TMI Blog2011 (3) TMI 716X X X X Extracts X X X X X X X X Extracts X X X X ..... acting from the mines - The object and purpose of the said expenditure, therefore, seen from the businessman's point of view, must be held to be to obtain the approval of the Government to the continuance of the technical collaboration arrangement - Held that: expenditure is to be revenue in nature - decided in favor of assessee. Allowance of profit from power generating unit u/s. 80 IA while computing book profit u/s.115JA. - Held that:- the profit of the industrial undertaking eligible for exemption under section 80-IA must be computed as per the books of account and the provisions of the Act cannot be applied and no adjustment can be made which is not permissible under the section. - Decided in favor of assessee. Allowance of deduction under section 80 HHC while computing book profit under section 115JA. - held that:- what is to be excluded must start with book profits of export business as base. One cannot have computation of book profit with tax profits as the base. In this view of the matter, and in view of the broad principles clearly discernable from Hon'ble Supreme Court's judgment in Ajanta Pharma's case (2010 -TMI - 77381 - SUPREME COURT ), we uphold the grievance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e grounds of appeal for disposal. 4. In ground no. 1, the assessee has raised the following grievance: That on the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the denial of claim of exclusion of road transport subsidy as capital receipt amounting to Rs.18,94,31,601 in computing total income under the normal provisions of the Income Tax Act. 5. Briefly stated the relevant material facts are like this. In the course of assessment proceedings, the Assessing Officer noticed that the assessee had received a sum of Rs.18,94,31,601 towards transport subsidy and claimed the same as a capital receipt being exempt from tax. After considering the assessee's submission, the AO was of the view that the transport subsidy is a trading receipt and liable to be taxed according to the provisions of the Income tax Act, 1961. For this proposition, he relied also on the decision of the Hon'ble Supreme Court's judgment in the case of Sahaney Steel and Press Works Ltd, 228 ITR 253 (SC), P.J.Chemicals, 210 ITR 630(SC) and also the Hon'ble Bombay High court in the case of Saddichha Chitra v CIT, 189 ITR 774 (Bom). Aggrieved, the assessee carried the matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said DB decision is no longer good law in the light of Hon'ble Bombay High Court judgment in the case of CIT vs. Reliance Industries Ltd., approving Special Bench decision in the case of DCIT vs. Reliance Industries Limited (88 ITD SB 273), wherein it was held that if the subsidy is given for setting up or expansion of industry, it will be capital in nature irrespective of the source of funds or manner of disbursement. It is also pointed out that the Tribunal's decision in the case of Assam Asbestos Ltd (supra) has reached finality as references under section 256(1) and 256(2) have been rejected, and Hon'ble Supreme Court has also dismissed SLP against rejection of 256(2) reference by Hon'ble Gauhati High Court, as reported in CIT vs. Assam Asbestos Limited (215 ITR 847). Learned counsel then takes us through the nature of subsidy and points out that the subsidy in question is exactly the same as was in the case of Assam Asbestos Limited. In both these cases, the transport subsidy received by the assessee was central transport subsidy, as against HP state transport subsidy receipt in the case of Steel Strips Limited (supra). Learned counsel thus submits that a decision in the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee's contention and treated the amount as capital expenditure,. The assessee carried the matter in appeal but without any success. The assessee is in further appeal before us. 9. The main thrust of learned counsel's arguments is that afforestation was carried out as a part and parcel of the process of extraction of limestone from the mines located in the forest area. Our attention is invited to the provisions of Forest (Conservation) Act 1980, and it is submitted that unless the assessee makes payment of these afforestation costs, he would not be allowed to carry out the business activity of extracting limestone. It is also pointed out that while the expenses are incurred wholly and exclusively for the purposes of business, these expenses neither result in creation of any asset for the assessee nor in transfer of ownership of any assets. Our attention is then invited to Hon'ble Supreme Court's judgment in the case of CIT vs. Kirkel Coal Co (77 ITR 530) wherein it is held that expenditure incurred for stowing operations is revenue expenditure since stowing was an operation carried out in the process of extraction of coal, and without this operation having been carried o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poration (supra), learned Departmental Representative submitted that in the said case assessee was engaged in the business as a forest corporation, and such decision in the case of a forest corporation's case can not be compared with a case in the assessee is engaged in business of extracting limestone. There is no direct link between assessee's business and the expenses so incurred. The link, if at all, is far fetched and all the relevant facts