2022 (11) TMI 1309 - AT - Income Tax

MAT computation - Exclusion of profit on sale of investment being capital profits in computing Book Profit us 115JB - HELD THAT:- There is no dispute that the amount in question was in the capital field, and that it does not, therefore, is not required to be routed through the profit and loss account. On such facts, and in the case of Shivalik Ventures Pvt Ltd. [2015 (8) TMI 979 - ITAT MUMBAI] a coordinate bench of thisb Tribunal has, inter-alia, held that “In view of the above said legal provisions, the assessee has contended that the profits and gains arising on transfer of a capital asset by a company to its subsidiary company does not fall under the definition of "Income" as given in sec. 2(24) of the Act and hence it does not enter into the computation provisions of the Income tax Act.

As contended that, an item of receipt which is not considered as "income" at all and which does not enter into the computation provisions of the Income tax Act, cannot be subjected to tax u/s 115JB of the also”. Learned Departmental Representative has not been able to show anything contrary to this decision of the coordinate bench. In this view of the matter, and respectfully following the views of the coordinate bench, we uphold the plea of the assessee and direct the Assessing Officer to delete the impugned addition to the book profits under section 115JB.

Addition of provision for interest on income-tax in computing Book Profit u/s 115JB - HELD THAT:- The law is clear and unambiguous, as Explanation 1 to Section 115JB categorically provides that “income tax paid or payable, and the provision in respect thereof” is to be added back to the book profits under section 115JB. We thus see no merits in the assessee's plea and reject the same.

Notionally allocated expenditure which is alleged to be incurred to earn dividend income in computing Book Profit u/s 115JB - HELD THAT:- 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 15JB 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 (6) TMI 1124 - ITAT DELHI] The assessee gets relief on this point as well.

Sales tax incentives - Nature of expenses - HELD THAT:- In the case of CIT Vs Chaphalkar Brothers [2017 (12) TMI 816 - SUPREME COURT] Hon'ble Supreme Court has held that where the object of respective subsidy schemes of State Governments was to encourage the development of Multiple Theatre Complexes, incentives would be held to be capital in nature and not revenue receipts, and, following the same logic, the sales tax subsidy schemes, which are admittedly to encourage industrial growth in the specific areas and the overall scheme in all the sales tax subsidy and exemption schemes unambiguously indicate so, are capital receipts in nature.

Pre-payment of deferred sales tax liability as a capital receipt - HELD THAT:- This issue is covered, in favour of the assessee in the case of CIT Vs Sulzer India Ltd [2014 (12) TMI 267 - BOMBAY HIGH COURT] which is now approved by Hon'ble Supreme Court in the case of CIT Vs Balkrishna Industries Ltd [2017 (11) TMI 1626 - SUPREME COURT]

Excise duty exemption availed by the assessee as capital receipt - HELD THAT:- As decided in Swastik Sanitary Works Ltd. [2006 (4) TMI 89 - GUJARAT HIGH COURT] it was a case in which, the Government subsidy was intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries. In such a case, specified percentage of the fixed capital cost, which was the basis for determining the subsidy, would be granted. The Court held that, such basis for determining the subsidy was only a measure adopted under the scheme to quantify the financial aid and it was not a payment, directly or indirectly to meet any portion of the actual cost of acquisition of capital asset.

Disallowance of Community Welfare Expenses - HELD THAT:- Right from the assessment years 1988-89 to 1994-95, the coordinate benches have allowed appeal of the assessee on this point, and from the assessment years 1995-96 to 2004-05, in which the first appellate authority has deleted similar disallowance, the coordinate benches have rejected the grievances of the Assessing Officer, against the reliefs so granted by the CIT(A). Learned Departmental Representative does not dispute this position but relies upon the stand of the Assessing Officer nevertheless. We see no reasons to take any other view of the matter than the view so taken by the coordinate benches all along.

