TMI Blog2018 (7) TMI 937X X X X Extracts X X X X X X X X Extracts X X X X ..... irecting the AO to compute the disallowance @ 1% for the purpose of section 14A - Held that:- we find that the CIT(A) by placing reliance on the decisions of ITAT Kolkata in the case of Civil Engineers Enterprises Pvt. Ltd [2010 (8) TMI 975 - ITAT KOLKATA] directed the AO to disallow 1% of dividend income at ₹ 18,14,470/-. Therefore we find no infirmity in the order of CIT(A) . Ground no.2 raised by the assessee is dismissed. Deletion of disallowance made on account of loss for re-statement of foreign exchange confirmed 0 issue is covered by the consolidated order in favour of the assessee in its own case [2016 (5) TMI 479 - ITAT KOLKATA] addition made on account of freight charges - Held that:- the reason given by the AO for the disallowance is not tenable as the AO has not pointed out any reasonable reasons for the same. There is no doubt that the assessee had made short recovery from the customers but the reasons for the same were duly explained by the assessee. Accordingly the Ld. CIT(A) has given the relief to the assessee and on this point of view Ld. DR has not brought anything on record contrary to the findings of the Ld CIT(A). see assessee in its own case [20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us for our adjudication is whether the impugned subsidy received by the assessee is revenue in nature or capital in nature . If it is revenue in nature then it is liable to be taxed and in case it is capital in nature then it is not taxable under the provisions of Act. At this juncture, we find important to highlight the objects of West Bengal Incentive Scheme 1999, the preamble of the scheme reads as under: WHEREAS the Governor is of the opinion that it is necessary and expedient to extend incentive for the promotion of promotion of industries in this State Clause 4 of the said Scheme further lays down the applicability of the Scheme which read as follows:- The 1999 Scheme shall generally be applicable to all large, medium, cottage and small-scale projects and tourism units in large/medium sector to be set up and also expansion projects of existing units on or after 1st April 1999 in the private sector, co-operative sector, joint sector as also companies / undertakings owned and managed by Statement Government. A plain look at the above scheme makes it clear that the incentive was being provided by the Government of West Bengal to promote the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... airam Doongarmall vs. CITAIR 1961 SC 1579 applied; CIT vs. Abhishek Industries Ltd. (2006) 205 CTR (P H) 304 : (2006) 156 Taxman 257 (P H) distinguished. Subsidy received by assessee from the State Government under a scheme of industrial promotion which was meant to provide financial assistance to specified industries for expansion of capacities, modernization and improving their marketing capabilities is capital receipt though the amount of subsidy is equivalent to 90 per cent of the sales-tax paid by the beneficiary. 9.1 The above judgement was delivered by the Hon'ble High Court of Calcutta after having reliance in the judgement of Hon'ble Supreme Court in the case of CIT vs Ponni Sugars and Chemicals Limitedreported in 306 ITR 392 (SC) wherein it was held as under:- The character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, one has to apply the purpose test. 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 assis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Padmaraje R Kadambande Vs CIT reported in 195 ITR 877 (SC) has held that capital receipts are not income within the meaning of section 2(24) of the Act and hence not chargeable to tax. When a receipt cannot be brought to tax under the computation of income under the normal provisions as well as under the deeming provisions of the Act, then such receipt is out of the purview of the provisions of section 115JB of the Act. We find the decisions in support of this proposition that a capital receipt which is not chargeable to tax under any provisions of the Act would not be liable for book profits tax u/s 115JB of the Act which was rendered after considering the decisions of Hyderabad Special Bench in Rain Commodities Rain Commodities Ltd vs DCIT, 41 DTR 449, and the decision of Hon'ble Apex Court in Apollo Tyres Ltd. vs. CIT (2002) reported in 255 ITR 273 (SC). The Hon'ble Kolkata Tribunal also in the case of Binani Industries Ltd., vs DCIT in ITA No.1222-1224/Kol/2014 A.Y. 06-07 to 07-08 09-10 DCIT,CC-XVI Kol. Vs. SAP Ltd. Page 8 ITA No.144/Kol/2013 A.Y 2009-10 vide order dated 02-03-2016 has allowed the issue in favour of assessee as detailed under : The issue in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of computation of book profits u/s 115JB of the Act and thereafter, the Learned AO has to make adjustments for additions / deletions contemplated in Explanation to section 115JB of the Act. In view of the aforesaid facts and respectfully following the various judicial precedents relied upon hereinabove, we find no infirmity in the order passed by the Ld CIT(A) in this regard and accordingly we uphold the same. The ground raised by the Revenue is dismissed. 