the assessee, the borrowed funds had been utilised for the expansion of its projects and for working-capital requirements. Therefore, no part of the interest expenditure was attributable to the investments yielding exempt income. Without prejudice to the above contention, the assessee pointed out that it had already made a suo motu disallowance of Rs. 36,19,256/- towards the proportionate salary and overhead expenditure attributable to its investment activities. The assessee accor....
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....19,256/- Interest expenditure under Rule 8D(2)(ii) Rs.80,00,000/- Administrative expenditure under Rule 8D(2)(iii) Rs.93,00,000/- Total disallowance under Rule 8D Rs.2,09,19,256/- Less: suo motu disallowance made in the return Rs.36,19,256/- Additional disallowance made by the AO Rs.1,73,00,000/- 54. Accordingly, while computing income under the normal provisions, the AO made a further disallowance of Rs. 1,73,00,000/- over and above the suo motu disallowance of Rs. 36,19,256/- made by the assessee. 55. The AO also considered the applicability of clause (f) of Explanation 1 to section 115JB. He observed that expenditure relatable to income exempt under section 10 was required to be added while computing book profit. Accordingly, the disallowance computed under section 14A read with Rule 8D was also included in the computation of book profit under section 115JB. As recorded by the CIT(A), the amount so added by the AO in the computation of book profit was Rs. 2,09,19,256/-. 56. Before the CIT(A), the assessee challenged the AO's failure to accept the suo motu disallowance of Rs. 36,19,256/-. It reiterated that no expenditure other than the amou....
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....tended that the disallowance computed under section 14A read with Rule 8D could not automatically be imported into the computation under section 115JB. It relied upon CIT v. Bengal Finance & Investments Pvt. Ltd., ACIT v. Vireet Investment Pvt. Ltd. and Essar Teleholdings Ltd. v. DCIT. The assessee also relied upon the orders passed in its own case for the preceding assessment years. 61. The CIT(A) found that the assessee had itself disallowed Rs. 36,19,256/- by taking into account employee costs and overhead expenditure attributable to its investment activities. He, therefore, rejected the assessee's contention that no expenditure whatsoever had been incurred in earning the exempt dividend income. The suo motu disallowance of Rs. 36,19,256/- was accordingly retained as direct expenditure attributable to the exempt income. 62. As regards the disallowance of interest expenditure under Rule 8D(2)(ii), the CIT(A) examined the financial position of the assessee and found that its interest-free own funds far exceeded the amount of investments. Following the decisions relied upon by the assessee, the CIT(A) held that the investments were presumed to have been made out of interest-f....
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.... had followed the order for A.Y. 2008-09. 68. Finding no change in the material facts, the CIT(A) directed the AO not to add the disallowance computed under section 14A read with Rule 8D while determining the book profit under section 115JB. The entire adjustment of Rs. 2,09,19,256/- made by the AO in the computation of book profit was accordingly deleted. 69. The learned AR submitted that, insofar as the appeals filed by the Revenue are concerned, the CIT(A) had examined the issue in detail after considering the facts of each year and the judicial precedents applicable thereto, including the decision of the Co-ordinate Bench in the assessee's own case for A.Y. 2013-14 in ITA Nos. 800 and 1171/Mum/2022, order dated 30.06.2023. The learned AR submitted that the CIT(A) had not deleted the disallowance in its entirety under the normal provisions but had restricted it after examining each component of Rule 8D separately. 70. The learned AR further submitted that the CIT(A) had not granted relief merely by following the decisions rendered in the assessee's own case for the preceding assessment years but had also independently examined and decided the issue on merits. The CIT(A)....
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....Y. 2013-14, the Revenue challenged the partial deletion of the disallowance under section 14A. In paragraph 59, the Co-ordinate Bench reproduced the Revenue's ground as under: "1. On the facts and in the circumstances of the case and in law the ld. CIT(A) erred in partly deleting the disallowance made u/s 14A rwr. 8D(2) of the IT Rules, 1962, when the assessee itself disallowed only direct expenses related to exempt income, especially when the Hon'ble Supreme Court in the case of Maxopp Investment Ltd Vs CIT has held that the principle of apportionment of expense is engrained in section 14A of the Act." 76. The Co-ordinate Bench disposed of the Revenue's ground in paragraph 60 as under: "60. This ground of appeal is similar to Ground No. 1 of grounds of appeal raised by the assessee for the A.Y. 2013-14 and the decision taken therein shall apply mutatis-mutandis to the ground raised by the revenue. We order accordingly." 77. Thus, the Co-ordinate Bench accepted the principle that, for the purposes of Rule 8D(2)(iii), only those investments which actually yielded exempt income during the relevant previous year were required to be considered. The correspon....
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..... 65.07 crores. Following the decision for A.Y. 2013-14, the CIT(A) determined the disallowance under Rule 8D(2)(iii) at Rs. 33,00,000/-. Together with the suo motu disallowance of Rs. 44,04,678/-, the total disallowance was restricted to Rs. 77,04,678/-, resulting in a net addition of Rs. 33,00,000/-. 83. For A.Y. 2016-17, the average investment base adopted by the AO was approximately Rs. 276.80 crores, whereas the opening interest-free own funds amounted to Rs. 8,436.98 crores. Thus, even the opening own funds were substantially higher than the investments. The exact closing figures were not separately reproduced by the CIT(A). However, the Revenue has not brought any material on record to demonstrate that the availability of own funds had materially changed during the year or that the borrowed funds were directly utilised for making investments. 84. The CIT(A) recorded that the facts, the findings of the AO and the submissions of the assessee for A.Y. 2016-17 were identical to those considered in detail for A.Y. 2014-15. He accordingly followed his findings for A.Y. 2014-15 and partly allowed the ground. The Revenue's Ground No. i proceeds on the basis that the disallowan....
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.... 90. In paragraph 127, the Co-ordinate Bench reproduced the relevant findings from the order for A.Y. 2008-09, including the following operative portion: "135. Considered the rival submissions and material placed on record. The Assessing Officer has made disallowance u/s 14A while computing income as per normal provisions of the Act as well as book profit u/s 115JB of the Act. The disallowance made by Assessing Officer u/s 14A is already deleted in proceeding paras hence consequential adjustment made while computing book profit u/s 115JB cannot be made. On this issue, coordinate bench in the case of Ambuja Cement Limited... held as under: "25. Having heard the rival contentions and having perused the material on record, we are of the considered view that the assessee deserves to succeed in this plea for the reason that, eventually, there is no disallowance under section 14A on the facts of this case, and, in any event, the issue is covered, as regards the question of adjustment of book profits under section 115JB for the 14A disallowance, in favour of the assessee, by a special bench decision in the case of ACIT Vs Vireet Investments Pvt Ltd [(2017) 82 taxmann.co....
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....red in upholding the disallowance of Rs. 33,00,000/- as expenses incurred towards earning exempt dividend income u/s 14A r.w.r. 8D by considering investments which have yielded dividend income, without appreciating the fact that appellant has already made suo-moto disallowance of Rs. 44,04,678/- in the return of income, thus no disallowance is required to be made." 97. Through this ground, the assessee challenges the balance disallowance of Rs. 33,00,000/- sustained by the CIT(A) under Rule 8D(2)(iii). Since the Revenue has challenged the relief granted by the CIT(A), while the assessee seeks deletion of the amount sustained by him, both sets of grounds are interconnected. Accordingly, Ground No. 2 of the cross-objection is taken up and adjudicated together with Ground Nos. iii and iv raised by the Revenue for A.Y. 2015-16, to avoid repetition of the common facts and legal discussion. 98. The learned AR submitted that, after considering the factual matrix, the CIT(A) determined the disallowance under section 14A read with Rule 8D at Rs. 33,00,000/-. However, the assessee had already made a higher suo motu disallowance of Rs. 44,04,678/- in its return of income. It was submitt....