Pre-operative expenses - HELD THAT:- The expenses, being in the nature of expenses incurred for the expansion of existing business, cannot be disallowed. Accordingly, the disallowance was deleted.

Additional depreciation on all the eligible assets acquired before 01.04.2008 - HELD THAT:- As decided in Gloster Jute Mills Limited [2017 (3) TMI 1807 - ITAT KOLKATA] only objection of the AO is that the provisions refer to "new machinery or plant" and therefore the machinery will cease to be a new machinery after the end of the first year in which it is installed or put to use. In our view this stand taken by the revenue is not supported by the language of statutory provision. The condition imposed by the relevant provisions is that Plant and Machinery must be new at the time of installation to be eligible for additional depreciation u/ s 32(1)(iia) and not new in subsequent years. The expression "new machinery" is therefore to be construed as referring to the condition that at the time of acquisition or installation the machinery or plant should be new. Going by the legislative history of the relevant provision, we are of the view that the condition for allowing additional depreciation only in the initial assessment year ceased to exist as and from 01-04-2006. The plain language of the section warrants such an interpretation. - Decided in favour of assessee.

Unutilized CENVAT credit - HELD THAT:- Learned representatives fairly agree that this issue is covered, in favour of the assessee, by decisions of the coordinate benches in assessee‟s own cases for the assessment years 1999-2000 to 2004-05, even though the learned departmental representative rather dutifully relied upon the stand of the Assessing Officer. We see no reasons to take any other view of the matter than so taken by the coordinate benches.

Compute Surcharge @ 7.5% instead of @10% while computing Tax us 115-O - HELD THAT:- As in terms of the provisions of Finance Act 2010 the applicable surcharge was 7.5%, that the related Finance Bill was introduced in the Parliament on 26th February 2010, and that, in terms of the provisions of Section 294 of the Income Tax Act, “If on the 1st day of April in any assessment year provision has not yet been made by a Central Act for the charging of income-tax for that assessment year, this Act shall nevertheless have effect until such provision is so made as if the provision in force in the preceding assessment year or the provision proposed in the Bill then before Parliament, whichever is more favourable to the assessee, were actually in force”. It was on this basis of this factual and legal position, and following in the case of Kesoram Industries & Cotton Mills Ltd [1965 (11) TMI 41 - SUPREME COURT] that the learned CIT(A) has granted the impugned relief. No material has been brought before us to dislodge these findings and contrary to the legal position set out above. In this view of the matter, we see no reasons to disturb the conclusions arrived at by the learned CIT(A). We approve the same and decline to interfere in the matter.

Loss on stock options offered to the employees - Debit under the head “Employees Compensation Expenses‟ under the employee stock option scheme - HELD THAT:- As long as a loss, even though it may not actually have crystallized, can be reasonably estimated, as indeed has been done in this case, it has to be taken into account in the computation of business income. In view of these discussions, as also following the views of the coordinate bench in the assessee‟s own case, we uphold the plea of the assessee. The Assessing Officer is, accordingly, directed to delete the impugned disallowance - The assessee gets the relief accordingly.

Disallowance u/s 14A r.w.r.8D - MAT computation u/s 115JB - HELD THAT:- As we restrict the disallowance under section 14A under rule 8D so as not to disallow any amount on account of interest, and delete the adjustment on account of 14A disallowance from book profits computed under section 115 JB. The assessee gets the relief accordingly.

Deduction u/s 80-IA on captive power generating units -“market value‟ is required to be taken into account -HELD THAT:- As which market value of the power is to be taken into account in the computation of profit for deduction under section 80IA, i.e. the market value to the end consumer or market value in the power trading companies, is no longer res integra. There are several decisions of the coordinate benches holding that it is market value for the customer which must be adopted for this purpose, such as in the case of West Coast Paper Mills Ltd [2005 (6) TMI 547 - ITAT MUMBAI] The same were the views of another coordinate bench in the case of Reliance Industries Ltd. [2019 (2) TMI 178 - BOMBAY HIGH COURT] Hon'ble jurisdictional High Court has upheld the Tribunal‟s order holding that it is price to the consumer, and not the intra-power companies trading price, which must be taken into account - we deem it fit and proper to uphold the plea of the assessee, and direct the Assessing Officer to delete the impugned adjustment - The assessee gets the relief accordingly.