have not even been placed before the Assessing Officer, save and except for generalized submissions about the nature of expenses. We are urged to reject the grievance of the assessee or at best remit the matter to the file of the Assessing Officer for verification of all the factual elements embedded in assessee's submissions. In rejoinder, learned counsel submits that what is to be seen is whether the motivation of incurring this expenditure is wholly and exclusively for the purposes of business, and whether the expenditure is not in the nature of capital expenditure. Once these two conditions are satisfied, as are satisfied in this case, there cannot be any good reasons not to allow the expenditure. We are thus once again urged to delete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he fact that the expenditure had in fact resulted in the coming into existence of some advantage which would enure for several years was not of consequence. 9. The Supreme Court in Bombay Steam Navigation (1953) (P.) Ltd. v. CIT [1965] 56 ITR 52, laid down the test in these words: "Whether a particular expenditure is revenue expenditure incurred for the purpose of business must be determined on a consideration of all the facts and circumstances, and by the application of principles of commercial trading. The question must be viewed in the larger context of business necessity or expediency. If the outgoing or expenditure is so related to the carrying on or conduct of the business, that it may be regarded as an integral part of the profit earning process and not for acquisition of an asset or a right of a permanent character, the possession of which is a condition of the carrying on of the business, the expenditure may be regarded as revenue expenditure..." (p. 59) 10. The Patna High Court in the case of CIT v. Kirked Coal Co. [1966] 60 ITR 537, was concerned with an assessee which carried on coalmining. It had spent monies upon certain operations called 'stowing'. The IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s such and not only to make the inflow of more funds available then the expediture would be on the capital side. It was true that the alteration in the capital structure by raising the share capital would make more funds available, but that was not decisive. The essential object and purpose of incurring the expenditure and the resultant fact was the fundamental change in the income earning machinery or structure. It was the resultant advantage obtained by incurring the expenditure, along with the purpose and object of incurring the expenditure, which was the guide to answering the question. 12. Our attention was drawn by Mr. Dastur to the judgment of the Supreme Court in Patnaik and Co. Ltd. v. CIT [1986] 161 ITR 365, whose facts are noteworthy. The assessee dealt in automobiles and spare parts. It had subscribed to certain Government loans and had sustained a loss when reselling them. It claimed the loss as a revenue loss. The Tribunal found that, having regard to the sequence of events and the close proximity of the investment with the receipt of Government orders for motor vehicles, the conclusion was inescapable that the investment had been made in order to further the sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue that is required to be adjudicated in this ground of appeal is whether, for the purposes of computing book profit under section 115JA, book profits of the eligible unit should be excluded or the tax profits as determined under section 80IA. The Assessing Officer has held that tax profit of the eligible unit should be considered for exclusion from book profit, and the CIT(A) has also confirmed the said action. Learned counsel for the assessee contended that the issue is covered in favour of the assessee by the decision of ITAT, Mumbai in assessee's own case for the assessment year 1997-98 in ITA No.4730/M/01, wherein, the Tribunal following the decision of the Tribunal in the case of Tushako Pumps Limited vs ACIT (2 SOT 556) has dismissed the revenue's appeal. Learned Departmental Representative however relies upon the orders of the authorities below and justifies the same. He also refers to the decision of the coordinate bench in the cases of Encube Ethicals Pvt Ltd vs ITO (16 SOT 396) wherein rejecting the stand of the assessee, it is, inter alia, stated that, "the language used in the subclause is quite unambiguous and clear to explain that it means the amount required to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s derived from the industrial undertaking, which are included in the book profits, have been computed as per the books and no adjustment for depreciation has been made while computing the income eligible for exemption under section 80-IA, the quantum of depreciation as per the provisions of the Act would be substantially enhanced. That would violate the very purpose of section 115JA. Therefore, the profit of the industrial undertaking eligible for exemption under section 80-IA must be computed as per the books of account and the provisions of the Act cannot be applied and no adjustment can be made which is not permissible under the section. As regards co ordinate bench decision in the case of Encbe Ethicals (supra), that decisions clearly does not take into account a binding precedent from a coordinate bench which was not brought to the notice of the bench. As to what should be done in such a situation, as held by another