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2016 (5) TMI 159 - ITAT DELHI

2016 (5) TMI 159 - ITAT DELHI - TMI - Revision u/s 263 - taxability of incentive/subsidy - whether the assessee was entitled for deduction of sales tax subsidy as capital receipt and Assessing Officer had rightly allowed? - Held that:- Facts on record do not inspire credence with the angle that the Assessing Officer has conducted a proper inquiry before accepting the claim of assessee. It gives an impression that some piecemeal facts were placed on record, which have neither been considered and .....

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iscussion in the order of the learned CIT. The Commissioner has not decided the issue on merit. He has remitted it to the file of the Assessing Officer for a fresh inquiry. In view of the above discussion, we do not deal into the arguments of merit in respect of claim of the assessee with the observation that same shall 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 a .....

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deprecation on computer software - Held that:- It is held that here too there was no enquiry on the part of the AO in respect of claim of additional depreciation and therefore the CIT was justified to conclude that AO failed to carry out necessary and proper enquiry in respect of claim made by the appellant company. Even before us the learned counsel for the assessee has not placed on record any evidence in the shape of reply so as to show and establish that the issue was duly examined by the As .....

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t 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.

Addition of sale tax subsidy - held to be trading receipt as against capital receipt claimed by the appellant company - Held that:- It is pertinent to state here that that prior to the year under consideration, the assessee used to treat the Central Sales Tax exemption amount as part of trading .....

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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 o .....

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hat the change in treatment alone cannot be a ground to contend that a sum otherwise taxable as income is not taxable or is a capital receipt and therefore following the aforesaid orders of the Tribunal in the case of assessee itself (supra), we sustain the addition made by the Assessing Officer and confirmed by the CIT(A) and grounds raised by the assessee are dismissed.

Disallowance of additional depreciation claimed in respect of computer software ‘Primavera' - Held that:- It is ap .....

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ps assessee’s top management to manage project in a better way. It is not part of plant and machinery which is used in the process of manufacturing. Having regard to the above we do not find any merit in the claim of assessee and hence the grounds of the assessee are dismissed.

Addition on account of provision for gratuity - Held that:- From the facts mentioned above, we find that the sum of ₹ 1,37,41,850/- disallowed by the AO under section43B of the Act consist of two items. T .....

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d and untenable. Accordingly, the disallowance made of ₹ 49,41,850/- is thus deleted and grounds raised are allowed. - ITA Nos. 3283/Del/2013 & 3128/Del/2014 - Dated:- 31-3-2016 - SH. C.M. GARG, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER For The Appellant : Sh. Ajay Vohra, Sr. Advocate, Sh. Rohit Jain and Sh. Deepesh, Advocates For The Respondent : Sh. Ashok Manchanda, Standing Counsel and Sh. A.K. Arora, CIT(DR) ORDER PER O.P. KANT, A.M.: These two appeals filed by the assessee .....

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disposed of by this consolidated order for the sake of convenience and brevity. ITA No. 3283/Del/2013 2. First we will deal with the appeal in ITA No. 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 .....

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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 on facts and in law in setting aside the assessment order, without arriving at any conclusive finding on merits as to how the assessment order was erroneous as w .....

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er software 'Primavera'. 3. That the CIT erred on facts and in law in holding that the assessing officer erred in allowing sales tax incentive/ subsidy amounting to ₹ 81.5 crores from the taxable income of the appellant. 3.1 That the CIT erred on facts and in law in holding that nothing was actually received in the form of any incentive/ subsidy by the appellant, the hypothetical/ notional figure cannot be treated as incentive/ subsidy and allowed as reduction from the taxable inco .....

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cations/ scheme policy but also various representatives made to the State Government pursuant to which incentive/subsidy was allowed. 3.4 That the CIT erred on facts and in law in holding that incentives received by the appellant to be in the nature of trading receipt and -could not be construed as capital subsidy/ receipt. 3.5 That the CIT erred "" facts and in law in recording various incorrect findings/ conclusions, like, appellant having claimed double benefit, etc., without judici .....

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e 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 ₹ 766,9 .....

