9911796707
TMI Blog2016 (5) TMI 159X X X X Extracts X X X X X X X X Extracts X X X X ..... 3283/Del/2013. The Grounds of appeal raised by the assessee in the appeal are as under: "1. That on the facts and circumstances of the case and in law the order dated 25.03.2013 passed by the learned Commissioner of Income-tax, ('CIT') under section 263 of the Income-tax Act, 1961 ('the Act') holding the assessment order dated 27.12.2010 to be erroneous and prejudicial to interests of revenue on certain issues, is beyond jurisdiction, bad in law and void ab initio. 1.1 That the CIT erred on facts and in law in exercising reversionary powers under section 263 of the Act in respect of certain issues, without appreciating that the twin conditions of that section viz., assessment order being erroneous as well as prejudicial to the interests of the Revenue, were not satisfied in the appellant's case. 1.2 That the CIT erred on facts and in law in setting aside the assessment order on certain issues allegedly on the ground that the assessing officer did not conduct necessary and proper enquiries/ verification and did not apply correct position of law, which is outside the scope of revisionary jurisdiction under section 263 of the Act. l.3 That the CIT erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tware 'Primavera' was not allowable under section 32(1)(iia) of the Act. 4.1 That the CIT erred on facts and in law in holding that the aforesaid computer software was only office equipment and does not qualify as 'plant and machinery, for being eligible for additional depreciation. The appellant craves leave to add, alter, amend or vary from the aforesaid grounds of appeal at or before the time of hearing." 3. The facts in brief are that the assessee company was engaged in generation of power and manufacturing of sponge iron products during the previous year relevant to the assessment year under consideration. For the year under consideration, the assessee filed its return of income electrically on 29.09.2008, declaring income of Rs. 766,99,04,200/- under normal provisions of the Act, after availing of various deductions under the provisions of the Act. The case was selected for scrutiny and notice under Section 143(2) of the Act was issued on 28.03.2009. Subsequently, on 29.03.2010, the assessee filed revised return of income reducing income under normal provisions of the Act to Rs. 766,72,79,900/- . In the case of the assessee, the tax on the book profit unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding on the merit as to how the assessment order was erroneous as well as prejudicial to the interest of revenue. All the above grounds revolve around the legality of proceedings under section 263 of the Act. Further, in Ground 2, it has been specifically contended that the CIT erred on facts and in law in holding that the order passed by the assessing officer was erroneous and prejudicial to the interest of the revenue on account of the following: i) Allowing reduction of sales tax incentive/ subsidy amounting to Rs. 81.5 crores from the taxable income by treating the same to be non- taxable, being in the nature of capital receipt; ii) Allowance of additional depreciation of Rs. 5,91,106 on computer software 'Primavera'. 6. So far as the taxability of sales tax subsidy is concerned the relevant facts are that in the financial year 2000-01, the assessee company was granted an exemption from Central Sales Tax (CST) vide notifications of even no. dated 24th April, 2000 in respect of sale of goods manufactured/ by-products etc. from its new industrial unit(s) established in the state of Madhya Pradesh, with a commitment of capital investment in fixed assets exceeding Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2008 held the benefit of sales tax exemption as taxable revenue receipt. The aforesaid decision of the Tribunal has been followed by the Tribunal in assessment year 2002-03 & 2004-05 in ITA No. 368/Del/2001 and 136/Del/2000 respectively vide order dated 06.03.2014. 7. During the proceedings under 263 of the Act before the CIT, on the issue of the sales tax subsidy, the assessee vide its letter dated 17.12.2013 submitted that the order was not erroneous and prejudicial to the interest of the revenue as sales tax subsidy was claimed and allowed in accordance with the purpose test held by the Hon'ble Supreme court in the case of Ponni Sugar and Chemical Limited v CIT, 306 ITR 392. Further the assessee submitted that the judgment in the case of Abhishek Industries Ltd. 286 ITR 1 (P&H) was not applicable as the Hon'ble Court was not having benefit of the judgment of the Hon'ble Supreme court in the case of Ponni Sugar and Chemicals (supra). Further, the assessee submitted that the Hon'ble Punjab & Haryana High Court in the case of CIT v. Siyaram Garg (HUF), 237 CTR 321 has followed the judgment in the case of Ponni Sugar and Chemical Limited (supra) and subsidy received for setting up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eds were credited as revenue item to the P & L Account, however, at the financial year end the profit of the assessee company was reduced by passing journal entry for appropriation of Rs. 81.59 crores as sales tax subsidy. iii) that the unit of the assessee was exempt from payment of sales tax and thus was not authorize to collect any amount of sales tax, however, the assessee assumed that within the total sales proceed, there was a component of sales tax subsidy, which was equivalent to the amount of exempted amount of sales tax, which would have been payable but for said exemption by the State Government, not paid. iii) that the assessee claimed the above sales tax exemption benefit as non-taxable capital subsidy but the assessee did not subtract the said amount from the cost of the capital asset, on which depreciation was claimed and thus the assessee took double benefit of something which was actually not received