Disallowance of claim made for Rail System u/s 80-IA - HELD THAT:- Authorities below had decided the matter in favour of the assessee, came up before a coordinate bench of this Tribunal, and, in the said case, the matter was decided in favour of the assessee.

While it is indeed true that there is no res judicata in the income tax assessment proceedings, at the same time, following the principles of consistency duly recognized by Hon'ble Supreme Court in the case of Radhasoami Satsang Vs CIT [1991 (11) TMI 2 - SUPREME COURT] unless there is a change in the material facts, the issues which have been settled one way or other must to be disturbed. In this view of the matter, and respectfully following the coordinate bench in the case of Ultratech Cement Ltd (supra), we uphold the plea of the assessee. The Assessing Officer is, therefore, directed to delete the impugned disallowance in respect of claim of 80IA in respect of rail system.

Deduction claimed u/s. 80IA in respect of the Port facility developed by the Appellant - HELD THAT:- As a result of the construction of the jetty, the travel distance from the factory to the port from 110 kms is said to have been reduced to 11 km, there are significant savings in stevedoring and storing charges as also in wharfage. The manner in which the computations of the Assessing Officer work is that if the assessee spends Rs 100 in covering a distance of 11 km, the savings are worked out on the basis that the assessee will, at best, spend Rs 120 (that is at 20% markup on the actual expenses of Rs 100); that is a clearly incongruous approach. There is no good reason to reject the actual figures, just because actual figures show higher savings. There is thus not only there is no legally sustainable reason for invoking section 80IA(10), what the Assessing Officer has done post invoking section 80IA(10) is equally devoid of legally sustainable reasons.

Considering case of Assam Cardon [2005 (12) TMI 212 - ITAT CALCUTTA-A] we uphold the plea of the assessee, and vacate the adjustment made by the Assessing Officer to the claim of the assessee- particularly when similar claims were all along allowed to the assessee. The Assessing Officer is directed to delete the disallowance made by him, and grant the claim of deduction under section 80IA in respect of the jetty, as claimed by the assessee.

Treating CENVAT credit availed on inputs and capital goods used in the undertakings eligible for deduction u/s 80IA as cost of the eligible undertakings - HELD THAT:- It cannot be open to the assessee to provide for the expenses which have earned the CENVAT credits, but not to account for the CENVAT credits and the benefits accruing form the same. In any event, the fiction envisages under section 80IA(5) is to enable computation of profits on a standalone basis, rather than to increase the scope of profits itself and allocate notional expenditure to the eligible units. When the eligible units are other units are treated as independent of each other, and the profit computations are on a standalone basis, the eligible unit must get the corresponding credit for the CENVAT credits availed by the other units. Viewed thus, not accounting for the CENVAT credit does not, in our considered view, vitiate the profits of the eligible undertaking, as long as all such credits are fully availed by the other units as is the undisputed position anyway. What the assessee has done is that the expenses are debited net of the CENVAT credit availed. To this extent, we see no infirmity in the stand of the assessee.

As also bearing in mind the entirety of the case, we uphold the plea of the assessee, and direct the Assessing Officer to delete the impugned adjustment on account of CENVAT in the profits of the eligible units. The assessee gets the relief accordingly.