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ovisions of the Act, and therefore, the assessee company paid tax as per the provisions of section 115JB of the Act. The assessment was completed under Section 143(3) of the Act at an assessed income of ₹ 1033,26,17,030/- by the Assessing Officer on 27.12.2010. Subsequently, the ld. CIT, Hisar who was having administrative control over the Assessing Officer, called for records for examination and observed that the assessment order passed by the Assessing Officer under Section 143(3) of the .....

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assessment order invoking provisions of section 263(1) of the Act in respect of above stated issues and matter was restored back to the file of the AO with direction to make fresh assessment after making necessary and property enquiry/investigation in light of the discussion (but not necessarily, limiting to the same) and providing opportunity of being heard to the assessee company. Hence this appeal is before us. 4. In Grounds of appeal raised, the main issue in dispute is whether the finding .....

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findings of the CIT that the Assessing Officer did not conduct the necessary and proper inquiries/verifications and did not apply the correct proposition of law, was outside the scope of the revisionary powers under section 263 of the Act. 5. In Ground 1.3, the assessee has raised the issue that the CIT has not arrived at any conclusive finding 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 leg .....

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of additional depreciation of ₹ 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 capi .....

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bove notification was issued under sub-section (5) of section 8 of the Central Sales Tax Act, 1956, wherein it is provided that in case of sale in course of inter-state trade or commence by a dealer to a registered dealer or to government, the state government in public interest by notification direct that no tax shall be payable by a dealer having place of business in the state of Madhya Pradesh in respect of sales of specific goods in the course of inter-state trade or commerce to a registered .....

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ame part of the state of Chhattisgarh . The exemptions granted by State of Madhya Pradesh were not only endorsed by the new state of Chhattisgarh but in case of electricity duty, exemption period was extended. The assessee company in the years, subsequent to the year of notification, worked out the benefit availed of under the CST exemption notification and other notifications. In the statement of computation to the return of income filed, the assessee company reduced the amount of sales tax exe .....

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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 al .....

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ase 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 of industrial unit in backward area was held as capital receipt. Further, the assessee submitted that the action proposed by CIT under section 263 of the Act was beyond the jurisdiction as twin conditions of the order being erroneous and prejudicial to the interest of the Revenue were not fulfilled. The assessee further submitted that .....

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ales tax subsidy actually no view was formed by the ld. Assessing Officer at all and the Assessing Officer allowed the claim of sales tax exemptions without noticing the fact that the said amount was rooted by the assessee through the reserve and surplus account in the year under consideration as against the claim for subsidy used to make in the computation of income in earlier years. The CIT observed that the sales tax exemptions amount was held by the Assessing Officer in earlier years as reve .....

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ty exemption benefit have been made but no addition was made in respect of sales tax benefit by the Assessing Officer. The CIT has also observed as under: i) that ₹ 81.59 crores shown by the assessee as sales tax subsidy/capital reserve under the head Revenue and surplus in Schedule -2 of the balance-sheet as on 31.03.2008 , was not received by the assessee from the State Government. (ii) that the invoices were raised in respect of inter-state sales from the exempted unit, without incorpor .....

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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 .....

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ITR 1 (P&H) wherein it is held that subsidy in the form of sales tax exemption was revenue receipt and chargeable to tax. 9. In respect of the claim of the assessee that on merit the assessee was entitled for deduction of sales tax subsidy as capital receipt and Assessing Officer had rightly allowed, the CIT in his order under 263 of the Act observed as under: i) No right to collect sales tax. As vide notification of even no. 24th April, 2000 the Govt. of Madhya Pradesh exempted the Raigarh .....

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en passed at the end of the previous year transferring the amount corresponding to the sales tax exempted to the reserve and surplus account from the sales account. The entire sale proceeds shown in invoice accrued to the assessee by way of transferring of property and the goods under sales and by not recognizing the entire sale proceeds (shown in the sales invoice as revenue), the assessee violated the provisions of Sales of Goods Act and provisions of Section 145(2) of the Act in the light of .....

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le receipts as capital subsidy was against all principle of law as well as accountancy. ii) Only simple tax exemption rather than subsidy/incentive under any 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 l .....

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ued 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. 10. Furthermore CIT after analyzing various judgments of the Hon ble Supreme Court and the Hon ble High Courts held that the judgment in those cases we .....