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....ents was determined at Rs. 33,00,000/-, the amount already offered by the assessee was required to be taken into account. The suo motu disallowance of Rs. 44,04,678/- exceeded the amount computed by the CIT(A) by Rs. 11,04,678/-. In the absence of any finding that the amount of Rs. 33,00,000/- represented expenditure of a distinct nature not covered by the employee costs and overhead expenditure already disallowed by the assessee, the same could not be sustained as an additional disallowance. 105. The substance of the expenditure already disallowed by the assessee has to be considered, and not merely the nomenclature under which it was placed in the Rule 8D computation. Since the suo motu disallowance covered the employee costs and overheads attributable to the investment activity, sustaining a further formula-based disallowance for administrative expenditure would result in duplication. 106. We accordingly hold that the disallowance under section 14A for A.Y. 2015-16 is to be restricted to Rs. 44,04,678/- already made by the assessee in its return of income. The additional disallowance of Rs. 33,00,000/- sustained by the CIT(A) is deleted. Consequently, Ground No. 2 raised b....
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....f the individual items of expenditure and had treated the entire claim as capital expenditure merely because it had been incurred before the commencement of production and capitalised in the books. The CIT(A) observed that the expenditure related to employee remuneration, travelling, maintenance, stores and spares, power and fuel, professional charges and other revenue items incurred for the expansion or modernisation of the existing business. The projects either represented the expansion of existing units or the setting up of new units in the same line of business, with common management, control and business organisation. The CIT(A) held that the accounting treatment given by the assessee was not conclusive of the character of the expenditure for income-tax purposes. Since the expenditure did not relate to the acquisition of capital assets and was incurred for the expansion of the existing business, it was allowable as revenue expenditure under section 37(1). Following the decision of the Co-ordinate Bench in the assessee's own case for A.Y. 2013-14 and the orders for the preceding years, the CIT(A) deleted the disallowances. 110. The learned AR relied upon the orders of the C....
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....n in Ambuja Cement Limited held that capitalisation of an expenditure in the books is not conclusive of its character under the Act. In paragraph 102 thereof, reliance was placed on the judgment of the Hon'ble Delhi High Court in CIT v. Havells India Ltd., ITA Nos. 55 and 57 of 2012, judgment dated 21.05.2012, for the proposition that accounting treatment cannot override the legal nature of expenditure. 115. The above view also finds support from CIT v. Rane (Madras) Ltd. [293 ITR 459 (Mad.)], CIT v. Relaxo Footwears Ltd. [293 ITR 231 (Delhi)], Reliance Footprint Ltd. v. ACIT in ITA No. 5997/Mum/2011 and ACIT v. Graviss Foods (P.) Ltd. in ITA No. 1051/Mum/2013, referred to in paragraph 70 of the decision reproduced in paragraph 71 of the order for A.Y. 2013-14. 116. Respectfully following the binding decisions of the Co-ordinate Bench in the assessee's own case, and there being no distinguishing feature brought on record by the Revenue, we uphold the orders of the CIT(A) allowing the pre-operative expenditure as revenue expenditure. Consequently, the relevant grounds raised by the Revenue for A.Ys. 2014-15, 2015-16 and 2016-17 are dismissed. Sr. No. 5 - Transfer pricing ad....
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.... both the years. 122. The learned AR relied upon the order of the CIT(A) and submitted that the TPO had not determined the arm's-length price of the services at nil. Inviting our attention to pages 18 and 19 of the TPO's order, the learned AR pointed out that the TPO himself proceeded to estimate the value of the services stated to have been rendered by the associated enterprise. The TPO estimated the services at 50 man-hours per month, aggregating to 600 man-hours during the year, and adopted a rate of Rs. 11,000/- per man-hour. On this basis, the TPO determined the arm's-length price at Rs. 66,00,000/- and restricted the adjustment to Rs. 52,96,235/- as against the payment of Rs. 1,18,96,235/- concerning aggregates and construction material services. 123. The learned AR submitted that the determination of a positive arm's-length price of Rs. 66,00,000/- necessarily proceeds on the factual premise that services were rendered by the associated enterprise. Therefore, the Revenue's contention that the assessee failed to establish that any services were received was contrary to the TPO's own determination. Once the receipt of services was accepted, the controversy could only con....
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....oup Support Limited by adopting 8,000 man-hours at Rs. 10,000/- per man-hour. The corresponding adjustment was deleted in paragraphs 90 to 94. 128. In paragraph 90, the Co-ordinate Bench applied the judgment of the Hon'ble Bombay High Court in PCIT v. Vishay Components India Pvt. Ltd., Tax Appeal No.1643 of 2016, dated 18.02.2019. The relevant ratio reproduced therein reads as under: "The Revenue has not been able to show any material difference in the subject assessment year which would justify a change in the most appropriate method (TNM method) adopted while benchmarking the international transactions." 129. Thus, where TNMM has been consistently accepted for benchmarking identical transactions and the Revenue does not establish any material change in facts, the method cannot be discarded in a subsequent year without valid reasons. 130. In paragraph 92, the Co-ordinate Bench found that the TPO had neither applied any prescribed method nor produced any comparable agreement to support the estimated man-hours or hourly cost. It further recorded that the TPO had not disputed the rendition of services. Referring to Brinks India Private Limited v. DCIT, ITA No.5462/M....
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....ricing adjustment. The ratio of the earlier order is, therefore, twofold. First, actual technical and business-support services demonstrated through the agreement, invoices, TPSR and related documentation cannot be disregarded merely by questioning the commercial benefit derived by the assessee. Secondly, even where the TPO disputes the assessee's benchmarking, the arm's-length price must be determined by applying one of the methods prescribed under section 92C(1), and not through an unsupported estimate of man-hours and hourly rates. 136. In the present years also, the TPO assigned a positive value of Rs. 66,00,000/- to the services but failed to identify any comparable uncontrolled transaction or prescribed method supporting that valuation. No material distinction from the facts considered in A.Y. 2013-14 has been brought to our notice. We, therefore, find no infirmity in the CIT(A)'s decision deleting the adjustment by following the order of the Co-ordinate Bench in the assessee's own case. Accordingly, Ground Nos. xiii to xv for A.Y. 2014-15 and Ground Nos. vi to viii for A.Y. 2016-17 raised by the Revenue are dismissed. Sr. No. 6 - Deduction under section 80-IA in respec....
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....tion 80-IA(4)(i). 141. The AO further observed that the railway wagons were operated by the Railway Administration, which also charged freight for their movement. The assessee's activities were stated to be confined to the movement, loading and unloading of wagons within the factory premises. The AO, therefore, held that the assessee could not be regarded as operating a rail system. 142. The AO also relied upon the order of the CIT(A)-5, Mumbai, in the case of Ultratech Cement Ltd. for A.Y. 2010-11 and upon the disallowance made in the assessee's own case for A.Y. 2011-12. On these grounds, the deduction claimed under section 80-IA(4) was denied. Without prejudice, the AO observed that if the rail systems were ultimately held eligible, proportionate head-office expenses and CENVAT-related adjustments should be considered while computing the deduction. The CIT(A) noted that the rail systems did not merely comprise private sidings but included railway tracks, signalling systems, loco sheds, wagon-loading machines, wagon tipplers, electrification, weighbridges, rerailing systems and other connected facilities. Through these facilities, the assessee undertook placement of wagons,....
