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Rai Bahadur Narain Singh Sugar Mills Ltd. Versus Addl. CIT

2015 (3) TMI 926 - ITAT DELHI

Contribution under U.P. Sheera Niyantran Adhiniyam - whether is required to be added for the purposes of computing 'Book Profit' under section 115JB of the Act as the same is in the nature of reserve not specified under section 33AC of the Act? - whether the assessee has no right over the amount transferred to Molasses Reserve Fund due to overriding title - Held that:- The assessee company has transferred impugned amount to a reserve which has not been specified u/s 33AC of the Act, ther .....

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itute a reserve, a particular amount set aside out of the profit and other surpluses, should be such as not designated to meet a liability, contingency, commitment or diminution in the value of assets known to at the date of balance sheet. Hence, the reserve can be set aside out of the profits and surpluses and the same cannot be claimed as deduction because it is not an expense laid out for the purpose of business. Coming to the facts of the present case, the contribution to the Molasses reserv .....

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mity or any other valid reason to interfere with the same on this issue. - Decided against assessee.

Addition of capital subsidy to the book profits while computing income under the section 115JB of the Act - Held that:- t has already been accepted by the Hon’ble High Court in assessee’s own case for AY 1990-91 that the subsidy received by the assessee is in the nature of capital subsidy, hence, the same cannot be treated as revenue and thus, the income approach of accounting for capi .....

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t the amount of capital subsidy to the book profits while computing the income u/s 115JB of the Act is not an appropriation of profits and there is no such debit to the profit and loss account for the alleged appropriation and, therefore, the same cannot be added while computing the income u/s 115JB of the Act - Decided in favour of assessee.

Depreciation disallowed - Held that:- As relying on CIT vs Yamaha Motor India Pvt. Ltd. [2009 (8) TMI 27 - DELHI HIGH COURT] we are inclined to .....

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ce of miscellaneous receipts - Held that:- CIT(A) enhanced the addition without issuing any notice and affording due opportunity of hearing for the assessee, therefore, the order of enhancement is not sustainable as per provisions of the Act and well-accepted principles of jurisprudence. In this situation, we are of the considered view that the ends of justice would be met if the issue is restored to the file of the CIT(A) for a fresh adjudication after affording due opportunity of hearing for t .....

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f the argument, ld. Counsel of the assessee submitted that the assessee does not want to press ground no. 1(a) and (b), therefore, the same is dismissed as not pressed. Remaining ground nos. 2 to 5 read as under:- 2. That the Learned CIT (A) has erred both on facts in law in holding that the amount contributed under U.P. Sheera Niyantran Adhiniyam is required to be added for the purposes of computing 'Book Profit' under section 115JB of the Act as the same is in the nature of reserve not .....

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r 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 ₹ 27,55,420/- to a reserve which has not been specified under section 33AC, without giving credence to the fact that the amount of ₹ 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 Learn .....

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at out of an amount of ₹ 70,31,529/- of Miscellaneous Receipts the Learned Assessing officer had treated only ₹ 8,19,660/- as income from other sources after going through the details furnished by the appellant during the assessment proceedings. (c) That in this connection, the Learned CIT (A) has erred in law in stating that the miscellaneous receipts amounting to ₹ 70,31,529/- do not fall under the purview of the term 'profit derived by an industrial undertaking from manu .....

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, not followed the principle of Natural justice during the course of the appellate proceedings. (e) That the action of the learned CIT (A) has resulted in an enhancement of assessable income which has been made without affording an opportunity to the appellant as required under the provisions of the Act. Ground No. 2 2. Apropos ground no. 2, ld. Counsel of the assessee submitted that Learned CIT (A) has erred both on facts in law in holding that the amount contributed under U.P. Sheera Niyantran .....

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ing to the above, ld. DR supported the orders of the authorities below and submitted that the amount of contribution to Molasses Reserve Fund is a provision which is contingent in nature and in this situation, the claim of the assessee that it represents diversion of income on account of overriding obligation cannot be accepted. Ld. DR further contended that the assessee company has transferred ₹ 1,78,447 to a reserve which has not been specified u/s 33AC of the Act, therefore, in accordan .....

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ack ₹ 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 the profit and loss account: a) .....

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income to which section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply; or g) the amount of depreciation, or h) the amount of deferred tax and the provision there for, i) the amount or amounts set aside as provision for diminution in the value of any asset. The appellant Company has transferred ₹ 1,78,4471- to a reserve which has not been specified under section 33AC, therefore, in accordance with the Explanation I to provisions of section .....