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Section 263(1), the CIT asked the assessee as why that the assessment order may not be held as erroneous and prejudicial to the interest of the Revenue on that issue. After getting submissions from the assessee, the CIT was satisfied with the explanation in respect of leave encashment, however, the explanations in respect of provisions for gratuity was not accepted. According to the CIT figures of the last year could not be reconciled and the assessee also accepted omission of the addition of &# .....

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was entitled for being office appliances/machinery and not part of the plant and machinery engaged in the manufacturing and thus in the notice issued under Section 263(1), the CIT asked as to why the assessment order may not be suitably modified as it was erroneous and prejudicial to the interest of the revenue on this issue. The contention of the assessee was that software Prima Vera was focused exclusively on helping the project intensive business, manage the entire project portfolio live cycl .....

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ch 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 th .....

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efore, the same could not be submitted before either the Assessing Officer or the Commissioner of Income Tax in proceedings under Section 263 of the Act. He further submitted that these evidences were crucial for adjudication of grounds of the appeal filed by the assessee. It was further submitted that these documents were filed only in support of the averment of the assessee before the lower authorities. The ld AR drawn our attention to the judgment of the Hon ble Delhi High Court in the case o .....

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el further submitted that sufficient opportunity was already provided to the assessee by ld. Assessing Officer in proceedings under Section 143(3) and also by the ld. CIT in the proceedings under Section 263 of the Act. Further, the ld Counsel submitted that the additional evidences are submitted in respect of addition of sales tax subsidy and that issue has already been discussed at length by the Tribunal for AYs 2002-03, 2004-05 and 2005-06 and the issue in dispute has been held against the as .....

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e with the various departments of Govt. of Madhya Pradesh in respect of the issue in dispute. It is also seen that these documents were normally not available in public domain and the assessee could obtained through query under Right to Information Act (RTI) and thus we feel it appropriate to admit these evidences for consideration, and thus we admit accordingly. 16. At the time of hearing, ld. Authorized Representative/ counsel for the assessee highlighted the legal position as held by various .....

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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 (D .....

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IT v. DLF Ltd., 350 ITR 555 and CIT v Hero Auto Ltd., 343 ITR 342 (Del.). In his written submission, he provided a long list of judgments of various High Courts. Further, the ld. AR submitted that wherein the issue has been examined by the Assessing Officer, the CIT(A) cannot set aside the assessment merely because according to the CIT, the inquiry should have been conducted in a particular manner and/or further inquiry ought to have been conducted by the Assessing Officer. Further, he stated th .....

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ssment order cannot be held as erroneous, until the view taken by the Assessing Officer is unsustainable in law. In support of the proposition also, the ld. AR submitted a list of cases including the judgment of the Hon ble Supreme Court in the case of Malabar Industrial Co. Ltd. (supra) and Max India Ltd. (supra) and other of cases. 17. Further on facts of the case, the ld AR submitted that the sale tax subsidy received of ₹ 81.5 crores was a capital receipt and not liable to tax. He subm .....

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. 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 St .....

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opment 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 Steel and Press Works Ltd. vs. CIT 228 ITR 253 to submit that the character of the subsidy is to be determined having regard to the purpose and the subsidy was to help the assessee to setup a industrial unit in backward area , hence such a subsidy is to be treated as capital receipt and not revenue receipt. Further it was submitted that .....

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ncentives scheme before the Special Bench, applying the purpose test the sales tax incentive be held to be a capital receipt. It was contended that the finding of CIT that subsidy was granted for day-to-day business function was contrary to the purpose of the scheme which is to bring about necessary infrastructure in the backward area of the state. It was further submitted that even the observation of the CIT that the subsidy exemption was hypothetical, is incorrect. It was stated that the CIT h .....

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ncentive was notional. It was further contended that the observation of the CIT that appellant was unable to link the subsidy with scheme of the Government was also unsustainable. It was also submitted that the CIT has erroneously applied the judgment of Apex Court in the case of Ponni Sugars & Chemicals Ltd. (supra) to hold that such subsidy is revenue receipt. It was submitted that mere fact that the amount of subsidy was to be utilized for the repayment of term loan was not the basis for .....

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f 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 .....