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....Since there was no material change in the relevant facts or the governing statutory provisions during the years under consideration, the learned AR submitted that the orders of the CIT(A) allowing the deduction deserved to be upheld. 149. We have considered the rival submissions and perused the material placed on record. The principal controversy is whether the rail systems developed by the assessee at its cement manufacturing units qualify as infrastructure facilities under section 80-IA(4)(i), notwithstanding that they are used for transporting the assessee's own raw materials and finished goods. The Revenue has also questioned the computation of income on the basis of savings in road freight and loading and unloading expenditure and the allocation of head-office and common expenses. 150. We find that the issue of eligibility is squarely covered by the decision of the Co-ordinate Bench in the assessee's own case for A.Y. 2013-14 in ITA Nos.800 and 1171/Mum/2022, order dated 30.06.2023. In paragraph 36 of that order, the Bench identified the issue as the disallowance of deduction under section 80-IA in respect of the rail systems. In paragraph 37, it recorded that the identi....
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....material, loading and unloading arrangements and operation and maintenance of the facilities at the assessee's cost. The fact that locomotives and wagons were operated under the supervision or control of the Indian Railways did not lead to the conclusion that the assessee had neither developed nor operated and maintained the infrastructure facility. 155. The method adopted for computing the income of the rail-system undertakings was also specifically noticed in the earlier order. The income was computed by comparing the road freight and handling expenditure that would otherwise have been incurred for transporting goods to the nearest railhead with the railway tariff payable for transportation through the rail systems. After considering this computation, the Co-ordinate Bench directed the AO to allow the deduction. The relevant conclusion reproduced in paragraph 39 reads as under: "In view of above discussion and following decisions referred supra, claim of assessee is found to be correct and Assessing Officer is directed to allow deduction u/s. 80IA on Rail Infrastructure." 156. Thereafter, the Co-ordinate Bench concluded in paragraph 40 of its order for A.Y. 2013-14 as....
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....enses while computing the deduction under sections 80-IA and 80-IC. This issue includes the basis of allocation, the categories of common expenditure liable to be apportioned, and the exclusion of expenses having no nexus with the eligible undertakings. 162. The assessee claimed deductions under sections 80-IA and 80-IC in respect of various captive power plants, rail systems and eligible cement manufacturing units. While computing the profits of the eligible undertakings, the assessee allocated expenses directly attributable to the respective units but did not allocate the general and indirect expenditure incurred at the head office. 163. The AO observed that, under section 80-IA(5), each eligible undertaking was required to be treated as a stand-alone unit. Consequently, all direct as well as proximate business expenditure incurred for the benefit of such undertaking was required to be considered while determining its eligible profit. According to the AO, the head-office expenditure was incurred for the benefit of the assessee's business as a whole and, therefore, an appropriate portion thereof was necessarily attributable to the eligible units. 164. The expenditure iden....
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....ssee. Directors' remuneration and auditors' fees were directed to be excluded from the allocation. The grounds of the assessee were accordingly partly allowed. 168. The year-specific details are as under: Particulars A.Y. 2014-15 A.Y. 2015-16 A.Y. 2016-17 Revenue's grounds Ground Nos. xviii and xix Ground Nos. xvi and xvii Ground Nos. xiv and xv Deduction claimed under section 80-IA for power generating units Rs.288,46,27,241/- Rs.167,16,98,408/- Rs.228,78,87,180/- Indirect head- office expenditure considered by AO Rs.229,64,93,068/- Rs.220,24,55,943/- Rs.214,76,53,951/- Adjusted turnover of profit-making eligible units adopted by AO Rs.467,56,54,940/- Rs.336,27,37,036/- Rs.385,36,20,913/- Head-office expenditure allocated by AO under section 80-IA Rs.9,56,60,289/- Rs.62,79,96,792/- Rs.7,06,93,083/- Additional section 80-IC particulars Aggregate expenditure of Rs. 237,00,04,387/, including R&D expenditure of Rs. 1,70,42,308/-. The AO allocated Rs. 15,83,91,301/- to the Gagal-1 unit No separate current-year section 80-IC allocation is quantified in the relevant adjudication No separate section 80-....
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....t whether common head-office expenditure can be allocated to the eligible undertakings, but concerns the appropriate basis of allocation and the exclusion of expenditure having no nexus with those undertakings. 174. Section 80-IA(5) requires the profits of an eligible undertaking to be computed as if the eligible business were the only source of income of the assessee. Therefore, expenditure incurred centrally by the head office for the benefit of an eligible undertaking cannot be ignored merely because it is not incurred or recorded in the books of that undertaking. At the same time, only expenditure having a direct or proximate connection with the eligible undertaking can enter into the computation. Expenditure specifically relatable to the non-eligible cement-manufacturing business cannot be apportioned to the eligible power-generating, rail-system or section 80-IC undertakings. 175. We find that the issue was considered by the Co-ordinate Bench in the assessee's own case for A.Y. 2013-14 in ITA Nos.800 and 1171/Mum/2022. In paragraph 26, the Bench identified the dispute as the allocation of proportionate head-office expenditure while computing deductions under sections 80....
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....the eligible unit vis-à-vis the overall expenditure of the assessee. 180. The operative direction contained in paragraph 76 of the earlier decision, reproduced in paragraph 29 of the order for A.Y. 2013-14, reads as under: "Assessing Officer is directed to allocate Head office expenses (other than auditor fees and CMA expenses) on the basis of expenditure incurred by the units vis-à-vis overall expenditure." 181. The Co-ordinate Bench thereafter concluded in paragraph 30 of the order for A.Y. 2013-14 as under: "Respectfully following the above decision and following the principle of consistency, the view taken by the Tribunal in A.Y.2008-09 is respectfully followed, accordingly, ground raised by the assessee is allowed." 182. In the years under consideration, the AO allocated the head-office expenditure on the basis of the adjusted turnover of the profit-making eligible units. No material distinguishing feature has been brought on record to justify departure from the basis approved by the Co-ordinate Bench. Accordingly, we uphold the CIT(A)'s direction that the common head-office expenditure should be apportioned in the ratio of the expendit....
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....ls and services on which CENVAT credit had arisen were directly connected with the operation of the captive power plants. According to the AO, section 80-IA(5) required the profits of each eligible undertaking to be computed on a stand-alone basis, as if the eligible business were the only source of income of the assessee. Therefore, the entire cost of inputs and services, including the embedded duties and taxes, was required to be debited while computing the true profit of the eligible undertaking. 190. The AO held that the assessee's practice of debiting expenditure net of CENVAT credit resulted in an inflated profit of the eligible undertaking because the benefit of the credit was utilised by the cement-manufacturing units, while the corresponding duty component was not debited to the captive power plant. The AO, therefore, included the amount of CENVAT credit in the cost of the respective power-generating units and reduced the deduction allowable under section 80-IA accordingly. 191. Before the CIT(A), the assessee submitted that power generated by the captive power plants was transferred to its cement-manufacturing units and residential colonies. In respect of power supp....
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....held that where expenditure was recorded net of CENVAT credit and the entire credit was utilised by the other units of the assessee, such accounting treatment did not distort the profits of the eligible undertakings. 196. The learned AR further submitted that, if the captive power plant were treated as a stand-alone undertaking under section 80-IA(5), the cement-manufacturing unit utilising the CENVAT credit would be required to reimburse the eligible undertaking to the same extent. Therefore, even if the gross expenditure were debited to the captive power plant, an equivalent amount would have to be credited as reimbursement, leaving its eligible profit unchanged. It was accordingly submitted that the CIT(A), having followed the binding decision in the assessee's own case, rightly deleted the CENVAT adjustments. 197. We have considered the rival submissions and perused the material placed on record. The limited controversy is whether, while computing the profits of the eligible captive power plants under section 80-IA, the expenditure should be increased by the amount of CENVAT credit availed by the other manufacturing units of the assessee. The AO held that the eligible und....
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....ts the relief accordingly." 202. Following the above decision, the Co-ordinate Bench ultimately concluded in paragraph 35 of its order for A.Y. 2013-14 as under: "Respectfully following the above decision and following the principle of consistency, the view taken by the Tribunal in A.Y.2011-12 is respectfully followed, accordingly, ground raised by the assessee is allowed." 203. The same principle applies to the years under consideration. Once the eligible captive power plants are treated as independent undertakings and their expenditure is notionally increased by the duty component giving rise to CENVAT credit, the corresponding benefit transferred to and availed by the other manufacturing units must necessarily be credited to the eligible undertakings. The fiction under section 80-IA(5) cannot be applied only for increasing the expenditure of the eligible undertakings while disregarding the corresponding reimbursement or benefit attributable to them. The assessee's method of recording the expenditure net of CENVAT credit produces the same economic result and does not inflate the profits of the eligible undertakings. 204. No distinguishing feature in facts or law....
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....d were quantified with reference to the sales tax or VAT paid by the respective units. The AO held that the immediate purpose of the incentives was to facilitate the carrying on of the existing business more efficiently and profitably. He further observed that the relevant schemes did not require the incentive amount to be utilised for acquiring any particular capital asset. On this basis, the AO concluded that the sales-tax incentives constituted recurring operational subsidies and were taxable as revenue receipts. 209. The AO also noticed that the assessee had excluded the refund of royalty received from the Government of Maharashtra in respect of minerals used by its Chanda unit by treating the same as a capital receipt. The assessee submitted that the royalty refund was granted under the Package Scheme of Incentives, 2007 framed pursuant to the Industrial Policy of the Government of Maharashtra. It was contended that the incentive was linked with the capital investment made for expansion and modernisation of the unit and, therefore, satisfied the purpose test applicable to capital subsidies. 210. The AO rejected the explanation. He held that royalty constituted an expendi....
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....Incentives, 2007. Since the AO had treated the royalty refund as a revenue receipt by adopting the same reasoning as applied to the sales-tax incentives, the CIT(A), following his conclusion that the incentives under the industrial policy were capital in nature, held that the royalty refund also constituted a capital receipt. The corresponding addition was, therefore, deleted. 214. For A.Y. 2015-16, the CIT(A) dealt with the sales-tax incentives in paragraphs 12 to 12.5 of the appellate order. The CIT(A) found that the incentives received in respect of the Bargarh, Chanda and Chaibasa units arose under the same industrial policies and schemes considered in the earlier years. The AO had also made the addition by substantially following the reasoning adopted in the preceding assessment orders. The CIT(A) held that the issue was recurring and that the incentives were linked to industrial investment and expansion. Following the earlier orders in the assessee's own case, including the order for A.Y. 2013-14 and the appellate order for A.Y. 2014-15, the CIT(A) treated the sales-tax incentives aggregating to Rs. 237,84,09,218/- as capital receipts and directed deletion of the addition.....
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....Rs. 2,81,00,000/-. 218. The learned AR supported the orders of the CIT(A) and submitted that the issue was squarely covered by the decision of the Co-ordinate Bench in the assessee's own case for A.Y. 2013-14 in ITA Nos.800 and 1171/Mum/2022, order dated 30.06.2023 and therefore the corresponding grounds raised by the Revenue deserved to be dismissed. 219. In case of treatment of sales-tax incentive as capital receipt, we have considered the rival submissions and perused the material placed on record. The controversy is whether the sales-tax incentives received or receivable by the assessee under the industrial policies of different State Governments constitute capital receipts or operational subsidies chargeable to tax under the normal provisions. 220. The settled principle is that the character of a subsidy is determined by the purpose for which it is granted. We find that the incentives involved in the present appeals were granted under the respective State Industrial Policies for encouraging substantial capital investment, establishment of new industrial units and expansion or modernisation of the existing units in the specified areas. The eligibility and the overall m....
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....f royalty refund as capital receipt, we have examined the findings of the lower authorities. The royalty refunds of Rs. 26,45,44,672/- for A.Y. 2014-15 and Rs. 31,18,38,263/- for A.Y. 2015-16 were received from the Government of Maharashtra in respect of the assessee's Chanda unit under the Package Scheme of Incentives, 2007. 226. The AO treated the refund as a revenue receipt on the ground that royalty constituted a trading expenditure and its refund represented remission of such expenditure. The AO also specifically proceeded on the basis that the royalty refund was not different in nature from the sales-tax incentives. The CIT(A), however, held that the refund was one of the forms in which the incentive under the Maharashtra Industrial Policy was granted and that its character had to be determined by applying the purpose test. 227. In our considered view, the nature of the outgoing in respect of which an incentive is quantified cannot, by itself, determine the character of the incentive received. The relevant enquiry is the object for which the Government granted the benefit. Merely because the incentive was calculated with reference to the royalty paid on minerals, it can....
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....rom A.Y. 2014-15 Relevant year of installation and putting to use F.Y. 2013-14 F.Y. 2014-15 Deduction disputed by the AO Rs.51,31,52,646/- Rs.49,46,02,939/- 233. The assessee, being engaged in the business of manufacture or production, had capitalised substantial amounts of plant and machinery during the relevant years. A portion of the components forming part of such plant and machinery had been procured or incurred in the earlier years and was reflected as capital work-in-progress at the beginning of the respective previous years. Upon completion of assembly, installation and commissioning, the capital work-in-progress was transferred to the plant and machinery account and the assets were put to use. The assessee claimed deduction under section 32AC on the cost of such plant and machinery. 234. Before the AO, the assessee submitted that section 32AC uses the composite expression "acquires and installs". According to the assessee, the acquisition of a functional plant or machinery is completed only when the various components lying in capital work-in-progress are assembled, capitalised and installed. Until that stage, the individual components do not consti....
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....rary views can be taken." (para 10 of reproduced decision) 238. The CIT(A) observed that additional depreciation under section 32(1)(iia) had also been allowed to the assessee in respect of assets forming part of the capital work-in-progress and subsequently installed and put to use. The CIT(A), therefore, held that the assessee was eligible for deduction under section 32AC in respect of the assets acquired prior to 01.04.2013 but installed and put to use during F.Y. 2013-14. The disallowance of Rs. 51,31,52,646/- was accordingly deleted. 239. For A.Y. 2015-16, the AO dealt with the issue in paragraph 16 of the assessment order. During that year, the assessee capitalised plant and machinery amounting to Rs. 329,73,52,927/-. The claim under section 32AC included assets forming part of the capital work-in-progress brought forward from A.Y. 2014-15 and capitalised during F.Y. 2014-15. The AO held that plant and machinery not acquired within the prescribed period did not qualify for deduction. Since, according to the AO, the assessee had also failed to furnish a proper bifurcation of the brought-forward capital work-in-progress and the plant and machinery acquired and installed d....
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....f the revenue is accepted, in that case, the assessee shall never get the additional depreciation as provided under section 32(1)(iia). In the facts and circumstances of the case, the twin conditions of the acquired and installed shall never be satisfied in a year and therefore, the assessee shall never get any depreciation. The purpose and object of granting additional depreciation under section 32(1)(iia) is to encourage the industries by permitting the assessee setting up the new undertaking/installation of new plant and machinery and to give a boost to the manufacturing sector by allowing additional depreciation deduction. Thus, as rightly held by the Tribunal the provisions of section 32(1)(iia) are required to be interpreted reasonably and purposively as the strict and literal reading of section 32(1)(iia) would lead toan absurd result denying the additional depreciation to the assessee though admittedly the assessee has installed new plant and machinery. Under the circumstances, no error has been committed by the Tribunal in allowing the additional depreciation at the rate of 20 per cent on the plant and machinery installed by the assessee after 31-3-2005 i.e. the year under....