from the State Government; and iv) that the sales tax exemption was available to the assessee in earlier years also and the part of which was treated as sales tax subsidy, was not taken to the balance-sheet, but it was claimed as deduction at the time of computa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y scheme of the Govt. of Madhya Pradesh. The claim of the assessee that the assessee company was granted sales tax exemption vide notification of even no. dated 24th April, 2000 , relying on the earlier notification of even numbers dated 3.6.1993 and Industrial Policy of 1994 of Govt. of Madhya Pradesh, was without any basis as there was no live link between the notification of 1993/Industrial Policy, 1994 and the notification of even number dated 24th April, 2000. There was no mention of any objects of granting exemption like development of backward areas or generation of employment etc in the notification under which the assess was granted exemption from payment of CST. iii) The benefit granted under the notification was more than the investment made by the company in the said unit. (iv) The Industrial Policy and notifications issued clearly mentioned that the scheme of state capital investment subsidy was in operation before the issue of notification in the case of the assessee and if the assessee had availed any benefit under the said scheme, the same was required to be refunded back. Thus the exemption granted was not part of any scheme of subsidy or Industrial Policy. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zation of projects, real time monitoring and information exchange with site on progress made etc. According to the CIT the software was not actually installed within any manufacturing machinery and it was independent office equipment which helped the assessee to manage the project in better ways. Thus, it was only office equipment and not eligible for additional depreciation available in respect of plant and machinery used in manufacturing activity. Thus, failure on the part of the Assessing Officer to consider this issue caused a prejudice to the Revenue according to the CIT. Aggrieved with the order of the CIT, the assessee filed an appeal before us. 13. At the time of hearing before us, the ld Authorized Representative of the assessee (in short 'AR') referred to the application for admission of additional evidence in terms of Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963 containing certain documents/notification/correspondence between various departments of the State Government and the representatives of the assessee company. According to the ld. Authorized Representative, the said documents/notifications/correspondences were received recently by the assessee under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingly. 16. At the time of hearing, ld. Authorized Representative/ counsel for the assessee highlighted the legal position as held by various courts in respect of Section 263 of the Act. Referring to the judgment of Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. Vs. CIT, reported in 243 ITR 83, the ld. Authorized Representative submitted that under Section 263 of the Act, the Commissioner can revise the order of the assessment only if the twin conditions i.e. the order is erroneous and the order is prejudicial to the interest of revenue, are satisfied cumulatively. The ld. AR also referred to the judgment of the Hon'ble Apex Court in the case of CIT v. Max India Ltd. 295 ITR 282 in this regard. Further the ld. AR submitted that once the relevant details/documents are available on record and a view can be formed by the Assessing Officer on the basis of material available on record and it may not be necessary for the Assessing Officer to conduct the detailed inquiry. In support of the proposition, he relied on the judgment of the Hon'ble Delhi High Court in the case of CIT Vs. Eicher India Ltd, 294 ITR 310 (Del.). Further, the ld. AR made a proposition that where on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of sales tax in the instant year. It was submitted that such a exemption was provided to the appellant for setting up new industrial unit in the backward area, to promote industrialization, create employment and therefore such an incentive was an capital receipt. As regards the complete disclosure of facts of sales tax subsidy/ incentive, it was submitted that such incentive was disclosed under the sub-head sales tax subsidy/capital reserve in schedule 2 to Reserves and Surplus of Balance sheet in compliance with Accounting Standard 12 i.e. accounting for government grants issued by Institute of Chartered Accountants of India (ICAI). The ld. AR further invited our attention to the notification issued by the Govt. of Madhya Pradesh to contend that the observation of the CIT that the sales tax subsidy was a revenue receipt was an erroneous observation. He emphasized that the scheme/notification were available only to industrial units and therefore any benefit/incentive was intended for the industrial and economic development of the state and therefore a capital receipt. He placed reliance on the judgment of the Apex Court in the case of VSSV Meenakshi Achi 60 ITR 253 and Sahni St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy was a capital receipt. It was submitted that in facts of the case there was no specific obligation in the scheme for utilization of subsidy but as a matter of fact that assessee had no other alternative but to utilize subsidy for repayment of secured borrowing. The learned AR emphasized that such an treatment has no application to regard the receipt as revenue receipt. It was further submitted that no doubt that in the case of the assessee in assessment year 2002-03, 2004-05 and 2005-06 in ITA Nos 368/D/2009, 3319/D/2008 and 168/D/2009 has vide separate orders held that the subsidy to be revenue receipt and appeals filed by assessee are pending before