TMI Blog2015 (7) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... material brought to our notice against the above finding of the Tribunal, we following the decision of the Coordinate Bench of the Tribunal, uphold the order of the CIT(A) upholding the action of the AO in treating the amount received on transfer of sales tax incentive as a revenue receipt. - Decided against assessee. Re-computing the Book Profits u/s.115-JB - Held that:- In view of the direction in the case of Pruthvi Brokers and Shareholders Pvt. Ltd., Court [2012 (7) TMI 158 - BOMBAY HIGH COURT] and the findings of the AO at para 4.1 of the assessment order, we find force in the submission of the Ld. Counsel for the assessee that brought forward business losses and depreciation of the merging companies is a part of the brought forward business loss and depreciation of Dhariwal Industries Ltd and the assessee is entitled to take into account the same for the purpose of computation of book profit u/s.115JB. Depreciation on the related assets of Hyderabad unit - disallowance of claim on the ground that assessee has not used its Plant & machinery relating to Pan masala/Gutkha establishment at Hyderabad at all during the previous year relevant to the A.Y. 2004-05 - Held that:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Aggrieved with such order of the Ld.CIT(A) the assessee is in appeal before us. 3.2 The Ld. Counsel for the assessee at the outset submitted that the decision of the Tribunal in assessee's own case was set aside by the Hon'ble Bombay High Court. Subsequently, the Special Bench was constituted to decide the issue as to whether the assessee is entitled to deduction u/s.80I/80IA of the I.T. Act in respect of the profits and gains of its Baroda and Hyderabad unit. The Special Bench decided the issue against the assessee as reported in 111 ITD 379 (Pune) (SB) holding that Gutkha and Pan Masala manufactured by the assessee company is a tobacco preparation within the meaning of Eleventh Schedule of the Income Tax Act. Therefore, the assessee is not entitled to deduction u/s.80I/80IA of the Income Tax Act. He accordingly submitted that the issue is decided against the assessee by the decision of the Special Bench of the Tribunal. In view of the above submission of the Ld. Counsel for the assessee the order of the CIT(A) on this issue is upheld and the ground raised by the assessee is dismissed. 4. Second ground by the assessee relates to the order of the CIT(A) in upholding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court in the case of CIT Vs. P.J. Chemicals reported in 210 ITR 830, the decision of Mumbai Bench of the tribunal in the case of Reliance Industries Ltd. reported vide ITA No.7554/1989 for A.Y. 1985-86 and the decision of the Tribunal in the case of Bajaj Auto Ltd. Vs. ITA Nos. 49 and 1101/1991 order dated 31-12-2002 were brought to the notice of the AO. It was submitted that in view of the above decisions the sales tax incentive to wind mills in Maharashtra is a capital receipt and also further that it is not a portion of the cost of assets acquired in the wind mill project. 4.3 However, the AO was not satisfied with the explanation given by the assessee. He observed that a perusal of the scheme shows that the incentive received by the assessee cannot be said to have been received on capital account. Under this scheme the Government of Maharashtra has offered 2 sets of incentives for setting up of wind mills in the State as per resolution No.NCP-1097/CR-57/NRG-7 dated 12-03-98. Clause 7 says that capital subsidy is being provided by the State Govt. @30% of the fixed capital investment subject to a maximum limit of ₹ 20 lakhs in the wind power plant. This incentiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e salient features of this scheme has encompassed by the Govt. of Maharashtra resolution dated 12-03-1998 and 01-10-99 were brought to the notice of the Ld.CIT(A). It was argued that the scheme as introduced in furtherance of the State Govt. policy to promote generation of energy through non conventional sources to supplement the ever increasing demand of electricity in the State. The scheme has been implemented to promote wind energy generation in the State. The benefit is linked with the quantum of qualifying investment made in the wind power project. The requirement of achieving a minimum 12% plant load factor ensures that the power plant is operated effectively. It was argued that the sales tax benefit has not been given for assessing in carrying on business rather it has been given for the purpose of setting up of the project of wind mills, i.e. generation of electricity with non conventional energy sources. The sales tax incentive is provided in consideration of the project and not as an operational subsidy or a production incentive. The various decisions cited before the AO were brought to the notice of the Ld.CIT(A) again to the proposition that the sales tax subsidy receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s would be limited to a period of five years from the date of commencement of production. As against this Scheme of Maharashtra Govt. which is subject matter of present appeal says that sales tax benefit up to amount qualifying investment would be given in six equal installments over a period of six years only under the condition that the plant has successfully operated every year with a minimum of 12% plant load factor. This clearly shows that not only the subsidy is available for a limited period of six years, but it is available only if the plant has successfully operated every year with a minimum % plant load factor. This clearly shows that the subsidy is production related subsidy. [3] In case of Sahney Steel and Press Works Ltd., the Hon.Supreme Court noted that