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.... assessee must satisfy two conditions as per which new asset should be acquired and installed between 01.04.2013 and 31.03.2015. Unless the assessee satisfies two conditions, it cannot claim benefit of additional investment allowance." 247. The learned DR further referred to paragraph 11.11, wherein the Tribunal rejected the contention that the completion and installation of an integrated plant during the prescribed period was sufficient, notwithstanding that some of its constituent machinery had been acquired earlier. The relevant finding reads as under: "Therefore, even if, the assessee acquires certain plant and machinery which are used in plant meant for manufacturing of certain engines and completed during the financial year relevant to the assessment year 2014-15, we are of the considered view that unless the assessee satisfies conditions prescribed therein, it cannot claim benefit of investment allowance." 248. The Chennai Bench also distinguished decisions rendered in the context of additional depreciation under section 32(1)(iia), observing that depreciation under section 32 and investment allowance under section 32AC operated in different statutory fields. ....
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.... 32AC of the Act on the value of cost of components of plant or machinery lying as CWIP as on 1 April 2013 but installed during the financial year 2013-14." 254. The learned AR thus submitted that UltraTech Cement Ltd. directly considered the eligibility of components lying in capital work-in-progress under section 32AC and decided the identical controversy in favour of the assessee after applying the ratio of the Hon'ble Gujarat High Court. Therefore, the said decision constituted a more direct precedent on the issue under consideration. 255. The learned AR alternatively submitted that the decisions of the Mumbai Bench in UltraTech Cement Ltd. and the Chennai Bench in Hyundai Motor India Ltd. represented two different views on the interpretation of the same statutory expression. Where two reasonable constructions of a taxing provision are possible, the construction favourable to the assessee is required to be adopted. 256. Accordingly, the learned AR submitted that the view adopted in UltraTech Cement Ltd., being favourable to the assessee and also consistent with the purposive interpretation placed by the Hon'ble Gujarat High Court upon the expression "acquired and insta....
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....atio of UltraTech Cement Ltd. and the two decisions represent divergent views of Co-ordinate Benches. 261. On an independent consideration, we find the view adopted in UltraTech Cement Ltd. more appropriate to the facts before us. Section 32AC grants the deduction with reference to a "new asset", namely new plant or machinery. In the case of a large integrated manufacturing facility, individual components cannot invariably be regarded as independent plant or machinery merely because they were purchased earlier and reflected as capital work-in-progress. The relevant enquiry is whether the integrated plant or machinery, in respect of which the deduction is claimed, came into existence and was installed during the qualifying period. 262. The mere purchase of individual components does not necessarily amount to acquisition of the integrated plant. Those components assume the character of the intended plant or machinery only after they are assembled, integrated and installed for their designated manufacturing function. Capital work-in-progress represents expenditure incurred on an asset that is yet to be completed and capitalised. Therefore, the existence of an opening capital wor....
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....nd loss while computing book profit under section 115JB, having regard to the limited adjustments permitted under Explanation 1 thereto. 268. The year-specific particulars relating to exclusion of sales-tax incentive, excise-duty exemption and royalty refund while computing book profit under section 115JB are as follows: Particulars A.Y. 2014-15 A.Y. 2015-16 Revenue's ground Ground No. xxv Ground No. xxiii Sales-tax incentive Rs.143,03,11,576/- Rs.237,84,09,218/- Excise-duty exemption Rs.261,19,80,837/- Rs.267,10,28,547/- Royalty refund Rs.26,45,44,672/- Rs.31,18,38,263/- Aggregate amount claimed for exclusion Rs.430,68,37,085/- Rs.536,12,76,028/- 269. During the assessment proceedings, the AO noticed that the assessee had claimed exclusion of the sales-tax incentive, excise-duty exemption benefit and royalty refund while computing book profit under section 115JB. The assessee was called upon to explain why the aforesaid amounts should not be included in the book profit. 270. The assessee submitted that all three receipts were capital in nature and did not contain any element of income or profit. It was explained that t....
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....de these three receipts while computing book profit under section 115JB. 275. For A.Y. 2015-16, the CIT(A), in paragraphs 26 to 26.2, found that the issue arose on the same facts as in A.Ys. 2013-14 and 2014-15. The CIT(A) noted that the Co-ordinate Bench had decided the issue in favour of the assessee for A.Y. 2013-14 and that the same view had been followed by the CIT(A) for A.Y. 2014-15. In the absence of any change in the material facts, the CIT(A) directed the AO not to include the impugned amounts aggregating to Rs. 536,12,76,028/- while computing book profit under section 115JB and allowed Ground No.18. 276. Before us the AR placed reliance on the orders of CIT(A) and decision of Co-ordinate Bench in its own case for the A.Y. 2013-14. 277. We have considered the rival submissions and perused the material placed on record. The issue before us is whether the sales-tax incentive, excise-duty exemption and royalty refund, having been held to be capital receipts, can nevertheless be included in the computation of book profit under section 115JB merely because they have been credited to the statement of profit and loss. 278. The learned AR relied upon the orders of the....
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....d Malayala Manorama Co. Ltd. v. CIT does not assist the Revenue in the facts of the present case. Those decisions restrict the power of the AO to recast the accounts or make adjustments to the net profit beyond those contemplated by section 115JB. The present issue, however, concerns the anterior question whether a receipt which is capital in nature and does not possess the character of income or profit can form part of "book profit" for the purpose of levying tax under section 115JB. The Co-ordinate Bench has answered this precise issue in favour of the assessee in the earlier assessment year. 284. The character of the receipts and the industrial schemes under which they arose remain unchanged in the years before us. The sales-tax incentive, excise-duty exemption and royalty refund relate to the same industrial units and substantially the same schemes considered in the earlier years. No distinguishing feature, change in the governing statutory provisions or contrary binding decision has been brought to our notice. 285. We, therefore, respectfully follow the decision of the Co-ordinate Bench in the assessee's own case for A.Y. 2013-14 and uphold the orders of the CIT(A) direc....
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....that a successor acquiring the undertaking as a running concern is entitled to the benefit for the unexpired period. Reliance was also placed upon the orders passed in the assessee's own case for the earlier assessment years, including the decision of the Co-ordinate Bench for A.Y. 2013-14. 292. The CIT(A) found that the identical issue had been decided in favour of the assessee for A.Y. 2013-14. The CIT(A) further noticed that the deduction in respect of TG-3 had been allowed by the first appellate authority from A.Y. 2005-06 onwards. Following the decision of the Co-ordinate Bench for A.Y. 2013-14, the CIT(A) directed the AO to allow deduction of Rs. 12,77,18,536/- under section 80-IA in respect of the TG-3 Power Plant. 293. The AR reiterated the findings of CIT(A) and placed reliance on the decision of Co-ordinate Bench. 294. We have considered the rival submissions and perused the material placed on record. Ground Nos. xi and xii raised by the Revenue challenge the allowance of deduction under section 80-IA in respect of the TG-3 Power Plant. The Revenue contends that the undertaking was purchased from Tata Power Company Ltd. and was consequently hit by the prohibition....
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.... earlier owned by the assessee and subsequently repurchased by it. The aspect of repurchase related to TG-2 and not TG-3. Therefore, the description of TG-3 as a "re-purchased" undertaking does not accord with the factual findings recorded in the appellate orders for the earlier years. 299. The mere fact that Tata Power Company Ltd. had not claimed deduction under section 80-IA does not establish that the undertaking was ineligible. Eligibility of an undertaking cannot be negatived merely because its previous owner did not avail the deduction. The Revenue has not brought on record any material demonstrating that TG-3 failed to satisfy any substantive condition of section 80-IA or that the eligible period had expired. 300. In A.Y. 2013-14, the Co-ordinate Bench followed its decision for A.Y. 2005-06 and dismissed the Revenue's ground concerning TG-3. Thus, the eligibility of the same undertaking has already been adjudicated in favour of the assessee. No material change in the facts or the governing statutory provisions for A.Y. 2014-15 has been demonstrated before us. The AO also made the disallowance merely by following the assessment orders for the earlier years without reco....
