2014 (3) TMI 888 - ITAT DELHI

Claim for exemption on account of Subsidies - Sales tax, entry tax and electricity duty subsidy – Held that:- The decision in Sahney Steel And Press Works Limited And Others Versus Commissioner of Income-Tax [1997 (9) TMI 3 - SUPREME Court] and assessee’s own case for the previous assessment year has been followed - If payments in the nature of subsidy from public funds are made to the assessee to assist him in carrying on his trade or business, they are trade receipts - The character of the subsidy in the hands of the recipient-whether revenue or capital-will have to be determined, having regard to the purpose for which the subsidy is given - The source of the fund is quite immaterial - if the purpose is to help the assessee to set up its business or complete a project the monies must be treated as having been received for capital purposes - But if monies are given to the assessee for assisting him in carrying out the business operations and the money is given only after and conditional upon commencement of production, such subsidies must be treated as assistance for the purpose of the trade.

As per the scheme of the incentive of Madhya Pradesh Government, sales tax subsidy is taxable - The view taken by the ITAT in assessee's own case for AY 2004-05 is similar – thus, the sales tax and other subsidies provided by Madhya Pradesh Government were revenue receipt - the amount of sales tax and other subsidies received by the assessee were revenue in nature – Decided against Assessee.

Confirmation of adhoc disallowance – Expenses incurred for non-business purposes – Held that:- As decided in assessee’s own case for the previous assessment year, the expenditure relatable to trips made for non-business purposes could only be disallowed by the Department - the entire disallowance for the trips undertaken by the assessee was for non-business purposes and the whole disallowance was sustained – the AO has mentioned that the Managing Director of the company has been using the said plane for purposes other than the business of the company - instead of working the disallowance on the basis of such trips which were for non-business purposes, he made an adhoc disallowance - Complete details of aero plane expenses with the purpose of each visit have not been furnished – thus, the matter is remitted back to the AO for working of disallowance – Decided in favour of Assessee.

Deletion made on account of front end fee – Nature of expenses – capital or revenue – Held that:- CIT(A) deleted the disallowance made by the AO being satisfied with the submission made in this regard by the assessee - The decision in India Cements Limited Versus Commissioner Of Income-Tax, Madras [1965 (12) TMI 22 - SUPREME Court] followed - front end fees was like processing fees for signing loan agreement and was a revenue expenditure – thus, there is no reason to interfere in the findings of the CIT(A) – decided against Revenue.

Deletion made on account of interest – Held that:- The decision in DEPUTY COMMISSIONER OF INCOME-TAX Versus CORE HEALTH CARE LTD. [2008 (2) TMI 8 - SUPREME COURT OF INDIA] followed - CIT(A) has rightly allowed deduction for interest paid to UTI Bank for non-convertible debentures utilized for the purposes of business - the setting up of 55 MW power project at Raigarh was part of expansion of the existing business of the assessee has not been satisfactorily rebutted by the Revenue – thus, the order of the CIT(A) upheld – Decided against Revenue.

Deletion made of consultancy charges paid to price water house – Held that:- The decision in HPCL Vs. DCIT [2004 (8) TMI 321 - ITAT BOMBAY-F] followed - just because an expenditure was voluntary in nature and was not forced on the assessee by a statutory obligation, it could not cease to be a business expenditure - It is evolved over a period of time to include in its fold the concrete expression of care and concern for the society at large and the people of the locality in which the business is located in particular – thus, the findings of the CIT(A) upheld – Decided against Revenue.

Deletion made of acquisition of capital assets – Held that:- CIT(A) was of the view that the expenditure was attributable to current repairs and there had been no increase in capacity of the asset and hence, the expenditure is revenue in nature – the decision in Empire Jute Co. Ltd. Vs. CIT [1980 (5) TMI 1 - SUPREME Court] followed - there is no increase in the production capacity – the CIT(A) has rightly come to the conclusion that the claimed expenditure was revenue in nature – Decided against Revenue.