in the Scheme of Andhara Pradesh Govt. the important point to note is that all the incentives are production incentives, in the sense that the company will be entitled to these incentives only if at goes into production. It is only after the industries have been set up and production had been commenced that the incentives were given. Similarly, in case of sales tax subsidy granted by Maharashtra Govt. in case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period of six years and it is conditional upon utilization of 12% plant load factor for a period of continuous six years. Thus, it is absolutely clear that matrix of facts in the case of the appellant and in the case of Sahney Steel and Press Works Ltd. and Others Vs. CIT is the same. [5] It may be mentioned that in the case of Sahney Steel and Press Works Ltd. before the Hon.Supreme Court, the Hon.Supreme Court also examined the view of Hon. Andhara Pradesh High Court in the case of CIT Vs. Dushar Industries where the Govt. framed a scheme for granting sales tax subsidy to industries set up in backward areas. In that before the Hon.Madhya Pradesh High Court, 75% of the sales tax paid in a year for a period of five years from the date of starting of production was to be given back by the Govt. to the industries concerned. The High Court was of the view that obviously this subsidy was given by way of an incentive for capital investment and not by way of addition of the profits of the assessee. This view of Hon.Madhya Pradesh High Court has been reversed by Hon. Supreme Court in the case of Sahney Steel and Press Works Ltd. and Others Vs. CIT, quoted supra. The Hon.Supreme Court c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.7 Aggrieved with such order of the CIT(A) the assessee is in appeal before us. 4.8 The Ld. Counsel for the assessee strongly challenged the order of the CIT(A). Referring to the Government resolution dated 12-03- 98, a copy of which is placed in paper book page 1 he submitted that the Government for the promotion of generation of energy through non conventional sources to supplement the ever increasing demand of electricity in the State enunciated its policy in January 1996. Since this policy could not attract the promoters and since the Government of India had issued certain guidelines regarding wind energy generation the Government in partial modification of its existing policy vide resolution dated 12-03-98 took certain decisions. The Ld. Counsel for the assessee referring to the said resolution drew the attention of the Bench to the clauses 7 to 9 which read as under : 7. Capital Subsidy : Wind Power Projects will be granted status of small scale industries. MEDA shall give a subsidy up to 30% of the fixed capital investment [limited to ₹ 20 lacs] to the promoters subject to condition that windpower plant has successfully operated with minimum 12% plant load ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 7,28,21,527/- to Telco and claimed the same as exempt from tax being capital receipt. He submitted that the AO as well as the CIT(A) following the decision of the Hon'ble Supreme Court in the case of Sahney Steel and Press Works Ltd., (Supra) treated the said receipt on revenue account. 4.10 The Ld. Counsel for the assessee submitted that after the decision in the case of Sahney Steel and Press Works Ltd. (Supra) various other decisions have come which are in favour of the assessee. 4.11 Referring to the decision of the Hon'ble Supreme Court in the case of CIT Vs. Ponni Sugars and Chemicals Ltd., reported in 306 ITR 392 he submitted that the Hon'ble Supreme Court in the said decision after considering the decision in the case of Sahney Steel and Press Works Ltd. (Supra) has held that the character of the receipt of a subsidy in the hands of the assessee in a scheme has to be determined with respect to the purpose for which the subsidy is granted. In other words, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The sources is immaterial. If the object of the subsidy is to enable the assessee to run the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferent from the scheme of giving subsidy for setting up industries in backward areas. It was accordingly held that the case of Mepco Industries Ltd., was a change of opinion. Therefore, the Department has erred in invoking the provisions of section 154 of the I.T. Act. 4.13 Referring to the decision of the Hon'ble Gujarat High Court in the case of DCIT Vs. Inox Leisure Ltd., reported in 351 ITR 314 he submitted that the Hon'ble High Court in the said decision following the decisions of the Hon'ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd.,(Supra) and Sahney Steel and Press Works Ltd. (Supra) has held that when the salient features of the scheme showed that the incentive was being offered for recouping or covering the capital investment or outlay already made by the assessee the entertainment tax exemption was a capital receipt which was not exigible to tax. For the above proposition, the Hon'ble High Court has held that the character of receipt of a subsidy in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is granted. In other words, one has to apply the purpose test. The point of time on which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g as under : 5. . . . . . . . . . . . . . . . . . . Undisputedly, the capital incentive was given to the assessee. That was to enable the Assessee's predecessor-in-title to set up a new unit. This was under the incentive package offered by the State Govt. for setting up new industries in the State. The predecessor-in-title of Assessee applied for such special capital incentive from the SICOM. That was in the form of loan of ₹ 20 lacs in the year 1992. Since actual disbursement was to take place from the