coordinate bench of this Tribunal in the case of JKT Fabrics Pvt Ltd vs JCIT (4 SOT 84), a coordinate bench decision disregarding the earlier coordinate bench decision on the issue is not a binding precedent. As regards learned Departmental Representative's relian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alia, observed as follows: ...... section 80HHC provides for tax incentives. Section 80HHC(1) at one point of time laid down that an amount equal to the amount of deduction claimed should be debited to the Profit and Loss Account of the previous year in respect of which deduction is to be allowed and credited to the reserve account to be utilized for the business purpose. Section 80HHC(1) concerns eligibility whereas section 80HHC(3) concerns computation of the quantum of deduction/tax relief. ............. A bare reading of section 80AB shows that computation of deduction is geared to the amount of income, but section 80HHC(3), which refers to quantification of deduction is geared to the exports turnover and not to the income. On the other hand, section 115JB refers to levy of MAT on the deemed income. The above discussion is only to show that sections 80HHC and 115JB operate in different spheres. Thus, two essential conditions for invoking section 80HHC(1) are that assessee must be in the business of export and secondly that sale proceeds of such exports should be receivable in India in convertible foreign exchange. Hence, section 80HHC(1) refers to "eligibility" whereas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) or clause (c) of sub-section (3) or sub-section (3A), as the case may be, is subject to the conditions specified in that section. According to the Department, the assessee herein is trying to read the various provisions of section 80HHC in isolation whereas as per clause (iv) of Explanation to section 115JB, it is clear that book profit shall be reduced by the amount of profits eligible for deduction under section 80HHC as computed under clause (a) or clause (b) or clause (c) of sub-section (3) or sub-section (3A), as the case may be, of that section and subject to the conditions specified in that section, thereby meaning that the deduction allowable would be only to the extent of deduction computed in accordance with the provisions of section 80HHC. Thus, according to the Department, both "eligibility" as well as "deductibility" of the profit have got to be considered together for working out the deduction as mentioned in clause (iv) of Explanation to section 115JB. We find no merit in this argument. If the dichotomy between "eligibility" of profit and "deductibility" of profit is not kept in mind then section 115JB will cease to be a self-contained code. In section 115JB, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is contended that allowing a taxpayer to raise a new plea at this stage allows him to take benefit of his own mistake of not making the claim by way of an income tax return. It is submitted that the law provides for filing of an income tax return, and a time frame is permitted to revise the income tax return. In case taxpayer is allowed to make the claim at any stage, the time limit for revising the income tax return will be rendered redundant. Learned Departmental Representative then invites our attention to the amendment in Section 143(2) by Direct Tax Law Amendment Act 1987. It is pointed out that as against an assessment under section 143(2) being resorted to for determination of correct taxable income prior to this amendment, the assessment is now done only to ensure that assessee has not understated his income or has not computed excessive loss or has not underpaid the tax liability in any manner. The objective of the assessment is thus only to protect interests of the revenue, and it is wrong to proceed on the basis that post this amendment, the objective of assessment is to compute correct income or protect the interests of taxpayer in any manner. Learned Departmental Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound on which a case is selected for scrutiny assessment, such a narrow interpretation to the scope of exercise under section 143(2) cannot be sustained in law. He submits that the objective of the assessment proceedings is to arrive at the correct income and correct tax liability, and as long as proceedings before the Tribunal are on, assessee can indeed take up any issue which has influence on determination of correct income tax liability. We are taken through Hon'ble Supreme Court's judgment in the case of NTPC and it is pointed out that the said judgment is binding on us under Article 141. We are thus urged to admit the additional grounds of appeal and deal with the same on merits. 24. We are unable to see legally sustainable merits in the stand of the learned Departmental Representative. His perceptions about paradigm shift, said to have been introduced by Direct Taxes Law (Amendment) Act in Section 143(2), are clearly ill conceived. Section 143(2), as it stood prior to the said amendment and after the said amendment, are as follows: Prior to 1.4. 89 [i.e. pre Direct Tax (Amendment) Act 1987 amendment] 143 (2) When a return has been filed under section 139, and- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e returned income, and which would have already been allowed under the provisions of section 143(1)(a)(ii). 