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igh Court and directed High Court to consider the matter on merits but such a finding does not overrule or setaside the decision of Special Bench which continues to be operating and binding. He further also drew our attention to notes to accounts of the audited financial statement, audit report and tax audit report to submit that complete disclosure was made by the appellant company and view taken by the AO was a plausible view which could not by any stretch of arguments be regarded as erroneous .....

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ubmitted that the allegation of CIT that disallowance of provision for gratuity expenses was lower on the ground that there was a difference in the amount outstanding statutory liabilities as per balance sheet as on 31.3.2008 and amount outstanding as per tax audit report, was also not justified. It was submitted that complete disclosure viz-a-viz the aforesaid provision was made by the assessee and such issue was specifically examined by the AO during the assessment proceedings as would be seen .....

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e aforesaid claim complete disclosure was made which was duly examined by the learned AO in the order of assessment. Having regard to the above, it was submitted that the order 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 Rev .....

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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 sales tax exemption , the ld. Counsel of the Revenue submitted that in the years prior to the year under consideration, th .....

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come. This was a marked departure from the accounting policy followed by the assessee in earlier years, and despite this departure, the assessee omitted to make necessary disclosure in the return of income filed. The ld Counsel submitted that this treatment to the sales-tax exemption was done deliberately to avoid any notice by the Assessing Officer. He further submitted that the assessee has made accounting entry of transfer of sales- tax exemption directly to reserve and surplus account, state .....

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assessee as capital receipt before the Assessing Officer and the appeals of the assessee were dismissed by the CIT(A). The Counsel submitted that no query was made by the AO on the issue of sales-tax exemption and therefore he cannot to be deemed to have formed a view on this point in the assessment order. He further submitted that inadvertent mention of the word sales-tax by the AO in composite query in relation to other exemptions of Entry tax and Electricity duty cannot be termed as enquiry d .....

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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 .....

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The ld counsel of the Revenue also presented in detail that even on merit, the issue of sales-tax exemption as revenue receipt in the hands of the assessee stood in favour of the Revenue. He narrated in details the concerned notifications issue by the Government of Madhya Pradesh granting exemption for central sales-tax (CST), Entry Tax, Electricity Duty and submitted that those notifications were not linked in any way with the Industrial Policy of the State of Madhya Pradesh and the letters of .....

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e was improper disclosure on part of the assessee in tax audit report and note 5 of schedule 20 to the Balance Sheet also did not state that sales tax subsidy was of a capital nature. It has been also contended that double benefit has been claimed by including sales tax subsidy as part of eligible profit under sections 80IA/80IB of the Act and by not reducing the same from cost of assets as per Explanation 10 to section 43(1) of the Act. It was also submitted that sales tax subsidy claimed by th .....

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two types of sales. The learned CIT DR contended that the assessee did not take an alternate plea before the lower authorities to allow claim of ₹ 81.59 crores under section 80IB of the Act in case sales tax subsidy be not held to be non taxable capital receipt, goes to substantiate that the amount was in the nature of taxable revenue receipt. It was further contended that subsidy has been assigned a very narrow meaning as per Oxford Advanced learned Dictionary to include only cases where .....

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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 ₹ 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 sp .....

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roceedings. It was further contended that assessee made proper disclosure in financial statements and specific disclosures were made vide clause 13(e) of tax audit report. Further, vide No. 5 of Schedule 20 of audited accounts, it was specifically disclosed/stated that sales tax subsidy was accounted under sales tax subsidy reserve account . It was contended that allegation of double deduction is patently erroneous and denied. It was submitted that the assessee had excluded sales tax subsidy fro .....

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es tax and VAT in certain invoices. It was contended that sales tax department has quantified/modified exempt sales and has charged tax on sales not accepted to be exempt. It was contended that recovery proceedings were initiated and dropped in year 2013. It was also contended that additional burden on buyer of exempt unit, pertinently no credit of CST is available to the buyer even if the same is charged in the invoice. It was further contended that order of Tribunal for A.Y. 2004-05 is not ref .....

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ublic 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 .....

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en 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 the same expired in 1999 and, decision in case of Reliance Industries Ltd. 88 ITD 273 (Mum) (SB) was identical to the facts of the present case. 23. So far as the second issue is concerned that there was a difference of ₹ 1.81 crores under the head provision for gratuity , the learned AR in his rejoinder submiss .....

