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TMI Blog2009 (12) TMI 945X X X X Extracts X X X X X X X X Extracts X X X X ..... c. alongwith audited balance sheet, P&L account. The return was processed u/s 143(1) of the I.T. Act on 22.03.2004 determining a refund of Rs. 46,84,429 which was issued to the assessee. Subsequently, the return was revised by the assessee on 31.03.2005 declaring total income at Nil after adjustment of carried forward unabsorbed depreciation, and computation of Minimum Alternate Tax (MAT) as per sec. 115JB of the I.T. Act. In the revised return the assessee claimed deduction for notional sales-tax incentive availed in "New Package Scheme of Incentive, 1993" as capital subsidy. It was claimed by the assessee that the notional sales tax liability of Rs. 4,69,70,108/- is included in the sales credited to P&L account in the original return of income. The Assistant commissioner of Income Tax (here-in after referred to as ACIT) passed the order u/s 143(3) on 30-01-2006 determining total income under the provisions of the act other than sec. 115JB, at Rs. 4,84,87,581/-. In the said order, the ACIT made various disallowances and / or modification in the computation of total income under the provisions of the Act other than Sec. 115JB." 3. On appeal, the first appellate authority granted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00% of the expenses could not have been incurred solely for the business purpose. 8.0 That on the facts and in the circumstances of the case, Ld. CIT(Appeals) was grossly unjustified in upholding the disallowance on account of expenditure incurred on repairs and maintenance of building to the tune of Rs. 15,25,297/- as capital in nature despite the fact that the appellant itself had capitalized part of the total expenditure incurred and claimed only those expenses as revenue for which new asset came into existence. 9.0 That on the facts and in the circumstances of the case, the Ld.CIT(Appeals) erred in setting aside the matter with regard to expenses incurred on maintenance of depot shed amounting to Rs. 19,05,642/- to the file of the A.O. instead of outright deciding the issue in favour of the appellant. 10.0 That on the facts and in the circumstances of the case, Ld.CIT(Appeals) erred in not directing the A.O. to grant MAT credit of Rs. 3,68,145/- brought forward from earlier years. 11.0 That on the facts and in the circumstances of the case, Ld.CIT(Appeals) erred in confirming levy of interest u/s 234D of the Income Tax Act although the said provisions were not in the st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee had not claimed any deductions on notional sales tax exemption as capital receipts for the A.Yrs 95-96 to 2003-04. Filing of revised return on the last day of financial year 31.03.2005 is only an indication of afterthought on the part of the assessee to claim Sales-tax exemption as capital subsidy. It is to be noted that any capital subsidy granted by the government will be granted as one time transaction and it cannot be in the nature of recurring incentives. The very nature of subsidy under Special Scheme of Maharashtra Government for year to year basis upto 10-15 years indicate the nature of exemption as revenue rather than capital as claimed by the assessee. 3.1 the asessee's claim of exemption of sales tax liability is as per revised return of income u/s 139(5) of the Act. As per the provisions of sec. 139(5) the assessee, having filed a return u/s 139(1) can file revised return if it discovers any omission or any wrong statement in the original return of income within a period of one year from the end of the relevant assessment year or before the completion of the assessment whichever is earlier. The assessee has rightly filed revised return u/s 139(5) by 31 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Reliance Industries Ltd 88 ITD 273 (2004)(Mum SB). This judgment was with respect to allowability of Sales-tax incentive granted under 1979 Scheme of Government of Maharashtra. The Hon.ITAT allowed the assessee's (reliance Industries Ltd) plea that notional sales tax liability for the A.Y. 1986-87 is capital receipt in the hands of the assessee. While delivering the judgment the Hon.ITAT Bench discussed at length the various judgments of High Courts as well as Supreme court on the similar issue. It is pertinent here to note that the issue in question for A.Y. 1984-85 and 1985-86 for the same assessee Reliance Industries Ltd. was also decided by the ITAT in assessee's favour and department's reference to Bombay High court on that issue is still pending. In view of the issue under dispute before the Bombay High Court as also varying judgments of various High Courts, the assessee's contention for reliance on the above judgment of ITAT, special bench cannot be accepted. Further, it is to be noted that he allowability of sales tax incentives as per special scheme of Government of Maharashtra was considered by the Hon.ITAT in the case of Reliance Industries Ltd. for A.Y. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity or water charges has to be treated only as revenue receipt liable to tax. The Tribunal took the views that since the assessee was eligible for the incentive sat the stage of setting up of industries, it cannot be said that the scheme of Maharashtra govt. was for assisting the assessee to carry out the business operations profitably and therefore there was direct nexus of incentive linked to capital investment. 2. The judgment of the Madras High Court in Tamil Nadu Sugar Corporation Ltd. V/s CIT (2001) 165 CTR (Mad) 276 the assessee, a sugar factory owner, received purchase tax subsidy equivalent to the quantum of purchase tax, from the state government for a period of 5 years from the date of commencement of production. It returned the subsidy as business income for the A.Y. 1986-87 and 1987-88 but later filed revision applications before the CIT u/s 264 of the I.T. Act contending that the subsidy should be treated as capital receipt. The applications were rejected by the CIT, against which the assessee moved the Madras High Court by way of writ petitions. The Madras High Court held that a fair reading of the government order showed that the subsidy was given by way of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee's actual claim is based on purchases of goods for manufacture and sales of the goods manufactured as laid out in the terms and conditions of Certificate of Entitlement which is as under - i) Sales of goods manufactured at the said eligible Unit by the holder of this Certificate shall be free from whole of tax if it incorporates the following declaration in addition to certificate under section 12A of the Act in the sales bill or each Memorandum issued by him, in respect of the sales, viz "This sales is exempt from payment of sales tax under the provisions of Entry No.E-3 of the Schedule appended to the government Notification, finance Department, No. STA- 1095/37/TAXATION-2, dated 22-09-1995, and the buyer purchasing these goods and any subsequent buyer purchasing these goods - a) shall not be entitled to claim drawback, set off or refund under any provisions of the Act or the rules framed thereunder, in respect of the purchases of these goods; b) shall not give any certificate in form 31 or 31A under the BST Rules, 1959 to any subsequent purchaser of these goods". ii) the holder of this certificate shall be entitled to purchase goods free of tax on his fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (I)(B) of the Scheme gives the details of sales tax incentive by deferral Para 5.1(I)(C) of the Scheme gives the details of sales tax incentive by way of interest free unsecured loans. Para 5.1(II) of the scheme refers to quantum of sales tax incentives. On going through the details of para 5.1(I)(B) and 5.1(I)(C) relating to Sales tax incentives by way of deferral and by way of interest free unsecured loans, the eligible unit shall have to repay the sales tax liability after 10 years in accordance with the repayment schedule as per para 5.1(IV) of the Scheme. This clearly indicate that the legislature had never intended that the sales tax incentives by way of deferral and by way of interest free unsecured loan. Under Sales tax incentive by way of deferral and by way of interest free unsecured loans the assessee has funds available to the extent of sales tax liability which will be repaid at the end of 10 years. Such repayment will ultimately be claimed from the P & L account at the time of payment as per sec.43B of the I.T. Act. Thus, merely because the sales tax incentive by way of exemption was not payable at all, cannot change its colour from revenue receipt to capital receip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Special Bench in this case is against the law laid down by the Hon'ble High Court. Accordingly the first appellate authority rejected the claim of the assessee. Aggrieved, the assessee is in appeal. 7. Shri SE Dastur, the learned senior advocate submitted that the assessee had originally filed its return of income on 29-11-2003 and the decision of the Special of the Tribunal in the case of CIT vs Reliance Industries Ltd 88 ITD 273 (Mum)(SB) though pronounced on 23-10-2003 was published at a later date and was available to the public after 29-11-2003. On coming to know of this Special Bench decision, the assessee filed a revised return well within the time permitted by the law, wherein a claim has been made that sales-tax incentive received is a capital receipt and hence not a revenue receipt. He further submitted that for all the earlier years, wherever possible, wherever the matter was at different stages of appellate proceedings, the assessee had raised