6. In view of the above findings of the Coordinate Bench we hold that the subsidy received by the assessee from Government of West Bengal under Incentive Scheme 1999 is a capital receipt is not taxable under normal provision of Act. Though it is a capital receipt is not liable for consideration under book profit under MAT proceedings u/s 115JB of the Act. Order of the CIT(A) is set aside. The additional ground Nos. 1 and 2 raised by the assessee are allowed. 7. Ground Nos. 1 (a) and (b) are relating to confirmation of expenses made on account deferred revenue expenditure. 8. We find this issue is covered by a consolidated order dated 29.07.2016 in assessee s own case for A.Ys 2006-07 and 2007-08. The relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ein the alternative claim of the assessee as raised in Ground No. 3 of the present appeal to include the deferred revenue expenditure in the actual cost of the assets for allowing depreciation under section 32 of the Act was allowed by the Tribunal for the following reasons given in paragraph no. 17 of its order:- 17. From the aforesaid discussion, we find that the assessee has incurred expenses prior to the commencement of business and classified as deferred revenue expenditure. The assessee started claiming those expenses after the commencement of business 1/5th over the period of 5 years. However, the lower authorities disallowed the same on the ground that there is no provision under the Act to claim the deferred revenue expenses. From the facts of the case we observe that the AO is not skeptical about the genuineness of the expenses incurred. The whole amount of ₹ 154.64 million has been incurred in connection of business prior to the commencement of commercial production. Any expense incurred in connection to the business is an allowable expenditure. From the above explained citations of the cases denying the non existence of deferred revenue expenditure term i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( e) Appropriate expenditures on maintenance and operation of vehicles. ( f) Appropriate expenditures in connection with temporary structures and service facilities built or acquired specially for the purpose of construction (see paragraphs 9.4 and 9.5 of this Note). ( g) Preliminary project expenditure to the extent to which it is capitalized as part of the construction cost (see paragraph 3 of this Note). ( h) Financial expenses including interest and other similar charges (see paragraph 4 of the Note). ( i) Depreciation on fixed assets as well as on temporary structure and other facilities used during the period of construction (see paragraph 9.4 and 9.5 of this Note). ( j) Expenses on test runs (see paragraph 11 of this Note). ( k) Expenses on land grading and leveling (see paragraph 96 of this Note). Taking a consistent view by the decision of Hon'ble Supreme Court and reliance in the aforesaid guidance note we reverse the orders of authorities below. Hence, this ground of the assessee is allowed . Respectfully following the order of the Tribunal dated 13.04.2016 (supra) in assessee's own case on a similar issue for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd income. Hence Provision of section 14A do not apply at all. Assessee has relied on citation of the following cases: 1.CIT vs. Hero Cycles Ltd [ 323 ITR 518]- P H High Court 2. Maxopp Investment Limited vs. CIT [(2012)347 ITR 272 (Delhi High Court)] 3. CIT vs. Torrent Power Ltd. [2014] 363 ITR 474 (Gujarat High Court) It was held that Rule 8D was not applicable in the AY 2005-06 to 2007- 08.Rule 8D came into existence from 24.03.2008 and hence it was not applicable for the assessment year under consideration. In this support Ld.AR has relied on the judgement of Bombay High Court in case of Godrej Boyce Mfg. Co. Ltd., Mumbai Vs. DCIT [(2010) 328 ITR 81 (Bom). On the other hand, Ld. DR vehemently relied on the orders of authorities Below. On perusal of appellate order, we find that direction has been issued to Assessing Officer for making disallowance in terms of provision of Sec. 14A r.w.s. 8D of the IT Rules, 1962. However we understand that the Rule 8D of the IT Rules came into effect from 24.03.2008 and the instant case before us is for AY 2005-06. Therefore, the provisions of Rule 8D of the IT Rules is not applicable in assessee's present ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dismissed. 