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carried to any reserve account. We also note that the AO has rightly relied on the decision of Hon ble Apex Court in the case of State Bank of Patiala reported as 219 ITR 706(SC) wherein it was clearly held that the issue of what construes reserve and provision and the ratio laid down in these decisions clearly enlighten us that to constitute a reserve, a particular amount set aside out of the profit and other surpluses, should be such as not designated to meet a liability, contingency, commitme .....

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ure 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. Apropo .....

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ection 115JB of the Act. The ld. Counsel strenuously contended that the CIT(A) was not justified and correct in interpreting the provisions of section 115JB of the Act by stating that the assessee had transferred the impugned amount to a reserve which has not been specified u/s 33AC of the Act without giving credence to the fact that the alleged amount is not an appropriation of profits and there is no such debit of profit and loss account for the alleged appropriation. Ld. Counsel has further d .....

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nt and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act 1956. Ld. AR strenuously contended that the treatment followed by the assessee company is in accordance with the generally accepted accounting principles and polices and the AO, while computing the book profits of a company u/s 115JB of the Act has only the power of examining whether the books of accounts are certified by the authorities under the Companies Act. The .....

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R 273 and submitted that the AO has to accept the authenticity of the accounts maintained in accordance with the provisions of the Companies Act, which are also certified by the auditors and passed by the company in its Annual General Meeting. 7. Replying to the above, ld. DR supported the impugned order and submitted that u/s 115JB of the Act, net profit as per profit and loss account is to be increased and the amounts carried out to any reserves, by whatever name called, other than a reserve s .....

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nd 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 th .....

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20/- has been debited to the statement of profit and loss under the head 'Financial Expenses' and the corresponding amount has been credited to capital subsidy under the head' Reserves and Surplus'." 9. It is also undisputed that the amount of interest paid by the assessee to the Central Government on loan for 1990-91 has been allowed as revenue expenditure by the ITAT, New Delhi, wherein it was held that the corresponding subsidy is a capital subsidy. We also note that the .....

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as been decided in favour of the assessee in the earlier years by the CIT(A), ITAT Delhi and Hon ble Jurisdictional High Court of Delhi and, therefore, respectfully following the same, the first appellate authority granted relief for the assessee with a final conclusion that the interest on loan advanced by the central government is allowable and the capital subsidy received by the assessee company in this regard is not taxable. 10. Coming back to the issue involved in ground no. 3(a) and (b) of .....

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ted the fact that the subsidy against the interest paid by the assessee company on central 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, Coor .....

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le 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 have noted above that it has already been accepted by the Hon ble High Court in assessee s own case for AY 1990-91 that the subsidy received by the assessee is in the nature of capital subsidy, hence, the sam .....

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sue is not found to be sustainable and we demolish the same by directing the AO that the amount of capital subsidy to the book profits while computing the income u/s 115JB of the Act is not an appropriation of profits and there is no such debit to the profit and loss account for the alleged appropriation and, therefore, the same cannot be added while computing the income u/s 115JB of the Act. Accordingly, ground no. 3(a) and (b) of the assessee are allowed. Ground No. 4 11. Ld. AR submitted that .....

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ned in section 32(1) of the Act for the purpose of claiming depreciation and the user of machines would not include a passive user. Ld. AR placing reliance on the decision of Hon ble Jurisdictional High Court of Delhi in the case of CIT vs Oswal Agro Mills Ltd. (2012) 341 ITR 461 (Del) submitted that the passive user of the asset is also recognised as user for the purpose of business and the meaning of passive user has to be interpreted to mean that the asset is kept ready for use. Ld. AR also c .....

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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 .....

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urpose and the machinery was not only discarded, shifted to the stores and spares, therefore, claim of depreciation of the assessee is not acceptable on discarded assets. 13. On careful consideration of above rival submissions on the issue, at the very outset, we note that the issue of allowability on depreciation of discarded asset in the present appeal is squarely covered by the Jurisdictional High Court of Delhi in the case of CIT vs Yamaha Motor Pvt. Ltd.(supra), wherein dismissing the appea .....

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ock of assets, then the depeciation u/s 32(1) of the Act was to be allowed even if any asset or assets of the block was not used for the relevant financial year. 14. Therefore, we are inclined to hold that the AO was not justified in disallowing the depreciation to the assessee on the assets which were discarded and transferred to the stores and spares during the financial year under consideration. The CIT(A) was not correct in confirming the order of the AO on this issue and thus, we dismiss th .....

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uction under section 80 IC of the Act. Ld. AR further contended that the AO had treated only ₹ 8,19,660 as income from other sources after going through the details furnished by the assessee during assessment proceedings out of an amount of ₹ 70,31,529 of miscellaneous receipts but the 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 hear .....

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