the Hon'ble Jurisdictional High Court of Punjab & Haryana yet since such a decision is contrary to the binding decision of Special Bench in the case of Reliance Industries (supra) therefore the same cannot be treated as binding precedent. He has further referred to various paragraphs of the order of Tribunal for the A.Y. 2004-05 to contend that such a conclusion was not in accordance with the decision of Special Bench. It was specifically submitted that the appeal filed by the Revenue against the order of Special Bench stands dismi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of assessment was framed with due application of mind and after considering all requisite information and explanation tendered and therefore such an order could not be regard as erroneous and prejudicial to the interest of revenue, so as to exercise jurisdiction u/s 263 of the Act. 19. Before us the ld counsel for the Revenue Sh. Ashok Manchanda alongwith ld. CIT DR Sh. Saroha pleaded that order in exercise of power u/s 263 of the Act was in accordance with law. It was submitted that major issue in this case revolves around the amount of Rs. 81.59 crores which the assessee claimed as capital receipt whereas by the Revenue's stands it is revenue receipt. It was contended by the ld. counsel of the Revenue that the facts of the various cases relied upon by the ld AR are different from the facts of the assessee and thus ratios of those cases were not applicable on the issue in dispute. It was further submitted that in the case of the assessee the sales tax exemption was merely in the nature of revenue receipt from an exemption granted by the Government and not in the nature of subsidy or incentive to be considered as Capital Receipts. As regards to disclosure of the transactions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been taken and thus the view of the CIT has not substituted the view of the Assessing Officer. The ld. counsel of the Revenue contended that there was no office note by the Assessing officer to justify change in stand. The revenue relied on the decision of the Tribunal in the case of NIIT Vs CIT reported at (2015) 60 taxmann.com 313 (Delhi), judgement of the High Court of Madras in the case of CIT vs Smt Laxmi Narayana reported at 157 ITR 816, judgment of High Court of Delhi in the case of CIT v. Goetz (India) Ltd. 361 ITR 505 and submitted that it was a case of no enquiry and due to these errors on the part of the Assessing Officer prejudice was caused to the Revenue and the CIT was fully justified in directing the AO to pass a fresh assessment order. He also relied on the following judgements in support of his contention that the AO has not applied his mind to the facts of the assessee and non application of mind has resulted in assessment order as erroneous as prejudicial to the Revenue: i) Malabar Industrial Co. ltd Vs CIT 243 ITR 83 (SC) ii) Gee Vee Enterprise Vs. Addl CIT 99 ITR 375 (Delhi) iii) K.A. Ramaswamy Chettiar v CIT 220 ITR 657 (Mad) iv) Toyota Motor Corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntended that subsidy has been assigned a very narrow meaning as per Oxford Advanced learned Dictionary to include only cases where money is actually paid. It was also contended that disclosures made in tax audit report and other documents were not relevant. 21. So far as the second issue is concerned, it was submitted that there was difference of Rs. 1.81 crores under the head provision for "gratuity". The Revenue contended that instead of disallowance of Rs. 49.41 lakhs entire amount of Rs. 1.92 crores ought to have been disallowed under section 40A(7) of the Act. It was further contended that appellant had not filed reconciliation and ledger account of gratuity in the assessment proceedings and had in fact concluded that there was prejudice to interest of revenue. The third issue i.e. claim of additional deprecation of Rs. 5,91,106/- on computer software 'Primavera', the Revenue relied upon the findings of the CIT to support the order u/s 263 of the Act. 22. The learned AR in his rejoinder submission contended that there was no change in the method of accounting (mercantile basis) requiring any specific disclosure in return of income. It was submitted that treatment was duly su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jects in larger public interest. The learned AR also contended that decisions relied by the Revenue are not applicable. It was also contended that to determine the character of subsidy, "purpose test" has to be applied and form, mode, manner and time at which subsidy is granted is irrelevant. It was next contended that the CIT DR conveniently chose to ignore the definition of subsidy in the Black's Law Dictionary wherein much wider meaning has been given and has been stated that subsidy is usually in indirect form (tax breaks etc.). It was contended that assessee placed reliance on circular no. 9/2006 and various judicial precedents wherein it has been held that disclosures made in the audited accounts and tax audit report form integral part of the income tax return. As regards certain specific allegations of the Department, it was contended that the assessee has never claimed exemption under Notification dated 3.6.1993, the assessee relied on the Industrial Policy, 1994 and the specific discussion between the Council of Ministers for granting exemption to the assessee. It was submitted that industrial Policy 1994 was in force till 2003 as against allegation of the Department that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacturing purposes. 