receipt of funds from the Government of Maharashtra, the predecessor-in-title of Assessee took bridge loan from the SICOM. Later on, that bridge loan was converted together with outstanding interest of ₹ 5 lacs into special capital incentive by the SICOM. That being in the nature of capital receipt, it was directly credited to the capital receipt reserve account. The Assessee claimed the receipt as a capital receipt. It is that stand of the Assessee which was not accepted by the Assessing Officer. The matter was carried in Appeal and the Assessee succeeded. He submitted that the Hon'ble High Court in the said decision after considering the decision in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Siya Ram Garg (HUF) reported in 237 CTR 321 he submitted that the Hon'ble High Court in the said decision has held that subsidy received by the assessee for setting up agro based industrial unit in backward area which was determined with reference to capital investment is a capital receipt. 4.18 Referring to the decision of Hon'ble Jammu Kashmir High Court in the case of Shree Balaji Alloys Vs. CIT reported in 333 ITR 335 (J K) he submitted that the Hon'ble High Court in the said decision has held that incentive scheme formulated by Central Government for Jammu Kashmir to accelerate industrial development, generate employment and create opportunities for self employment was for the purpose in public interest. Such incentives designed to achieve a public purpose could not be construed as production or operational incentives for the benefit of the assessee alone. Further, the incentives were provided with the object of creating avenues for perpetual employment to eradicate the social problem of unemployment in the State by accelerated industrial development. It was accordingly held that the Excise duty refund, interest subsidy and insurance subsidy are capital rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n CIT (Addl.) v. Ganapathi Raju jegi, Sanyasi Raju (1979( 119 ITR 715 to the effect that though route permits for buses granted by the road transport authority were capital assets, where no amount was paid by the operator for acquiring a route permit and it was only over a number of years that it acquired some value because of various factors, namely, development of roads, passenger traffic, frequency of the buses, the value of the permit could not be evaluated as on the date of acquisition and in such a case the consideration in terms of money realised on its transfer could not be brought to tax as capital gains, the Department preferred an appeal to the Supreme Court. The Supreme Court dismissed the appeal. In view of the above 2 decisions, he submitted that the amount is capital in nature and cannot be taxed as a revenue receipt. Referring to provisions of section 28(iiic) to 28 (iiic) he submitted that the statute specifically provides for taxability of certain items. However, taxability of the nature of receipt received by the assessee has not been specifically provided u/s.28. Therefore, in view of the various decisions, the amount received has to be treated as capital re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision the Pune Bench of the Tribunal in the case of various other decisions has decided the issue against the assessee. He submitted that wherever the amount is given for meeting fixed asset it has to go to reduce the same from the capital asset. In other cases it has to be treated as a revenue receipt. He submitted that the entire scheme has been analysed by the Pune Bench of the Tribunal in the case of Rasiklal M. Dhariwal (HUF), sister concern of the assessee and it has been held as a revenue receipt. 5.1 Referring to the preamble of the Notification the Ld. Departmental Representative submitted that the incentive given to the windmills operators was not for generation of employment or industries in backward areas. Referring to clause 7 of the scheme dated 12-03-1998 the Ld. Departmental Representative submitted that it was clearly mentioned that it is capital subsidy. The only condition was that the wind power plant has successfully operated for a minimum 12% plant load factor for atleast one year. He submitted that there are different types of incentives, some may be capital in nature and some may be revenue in nature. The intention for granting of such subsidy has to be se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble Supreme Court in the case of Sahney Steel and Press Works Ltd. (Supra) treated the same as revenue in nature. In appeal the Ld.CIT(A) apart from relying on the decision of Hon'ble Supreme Court in the case of Sahney Steel and Press Works Ltd. (Supra) relied on various other decisions and upheld the action of the AO. 6.1 It is the submission of the Ld. Counsel for the assessee that although the issue has been decided by the Tribunal in the case of the sister concern namely Rasiklal M. Dhariwal (HUF) for A.Y. 2003-04 and 2004-05, however, in view of the subsequent decisions the subsidies received has to be treated as capital in nature. It is the case of the Ld. Departmental Representative that since the Tribunal has thoroughly analysed the scheme and has given a categorical finding that the sales tax benefits received by the assessee under the instant scheme are in the course of carrying on its trade more profitably, therefore, such receipt cannot be characterised as capital in nature. 6.2 We find the Tribunal in the case of Rasiklal M. Dhariwal (HUF) (Supra), a sister concern of the assessee, has decided the issue for A.Y. 2003-04 and 2004-05 by holding that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi and IITM, Bangalore indicate that the potential is about 300 to 400 MW. Eight different sites have been selected for this purpose and further survey is being carried out. The State Government had enunciated its policy on generation through nonconventional sources in January, 1996. This policy however could not attract the promoters. During the intervening period, the Government of India had issued certain guidelines regarding wind energy generation. These guidelines from Government of India, wind power generation policies of other State Governments and the problems being faced by promoters of wind energy generation were under active consideration of the State Government. RESOLUTION : In partial modification of its existing policy to promote wind energy generation, the State Government has taken following decisions to promote wind energy generation in the State:- (1) Tariff: Maharashtra State Electricity Board shall purchase energy generated from wind power plants at a rate of 225 paise per unit. The financial year 1994-95 will be taken as base year for this rate which will be increased at a rate of 5% per annum. This 5% escalation will be available to the devel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Promoter shall be entitled to sales-tax benefits upto the amount of qualifying investment. This benefit would be given in 6 equal instalments over a period of 6 years (1/6 of the qualifying investment amount every year) only under the condition that the plant has successfully operated every year with a minimum of 12% Plant Load Factor. This benefit may also be available to any other company associated with the promoters. Detailed instructions about the modus operandi about Sales Tax benefits will be separately issued by the Finance Department. By order and in the name of the Governor of Maharashtra. Sd/- (L.V.Nilesh) Deputy Secretary to Government 10. A perusal of the Preamble to such Resolution reveals that the State Government has a policy to promote generation of energy through non conventional sources to supplement the ever increasing demand of electricity in the State of Maharashtra. It was found that there is immense potential for generation of wind power in the State and different sites were selected by the Government for this purpose. It appears that the State Government had enunciated its policy of generation through non conventional sources in January ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertain difficulties which have been brought to the notice of the Government. Taking into consideration the requests of the wind power promoters as well as their difficulties, the proposal for modified detailed procedure for availing sales tax benefit was under consideration of the Government. Government Resolution: Considering the difficulties of the industrialists and with a view to make available sales tax benefit, Government has decided to simplify the procedure as follows: 1. The sales tax benefit will be available on electricity generating units in relation to achievement of plant load factor as follows: S.No. Plant Load Factor investment Sales tax benefit equivalent of 1//6th of qualifying With Bank Guarantee Without Bank Guarantee 1 12% 60% 50% 2 13% 70% 60% 3 14% 80% 70% 4 15% 90% 80% 5 16 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arty units can avail the benefit upto the amount mentioned in paragraph 1. For this, Eligibility Certificate will be given by Director, Maharashtra Energy Development Agency. Promoters of the project will be allowed to choose, a the most two names of the third party units to get the sales tax benefit. The Entitlement Certificate for units of third party will e certified by Commissioner of Sales tax. Amount of sales tax benefit is related to the wind energy generation and they are not related to the amount of electricity sold to the third party. After obtaining the Entitlement Certificate for sales tax benefit the promoters of the project can transfer to the third party to whom they have sold the electricity. Amount of sales tax benefit is related to the qualifying investment and plant load factor. The electricity sold to the unit/units of third party can avail sales tax benefit limited only to the qualifying investment and plant load factor. The electricity sold to the unit/units of third party can avail sales tax benefit limited only to the qualifying investment as mentioned in paragraph 1. 5. After satisfying the condition of average plant load factor, sales tax benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, capacity of the wind energy generator should be minimum 200 Kw 12. Procedure for availing the sales tax benefit will be applicable to all projects such as the Wind Energy Generator Units/Wind - SPV - Diesel Hybrid, Self Starting Generator (Hybrid Stand Alone System) and as per Maharashtra Governments' declared policy published in this connection. By the order ands on behalf of Governor of Maharashtra Sd/- (P.D. Karkhanis) Section Officer (Energy). 11. As is evident, the said Resolution deals with the manner in which the intended sales-tax benefits can be availed of by the promoters. It is clear that the sales-tax benefits can be availed by all projects which are commissioned as well as connected to the transmission lines from two months after the date of publication of the said Resolution. It is also provided that the Sales-tax benefit is available on electricity generating units in relation to achievement of plant load factor. The procedural requirement also entails that the sales-tax benefit will be available for the promoters from the date of obtaining of Entitlement Certificate for a period of continuous six years, and for every year such b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The incentives were to be allowed for a period of five years from the date of commencement of production and such concession was also available for subsequent expansion of 50% and above of the existing capacities, provided such expansion was located in a city or town or panchayat area other than that in which the existing unit was located. The Hon'ble Supreme Court noticed that the salient feature of the Scheme formulated by the Andhra Pradesh Government was that the incentives were not available unless and until production had commenced and that the same was limited to a period of 5 years from the date of commencement of production. The Hon'ble Supreme Court noted that all the incentives are production incentives in the sense that the company would be entitled to these incentives only after it goes into production and that the Scheme was not to make any payment directly or indirectly for the setting up of industries. On factual analysis of the Scheme, it was inferred that the subsidies were operational subsidies, inasmuch as they were given to encourage setting up of industries in the State of Andhra Pradesh by making the business of production and sale of goods in the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court in the case of Ponni Sugars Chemicals Ltd. (supra). In this case also, the issue related to the character of subsidy received by sugar factories . The Hon'ble Supreme Court reiterated the parameters applied in the earlier judgment of Sahney Steel (supra). As per the Hon'ble Supreme Court, the character of the receipt of a subsidy in the hands of the recipient has to be determined with regard to the purpose for which the subsidy has been granted. The following discussion is important to notice: On the facts of that case, it was held that the subsidy given was to meet recurring expenses. It was not for acquiring the capital asset. It was not to meet part of the cost. It was not granted for production of or bringing into existence any new asset. The subsidies in that case were granted year after year only 6 after setting up of the new industry and only after commencement of production and, therefore, such a subsidy could only be treated as assistance given for the purpose of carrying on the business of the assessee. Consequently the contentions raised on behalf of the assessee on the facts of that case stood rejected and it was held that the subsidy received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rade but was of capital nature. 14. Another decision relied upon by the appellant is in the case of Reliance Industries Ltd. (supra). In this case, the facts were that the Patalganga unit of the assessee was located in a notified backward area. The sales-tax liability of the assessee was exempted by the State Government and under the Scheme of incentives, assessee was not required to pay any sales-tax to the Government. The contention of the assessee was that non-payment of sales-tax be considered as a subsidy by the Government, which is of capital in nature. The Special Bench of the Tribunal found that the incentives were provided for following four objects, namely, development of backward regions of the State of Maharashtra; dispersal of industries; promotion of industries for employment oriented units; and, providing local employment to SC/ST. The Tribunal observed that in order to decide the character of receipt the purpose of granting subsidy was relevant, while the mode of payment and the application of money for capital or revenue purposes was irrelevant. Therefore, as per the Special Bench the decisive factor was the objects with which the incentive was given and, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales-tax benefit is granted having regard to the qualifying investment, which is stated to be towards investments in plant and machinery, new building, land development, technical development and design of wind products. According to the appellant, the incentive being linked to the qualifying investment shows that it is intended as a recoupment of the fixed cost already incurred by the assessee and, therefore, such incentives are to be regarded as capital in nature. In our considered opinion, such purpose, as articulated on behalf of the appellant is not emerging from the Scheme of the State Government. Rather, the emphasis on of the grant of sales-tax benefit is on actual running of the plant and that too under prescribed efficiency levels. In fact, in the Resolution dt 1.10.1999 staggered plant load factors achieved by the unit entitled the unit to varying levels of sales-tax benefit. Therefore, it could not be said that the sales-tax benefit is available merely on commencement of generation. We are conscious that mere timing of the grant of subsidy is not relevant. However, in the present case, it is not the timing of the subsidy alone but the grant is linked to achieving oper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital account. Based on the above decision, the Tribunal in the case of sister concern of the assessee has given a categorical finding that the sales tax benefits received by the assessee under the instant scheme are in the course of carrying on its trade more profitably and therefore, such receipt cannot be characterised as capital in nature. Therefore, this decision relied on by Ld. Counsel for the assessee is of no help to the assessee. 