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....l facts, the CIT(A) followed the order for A.Y. 2013-14 and directed the AO not to add Rs. 34,12,177/- while computing book profit under section 115JB. 306. We have considered the rival submissions and perused the material placed on record. The learned AR supported the order of the CIT(A) and placed reliance upon the findings recorded in the impugned order and the decision of the Co-ordinate Bench in the assessee's own case for A.Y. 2013-14. 307. We find that the Co-ordinate Bench considered the identical controversy and first clarified that the disallowability of the amount under section 40(a)(v) while computing income under the normal provisions was not in dispute. The only question was whether the same amount could also be added while computing book profit under Explanation 1 to section 115JB. 308. While following IDBI Bank Ltd. v. DCIT (supra), the Co-ordinate Bench reproduced the following relevant ratio in paragraph 54: "the taxes borne by the assessee on non-monetary perquisites provided to employees forms part of Employee Benefit cost and akin to Fringe Benefit Tax since they are certainly not "below the line" items since the same are expressively disallowed under ....
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..... 267,10,28,547/- availed by the assessee constituted a capital receipt and was, therefore, not taxable under the normal provisions. The tax effect stated by the Revenue in respect of this ground is Rs. 90,78,82,603/-. 314. The relevant facts, as emerging from paragraph 7.13 of the assessment order, are that the assessee had not offered the aforesaid excise-duty exemption to tax. The AO, therefore, required the assessee to explain why the receipt should not be treated as revenue in nature. In response, the assessee furnished detailed submissions dated 22.10.2018 and 11.12.2018, the relevant incentive schemes, supporting evidence and the judicial authorities relied upon in support of its claim. 315. The assessee explained that Gagal-I commenced commercial production in 1983, whereas Gagal-II commenced production in 1995. During F.Y. 2002-03, the assessee undertook substantial expansion of both units by making fresh investments. According to the assessee, the expansion resulted in an increase of more than 50% in the book value of the assets compared with the book value prevailing before the expansion and was completed during F.Y. 2005-06. Under General Exemption No. 51 issued v....
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....ded for a capital-investment subsidy at 15% of the investment in plant and machinery, subject to a ceiling of Rs. 30,00,000/-. On that basis, he concluded that the scheme itself made a distinction between the capital-investment subsidy and the excise-duty exemption. Since the latter did not carry any condition requiring utilisation towards capital expenditure, the AO treated it as an incentive intended to augment the operating profitability of the eligible units. 320. The AO also placed emphasis on the fact that the excise-duty exemption was available for ten years from the commencement of commercial production. In his view, the benefit arose only after the units had commenced production and excise-duty liability had otherwise become payable. The scheme merely permitted the assessee to retain the amount of excise duty instead of paying it to the Government. The AO, therefore, considered the exemption to be assistance for carrying on the business rather than assistance for setting up or substantially expanding the units. 321. The AO distinguished the principle relied upon by the assessee on the ground that, in cases where the subsidy had been treated as capital, the scheme req....
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.... Ambuja Cements Ltd., the Tribunal had considered the same General Exemption No. 51 issued through Notification No. 50/2003 dated 10.06.2003 in relation to a unit situated in Himachal Pradesh and had decided the issue in favour of that assessee. 326. It was further submitted that the assessee's claim had consistently been accepted by the CIT(A) for A.Ys. 2008-09 to 2012-13. Subsequent to the passing of the assessment order for the year under consideration, the Co-ordinate Bench, in the assessee's own case for A.Y. 2012-13 in ITA No. 3246/Mum/2018, vide order dated 28.02.2023, had dismissed the corresponding ground raised by the Revenue. 327. The CIT(A) observed that the AO himself had treated the facts for the year under consideration as similar to those prevailing in A.Y. 2012-13. The CIT(A) further recorded that the issue was recurring and that the Revenue's corresponding ground for A.Y. 2012-13 had been dismissed by the Tribunal. The CIT(A) also referred to the Tribunal's order in Ambuja Cement Ltd. in ITA Nos. 5883/Mum/2012 and 5927/Mum/2012 for A.Y. 2005-06, dated 31.10.2022, which, according to him, covered the identical issue. 328. On that basis, the CIT(A) conclude....
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....The source is immaterial. The form of subsidy is immaterial. The main eligibility condition in the scheme with which we are concerned in this case is that the incentive must be utilized for repayment of loans taken by the assessee to set up new units or for substantial expansion of existing units. On this aspect there is no dispute. If the object of the subsidy scheme was to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account. Therefore, it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form of the mechanism through which the subsidy is given is irrelevant." 333. The ratio emerging from the aforesaid decision is that the character of an incentive cannot be determined merely by considering whether the benefit is received before or after commencement of commercial production. Its source, form and mode of quantification are also not decisive. The determinative consid....
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.... which the object of the scheme is implemented are not determinative. Once the object is to promote the establishment or substantial expansion of capital-intensive industrial units, the fact that the benefit is granted after commencement of production does not alter its character. 337. More importantly, in Chaphalkar Brothers, the Hon'ble Supreme Court specifically examined the decision of the Hon'ble Jammu and Kashmir High Court in Shree Balaji Alloys v. CIT [(2011) 333 ITR 335], which concerned refund of excise duty and interest subsidy. The relevant discussion reads as under: "While considering the scheme of refund of excise duty and interest subsidy in that case, it was held that the scheme was capital in nature, despite the fact that the incentives were not available unless and until commercial production has started, and that the incentives in the form of excise duty or interest subsidy were not given to the assessee expressly for the purpose of purchasing capital assets or for the purpose of purchasing machinery. After setting out both the Supreme Court judgments referred to hereinabove, the High Court found that the concessions were issued in order to a....
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.... CIT(A), disclose that the object of the scheme was to intensify and accelerate industrial development in the specified backward areas of Himachal Pradesh and Uttarakhand. The excise-duty exemption was the mechanism chosen for extending the incentive to eligible industrial units. The circumstance that the amount of the benefit was quantified with reference to the excise-duty liability arising after commencement of production does not alter the object of the scheme. 341. The AO treated the exemption as revenue in nature principally because it was available for ten years from the commencement of commercial production. This approach places undue emphasis on the stage at which the incentive materialised. As held in Ponni Sugarsand reiterated in Chaphalkar Brothers, the point of time at which the incentive is received and the mechanism through which it is granted are irrelevant once the object of the scheme is established. In the present case, the commencement of production merely triggered the quantification and availability of the benefit. It did not constitute the purpose for which the benefit was granted. 342. The AO also observed that no restriction was imposed upon the subse....
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....relates to the treatment of unutilised MODVAT/CENVAT credit in the valuation of closing stock. The decisions in Indo Nippon Chemicals Co. Ltd., Diamond Dye Chem Ltd. and Mahindra & Mahindra Ltd. referred to therein do not concern the character of an excise-duty exemption under an industrial incentive scheme. We, therefore, do not rest our conclusion merely upon that portion of the earlier order. 346. Nevertheless, the mismatch in the reasoning reproduced in the earlier order does not require reversal of the CIT(A)'s conclusion. We have independently examined the object of the scheme, the eligibility conditions and the principles laid down by the Hon'ble Supreme Court in Ponni Sugars and Chaphalkar Brothers. On such examination, we find that the incentive was intended to promote the establishment and substantial expansion of industrial units in the specified backward areas and was not granted to reimburse recurring expenditure or merely supplement the assessee's trading profits. 347. We further note that clause (xviii) of section 2(24), bringing specified forms of Government assistance within the definition of income, became effective from 01.04.2016 and applies from A.Y. 2016....