Apportioning indirect Head Office expenses and in adjusting such allocated amount in computing Tax Holiday u/s 80IA/ 80IC - HELD THAT:- The fiction of the eligible units being treated on a standalone basis does not require that the profits of the units are to be computed as if they are independent of each other, and once that fiction sets in, the expenses incurred by someone other than eligible unit, in the interest of the eligible unit, are to be taken into account while computing the profits of the eligible unit. Accordingly, the allocation of expenses, as the learned Assessing Officer rightly contends, must be done. The assessee has further contended that HO expenses are not “derived from‟ or “derived by‟ the eligible undertakings, and, for this reasons, these expenses cannot be allocated to the eligible undertaking. We see no reasons to decline allocation of head office expenses to ensure that the profits of the eligible units are correctly worked out, on the basis of hypothetical independence embedded in the eligible units being treated on a standalone basis. To this extent, we reject the plea of the assessee. However, the basis of allocation as turnover is not really correct and reasonable, nor the relationship between the turnover and expenses always linear; the allocation would be more appropriate based on expenditure incurred by the units vis-à-vis overall expenditure. To this extent, we uphold the plea of the assessee.

As also bearing in mind the entirety of the case, we reject the grievance of the assessee against allocation of HO expenses, but we permit the assessee‟s plea to the limited extent that the allocation of HO expenses should be done on the basis of expenditure incurred by the units vis-à-vis overall expenditure.

Claim for exclusion of profit on sale of investment being capital profit while computing book profits u/s. 115JB - HELD THAT:- We uphold the plea of the assessee and direct the Assessing Officer to delete the impugned addition to the book profits under section 115JB. The assessee gets the relief accordingly.

Leave encashment on provision basis while computing book profits u/s. 115 B - HELD THAT:- We are of the considered view that the stand of the Assessing Officer is unsustainable in law in view of the Hon'ble Supreme Court‟s judgment in the case of Bharat Earth Movers Ltd [2000 (8) TMI 4 - SUPREME COURT] wherein Their Lordships have observed that “we are satisfied that the provision made by the appellant-company for meeting the liability incurred by it under the leave encashment scheme proportionate with the entitlement earned by employees of the company, inclusive of the officers and the staff, subject to the ceiling on accumulation as applicable on the relevant date, is entitled to deduction out of the gross receipts for the accounting year during which the provision is made for the liability. The liability is not a contingent liability”. Accordingly, we delete the impugned adjustment. The assessee gets the relief accordingly.

Payment of NPV of the sales tax liability, under the HP General Sales Tax (Deferred Payment of Tax) Scheme 2005 - difference between the sales tax liability and the NPV paid can be treated as capital receipt - case of the assessee is that the purpose of the scheme is expansion of industries and industrialization of the backward areas, and that the issue is now settled in favour of the assessee in the case of Sulzer India Ltd [2014 (12) TMI 267 - BOMBAY HIGH COURT] - HELD THAT:- This is a recurring issue and has come up for consideration in a number of preceding assessment years. In the assessee‟s own case for the immediately preceding year, and for the detailed reasons set out in paragraphs 37 to 39 and following the decisions in the preceding assessment years referred to therein, we have upheld the similar relief allowed to the assessee. We see no reasons to take any other view of the matter for this assessment year. Respectfully following our decisions in the assessee‟s own cases, we uphold the relief granted by the learned CIT(A) on this count as well. We thus confirm the conclusions arrived at by the CIT(A) on this count as well, and decline to interfere in the matter.

Cessation of liability towards sundry creditors, which was outstanding for a very long period of time - HELD THAT:- CIT(A) has rightly observed, just because entries are old entries and have remained unpaid, and particularly when the Assessing Officer has not conducted any enquiries which lead to the conclusion about lack of bonafides of such entries, it cannot be inferred that there is a cessation of liability and these entries can be added to the income of the assessee. We have noted that the Assessing Officer has not conducted any enquiries whatsoever, and there is nothing more than the entries being old that has been put against the assessee. In these circumstances, in our considered view, the learned CIT(A) was indeed justified in deleting the impugned addition on account of income from the cessation of liability. We approve the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter.