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TMI Blog2015 (3) TMI 926X X X X Extracts X X X X X X X X Extracts X X X X ..... assessing officer in respect of the amount of capital subsidy to the book profits while computing income under the section 115JB of the Act, on the alleged contention that the appellant has transferred Rs. 27,55,420/- to a reserve which has not been specified under section 33AC of the Act and therefore the same has to be added back for computing Book Profits under section 115JB of the Act. (b) That, in this connection, the learned CIT (A) has erred in interpreting the provisions of section 115JB of the Act stating that the appellant had transferred the amount of Rs. 27,55,420/- to a reserve which has not been specified under section 33AC, without giving credence to the fact that the amount of Rs. 27,55,420/- is not an appropriation of profits and there is no such debit to profit & loss account for the alleged appropriation. 4. That the Learned CIT (A) was not justified in sustaining the disallowance of depreciation of Rs. 7,76,433/- claimed in respect of discarded assets. 5. (a) That the Learned CIT (A) has erred in treating the entire amount of Miscellaneous receipts of Rs. 70,81,529/- under the head income from other sources by stating that the Learned assessing officer has wr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of income on account of overriding obligation cannot be accepted. Ld. DR further contended that the assessee company has transferred Rs. 1,78,447 to a reserve which has not been specified u/s 33AC of the Act, therefore, in accordance with Explanation 1 to the provisions of section 115JB, the book profit would be increased by the amount carried to any reserve. 4. On careful consideration of above submission, we note that the CIT(A) has dismissed the contentions of the assessee and confirmed the order of the AO with following observations and conclusions:- 7.3 I have carefully considered the assessment order and the submissions filed by the appellant. The facts of the case as per assessment order are that the AO had added back Rs. 1,78,447/- i.e. the contribution to Molasses Reserve Fund, while computing income under section 115JB of the Income Tax Act, 1961, on the basis that it is a provision which is contingent in nature and the claim that it represents diversion of income on account of an overriding obligation cannot be accepted. Under section 115JB of the Act, the net profit as per profit and loss account is to be increased by the following, provided the same is debited to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as a provision in nature and it is not an actual liability and the provision created for additional storage facility is obviously in the nature of provision for contingent liability, therefore, the impugned amount being contingent in nature deserves to be added back while computing income u/s 115JB of the Act. Finally, we reach to a conclusion that the action of the AO as well as order of the CIT(A) is well founded and justified and we are unable to see any perversity, infirmity or any other valid reason to interfere with the same on this issue. Accordingly, ground no. 2 of the assessee being devoid of merits is dismissed. 6. Apropos ground no.3, ld. Counsel of the assessee submitted that the CIT(A) has erred in sustaining the addition made by the learned assessing officer in respect of the amount of capital subsidy to the book profits while computing income under the section 115JB of the Act, on the alleged contention that the appellant has transferred Rs. 27,55,420/- to a reserve which has not been specified under section 33AC of the Act and, therefore, the same has to be added back for computing Book Profits under section 115JB of the Act. The ld. Counsel strenuously contend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me called, other than a reserve specified u/s 33AC of the Act, therefore, in accordance with Explanation 1 to provisions of section 115JB of the Act, the book profit would be increased by the amount carried to any reserve. 8. On careful consideration of above rival submissions, at the very outset, it is pertinent to note that as per facts noted by the AO, the assessee received an amount of Rs. 27,55,420 capital subsidy against the interest paid on Central Government loan and capital subsidy which was debited to the profit and loss account of the assessee company. As per final statement of account, a similar corresponding amount was shown as capital subsidy in the balance sheet in Schedule II under the head of reserves and surpluses. At this juncture, we also take cognizance of Note No. 14 Schedule 12 to balance sheet (as on 31.3.2008) which reads as under:- "5.0.1 This is as per Note No. 14 (schedule 12 to balance sheet as at 31.03.08), which reads as under: "Under the agreement dated 31.01.1986, as amended thereafter, the interest liability aggregating to Rs. 27,55,420/- on loan from the Central Govt. is treated as having been discharged in view of the fact that an equivalent a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral government loan is granted with the object of incentive for the entrepreneur to establish sugar industry or to expand the capacity of the existing sugar industry in the state of UP and thus, the said subsidy is given for setting up of an industry or expansion of existing industry. We further find it appropriate to note that SASISRI EXTRACTIONS LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX 122 ITD 428, Coordinate Bench of this Tribunal has held that where subsidy is granted as percentage of fixed capital cost taken as the basis for determining the subsidy that would only be a measure adopted under the scheme to quantify the financial aid. The contention is that it is not a payment, directly or indirectly, to meet any portion of the 'actual cost' but intended as an incentive to entrepreneurs, its quantification determined at a percentage of the fixed capital cost." We further note that the Hon'ble Apex Court in the case of P.J. Chemicals (supra) has held that the expression "actual cost"" in section 131(1) of the Act needs to be interpreted liberally and subsidy does not partake of the character of a payment intended either directly or indirectly to meet the 'actual cost'." As we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Further, placing reliance on the decision of Hon'ble Jurisdictional High Court of Delhi in the case of CIT vs Yamaha Motor India Pvt. Ltd. (2010) 328 ITR 297 (Delhi), ld. AR submitted that the assessee company claimed depreciation on assets written off which was disallowed by the AO on the contention that the discarded machinery had not been used in the relevant previous year, then the Hon'ble High Court in the similar set of facts and circumstances held that the actual user of machinery was not required with respect to discarded machinery for the purpose of claiming depreciation, the phrase "machinery being used for the purpose of business" would mean that the discarded machinery was used for the purpose of business during the year for which depreciation has been allowed. 12. Replying to the above, ld. DR supported the orders of the authorities below and submitted that the depreciation is allowed on block of assets if the same have been used for business purposes as provided in section 32 of the Act and the depreciation is given on the wear and tear of the asset and the main precondition of allowability of depreciation is that it has to be used for the purpose of business and pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) disallowed entire amount of miscellaneous receipts as income from other sources and enhanced the addition without issuing any notice to the assessee and without affording due opportunity of hearing to the assessee. Ld. AR vehemently contended that the action of the CIT(A) has resulted in an arbitrary enhancement of assessable income which has been made out without affording an opportunity to the assessee prior to enhancement of income as required under the provisions of the Act and against the principles of natural justice. Ld. AR finally prayed that the impugned order is not sustainable and therefore, the same should be dismissed. 16. Replying to the above, ld. DR fairly accepted that the AO made part disallowance of Rs. 8,19,660 out of total miscellaneous receipts and the CIT(A) enhanced the same disallowance without affording due opportunity of hearing for the assessee and without issuing any notice to the assessee in this regard. Ld. DR was fair enough to submit that if it is found just and proper, then the department has no objection if the issue is restored to the file of the CIT(A) for a fresh adjudication on this limited issue only. 17. On careful consideration of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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