6.4 So far as the decision of Hon'ble Supreme Court in the case of Mepco Industries Ltd. (Supra) is concerned, the relevant observation of the Hon'ble Apex Court at placetum 7 at para 213 is material : On the facts of the present case, we are of the view that the present case involves change of opinion. In this connection, it must be noted that Government grants different types of subsidies to the entrepreneurs. The subsidy in Sahney Steel and Press Works Ltd. [1997] 228 ITR 253 (SC) was an incentive subsidy linked to production. In fact, in Sahney Steel and Press Works Ltd. [1997] 228 ITR 253 (SC) (at page 257), this court categorically stated that the scheme in hand was an incentive scheme and it was not a scheme for setting up t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de by assessee. The Hon'ble High Court following the decision in the case of Ponny Sugars and Chemicals Ltd. (Supra) held that character of receipt of the subsidy has to be determined with respect to purpose for which subsidy was granted. Accordingly, it was treated as capital in nature. However, in the instant case it is not so. There is no such stipulation that it is for recouping or recovering a capital investment or outlay already made. The Tribunal has already given a finding that subsidy received under the instant scheme are in the course of carrying on its trade more profitably. Therefore, This decision has no application to the facts of the present case. 6.7 So far as the decision of the Hon'ble Bombay High Court in the case of Chhapalkar Brothers (Supra) is concerned, the object of the subsidy was to promote construction of multiplex theatre complex for which it was held that the same is capital in nature. However, the facts of the instant case are different as already held. Therefore, the above decision also cannot help the assessee. 6.8 So far as the decision of the Hon'ble Bombay High Court in the case of Kirloskar Engines Ltd., (Supra) is concerned, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up of the unit but for carrying on its business, therefore, this decision is also not applicable to the facts of the present case. 6.11 In the case of Shree Balaji Alloys (Supra) the issue before the Hon'ble Jammu Kashmir High Court was that the incentive scheme was formulated by Central Govt. for Jammu Kashmir to accelerate industrial development, generate employment and create opportunities for self employment and the purpose in public interest and the issue was Excise duty refund and interest subsidy which was in pursuance of the new industrial policy introduced in the state of Jammu Kashmir. The incentives were provided with the object of creating avenues for perpetual employment to eradicate the social problem of unemployment in the State by accelerated industrial development. Under these circumstances the Hon'ble High Court held that it is capital in nature. However, here the subsidy is for setting up wind mills and not for generating employment. Therefore, this decision is also of no help to the assessee. 6.12 As regards the decision in the case of Maheswari Devi Jute Mills Ltd. (Supra) the issue was receipt on sale of surplus loom hours. In the case of G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as processed u/s.143(1) on 31-03-2004 without any adjustments. Subsequently, the assessee filed the revised return on 02-07-2004 wherein the total income was shown at NIL. The return was also processed u/s.143(1) on 10-02-2005. Subsequently, the AO completed the assessment on 31-03-2006 determining the total income at ₹ 33,30,682/-. In the said year the AO computed the income u/s.115JB at ₹ 16,20,55,646/-. While doing so he did not allow carry forward of losses u/s.72A of the I.T. Act in respect of merging companies to be set off with the income of the assessee. 7.2 The assessee challenged the computation of income u/s.115JB before CIT(A). It was submitted that the disallowance has been made on an erroneous and untenable ground. The assessee argued that the assessee has not claimed benefit of section 72A of the Act while computing the book profits u/s.115JB of the Act. Accounts of the assessee have been revised as a result of merger of the companies and the resultant book profit has been reduced on account of accumulated book losses and depreciation of the merging companies. Therefore, no adjustment can be made on account of section 72A of the Act while computing boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reciation and unabsorbed accumulated losses in the cases of M/s. Manikchand Packaging Pvt. Ltd. and M/s. Dhariwal Electricals Pvt. Ltd. from the Appointed Date , being Close of Business as of 31st day of March, 2003 are to be treated as unabsorbed depreciation and unabsorbed accumulated losses of M/s. Dhariwal Industries Ltd. as on the Appointed Date itself and M/s. Dhariwal Industries Ltd. are considered as entitled to set off and / or carry forward the unabsorbed depreciation and unabsorbed accumulated losses of the transferor companies. Accordingly, the losses quantified in the assessment orders u/s. 143(3) for A.Y.2003-04 in the cases of M/s. Manikchand Packaging Pvt. Ltd. and M/s. Dhariwal Electricals Pvt. Ltd. shall be set off from the business profits computed in the case of M/s. Dhariwal Industries hereunder and the unabsorbed depreciation and loss shall be allowed to be carried forward by the assessee company. 7.6 Referring to page 30 of the assessment order the Ld. Counsel for the assessee submitted that the AO allowed such depreciation for normal computation of income. However, the AO did not allow the benefit for calculation of book profit u/s.115JB. Referring t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portionate share in the equity of the combined company, or the business of the company which is acquired is not intended to be continued. Such amalgamation are amalgamations in the nature of 'purchase'. 7.8 The Ld. Counsel for the assessee also drew the attention of the Bench to Explanation 1 3 to provisions of section 115JB(2). Referring to the order of the Hon'ble High Court allowing the scheme, a copy of which is placed at pages 42 to 55 of the paper book, the Ld. Counsel for the assessee drew the attention of the Bench to para 3.9 of the order which read as under : With effect from the Appointed Date and upon this Scheme becoming effective, the unabsorbed depreciation and unabsorbed accumulated losses of the Transferor Companies shall be treated as the unabsorbed depreciation and unabsorbed accumulated losses of the Transferee Company as on the Appointed Date and the Transferee Company shall be entitled to set off and/or carry forward the unabsorbed depreciation and unabsorbed accumulated losses of the Transferor Companies . 