26. This is broadly the same approach as has been canvassed by the learned Departmental Representative before us. However, this has not been approved by Hon'ble Andhra Pradesh High Court in the case of CIT vs Bakelite Hylm Ltd (237 ITR 392) and by Hon'ble Gujarat High Court in the case of Gujarat Gas Co Ltd vs JCIT (245 ITR 84). In both of these cases, revenue's stand was that in view of the amendment in Section 143(2), assessed income cannot be lower than returned income. However, this stand was unequivocally rejected and Their Lordships, in Gujarat Gases case (supra), also held that the CBDT circular, to the extent extracts reproduced above, is not good in law. In Bakelite's case (supra), Their Lordships held that refund in the process of assessment is permissible, and the income is to be computed as per the provisions of the Act. In view of these discussions, the approach sought to be adopted by the learned Departmental Representative is devoid of any legally sustainable merits and we are unable to share his perceptions about paradigm shift in the scheme of Section 143 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised before the ITO, and, therefore, the Tribunal committed error in directing the AAC to allow the claim of the assessee under section 84. Apparently this view taken by two Judge Bench of this Court appears to be in conflict with the view taken by the three Judge Bench of the Court in Kanpur Coal Syndicate's case (supra). It appears from the report or of the decision in Gujarat High Court case the three Judge Bench decision in Kanpur Coal Syndicate's case (supra) was not brought to the notice of the Bench in Gurjargravures (P.) Ltd.'s case (supra). In the circumstances the view of the larger Bench in Kanpur Coal Syndicate's case (supra) hold the field. However, we do not consider it necessary to over-rule the view taken in Gurjargravures (P.) Ltd.'s case (supra) as in our opinion that decision is founded on the special facts of the case, as would appear from the following observations made by the Court: "...As we have pointed out earlier, the statement of case drawn up by the Tribunal does not mention that there was any material on record to sustain the claim for exemption which was made for the first time before the Appellate Assistant Commissioner. We are not here called u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial on record supporting such a claim and, therefore, such a claim ought not to have been allowed to be raised by the Tribunal before it for the first time. 26. This decision has now been explained by the Supreme Court in the case of Jute Corpn. of India Ltd. v. CIT [1991] 187 ITR 688 as turning upon its own special facts. We will revert to it a little later. This decision of the Supreme Court in the case of Gurjargravures (P.) Ltd. (supra) was also distinguished by the Andhra Pradesh High Court in the case of Gangappa Cables Ltd. (supra). The Andhra Pradesh High Court also said that the Tribunal disposing of an appeal under the Act has got the power to allow the assessee to put forward a new claim, notwithstanding the fact that such a claim was not raised by him before the ITO or the AAC, provided that there is sufficient material on record to allow such a claim. 29. In view of the above position of law, learned Departmental Representative's reliance on Hon'ble Supreme Court's judgment in the case of Gurjargravures (supra) is of no assistance to his cause. It does not lay down any general proposition of law on the question of powers of the Tribunal, nor does it restrict th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gratuity in respect of employees of units sold. However, in the case of the assessee, coordinate benches have held that deduction will be admissible in the earlier years. It is to enable the claim, in accordance with the Tribunal decision, that this additional ground is raised. 33. Having heard the rival contentions and having perused the material on record, we find that claim of the assessee deserves to be accepted as identical claims have been allowed for the assessment years 1990-91 to 1994-95, 1996-97 and 1997-98. Consistent with the stand so taken, we direct the Assessing Officer to accept the allow the claim of the assessee after verifying related facts. Grievance of the assessee is upheld. 34. Ground No. 5 is thus allowed. 35. In ground no 6.1, the assessee has raised the following grievance: That on the facts and circumstances of the case, excise duty and sale of flats be excluded from total turnover for the purpose of computing deduction under section 80 HHC. 36. As far as excise duty is concerned, learned representatives agree that the issue is directly covered, in favour of the assessee, by Hon'ble Supreme Court's judgment in the case of CIT vs. Laxmi Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der of this Tribunal in assessee's own case for A.Y. 1996-97 (supra) that power tariff freeze incentive was directed to be treated as capital receipt vide para 6.1 of the order. The Tribunal had followed the decision of Mumbai Special Bench in the case of DCIT v. Reliance Industries, 88 ITD 273 for coming to this decision. Respectfully following this, we direct that power freeze incentive be treated as capital receipt in the impugned year also. Thus ground No.7 is allowed." 