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....10% was claimed in the succeeding year, namely A.Y. 2016-17. 353. The AO observed that the third proviso to section 32(1), permitting the balance additional depreciation to be allowed in the immediately succeeding previous year, was inserted with effect from 01.04.2016. According to the AO, the amendment was applicable only to plant and machinery capitalised during the second half of A.Y. 2016-17 and not to assets capitalised during the second half of A.Y. 2015-16. He, therefore, disallowed the balance additional depreciation of Rs. 22,75,66,963/- and allowed total depreciation of Rs. 511,17,77,518/-, being Rs. 533,93,44,481/- less the disputed amount of Rs. 22,75,66,963/-. 354. Before the CIT(A), the assessee contended that the amendment inserted by the Finance Act, 2015 was clarificatory and retrospective in nature. Without prejudice, it was submitted that even before the amendment, section 32(1)(iia) conferred a substantive entitlement to additional depreciation at 20%. The restriction contained in the second proviso to section 32(1) merely deferred one-half of the allowance where the asset was put to use for less than 180 days. It did not extinguish the assessee's entitle....
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....roviso to section 32(1), inserted with effect from 01.04.2016, would apply only to plant and machinery acquired and capitalised in the second half of A.Y. 2016-17. The CIT(A), on the other hand, held that the assessee was entitled to the balance additional depreciation in the immediately succeeding year and directed the AO to allow the claim. 361. Before us, the learned AR placed reliance upon the decision of the Co-ordinate Bench in the assessee's own case for A.Y. 2013-14 in ITA Nos. 800 and 1171/Mum/2022, order dated 30.06.2023. We have carefully examined the said decision. 362. In paragraph 24, the Co-ordinate Bench observed that an identical issue had been decided in favour of the assessee for A.Y. 2007-08 and reproduced the relevant findings from the earlier order. The core legal principle reproduced therein, in paragraph 32 of the earlier order, reads as under: "32. We have given very careful consideration to the rival submissions and are of the view that the provision of section 32(1)(iia) as amended w.e.f. 01-04-2006 by the Finance Act 2005, there is no restriction that the additional depreciation will be allowed only in one year or that it would be allowed ....
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.... at the time of acquisition or installation the machinery or plant should be new. Going by the legislative history of the relevant provision, ITAT held that the condition for allowing additional depreciation only in the initial assessment year ceased to exist as and from 01.04.2006. However, subsequently in the Decision of ITAT Mumbai in the case of Everest Industries Ltd. vs. JCIT [2018] 90 taxmann.com 330. Such decision was also referred by Ld DR in her written submission. In this decision, the decision of ITAT Kolkata in the case of DCIT vs. Gloster Jute Mills Ltd. (supra) was distinguished and the case has been decided against the assessee on the ground that the Kolkatta bench of Tribunal has taken the view in favour of the assessee, on plain reading of the provisions of sec. 32(1)(iia) vis-à-vis old provisions, by holding that the additional depreciation prescribed u/s 32(1)(iia) of the Act is allowable every year and further held that the Kolkata bench of Tribunal did not consider the third proviso inserted by Finance Act, 2015. Since the legislative intent in inserting sec.32(1)(iia) has been made clear by the third proviso inserted in sec. 32(1) by Finance A....
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....nly the balance 10% which could not be allowed in A.Y. 2015-16 solely because the assets were put to use for less than 180 days. The total additional depreciation claimed over the two years remains restricted to 20% of the actual cost. 366. The third proviso to section 32(1), inserted by the Finance Act, 2015 with effect from 01.04.2016, expressly provides that where an asset eligible under section 32(1)(iia) is acquired and put to use for less than 180 days and the additional depreciation is restricted to 50% in that previous year, the balance 50% shall be allowed in the immediately succeeding previous year. The statutory provision reads as under: "Provided also that where an asset referred to in clause (iia) or the first proviso to clause (iia), as the case may be, is acquired by the assessee during the previous year and is put to use for the purposes of business for a period of less than one hundred and eighty days in that previous year, and the deduction under this sub-section in respect of such asset is restricted to fifty per cent of the amount calculated at the percentage prescribed for an asset under clause (iia) for that previous year, then, the deduction for t....
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....e's own case for A.Y. 2013-14 supports the proposition that additional depreciation is not extinguished merely because it could not be fully allowed in the initial year. The present claim is additionally and directly supported by the third proviso to section 32(1), which applies from A.Y. 2016-17 and mandates allowance of the balance 50% in the immediately succeeding previous year. 372. Accordingly, the assessee was entitled to the balance 10% additional depreciation of Rs. 22,75,66,963/- in A.Y. 2016-17. The CIT(A) correctly directed the AO to allow the claim. We find no infirmity in the impugned decision. Revenue's Ground No. xvii is accordingly dismissed. A.Y. 2018-19 - Revenue's Ground iii - Allowability of bad debts under section 36(1)(vii) 373. Revenue challenges the decision of the CIT(A) deleting the disallowance of bad debts of Rs. 35,10,209/- claimed by the assessee under section 36(1)(vii). 374. The AO observed that the assessee had claimed a deduction of Rs. 35,10,209/- towards bad debts written off. Relying upon the decision of the Bangalore Bench of the Tribunal in SAP India (P.) Ltd. v. DCIT, the AO held that, apart from writing off the amount, the assess....
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....e in the year of accrual and, therefore, the condition prescribed under section 36(2) stood satisfied. It was also clarified that the amounts represented deficiencies in actual recovery from customers and were neither advances nor a mere provision for doubtful debts. 380. The CIT(A) examined the decision in SAP India (P.) Ltd. relied upon by the AO. The CIT(A) observed that the matter in that case had been restored because the assessee therein had not furnished the precise nature of the transactions with the concerned parties and it was, therefore, not possible to verify compliance with section 36(2). In the present case, however, the assessee had furnished the letter dated 17.09.2021, party-wise details, sample ledger accounts and invoice particulars. The CIT(A), therefore, found that the factual deficiency noticed in SAP India (P.) Ltd. was not present in the assessee's case. 381. The CIT(A) further observed that the assessee had specifically explained that the debts arose from sales made to customers and that the corresponding income had already been offered to tax. The assessee had also clarified that the amounts represented actual deficiencies in recovery and were not ad....
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.... section 36(1)(vii) read with section 36(2). 387. We have considered the rival submissions and perused the material placed on record. The issue is whether the CIT(A) was justified in deleting the disallowance of bad debts of Rs. 35,10,209/- claimed by the assessee under section 36(1)(vii). 388. For allowing a deduction of bad debts, two material requirements are required to be satisfied. First, the debt must be written off as irrecoverable in the accounts of the assessee during the relevant previous year. Secondly, in terms of section 36(2), the debt must have been taken into account while computing the income of the assessee for the relevant previous year or an earlier previous year, unless it represents money lent in the ordinary course of banking or money-lending business. 389. The assessee explained its accounting treatment before the AO vide letter dated 17.09.2021. When recovery from a customer became doubtful, the assessee created a provision for bad and doubtful debts and debited the provision to the profit and loss account. However, the provision was added back in the computation of taxable income and no deduction was claimed at that stage. When a specific debt wa....