7.9 He submitted that the AO rejected the claim of set off of brought forward loss of the merging companies u/s.72A of the I.T. Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 16,20,43,718/- u/s.115JB of the I.T. Act. We find the assessee filed the revised return on 02-07-2004 declaring total income at NIL and book profit u/s.115JB was determined at ₹ 5,91,71,806/-. In the revised return the assessee set off the brought forward losses. The AO computed the book profit u/s.115JB at ₹ 16,20,55,646/- which was the original book profit computed by the assessee. Thus, he rejected the set off of brought forward losses of the merging companies u/s.72A of the I.T. Act. In appeal the Ld.CIT(A) upheld the action of the AO on two counts (a) the adjustment sought by the assessee of losses of merging companies against income of the assessee company cannot be said to be within the purview of section 139(5) of the I.T. Act and (b) the loss of merging companies cannot be set off against the income of the assessee company in view of the provisions of Part-II and Part-III of Schedule-VI to the Companies Act, 1956. It is the submission of the Ld. Counsel for the assessee that when the AO allowed the unabsorbed depreciation and unabsorbed accumulated losses in the case of M/s. Manikchand Packing Pvt. Ltd. and M/s. Dhariwal Electricals Pvt. Ltd. as unabsorbed d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debts is allowable to a successor company even though the debt was shown by the predecessor company. The relevant observations of the Hon'ble Supreme Court at page 156 and 157 read as under: Section 28, referred to in sub-s. (1) of s. 36, provides that income under the head Profits and gains of business or profession , shall be chargeable to income-tax. The profits and gains of a business are charged to income-tax. To compute the profits and gains so chargeable, s. 36 pro vides for allowing a number of deductions. Each of the deductions must relate to the business. If the same assessee was carrying on a business and he wrote off a debt relating to the business as irrecoverable, he would without doubt be entitled to a corresponding deduction under cl. (vii) of sub-s. (1) of s. 36 subject to the fulfilment of the conditions set forth in sub-s. (2) of s. 36. If a business, along with its assets and liabilities, is transferred by one owner to another, we see no reason why a debt so transferred should not be entitled to the same treatment in the hands of the successor. The recovery of the debt is a right transferred along with the numerous other rights comprising the subject o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount written off as a bad debt. It is not imperative that the assessee referred to in sub-cl. (a) must necessarily mean the identical assessee referred to in sub-cl. (b). A successor to the pertinent interest of a previous assessee would be covered within the terms of sub-cl. (b). The successor assessee, in effect, steps into the shoes of his predecessor. 7.14 Following the same analogy and in view of the direction of the Hon'ble Bombay High Court and the findings of the AO at para 4.1 of the assessment order, we find force in the submission of the Ld. Counsel for the assessee that brought forward business losses and depreciation of the merging companies is a part of the brought forward business loss and depreciation of Dhariwal Industries Ltd and the assessee is entitled to take into account the same for the purpose of computation of book profit u/s.115JB. 8. In view of the above discussion the ground of appeal No.3 by the assessee is allowed. 9. The assessee has taken an additional ground which reads as under : In the alternative and without prejudice to ground no.1 in the appeal, if the sales tax incentive is regarded as a revenue receipt chargeable to ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the AO during the course of assessment proceedings noted that the assessee during the year under consideration has claimed depreciation as per I.T. Act at ₹ 13,45,44,935/- in the computation of income. The AO noted that the assessee has not used it's Pan Masala/Gutkha plant machinery establishment at Hyderabad unit at all during the previous year relevant to the assessment year under consideration. Therefore, depreciation on the related asset to the extent of ₹ 18,98,807/- was disallowed by the AO. 12.2 Before CIT(A) it was submitted that the assessee has set up a unit in Hyderabad for manufacture of Gutkha and Pan Masala in the previous year relevant to the assessment year 1995-96. The depreciation on the plant and machinery installed in the Hyderabad unit was taken into account while computing the total income of the assessee. The manufacturing operations have been temporarily suspended at Hyderabad unit in the previous year relevant to A.Y. 2004-05. The AO disallowed the depreciation of ₹ 18,98,807/- out of the total depreciation claimed on the ground that the plant and machinery at the Hyderabad unit is not used at all during the previous year. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he context of capital gains and therefore, has no direct applicability to the facts of the appellant's case. However, the case of Packwell Printers Vs. ACIT is applicable to the facts of the appellant's case because in that case depreciation was held to be allowable in respect of truck which was used for the purpose of business. With this view of the Hon'ble I.T.A.T, I am not in agreement with in view of the clear cut decision on the same issue by Hon'ble Bombay High Court as quoted supra. Accordingly, denial of depreciation is held to be justified. Ground No. 2 of appeal for assessment year 2004-05 is held to have no merit and it fails. 