42. Similarly, we also find that issue in respect of sales tax subsidy was allowed by the Tribunal, observing as follows: "It was pointed out by the learned A.R. that identical ground was allowed by this Tribunal in assessee's own case for A.Y. 1996-97 referred supra. We find from para 21 of this order that sales tax exemption availed was held to be capital receipt. Following this decision, we direct that the sales tax incentive/subsidy relating to the impugned previous year also, be treated only as capital receipt. Assessee succeeds in its additional ground No.7." 43. We see no reasons to take any other view of the matter than the view so taken by the coordinate bench, and we are in considered agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pointed out by the learned counsel, while amendments have been made in section 115JB, with retrospective effect from 1st April 2001, by the Finance Act 2008, no such amendments have been made in section 115 JA. The decision of the Tribunal thus remains unaffected by the amendments made by Finance Act 2008. We see no reasons to take any other view of the matter than the view so taken by the coordinate bench, and we are in considered agreement with the same. 51. Ground No. 9 is thus allowed. 52. Ground No.10 relates to relief granted u/s.91 in respect of tax deducted on the fees received from Yanbu Cement Company Ltd., Saudi Arabia. 53. Learned representative of the assessee pointed out that the assessee has received an amount of Rs.25.33 crores being fees from project from Yanby Cement Corporation, Saudi Arabia, net of tax deducted at source in the said country. The assessee has omitted to claim relief u/s.91 in respect of tax deducted at Saudi Arabia, which was opposed by learned D.R. Learned counsel also pointed out that on similar issue for the assessment years 91-92 to 97-98, the matter was remitted to the file of the AO for considering the allowability of deduction. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Cement Companies, 172 ITR 257 (SC) and also the Hon'ble Bombay High court's judgment in the case of CIT vs. Excel Industries Ltd., 122 ITR 995(Bom). Respectfully following the views of the coordinate benches, we approve the stand of the CIT(A), and decline to interfere in the matter. 64. Ground No. 1 is thus rejected. 65. Ground No.2 relates to deletion of disallowance of Rs.40,21,000 spent on account of improvement of internal roads. 66. The relevant material facts are like this. In the course of assessment proceedings, the Assessing Officer noticed that the assessee had incurred an amount of Rs.40,21,000 on improvement of internal roads on the PSEB's land for transport of fly ash, which is a component for increasing the strength of cement manufactured by them at Gagal Unit. The AO, following the assessment orders for the assessment years 1991-92 to 1997-98, disallowed the same. Aggrieved, the assessee carried the matter in appeal before the CIT (A). The CIT (A) deleted the disallowance following the appellate order for the assessment year 1997-98. The Assessing Officer is aggrieved and in appeal before us. 67. Learned representatives fairly agree that this issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 76. The relevant material facts are like this. During the course of assessment proceedings, the Assessing Officer noted that the assessee has claimed deduction of Rs.1,46,60,757, on account of withdrawal from reserves, in computation of book profits under section 115JA of the Act. The details of these expenses are as follows: Bonus Issue Expenses Rs.2,67,310 Rights Issue Expenses Rs.4,58,979 Prorate premium on redemption of debentures Rs.33,63,226 Debenture Issue Expenses Rs.1,05,71,233 77. However, from the perusal of the profit and loss account, he noticed that these expenses have been directly adjusted against the share premium account and have not been debited to the profit and loss account. He was of the view that since these expenses have not been debited in the profit and loss account, which is in accordance with Part II and III of Schedule VI to the Companies Act, the adjustment cannot be allowed. According to the Assessing Officer, the assessee ought to have debited the expenses to the profit and loss account and a corresponding withdrawal was required to be made from reserves, and only then adjustm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account is not decisive of the nature of transaction, nor is the profit and loss account published by the assessee reflects all the debits and credits in the same form in which these are reflected in the profit and loss account shown the books of accounts. The vertical profit and loss account is based on the entries made in the profit and loss account as traditionally prepared in the books of accounts and is not a copy of the same. Therefore, merely because separate credit entry, as an income, is not shown in the profit and loss account, it can not be said that there has been no credit to the profit and loss account. It is not shown separately as an income head on the credit side, bit that does not mean that the amount has not been credited to the profit and loss account. In substance, on the facts of this case, there was a credit to the profit and loss account on account of the transfer from reserves and this has been offset against the expenses incurred by the assessee. Learned CIT(A) was, therefore, quite justified in directing the Assessing Officer to allow the impugned adjustment. We uphold his action and decline to interfere in the matter. 80. Ground no. 5 is also thus d ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