25. The learned AR thus contended that the impugned order passed by the CIT under section 263 was without jurisdiction and bad in law and additions/disallowances made in the consequential order u/s 143(3)/263 of the Act are illegal, unsustainable and call for being deleted. It was also contended that the penalty imposed on all the issues is illegal, unsustainable and calls for being deleted in toto. 26. We have heard the rival submissions and perused the material on record. The solitary issue involved in this appeal relates to assumption of jurisdiction u/s 263 of the Act. The Section 263 of the Act is headed 'Revision of orders prejudicial to Revenue' and confers suo motu powers of revision on the CIT to take steps for annulment, modification, cancellation, etc. of an order of assessment under the circumstances indicated therein. The Section 263 of the Act provides as under: "263. (1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue ; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law." 28. Further judgment in the case of Gee Vee Enterprises 99 ITR 375 was also considered and it was noted that it has been held therein as under: "The reason is obvious. The position and function of the Income-tax Officer is very different from that of a civil court. The statement made in a pleading proved by the minimum amount of evidence may be adopted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of the return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the retur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... positions, as advanced by both the parties. It has consistently been held that if the AO's conclusion is arrived at after due application of mind on a particular issue, then the order cannot be said to be erroneous. 'Due application of mind' implies that if the assessee has merely responded to the AO's query and the AO, without proper verification of replies, accepts the same, then, it cannot be said to be a case of due application of mind. 28.1 Ld. Special counsel has rightly pointed out that the expression, 'inquiry', 'lack of inquiry' and 'inadequate inquiry', have not been defined and, therefore, when the action of the AO would be suggestive of lack of inquiry or inadequate inquiry, will depend upon the facts obtaining in a particular case. What emerges as a broad principle from the various decisions is that where the AO has reached a rational conclusion, based on his inquiries and material on record, the Commissioner should not start the matter afresh in a way as to question the manner of his conducting inquiries. It is not the province of the Commissioner to enter into the merits of evidence; it has only to see whether the requiremen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y' . If a particular issue comes within the ambit of complete lack of inquiry then the order is to be considered as erroneous as well as prejudicial to the interests of revenue but if the case is of inadequate inquiry, then ld. CIT has to demonstrate that how the order was erroneous and prejudicial to the interests of revenue. This aspect we will take into consideration while deciding various issues on merits. In the result, this ground is disposed of accordingly." [Emphasis supplied] 33. Also Madras High Court in the case of K.A. Ramaswamy Chettiar v CIT 220 ITR 657 has held that when the ITO is expected to make an enquiry of a particular item of income and he does not make an enquiry as expected that would be a ground for the CIT to interfere with the order passed by the ITO since such an order passed by the ITO is erroneous and prejudicial to the interests of revenue. It has been held as under: "In the case of Addl CIT v. Mukur Corpn. [1978] 111 ITR 312 (Guj.), it was held that "in the present case it was obvious that the Income-tax Officer had committed an error in not making enquiry into the details as regards both the deductions and also that want of such enquiry had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired to be recorded by the Assessing Officer. According to the assessee all relevant aspects were placed for consideration and if the officer did not record reasons, assessee cannot be faulted. We do not think it necessary to interfere at this stage. It goes without saying that when the matter be taken up by the Assessing Officer on remand, it shall be his duty to take into account all the relevant aspects including the materials, if any, already placed by the assessee, and pass a reasoned order." 35. From the aforesaid it is now a trite principle of law that where there is "lack of enquiry" by the AO during the assessment proceedings then such an order would be subject to revisionary jurisdiction u/s 263 of the Act as such an order would be erroneous as well as prejudicial to the interest of Revenue. Thus the ideal situation is to find out that Assessing Officer has investigated an issue in a purposeful manner and discussion in respect of that issue should discern from the order itself. However, if no discussion is available in the order then it has to be gathered from the material available on record. The integral idea being of due application of mind to the facts of case a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as one questionnaire issued by the Assessing Officer dated 1.2.2010 wherein the assessee was asked to explain "treatment of sales tax, entry tax and electricity duty (claimed as capital receipt in computation of income) amounting to Rs. 48,39,36,937/- in the books of accounts of the assessee company and why the same should not be treated as revenue subsidy. The CIT in respect of the same has concluded as under: "On careful examination, records revealed that the said amount of Rs. 48,39,36,937/- mentioned by the AO, in the above stated questionnaire is total sum of Entry Tax (Rs. 17,28,48,148/-) and Electricity Duty (Rs. 31,10,88,789/-). These amounts have been claimed by the assessee in computation of income as deduction. In the Assessment Order, the AO has dealt with these items and finally disallowed the deduction claimed by the assessee. However, the amount of Rs. 81.59 crores (purported Sales Tax Subsidy) has been shown in the Schedule - 2 (of the Balance Sheet), under the heading Reserves and surplus' - 'Sales Tax Subsidy / Capital Reserves'. Therefore, the reference of the AO in the questionnaire is only related to Entry Tax and Electricity Duty (although it men ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 81,58,94,102.33/- as reflected in the balance sheet of the appellant. The figures stated in the questionnaire was of Rs. 48,39,36,937/- comprised of sums of entry tax (Rs. 17,28,48,148/-) and electricity duty (Rs. 31,10,88,789/-) which had been claimed as deduction in computation of income, whereas amount of Rs. 81.59 crores has been shown in the schedule-2 under the heading "reserves and surplus"-"sales tax subsidy"/"capital reserves" by reducing the corresponding sum from the sales. 