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atuity is allowed only on payment basis. It was further contended that allegation of Revenue that assessee had not filed reconciliation and ledger account of gratuity was factually incorrect. It was submitted that ledger accounts were filed before the CIT as Annexure 3 to letter dated 11.3.2013 and reconciliation was filed vide letters dated 17.1.2013 and 11.3.2013. It was contended that the assessee has filed the certificate from the tax auditor to support its contention that the omission to of .....

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that the software, owing to its nature was installed at the plants and data input rights (level III authorization) was merely available with plants. It was submitted that certain access rights were available for accessing the data available in the software at various locations, including the corporate office; but that however, does not mean that the software was installed at the office premises. It was further more submitted that there is no requirement in under section 32(1)(ii)(a) that the pl .....

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ing 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 un .....

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the assessment, or cancelling the assessment and directing a fresh assessment. 27. A plain reading of the above provisions make it apparent that 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 pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying t .....

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ise jurisdiction under section 263. The scope and ambit of section 263 has been elaborated upon in the case of Goetze India (P) Ltd. (supra). In the said case, reference was made to judgment in the case of CIT vs Nagesh Knitwears (P) Ltd. 345 ITR 135 wherein their Lordships considered the judgment of Hon ble Supreme Court in the case of Malabar Industrial Company Ltd. v CIT 243 ITR 83, wherein it has been held as under: There can be no doubt that the provision cannot be invoked to correct each a .....

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rroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. 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 .....

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l. 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 return when the circumstances of the case are such as to provoke an inquiry. It is because it is incumbent on the ITO to furthe .....

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s of the Supreme Court in Rampyari Devi Sarogi V/s CIT (1968) 67 ITR 84 (SC) and Tara Devi Aggarwal v. CIT (1973) 88 ITR 323 (SC), wherein it has been held that where Assessing Officer has accepted a particular contention/issue without any enquiry or evidence whatsoever, the order is erroneous and prejudicial to the interest of the Revenue. It was noted that after reference to these two decisions, the Delhi High Court observed and held as under: "These two decisions show that it is not nece .....

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erstood in the factual background and matrix involved in the said two cases before the Supreme Court. In the said cases, the Assessing Officer had not conducted any enquiry or examined evidence whatsoever. There was total absence of enquiry or verification. These cases have to be distinguished from other cases (i) where there is enquiry but the findings are incorrect/erroneous; and (ii) where there is failure to make proper or full verification or enquiry. 31. Further Tribunal Delhi Bench in the .....

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e 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 .....

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f law have been duly and properly complied with by AO or not. 28.2 It is well settled that before the Commissioner can invoke his powers u/s 263, he has to arrive at a conclusion that the assessment order is erroneous in so far as it was prejudicial to the interests of the revenue. Then only the powers u/s 263 can be invoked. Therefore, if AO accepts or rejects any claim of the assessee without due application of mind and if such failure causes prejudice to revenue, the Commissioner would be wel .....

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r due appreciation of such material. If this component is missing, it will always be a case of lack of inquiry and not inadequate inquiry. We find that ld. Commissioner, while considering this argument of assessee has observed that the representative of the assessee was assured that this issue will be considered with independent application of mind while passing the order u/s 263. Therefore, when specific issues will be considered, it will be examined whether the AO had reached the level of sati .....

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sideration depending upon the facts obtaining in a particular case while deciding various issues. The broad principle that emerges from various decisions is that if AO has merely accepted the assessee's explanation on various issues without proper inquiry then the same would come within the ambit of 'lack of enquiry' and not 'inadequate inquiry' . If a particular issue comes within the ambit of complete lack of inquiry then the order is to be considered as erroneous as well a .....

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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 .....

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sessee which was assessable. Where an income has not been earned and is not assessable, merely because the assessee wants it to be assessed in his or her hands in order to assess some others he would have been assessed in a larger amount. An assessment so made will be erroneous and prejudicial to the revenue and the Commissioner has jurisdiction under section 33B of the Indian Income-tax Act, 1922 to cancel the assessment and proceedings for assessment may be initiated under the provisions of th .....