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.... to adjudicate whether the assessee's commercial decision to write off the debt was objectively correct. What is required is an actual write-off in the accounts and compliance with section 36(2). 395. The AO also relied upon SAP India (P.) Ltd. v. DCIT. The relevant observations from paragraph 5 of that decision, as reproduced in paragraph 8.3.2 of the CIT(A)'s order, read as under: "We find that apart from writing off of bad debts in the books of accounts, the assessee has to fulfill this requirement of section 36(2) of the IT Act also that the amount in question has been considered as income in the relevant year or in an earlier year. As per the assessment order and as per the order of CIT(A), the assessee has not given any explanation or details regarding exact nature of transactions with the parties in question. In the absence of that, it cannot be ascertained as to whether the assessee is complying with the requirements of section 36(2) of Income Tax Act, 1961 or not." 396. The decision in SAP India (P.) Ltd. does not support the disallowance on the facts of the present case. In that case, the matter was restored because the precise nature of the underlying tran....
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.... were in the nature of unrealized debtors whose sales/corresponding income were already offered to tax in earlier years, and also the contention of the appellant that the provisions of section 36(2) of the Act were being satisfied in the instant case." 401. The Revenue has not brought before us any material demonstrating that the aforesaid factual finding of the CIT(A) is incorrect. There is no specific challenge to the genuineness of the invoices, the customer ledger accounts, the actual write-off or the inclusion of the corresponding sales in taxable income. The conditions prescribed under section 36(1)(vii) read with section 36(2) consequently stand satisfied. 402. In view of the foregoing, we find no infirmity in the decision of the CIT(A) directing deletion of the disallowance of Rs. 35,10,209/-. The order of the CIT(A) on this issue is upheld and Revenue's Ground No. iii is accordingly dismissed. Assessee's Cross Objection for A.Y. 2015-16 403. For A.Y. 2015-16, after excluding Ground No. 2 relating to section 14A, the remaining grounds of the assessee's cross-objection are: Ground No. Issue Amount involved 1 Validity of the assessment order on the ....
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.... present ground. Since no specific nexus between the impugned Head Office expenses and the eligible captive power plants or rail system has been established, the CIT(A) was not justified in sustaining the allocation of Rs. 62,79,96,792/-. We, therefore, direct the AO to delete the said allocation while computing the deduction under section 80-IA. Accordingly, Ground No. 4 of the assessee's cross-objection is allowed. Ground No. 3: Disallowance of provision for leave encashment despite actuarial valuation 409. Ground No. 3 of the assessee's cross-objection challenges the disallowance of provision for leave encashment amounting to Rs. 5,67,83,788/-, created on the basis of an actuarial valuation. 410. The assessee had debited the aforesaid provision to its Profit and Loss Account. During the assessment proceedings, the assessee contended that the provision represented an ascertained liability computed in accordance with AS-15 and settled accounting principles. The AO, however, held that clause (f) of section 43B permits deduction of any sum payable by an employer in lieu of leave standing to the credit of an employee only in the year of actual payment. The AO accordingly dis....
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....the specified head. 21.Section 43B bears heading "certain deductions to be only on actual payment". It opens with a non-obstante clause. As per settled principles of interpretation, a non obstante Clause assumes an overriding character against any other provision of general application. It declares that within the sphere allotted to it by the Parliament, it shall not be controlled or overridden by any other provision unless specifically provided for." 415. The identical issue was considered by the Co-ordinate Bench in the assessee's own case for A.Y. 2013-14. Paragraphs 42 to 44 of the order read as under: "42. With regard to Ground No. 8 which is in respect of Denial of claim for deduction of Leave Encashment on provision basis, Ld. AR of the assessee submitted that this ground is conceded on account of the supreme court decision in the case of UOI v. Exide Industries Limited (425 ITR 1). Further, he prayed that the direction be given to allow the claim on payment basis. 43.On the other hand, Ld. DR has relied on the order of the lower authorities. 44.Considered the rival submissions and material placed on record, similar issue has been consi....
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....ted that these capital items ought to be excluded while computing book profit under section 115JB. 421. The learned AR placed reliance upon the decision of the Hon'ble Calcutta High Court in PCIT v. Ankit Metal & Power Ltd. (2019) 416 ITR 591 (Cal.). Referring to the said decision, he submitted that a receipt which does not bear the character of income cannot form part of book profit under section 115JB. According to him, section 115JB is only a machinery provision for computing book profit and cannot be employed to bring to tax a capital receipt which falls outside the charging provisions of the Act. 422. The learned AR further relied upon the decision of the Ahmedabad Bench of the Tribunal in Nirma Ltd., ITA No.1412/Ahd/2019 and connected appeals, order dated 28.08.2025. It was submitted that the Tribunal, following the principle enunciated in Ankit Metal & Power Ltd. (supra), held that a capital receipt not chargeable to tax could not indirectly be subjected to tax under section 115JB. It was further submitted that the adjustments permissible under Explanation 1 to section 115JB are exhaustive and that an item cannot be included in book profit unless its inclusion is speci....
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....n 115 JB of the Income Tax Act, 1961." 426. Thus, the ratio of the decision is applicable where the receipt in question is first found to be outside the definition of income and not chargeable under any charging provision of the Act. The decision does not lay down that every receipt or accounting result connected with a capital asset must be excluded from book profit under section 115JB. 427. The decision of the Ahmedabad Bench in Nirma Ltd., ITA No.1412/Ahd/2019 and connected appeals, order dated 28.08.2025, also concerned a sales tax subsidy received under a backward-area development scheme. The Tribunal first held that the subsidy was a capital receipt not chargeable to tax and thereafter, in paragraphs 20 and 21, held as under: "20. By way of an additional ground, the assessee has contended that the sales tax subsidy of Rs. 7,22,34,860/-, already held to be a capital receipt not chargeable to tax under the normal provisions, ought to be excluded from the computation of book profit under section 115JB as well." "21. It is a settled proposition that the adjustments under Explanation 1 to section 115JB are exhaustive, and unless a particular item is specifi....
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....ncept of operational profit alone. 431. We further find that the identical issue was considered by the Co-ordinate Bench in the assessee's own case for A.Y. 2012-13 in ITA No.3203/Mum/2018. In paragraphs 75 to 77, the Co-ordinate Bench held as under: "75. In the Ground No.15, Assessee has raised the following grievance: "On facts and in the circumstances of the case, the Ld. CIT(A) was not justified and grossly erred in confirming tire action of AO in not excluding capital profits being profit on sale of investments and profit of sale of fixed assets of Rs 45,88,07,063/- and Rs 2,57,91,950/- respectively in the computation of book profits under Section 115JB" 76. Similar issue was considered by us in the assessee Appeal in Ground No 7 in AY 2005-06 and held as under:" "113. On perusal of the aforesaid decision, it is evident that the assessee will be entitled to indexed cost of acquisition while computing capital gains u/s 115JB of the Act. It is also to be noted that in the immediately preceding year Coordinate Bench has held that long term capital gains credited in the books of accounts is taxable to which even the Ld. AR fairly conceded sub....
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....le computing book profit under section 115JB. It was contended that the provision had been created on a prudent basis and did not represent income-tax actually charged under the Act. According to the learned AR, it also did not constitute a provision for an unascertained liability. 437. The learned AR further submitted that the impugned provision was not covered by any of the specific adjustments prescribed in Explanation 1 to section 115JB. Since the adjustments permitted to the net profit disclosed in the Profit and Loss Account are exhaustive, no addition could be made in the absence of an express statutory provision authorising it. The learned AR accordingly prayed that the addition of Rs. 19,34,38,553/- be deleted and Ground No. 6 of the cross-objection be allowed. 438. We have considered the rival submissions and perused the material placed on record. It is undisputed that the amount of Rs. 19,34,38,553/- debited to the Profit and Loss Account represents a provision for interest on income-tax. Clause (a) of Explanation 1 to section 115JB requires the amount of income-tax paid or payable and the provision therefor to be added to the net profit. Explanation 2 further clar....