39. The Revenue has highlighted during the course of hearing that in the return of income for all assessment years from 2002-03 to 2007-08, the exemption amounts have been treated as part of its sale proceeds and have always been included in the gross revenue receipts and it was deducted only at the time of computation of income while preparing the return of income. However in the instant year, there was a marked departure whereby though the impugned amount of Rs. 81.59 crores on account of sales tax exemption also formed part of the sale proceeds/gross revenue receipts recorded by the assessee in its books of accounts, yet on 31.3.2008 i.e. the last date of the accounting period that assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall dealt in the appeal arising against the consequent assessment and thus, the grounds raised challenging the action u/s 263 of the Act on the issue of sales tax exemption/subsidy are dismissed. 41. So far as the second issue is concerned, the relevant facts are that there was a difference of Rs. 1.81 crores under the head provision for "gratuity" between outstanding as per balance sheet and audit report. The amount outstanding was Rs. 7.70 crore as per balance sheet as on 31.3.2008 and Rs. 5.89 crores as per tax audit report for section 43B of the Act (including amount of earlier years). 42. The aforesaid variation was attempted to explain on behalf of the assessee by stating that as per the audit report difference between provision as per balance sheet as on 31.3.2007 and as on 31.3.2008 was Rs. 1.92 crores (Rs. 7.70 crores - Rs. 5.78 crores); whereas the assessee has disallowed Rs. 1,58,03,552/- u/s 43B as per Annexure "O" to the Tax Audit Report (Rs. 1,00,17,892/- in respect of Raigarh and Rs. 57,85,03,552/- in respect of Raipur) and Rs. 49,41,850/- u/s 40A(7) of the Act as per Annenxure "X" to the Tax Audit Report and since total in these figure of disallowance is more tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respectively), we get the -figure of Rs. 5,78 crore which tallies with the figure as per balance-sheet." 44. The CIT having regard to the above has held as under: "Therefore, assessee's explanation cannot be taken on face value. If the figures of last year could be reconciled by totaling of amounts given as per Tax Audit Report in respect of Section 43B and disallowances u/s 40A(7) (in that year as well as previous then, there is no reason as why figures of this year cannot be reconciled, in the similar way. It is seen from the reply of the assessee dated 17.01.2013 that the said figure of balance -sheet is reconcilable, if also include Rs. 0.88, crores transferred to general reserve. As the same has not been paid, it is liable to be disallowed. AO has, however, failed to notice the issue and make proper inquiry / verification. The failure on the part of. A.O. renders the assessment order erroneous and prejudicial to the interest of revenue, in respect of this issue." 45. From the aforesaid disallowance it is apparent that assessment order was erroneous and prejudicial to the interest of revenue in respect of omission to make an admitted disallowance of Rs. 88 lacs on ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a in all major companies - REL/Tata Power I NTPC NHPC have already commenced Primavera for project management. In summary, Primavera was found more adept and focused for providing our required solution compared to Microsoft offering one of their existing packages and the former having rich experience in successful implementation in our industry specific. Primavera Description No. of Login P6-Level 3 (web based user for top management for review etc. and site ufgradations 9 nos. P6-Level 4 Planner / Scheduler 14 nos. Level-2 (Contributor) 10 nos. Thus, prirnavera offers best-in-class solutions focused on the mission critical PPM requirements of key vertical industries including engineering and construction, utilities & manufacturing sector. For this purpose various servers have been installed which are integral part of plant & machinery." 47. In light of the above reply the CIT has concluded as under: "34.4 Reply of the assessee has been considered, carefully. There is nothing on the record that A.O. has considered the issue. Nor during present proceedings, assessee could establish that A.O. asked for the details and assessee supplied relevant details. The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow that necessary and proper enquiries were made viz-a-viz the claim of the appellant. Mere disclosure in the return of income or the financial statements above does not show or demonstrate that there was due application of mind by the AO. On the contrary complete explanation alongwith invoices had been placed on record for the first time during the revision proceedings and not in the assessment proceeding and thus the assessment order is both erroneous and prejudicial to interest of revenue. Hence, even on this issue the claim of the appellant is not maintainable. 49. In view of the above, the grounds raised by the assessee in relation to order under 263 of the Act by the CIT , are dismissed. We may state here that while disposing off the above grounds, we have not considered the arguments by both the sides on merits of addition/disallowances made, which will be considered independently in the quantum appeal in ITA No. 3128/D/2014. 