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the Hon ble Apex Court in the case of Toyota Motor Corporation v CIT 306 ITR 52 has held as under: We are not inclined to interfere with the impugned order of the High Court. The High Court has held that the Assessing Officer had disposed the proceedings stating the penalty proceedings initiated in this case u/s 271 C read with Section 274 of the Income Tax Act, 1961 are hereby dropped. According to the High Court, there was no basis indicated for dropping the proceedings. The Tribunal referred .....

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g 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 .....

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ble 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 and relevant provision of law, if the AO has merely accepted explanation without proper enquiry then the same would also fall within the ambit of lack of enquiry and the order will have to be regarded as erroneous as well as prejudicial to interest of revenue. 36. Applying the foregoing to the facts of the assessee, we recapitulate facts in br .....

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5.3.2013 has set aside the aforesaid assessment and restored the same to the file of AO for making a fresh assessment after making necessary and proper enquiry/investigation on the following issues: i) Taxability of incentive/subsidy amounting to ₹ 81.59 crores; ii) Deduction of provision for gratuity under section 43B/40A(7) of the Act; and; iii) Allowability of additional deprecation of ₹ 5,91,106/- on computer software Primavera 37. As regards the first issue the taxability of inc .....

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ntire amount of sale proceeds has been credited as received in the profit and loss account by the assessee company, through a journal entry passed at the year end on the ground that one of the units was eligible for exemption from sales tax. The amount in this journal entry is equivalent to the amount of exempted sales tax and reflected as sales tax subsidy in the balance sheet. The CIT in this regard has held that the aforesaid issue was not examined during the assessment proceedings under sect .....

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mination, records revealed that the said amount of ₹ 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 ₹ 81.59 crores (purported Sales Tax Subsidy) .....

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pital receipts) by the assessee, the word 'Sales Tax' in the questionnaire is typed in routine way and A.O. could not notice the figure of Sales Tax 'Subsidy' (Rs. 81.59 crores) which was, for the first time, directly taken to the Balance sheet(without routing it to the P&L account ). The reply submitted by the assessee during the assessment proceedings, has nowhere stated that in addition to the above, figure of Rs, 48,39,36,937/-, there is another figure of ₹ 81.59 cr .....

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Sales Tax 'Subsidy' as .has been given to the Entry Tax 'Subsidy' and the Electricity Duty Subsidy'. 5.5 Also, since the issue was held against the assessee in earlier years, had AO chosen to differ from the earlier stand, he would have recorded at least an 'office note' to suggest reasoning of his differing from earlier stand. However, nothing of that sort was found on record. 5.6 In view of the above, it is concluded that it was omission on part of A.O. and the issu .....

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ubmission of the appellant company. However it is not denied or argued that the questionnaire issued by the Assessing Officer did not include the quantum of sales tax subsidy of ₹ 81,58,94,102.33/- as reflected in the balance sheet of the appellant. The figures stated in the questionnaire was of ₹ 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 .....

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on of income while preparing the return of income. However in the instant year, there was a marked departure whereby though the impugned amount of ₹ 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 passed a journal entry deducting this amount from the revenue receipts and straightway credited it to the sales .....

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material has been brought to our notice for this action of the AO; which leads to an inescapable conclusion that the issue was not considered by the AO. A mechanical reference in the questionnaire and reply without due consideration of the issue does not reflect application of mind; when neither the quantum of claim; and nor the manner and mode of claim much less the arguments supporting the allowability of claim have been considered. Thus here is a case where there had been complete lack of app .....

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the Assessing Officer. In any case, it is not discernible that the Assessing Officer had applied his mind analytically and logically and thereafter he took one of the possible view. We further hold that CIT in his elaborate, lucid and eloquent order has pointed out vital flaws in the orders of assessment and has observed that there was no application of mind during the assessment proceedings on the issue of taxability of sales tax exemption. We entirely agree with the discussion in the order of .....

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s the second issue is concerned, the relevant facts are that there was a difference of ₹ 1.81 crores under the head provision for gratuity between outstanding as per balance sheet and audit report. The amount outstanding was ₹ 7.70 crore as per balance sheet as on 31.3.2008 and ₹ 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 .....

