2009 (8) TMI 1168 - AT - Income Tax

Summary

Issues Involved:
1. Treatment of Sales Tax Subsidy
2. Disallowance of Depreciation on Unregistered Building
3. Disallowance of Depreciation on Power Lines
4. Reduction of Synchronization Charges for Deduction u/s 80-IA
5. Addition of Provision for Doubtful Debts for MAT
6. Non-reduction of Book Profits by Export Business Profit u/s 80 HHC
7. Reduction of Cost of Acquisition of Assets u/s 43(6)

Summary:

1. Treatment of Sales Tax Subsidy:
The issue was whether the Sales Tax Subsidy of Rs. 61,86,51,505/- should be treated as capital receipts or revenue receipts. The CIT(A) deleted the addition made by the Assessing Officer, treating it as capital receipts, relying on earlier ITAT orders in the assessee's favor. The Tribunal upheld the CIT(A)'s order, referencing the Special Bench decision in DCIT Vs. Reliance Industries Ltd. (2004) 88 ITD 273, thus concluding the issue against the department.

2. Disallowance of Depreciation on Unregistered Building:
The revenue challenged the deletion of disallowance of depreciation of Rs. 13,65,468/- on assets not registered in the assessee's name. The CIT(A) followed the ITAT's earlier decisions in the assessee's favor, based on the Supreme Court rulings in Poddar Cement Ltd. 226 ITR 625 and Mysore Minerals Ltd. 239 ITR 775. The Tribunal found no error in CIT(A)'s decision and upheld it.

3. Disallowance of Depreciation on Power Lines:
The assessee's claim for depreciation of Rs. 8,06,020/- on power lines was disallowed by the AO and upheld by the CIT(A), as the ownership vested with U.P. State Electricity Board. The Tribunal, following its earlier decisions, upheld the CIT(A)'s order, rejecting the assessee's claim.

4. Reduction of Synchronization Charges for Deduction u/s 80-IA:
The AO reduced Rs. 1,72,82,880/- from profits for computing deduction u/s 80-IA, considering synchronization charges as an ascertained liability. The CIT(A) upheld this view. The Tribunal agreed, stating that the liability crystallized during the relevant year, and directed verification of the P&L A/c debit by the AO.

5. Addition of Provision for Doubtful Debts for MAT:
The assessee contested the addition of Rs. 2,17,512/- for computing book profit for MAT. The Tribunal found the issue covered in favor of the assessee by its earlier order, confirming that provisions for bad debts and foreign exchange fluctuations, being actual liabilities, should not be added back. The addition was deleted.

6. Non-reduction of Book Profits by Export Business Profit u/s 80 HHC:
The assessee argued for reducing book profits by Rs. 37,21,57,582/- under section 80 HHC. The Tribunal upheld the CIT(A)'s order, following the Mumbai High Court's decision in ACIT Vs. Ajanta Pharma Ltd., rejecting the assessee's claim.

7. Reduction of Cost of Acquisition of Assets u/s 43(6):
The CIT(A) directed the AO to reduce the cost of acquisition of assets by the amount of subsidy received. The Tribunal, referencing the Visakhapatnam Bench decision in Sasisri Extractions Ltd. Vs. ACIT (2008) 307 ITR 127 (AT) and the Supreme Court decision in CIT Vs. P.J. Chemicals Ltd. (1994) 210 ITR 830 (SC), held that sales-tax subsidy received for industrial development should not reduce the asset cost. The CIT(A)'s direction was overturned.

Conclusion:
The revenue's appeal was dismissed, and the assessee's appeal was partly allowed. The order was pronounced in open court on 28-8-2009.