50. As regards grounds 3 and 4, it is noticed that CIT in the impugned order has not adjudicated on merits of the taxability of subsidy of Rs. 81.50 crores and claim of additional depreciation of Rs. 5,91,106/- on computer software u/s 32(1)(iia) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by appellant in return of income for the relevant assessment year and therefore, addition thereof resulted in double addition of the same amount. 3.2 That the CIT(A) erred on facts and in law in alleging that the appellant failed to furnish reconciliation and failed to show that Rs. 49,41,850 had been added back in the computation of income. 3.3 That the CIT(A) erred on facts and in law in observing that "addition of Rs. 1,37,41,850/-" is confirmed, without appreciating that the appellant had only challenged double addition of Rs. 49.42 lacs made by the assessing officer." 53. Grounds No. 1 to 1.2 challenge the action of the Assessing officer in making an addition of Rs. 81,58,94,102/- representing sale tax subsidy held to be trading receipt as against capital receipt claimed by the appellant company. 54. From the perusal of the assessment order it is noted that pursuant to the order dated 25.3.2013 u/s 263 of the Act, the AO issued notice dated 31.3.2013 u/s 143(3) read with section 263 of the Act. The assessee in compliance filed reply dated 7.5.2013 and the AO noted that both before CIT and before him, the assessee contended that sales tax subsidy was a capital receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble High Court decided similar issue in favour of the assessee by holding that the subsidy given for setting up of unit in the state of Jammu for employment generation was in the nature of a capital receipt, not liable to tax under the provisions of the Act 55. On consideration of the above reply the ACIT Hisar, Circle Hisar rejected the claim of the assessee for the following reasons: i) The Assessee failed to discharge its onus regarding the preposition that the State Government does not have any right over any part of the said trade receipt in lieu of goods sold. The statement of assessee ".... the only differences that in case of exempt unit, sales tax is not separately reflected in this bill, but is collected and retained by the assessee....." is beyond facts. It is provided in the highest law of the land i.e. constitution of India that no tax could be collected without authority of law. In such a scenario when levy of the sales tax is not there, how can any amount be collected as sales tax? ii) The argument of the assessee that the exemption is subject to certain condition does not help the cause of the assessee, because as long as the exemption is operative for the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s within the definition of 'income'. 57. Apart from the above it has been concluded that the assessee could not produce any material to link the above notifications to any 'scheme of subsidy' or 'incentive' under which the case of the assessee is covered. It has been specifically held as under: "12.2 The above contentions of the assessee are considered, carefully. Assessee could not point out to any material to prove that the notification dated 24.2000 (reproduced in para 7.1 above) is linked to any 'scheme'. The assessee only repeated it's earlier arguments. As discussed in earlier paras, these arguments of the assessee are general. It was also seen that the linkages to the Industrial Policy of 1994 and Notification of 1993 (reproduced ini para 8.2.1 above) are loose and indicate desperate attempts of the assessee to beat about the bush. 12.3 At the cost of repletion, it is stated that ours is a welfare state and Govt. keeps on providing various facilities/incentives for encouragement of activities which are considered desirable for economic development. Each of such facilities/incentives goes to save some money of a businessman. However, Govt. may not have intention to gran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were also not found to be applicable to this case. Therefore, respectfully following the judgment of the Hon'ble ITAT for AY 2004-05 in the appellant's case (supra), I confirm the addition of Rs. 81,58,94,102/-. This ground of appeal is dismissed." 60. We have heard the rival submissions and perused the material on record. We find that issue is no longer res integra and stands concluded by the decision of Tribunal in the case of assessee company in ITA No. 3319//D/2008 dated 22.2.2013 for Assessment year 2004-05 wherein it has been held as under: "However, we find that the issue has been explained in detail in the Apex Court judgment of Sahney Steel & Press Works Ltd.(supra) and Ponni Sugars & Chemicals Ltd. (supra) wherein the Hon'ble Court had taken opposite views in view of different facts and circumstances of both cases. The case law of Sahney Steel & Press Works Ltd. (supra) squarely covers the facts and circumstances of the present case. The facts of Sawhney Steel & Press Works are that whether subsidy received by the assessee company was taxable as revenue receipt or not. As per notification issued by Andhra Pradesh Govt. certain facilities and incentives were to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplementary trade receipts and assessee was free to use the money in its business entirely as it likes and was not obliged to spend the money for a particular purpose. It was further held that by no stretch of imagination the subsidy by way of refund of sales tax or relief of electricity charges or water charges can be treated as an aid to setting up of the industry of the assessee. It was held that character of the subsidy in the hands of recipients whether revenue or capital will have to be determined by having regard to the purpose for which the subsidy was