additional grounds of appeal and that in fact the Tribunal for the assessment year 2000-01 in ITA No.1968/Mum/2000 "J" Bench order dated 27th October, 2008 had admitted this additional ground. Referring to page 40 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d arguments which in effect disputes all the propositions and conclusions drawn by the Special Bench of the Tribunal in the case of CIT vs Reliance Industries Ltd 88 ITD 273 (Mum)(SB). Suffice to say that these arguments need not be repeated nor be answered separately for the reason that they stand answered by the decision of the Special Bench of the Tribunal in the case of CIT vs Reliance Industries Ltd 88 ITD 273 (Mum)(SB) and we are bound to follow the decision and conclusions therein. The argument that the decision of the Special Bench is "per incurium" is devoid of merit Shri Lal further argued that the assessee had not collected any sales-tax and thus the question of sales- tax incentive being identified and treating the same as a capital subsidy does not arise. He also drew the attention of the bench to page 45 of the CIT(A) and submitted that sales-tax collection and payment of products sold has not been passed through the P & L account and in such a situation the assessee is wrongly claiming deduction of sales-tax on notional basis. He drew the attention of the bench to the notes given by the auditors in their tax audit report and submitted that the argument of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Reliance Industries Ltd Everest Industries Ltd s DCIT Salient Features of the 1979 Scheme as discussed in the order Salient Features of the 1993 Scheme The salient features of the Maharashtra Scheme are: i) The aim was to disperse the industries outside the Bombay-Thane-Pune belt and to hasten the pace of industrialization in the developing regions of the State. Page 298 The aim was to intensify and accelerate the process of dispersal of industries from the developed areas and for development of the underdeveloped regions of the state particularly those farther away from the Bombay-Thane- Pune belt. Pg 52 Openi ng para ii) The incentive is based on the amount of investment in fixed assets Page 298 The incentive is based on the based on percentage of fixed capital investment Page 63 para 5.1 (II) iii) The quantum of incentive depended on the area in which the industry was located Page 298 The quantum depends on the area in which unit is located Page 62 para 5.1 iv) The incentive is in the form of sales tax exemption or interest free unsecured loan Page 298 The incentive under the 1993 Scheme will be admissible to a New ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Fibres Ltd (supra) had considered the incentive scheme of the Maharashtra Government of 1993 and came to a conclusion that this scheme is identical to the incentive scheme of 1979 considered by the Special Bench of the tribunal in the case of CIT vs Reliance Industries Ltd 88 ITD 273 (Mum)(SB) and concluded that the receipt in question is capital receipt. 10.5 At the time of hearing, it was brought to our notice that this Tribunal in the case of M/s. Sterlite Optical Technologies Ltd. in ITA No. 7136/Mum/04 had considered the benefit of arising out of earlier repayment of loan deferred under the very same scheme, which was repaid and the Tribunal has held as follows :- "We have considered the rival submissions and considered them carefully. We have also perused the orders of authorities below. After considering the submissions and case laws relied upon by both the parties, we find that the learned CIT(A) has discussed the issue at a great length and then came to the conclusion that provisions of section 41(1) are not applicable on the facts of the present case as the benefit received by the assessee is on account of capital receipt. The findings of learned CIT(A) are given in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intended for helping the entrepreneur in setting up the eligible unit. Though the sales tax incentive could have been realized only upon the commencement of the production, but the fixed capital investments entitled the appellant to the sales tax incentive. Thus, the Maharashtra Government instead of giving out rights subsidy for setting up the industry in the backward region had permitted the industrial Unit to realize the said subsidy by way of sales tax collection which were either exempted or deferred at the option of the Industrial unit. The Assessing Officer while disallowing the claim of the assessee by holding that the benefits received by the assessee were on account of revenue. In support of his contention, reliance has been placed by the Assessing Officer on the decision of the Apex Court in the case of Sahney Steel and Press Works (supra). We noted that the decision of the Apex Court is in favour of the assessee but not in favour