TMI Blog2016 (1) TMI 1461X X X X Extracts X X X X X X X X Extracts X X X X ..... ee submitted such certificate, a copy of which is available at pages 38 and 39 of the paper book. Such certificate indicates repayment of interest on loan to the financial institutions to the tune of ₹ 2.65 crore against which the amount of subsidy is only a sum of ₹ 35.11 lac. This exhibits that the object of subsidy given to the assessee is setting up of sugar mill and the mode of discharge of subsidy is free sale of additional quota, which is meant to be utilized for the repayment of term loans taken from the financial institutions etc. In the instant case, the assessee has simply realized excess price in terms of Incentive scheme dated 10.3.1992 and there is no excess realization over and above the sanctioned realizable amount. Thus, it is manifest that the facts of the instant case are strictly governed by the judgment in the case of Ponni Sugar rather than KCP Ltd. We, therefore, overturn the impugned order on this issue. Disallowance of reserve fund for construction of Molasses Storage Tank which was credited to Reserve account after debiting the same to the Profit Loss Account - HELD THAT:- The undisputed facts are that the assessee created Molasses re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deleted in the first appeal. As the AO is not competent to make any other addition in the instant case, all the additions so made are liable to be deleted. - Decided in favour of assessee. - ITA No.86/Del/2006, ITA No.442/Del/2006 - - - Dated:- 21-1-2016 - SHRI R.S. SYAL, AM SMT. BEENA A. PILLAI, JM For The Assessee : Shri Akhelesh Kuamr, Advocate For The Department : Shri Aasish Mohanty, Sr. DR ORDER PER R.S. SYAL, AM: These two cross appeals one by the assessee and the other by the Revenue arise out of the order passed by the CIT(A) on 30.11.2005 in relation to the assessment year 2000-01. 2. The first ground of the assessee s appeal is against upholding of the action taken by the AO u/s 147 of the Income-tax Act, 1961 (hereinafter also called `the Act ). 3. Briefly stated, the facts of the case are that the assessee company is running sugar mill and filed its return on 30.11.2000 declaring loss of ₹ 7.87 crore and odd. The return was processed u/s 143(1)(a) on the declared loss. During the course of assessment proceedings for the AY 1998-99, the issue of valuation of property was referred to the DVO for determination of the correct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. On perusal of details filed during the course of assessment proceedings of assessment year 1998 -99, it is noticed that the assessee company incurred expenses to defend the case in connection with grant of licence to install the factory and all these expenses before the commencement of business have been capitalised and bifurcated under the head of building and plant machinery which is incorrect and this should be done in the assessment year 2000-01 i.e. assessment year under consideration. 4. In the column No.21(B) of the Tax Audit Report the auditors have mentioned in the remarks col. that the amount unpaid on the due date of filing the return has been adjusted. These amounts are excise duty(sugar) ₹ 76,47,126/-, cess duty (sugar) ₹ 15,07,884/- and purchase tax at ₹ 10,61,560/-. In the tax audit report it is mentioned that the amounts are unpaid but in the remarks col. it is written as adjusted. Hence it is not clear whether these expenses have been paid within time or not. Therefore, I have reason to believe that the assessee has income which escaped from assessment. Action u/s 147 of the Income-tax Act, 1961 is taken. Issue notice u/s 148 of the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ificate annually from a Chartered/Cost Accountant. The above clause of the scheme fairly indicates that higher free sale quota was granted to new sugar factories licensed between 7.9.1990 to 31.3.1994 for enabling them to repay the term loans advanced by the central financial institutions for their setting up. This shows that the object of this scheme is to encourage the setting up of new sugar factories and higher free sale quota is a mode of giving incentive for repayment of term loans utilized for their setting up. It is a settled legal position that if subsidy or incentive is given for setting up new units, then, it is a capital receipt. The decisive factor in this regard is to see the `object of the incentive and not the source or mode of payment. So long as the object of an incentive scheme remains to encourage the setting up of new units, the incentive given in any shape or at any time, whether before or after the commencement of business, retains its capital nature. If, on the other hand, subsidy is given to incentivize the running of business more appropriately, whose object is not to encourage the setting up of units, but, to facilitate the carrying on of business, it as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e judgment in the case of Ponni Sugar rather than KCP Ltd. We, therefore, overturn the impugned order on this issue. 8. The second reason taken by the AO for issuing notice u/s 148 is that the assessee created a reserve fund for construction of Molasses Storage Tank during the year at ₹ 1,30,625/- which was credited to Reserve account after debiting the same to the Profit Loss Account. In the opinion of the AO, this was not an allowable expenditure. The assessee s contention that the said amount was an allowable deduction in terms of several decisions cited before him, did not convince the AO in granting deduction. He, therefore, disallowed a sum of ₹ 1,30,625/-. The ld. CIT(A), after considering the assessee s contentions and the case law relied before him, allowed deduction. The Revenue is aggrieved against the grant of deduction. 9. We have heard the rival submissions and perused the relevant material on record. The undisputed facts are that the assessee created Molasses reserve fund for construction of molasses storage tank by crediting a sum of ₹ 1,30,625/- to this account in accordance with UP Sheera Niyantran Niyamavali. The Hon ble Calcutta High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In our considered opinion, the ld. CIT(A) was justified in deleting this addition. 12. The last reason recorded by the AO for initiating the re-assessment proceedings is that in the tax audit report, the auditors mentioned that certain amount was unpaid on due date of filing the return. He noticed that in the tax audit report it was mentioned that these amounts, namely, Excise duty (sugar) ₹ 76.47 lac, Cess duty (sugar) ₹ 15.07 lac and Purchase tax of ₹ 10.61 lac were unpaid, but, in the remarks column, it was written as Adjusted. We observe that in the final computation of income made by the AO at the end of the assessment order, there is no such addition. The ld. AR has pointed out that the assessee had itself made disallowance of these three amounts in the computation of income, which was the reason for the AO in not making such addition. 13. It can be seen from the discussion made supra that the AO resorted to the re-assessment on account of four reasons. While discussing each of them separately, we have held that no addition is sustainable on account of any of these reasons. Section 147 provides that: If the Assessing Officer has reason to believe th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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