given and if it was given by way of assistance to the assessee in carrying on his trade or business it has to be treated as trading receipt and if the refund of sales tax on purchase of machinery as well as on raw material is given to enable the assessee to acquire new plant & machinery for further expansion of its manufacturing capacity the entire subsidy must be held to be a capital receipt in the hands of the assessee. The Hon'ble Court further held that subsidies were not granted for production or bringing into in existence any new asset and the same were granted year after year only after setting up of new industry a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment of loans which were taken by the assessee to set up new unit or for substantial expansion of an existing unit. From the analysis of both judgments of Hon'ble Supreme Court it can be concluded that both judgments are not contrary to each other and rather they are complimentary to each other. In the former case the Hon'ble Supreme Court had decided the nature of subsidy depending upon the purpose for which it was paid it was held to be on revenue account in the form of sales tax exemption, water tax exemption etc. whereas in the latter case the subsidy was paid for repayment of outstanding loans which were capital in nature Therefore, keeping in view the purpose test which was for repayment of loans a capital receipt the Hon'ble Court had held it to be capital receipt. The assessee had relied upon a number of judgments given by lower courts which has considered subsidy as capital receipt by applying purpose test but the facts and circumstances of each and every case are different from the facts and circumstances of the present case which are squarely covered by the judgment of Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. (supra). The cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in view the provisions of section 28A of Haryana General Sales Tax Act, 1973 which is not the case in the present appeal. Moreover, the case was decided after taking into account the judgment in the Special Bench case in the case of Reliance Industries Ltd. (supra) which has now been remitted back by Hon'ble Supreme Court to High Court for re-consideration. The facts and circumstances of present appeal are similar to the facts and circumstances of Sahney Steel & Press Works Ltd. (supra) which has been adjudicated by the Apex Court. 56. Indo Rama Textiles Ltd. (supra) In this case the Hon'ble Tribunbal has held the subsidy on account of sales tax exemption to be of capital in nature relying upon the case law of Reliance Industries Ltd. (supra) which itself has been remitted back by Hon'ble Supreme Court to Hon'ble High Court for reconsideration. 57. As regards reliance of Ld AR on Circular No.142 dated 1.8,1974, it is observed that the circular was in respect of 10% Central outright grant of subsidy for industrial units to be set up in certain selected backward areas and it was specifically intended to be contribution towards capital outlay of industrial uni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t as per the assessee's counsel's contention, the ITAT, while passing the order for AY 2004-05, has violated the above settled principle of judicial propriety. But, the Revenue is of the opinion that the above principle of judicial propriety should be strictly observed by us while passing the order for AY 2002- 03. We also respectfully agree with both the parties that it is a settled judicial propriety that one Division Bench should not take a view contrary to the view taken by another Division Bench. Now, whether the ITAT violated the above settled principle of judicial propriety or not is not for us to adjudicate. It has been pointed out by the learned counsel that the assessee had filed the appeal before the Hon'ble Jurisdictional High Court against the order of ITAT for AY 2004-05 and the matter is pending before them. Therefore, whether there is violation of principle of judicial discipline or not in AY 2004-05, is subjudice before Hon'ble High Court. Now, so far as this year is concerned, we find that there is a decision of Division Bench of ITAT in assessee's own case for AY 2004-05. Whether the subsidy is a capital receipt or revenue receipt would depend on the incentiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he distinction between the subsidy given with the object of setting up the industry and the subsidy given after the industry commences production and conditional upon the commencement of production. Factually, the Tribunal found that the assessee's case which fell under the Maharashtra Scheme was a case where the subsidy was given for the purpose of facilitating the assessee to set up an industry in Patalganga, Raigad District, which was a notified area. The actual disbursement took place after the assessee commenced production, but, according to the Tribunal, it was only a mode of disbursement and had nothing to do with the object for which the subsidy was given. Thus, it was found that the Tribunal did notice the crucial observations of the Supreme Court in Sahney Steel & Press Works Ltd.'s case (supra) which gave primacy to the object of the subsidy over the fact that it was given after the commencement of production. The Tribunal's observations made on the basis of the observations of the Supreme Court in Sahney Steel & Press Works Ltd.'s case (supra) also showed that the Tribunal was alive to the distinction between the character of the subsidy given with the object of promoti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f their Lordships reported at page 267 of 228 ITR reads as under:- "The Madhya Pradesh High Court in the case of CIT v . Dusad Industries 162 ITR 734, dealt with a case where Government had framed a scheme for granting sales tax subsidies to industries set up in backward areas. The High Court was of the view that the object of