of the Department. The Apex court in the case of Sahney Steel and Press Works (supra) has observed that the object with which the subsidy was granted would determine its nature a capital or revenue receipt. The observations of the Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Thus, where the subsidy or incentive given by the Government for acquisition of an asset or for buying any new assets for completion of the project, such subsidy would be of capital nature. The Special Bench of the Tribunal in the case of Reliance Industries (supra) has considered similar views of Maharashtra Scheme and had also made a comparative analysis of Andhra Pradesh Scheme and Maharashtra Scheme. The Judgement of Apex Court in Sahney Steel and Press Works was also taken into consideration and then after analyzing all the material, it was found that the benefit availed by the assessee was on account of capital receipt. It has been categorically held that sales tax incentive given in Maharashtra Government for setting up industrial unit in the notified areas with a view to bring about the necessary infrastructure in the backward areas, is a capital receipt not chargeable to tax. The deferral benefit received by the assessee has also resulted ultimately in the form of partial exemption for sales tax liability and the said exemption was provided under an identical incentive scheme of Maharashtra government. Therefore, the benefit availed by the assessee has to be held as capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther any amount was received by the assessee "so as to brand the receipt as either capital or revenue in nature" and the further question as to whether "if the amount is received where does it appear in the books of account". This question was considered in paragraph 27 of the Tribunal's order. One of the objections raised by the tax authorities was that the assessee did not separately charge sales tax in the invoices, but the tribunal held that this aspect was not relevant because it is not necessary to show in the sales invoices a separate charge for sales tax. The Tribunal proceeded to record a finding that even before the exemption was granted to the assessee and the assessee was liable to pay sales tax, it was not showing sales tax as a separate3 charge in the invoices. The same position was noticed to have been continued subsequent to the exemption. In this connection, the tribunal referred to rule 46A of the Bombay Sales Tax Rules which provided for bifurcation of the gross invoice figure into sales and the sales tax chargeable thereon. This rule has been applied in order to get over the situation caused by the assessee nor separately charging sales tax in the invoice. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tries in the books of account are not sacrosanct and if the true nature of the receipt or payment is different then the same has to be evaluated on the basis of substance of the transaction and in accordance with the law applicable to such transaction. This is what the commissioner (Appeals) has done in assessment year 1989-90 after reviewing earlier appellate orders (page 479 of paperbook). From this discussion it will be amply clear that the amount of notional liability determined bears the character of subsidy, the amount which otherwise would have been paid to the Sales Tax Department." 8. Before the Tribunal, the assessee had also raised an alternative contention to the effect that the sales-tax liability, ascertained and determined to be payable but not paid because of the exemption under section 41 of the Bombay Sales Tax Act, should be treated as having been paid and adjusted against the amount of subsidy receivable from the State government. This alternative contention was raised presumably to overcome the view if one is taken, that the amount determined as sales tax collected by the assessee and payable to the government, would be a revenue receipt or a trading receip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computing the written down value. The assessee alternatively, aggrieved at the non reduction of the same from the cost of land and building instead of plant and machinery. The facts of the issue are that the assessee had shifted its factory from Mulund, Mumbai to Lakhmapur, Nashik during the assessment year 1995-96 and 1996-97. As the assessee had shifted the unit from an urban area, to a non urban area it was entitled for claim of deduction u/s 54G of the Act. There is no dispute on the fact that the assessee was entitled to a deduction u/s 54G. The assessing officer during the current year invoked Explanation 10 to section 43(1) and came to a conclusion that the benefit derived by the assessee by virtue of section 54G, goes to reduce the actual cost of the asset and consequently the depreciation should be allowed only on such reduced cost. The assessing officer deducted the benefit derived by the assessee by virtue of this section 54G from the cost of the asset as disclosed in the assessment years 1995-96 and 1996-97 and thereafter recalculated the depreciation and the consequent written down value of assets and ultimately disallowed part of the claim of depreciation made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the benefit derived by the assessee u/s 54G during the assessment years 1995-96 and 1996-97. He relied on the orders of the authorities below. 