14. Ground No.2 raised by the Revenue is relating to delation of disallowance of ₹ 7,23,60,000/- made on account of loss for re-statement of foreign exchange. We find the issue is covered by the consolidated order in favour of the assessee in its own case in ITA No.581 587/Kol/2009 for A.Y.2005-06 placed at page 32 of paper book. The relevant portion of which is reproduced herein below :- 28. The issue raised by Revenue in ground number 1 in this appeal is that learned CIT(A) erred in deleting the addition made by the AO for ₹ 1,20,90,000/- on account of year end adjustment in loss on foreign exchange account due to revaluation of sundry creditors and SBI MMD ITA No.581 587/Kol/2009 A.Y. 2005-06 Haldia Petrochemicals Ltd. V. JCIT, Rng-12 Kol. Page 21 account. The assessee has debited the profit and loss account by an amount of ₹ 1,20,90,000/- on account of difference arising from the foreign exchange in the value of sundry creditors account and MMD SBI account. The above said difference was recorded on the last day of the financial year while preparing the financial statements. The AO observed that it is a notional loss and represents cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y which the assessee has not incurred so it was disallowed. However we strongly disagree with the view of the AO on the ground that this year and adjustment was made by the assessee in terms of AS 11 issued by ICAI and in pursuance of mercantile system of accounting as notified u/s 145 of the Act. The relevant extract of accounting standard 11 is reproduced below:- 3.6 The Accounting Standards (A) 11, the Effects of changes in Foreign Exchange Rates (revised 2003), issued by the Council of the Institute of Chartered Accountants of India, comes into effect in respect of accounting periods commencing on or after 1-4-2004. Relevant extract of the Accounting Standard is reproduced as follows:- '9. A foreign currency transactions should be recorded on initial recognition in the reporting currency, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transactions. 10... 11 (a) At each balance sheet date foreign currency monetary items should be reported using the closing rate. However, in certain circumstances, the closing rate may not reflect with reasonable accuracy the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sition as explained in the judgment of the Hon'ble Supreme Court which we have referred to. We, therefore, reject the submission of the Appellant in these appeals that the increase in liability on account of the fluctuation in the rate of foreign exchange remaining on the last day of the financial year is notional or contingent and, therefore, cannot be allowed as a deduction. From the aforesaid discussion we find no reason to interfere in the order of Ld CIT(A) and accordingly we uphold. Hence this ground of Revenue's appeal is dismissed. 15. In view of the above we find no infirmity in the order of CIT(A). Accordingly ground no.2 raised by the Revenue is dismissed. 16. Ground No.3 is relating to deletion of addition made on account of freight charges. We find the issue raised by the Revenue is covered by the consolidated order in favour of the assessee in its own case in ITA No.581 587/Kol/2009 for A.Y.2005-06. The relevant portion of which is reproduced herein below :- 32. The 2nd issue raised by Revenue in ground number 2 in this appeal is that learned CIT(A) erred in deleting the addition made by the AO for ₹ 13,55,80,000/- on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion under the heading 'freight charges'. Out of the said amount 46.99 million represents the element of freight cost in excess of recovery and 86.59 million representing freight charges on stock transfer which is not for any recovery or otherwise. The AO has disallowed the freight expenses on the ground that the freight charges is receivables of the appellant and in the nature of balance sheet item and hence the said disallowance was made. The AO has not disputed that these expenses were incurred by the appellant. The freight charges short received from customers can be for various reasons and the AO was not justified in disallowing the same only for the reason that they were recoverable from the customers. Such expenditure since has been incurred for the purposes of assessee's business is clearly an allowable item and as far as freight charges on stock transfer is concerned this is definitely expenditure incurred for business irrespective of the act that the same is recoverable or not from the customers, I find force in assessee's contentions in this regard, hence, this ground of the appellant is allowed. Being aggrieved by this order of the learned CIT(A) R ..... X X X X Extracts X X X X X X X X Extracts X X X X
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