the scheme was not to supplement the profits made by industries. In that view of the matter, the High Court held that the subsidies given under the said scheme by the Government to newly set up industries were capital receipts in the hands of the industries and could not be taxed as revenue receipts. In that case, 75 per cent of the sales tax paid in a year for a period of five years from the day of starting of production was to be given back by the Government to the industry concerned. The High Court was of the view that obviously the subsidy was given by way of an incentive for capital investment and not by way of addition to the profits of the assessee as was clear from the facts and circumstances of the case. The Madhya Pradesh High Court, however, failed to notice the significant fact that under the scheme framed by the Government, no subsidy was given u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in its books of accounts and for the purpose of computing income as per income tax, the assessee used to reduce the amount of CST exemption amount along-with Entry Tax and Electricity Duty exemption amount out of the income of the company at the stage of computation of profit and gains of the business treating the same as capital receipt not taxable but in the year under consideration, the assessee company changed the treatment of benefit of Central Sales Tax (CST) exemption in books of account. Thus rather than reducing such benefit from the profit and gain of the business, the assessee at the end of the previous year transferred the amount of sales tax benefit from the sales account to reserve and surplus account, holding the same as capital receipt not taxable. In the notes to account to the Annual Report, the assessee stated that this new treatment was to meet the compliance of Accounting Standard (AS-12) prescribed for Government Grants. But in respect of similar benefit of Entry tax exemption (Rs.17,28,48,148/-) and electricity duty exemption (Rs. 31,10,88,789/-) the Accounting Standard (AS-12) was not followed and those amount were reduced out of the profit and gain of busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the case of Gujarat High Court in the case of CIT v. Statronics and Enterprises (P) Ltd. (supra) and Allahabad High Court in the case of CIT v Radla Machinery Exports (supra). 66. The CIT(A) has confirmed the addition on the following basis: "A perusal of the submissions made by the appellant and on the facts on record show that this software is merely an office tool to manage the projects of the company in an efficient and better way. It is equipped on office equipment and is not an integral part of plant and machinery within the meaning of the Act. This is a software tool which is not part of actual manufacturing activity and is not intrinsically linked to a plant and machinery engaged in the production process. In view of the fact, I confirm the addition of Rs. 5,91,106/- on this account." 67. We have heard the rival submissions made on the issue at the time of hearing of appeal in ITA No. 3283/Del/2013 and perused the material on record. We note that the claim of additional depreciation has been denied on the basis that additional depreciation is not allowable on offices tool and Primavera software was not installed in any manufacturing machinery but was like any other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition of Rs. 49,41,850/- on account of provision for gratuity. 70. The relevant facts are that an amount of Rs. 2,95,45,402/- pertain to the provision for gratuity outstanding at the claim of the instant year and out of which sum of Rs. 1,58,03,552/- stood disallowed u/s 43B of the Act. The AO therefore made addition of Rs. 1,37,41,850/- being the balance figure of Rs. 1,37,41,850 (Rs. 2,95,45,402/- - Rs. 1,58,03,552). He rejected the submission of the appellant that out of the aforesaid balance figure of Rs. 1,58,03,552/- a sum of Rs. 49,41,850/- been added back u/s 40A(7) of the Act. The CIT(A) has upheld the above action by holding as under: "The assessee has claimed that it has debited an amount of Rs. 49.42 lacs on account of provision for gratuity to the P&L a/c. This amount was suo moto added back by the appellant in the return of income in view of the provisions of s. 40A(7). I have perused the submissions made by the appellant and the facts on record. The addition made by the AO on account of section 43B is Rs. 1,37,41,850/-. This issue of an amount of Rs. 49.42 lacs being added back by the assessee in its computation cannot be seen in isolation. The matter is not as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 1,37,41,850/- being added back u/s 40A(7)." 71. We have heard the rival submissions and perused the material on record. From the facts mentioned above, we find that the sum of Rs. 1,37,41,850/- disallowed by the AO under section43B of the Act consist of two items. The first is the disallowance of Rs, 88,00,001/- admitted by the assessee as gratuity amount transferred to general reserve and was not offered in the return of income or in the original assessment under section 143 (3) of the Act. The 2nd item is a provision of gratuity of Rs. 49,41,850/-. So far as sum of Rs. 49,41,850/- is concerned the same has already been disallowed u/s 40A(7) of the Act by the assessee and as such any further disallowance u/s 43B of the Act is absolutely unjustified and untenable. Accordingly, the disallowance made of Rs. 49,41,850/- is thus deleted and grounds raised are allowed. 72. In the result, the appeal of the assessee is partly allowed. 73. As, we part with the appeal, we would like to place on record the appreciation for illuminating arguments put forth by both side, which assisted us in disposing the issues. We also would like to clear that though all the cases relied upon by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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