16. Rival contentions heard. Section 54G exempts from capital gain on transfer of assets, in cases where an industrial undertaking is shifted from an urban area to a non urban area subject to fulfillment of certain conditions specified in that section. Explanation 10 to Section 43(1) reads as follows: "Explanation 10.- where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State government or any authority established under any law or by any other person, in the form of a subsidy or a grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee: Provided that where such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set aside the matter to the file of the assessing officer for fresh adjudication though he had no power to do so consequent to the amendment brought into the Act with effect from 01-06-2001 by Finance Act, 2001 whereby section 251(1)(a) has been amended and the words "or he may set aside" have been deleted. We also find that while the CIT(A) agrees with the submissions of the assessee, he set aside the matter to the file of the assessing officer for fresh adjudication which is, in our considered opinion, not proper. In any event, as the first appellate authority has no power to set aside the matter, we reverse his order to that extent and remit the matter back to his file for fresh adjudication in accordance with law. The assessee is at liberty to furnish any additional material in support of his claims and the first appellate authority is directed to admit such material and if necessary obtain a remand report from the assessing officer and dispose of these grounds on merits. The first appellate authority shall not be influenced by the fact that in the set aside proceedings the assessee has not been able to present himself before the assessing officer. In other words, as the set-a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture has to be allowed u/s 37(1) as held in National Industrial Corporation vs CIT 258 ITR 575 (Del). He also relied on the following case laws: Lalchand Bhagat Ambica Ram vs CIT (1959) 37 ITR 288 (SC) CIT vs Daulat ram Rawatmull (1973) 87 ITR 349/360 (SC) Sukhdayal Rambilas vs CIT (1982) 136 ITR 414/418 (Bom) He also pointed out that the details of the sale promotion expenditure are given at page 237 of the paper book as well as on pages 19 and 36 of the supplementary paper book. 23. The learned departmental representative, on the other hand, supported the order of the first appellate authority. 24. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and on a perusal of the orders of the authorities below as well as the case laws cited we find that the disallowances in question is made on an adhoc basis merely on the ground that there would be a possibility that some of the expenses would have not been incurred. The Assessee provided complete break up of all the details in the course of assessment proceedings and also an extract of the ledger account in respect of the details provided. The assessing officer has not asked for an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Calcutta High Court in the case of Cultural Enterprises (supra) held that when money is spent for repairs in a particular year, the expenses on even arrear repairs are to be considered as revenue expenditure. Respectfully applying these decisions to the facts of this case, we allow the ground of the assessee. 27. Ground No.11 is against the levy of interest u/s 234D. Section 234D was introduced with effect from 01-06-2003 and hence applicable for the assessment year 2004-05 as held by the Hon'ble Special Bench of the Tribunal in the case of ITO vs Ekta Promoters Pvt Ltd 113 ITD 719 (SB)(Del). Respectfully following the same we allow this ground of the assessee and direct the assessing officer not to levy interest u/s 234D. 28. Ground 12 is against the levy of interest u/s 234B and 234C. The case of the assessee is that interest u/s 234C is to be calculated as per the income disclosed in the revised return as the phrase used in the said section is "tax due on returned income". Reliance was placed on the decision in the case of South Eastern Coal Fields Ltd s JCIT 85 ITD 608 (Nag). On interest u/s 234B, the learned counsel fairly conceded that the same is consequential in n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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