3.4 The facts and legal position for assessment year 2005-06 in respect of ground of appeal No. 2 which relates to disallowance of depreciation by the learned Assessing Officer in respect of Hyderabad Unit remains the same. Accordingly, for assessment year 2005-06 also, the claim of the appellant is held to have no merit and accordingly, dismissed. 12.6 Aggrieved with such order of the CIT(A) the assessee is in appeal before us. 12.7 The Ld. Counsel for the assessee submitted that the assessee had set up a unit in Hyderaba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is owned by the assessee and used for the purpose of business depreciation will be allowed. The Tribunal after considering the decision of Hon'ble Bombay High Court in the case of Dinesh Kumar Gulabchand Agarwal Vs. CIT reported in 267 ITR 867 distinguished the same and held that the assessee has already used the asset for the purpose of business and it has already entered into block of assets. Accordingly, the claim of depreciation made by the assessee was allowed. 12.10 Referring to the decision of the Hon'ble Delhi High Court in the case of CIT Vs. Oswal Agro Mills Ltd. (Supra) reported in 341 ITR 467 he submitted that the Hon'ble High Court in the said decision has held that depreciation has to be allowed on assets forming part of block of assets even though not used in relevant year. 12.11 Referring to the decision of the Hon'ble Gujarat High Court in the case of CIT Vs. Sonal Gum Industries the Ld. Counsel for the assessee drew the attention of the Bench to the following observation of the Hon'ble High Court : It is not possible to find any legal infirmity in the aforesaid view adopted by the first appellate authority and confirmed by the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We find the Hon'ble Delhi High Court in the case of Oswal Agro Mills Ltd. (Supra) has held that depreciation has to be allowed on assets forming part of block of assets even if not used in the relevant year. The Hon'ble Gujarat High Court in the case of Sonal Gum Industries (Supra) has also held that once the factory building was put to use it was not possible to restrict the depreciation on the building by stating that only a portion thereof had been put to use. It has further been held that in relation to block of assets it is not possible to segregate items falling within the block for the purpose of granting depreciation or restricting the claim thereof. Once it was found that the assets were used for business it was not necessary that all the items falling within the plant and machinery have to be simultaneously used for being entitled to depreciation. It was accordingly held that the assessee was entitled to depreciation on the block of assets for the A.Y. 1988-89 although the entire factory building and all the items including block of assets and plant and machinery were not actually put to use during the relevant assessment year. 12.13 We find the Hon'ble B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 89/PN/2007. We have already decided the issue and the ground raised by the assessee has been dismissed. Following the same reasonings this ground by the assessee is dismissed. 16. Ground of appeal No.2 by the assessee reads as under : 2. In facts and circumstances of the case the CIT(A) ought to have held that the amount of ₹ 20 lakhs received as capital subsidy from MEDA is not liable to tax and in any event could not be brought to tax for the year under consideration . 16.1 Facts of the case, in brief, are that there is no discussion of this issue by the AO. Before CIT(A) it was submitted that the assessee is entitled to capital subsidy by the State Government @30% of the fixed capital investment subject to a maximum limit of ₹ 20 lakhs. The amount was received by the assessee during the year and as such had not been offered to tax. It was pointed out that this amount however was added by the AO to the total income while passing the order for A.Y. 2002-03 and reduced from the WDV of the block of assets despite the fact that assessee chose to offer the same to tax in the year of receipt. It was pointed out that while doing so, the AO had not followed accrual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t at Hyderabad set up. 2. On facts and circumstances of the case and in law, the learned CIT(Appeals) has erred in not appreciating the fact that the plant and machinery establishment at Hyderabad set up was not put to use any time during previous year relevant to assessment year under consideration. 3. On facts and circumstances of the case and in law, the learned CIT(Appeals) erred in not appreciating the fact that in the earlier years, the addition made on account of depreciation was upheld by his learned predecessor. 4. The order of the CIT (Appeals) may be vacated and that of A.O. be restored. 5. The appellant craves leave to add, amend and alter any of grounds of appeal. 17.1 Facts of the case, in brief, are that the AO disallowed depreciation of ₹ 10,73,655/- being depreciation of plant and machinery of the Pan masala/Gutkha establishment at Hyderabad which was not used during the relevant assessment year. In appeal the Ld.CIT(A) following the decision of the Hon'ble Bombay High Court in the case of G.R. Shipping Ltd., (Supra), the decision of the Mumbai Bench of the Tribunal in the case of M/s.Swati Synthetics Ltd., vide ITA No.1165/Mum/2006 order ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