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nce is more than what has been debited to profit and loss account this year, therefore no disallowance was warranted. 43. Apart from the above it was contended by the assessee vide reply dated 17.1.2013 as under: "(b) Provision for Gratuity - Regarding difference in Gratuity of ₹ 1.81 Crs, the reconciliation is as follows:- (i) ₹ 0.49 Crs has been added back in the return of income Ws 40A(7) of the 1.Tax Act during the AY 2008-09. Copy of computation for the A.Y. 2008-09 is atta .....

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ounting Standard has been transferred to General Reserve as per the requirement of accounting standard. Hence, there is no variation in the liability of ₹ 2.55 crores u/s 43B erroneous and prejudicial to the interest of the revenue, Further, the same has been duly explained to the AO in the reply against notice u/s 154 of the Act issued by him." 33.3 Regarding, ₹ 0.88 crore which have been transferred to general reserve assessee's Authorized Representative explained orally t .....

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eedings tits 263), emerge as under:- As per Annexure (i) Raigarh Rs.2,56,79,295/- (ii) Raipur ₹ 11,41,320/- As per Annexure M' (iii) (ii) Raigarh Rs.2,67,67,993/- (iv) Raipur ₹ 3,27,000/- Total (i)+(ii)+(iii)+(iv) Rs5,37,15,609/- If we add figures disallowance u/s 40A(7) in assessment year 2006-07 & 2007-08, as submitted by the assessee (as per reply dated 17.01.2013), (Rs.0.30 crore and 0.13 crore, respectively), we get the -figure of ₹ 5,78 crore which tallies with th .....

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3 that the said figure of balance -sheet is reconcilable, if also include ₹ 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 erroneou .....

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ed and allowed on computers. However since in his opinion depreciation is not allowable on office appliances/machinery, therefore, the same was not admissible on computers-as computers are office appliances. The assessee in reply to the show cause notice explained that additional depreciation has been claimed only on primavera software application tools. It was submitted that primavera is an comprehensive, multi project planning and control software, built on microsoft @ SQL server and oracle da .....

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s across JSPL carryout online monitoring & reporting, respective Project Costs and / or Schedules for ongoing & upcoming projects. To effectively achieve the objective of enabling on-line monitoring of Projects at various Site location(s) in proactive coordination with respective responsible personnel commencing from project conceptualization, finalization of packages, real-time monitoring & information exchange with Site on progress made and cooperation / immediate action (s) to be .....

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Kalinganagar Project) have also chosen Primavera 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. .....

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een 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.O. has failed to carry out necessary and proper inquiry in this respect which he ought to have carried out in the facts and circumstances of the case. 34.5 The perusal of the material on record, specially invoices regarding purchase the said software, submitted by the .a .....

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is also evident from the submission of assessee that it has application across industry which indicate that it is not customized software housed within a particular machine at Shop Floor. Hence, it is like any other management tool available to the management which helps them in taking decision. Therefore it is only office equipment. 34.6 It is the claim of assessee that it helps in project management. However, the part of the (B) proviso to the section 32(1)(iia) of the income Tax Act, 1961 (re .....

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the revenue. 48. Having regard to the above, it is held that here too there was no enquiry on the part of the AO in respect of claim of additional depreciation and therefore the CIT was justified to conclude that AO failed to carry out necessary and proper enquiry in respect of claim made by the appellant company. Even before us the learned counsel for the assessee has not placed on record any evidence in the shape of reply so as to show and establish that the issue was duly examined by the Ass .....

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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 cons .....

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d we have already held above that arguments on merits will be considered independently in ITA No. 3128/D/2014, and as such instant grounds on merits of the addition are dismissed. 51. In the result, the appeal of the assessee is dismissed. ITA No. 3128/Del/2014 52. Taking up ITA No. 3128/Del/2014, the grounds raised by the assessee are as under: 1 That the CIT(A) erred on facts and in law in confirming the action of the assessing officer in making an addition of ₹ 81,58,94,102/- on account .....

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ellate proceedings. 1.2 That the CIT(A) erred on facts and in law in confirming the aforesaid action of the assessing officer by relying on the Tribunal s decision in appellant s own case for a preceding assessment year without even considering the later binding decisions of the High Courts. 2 That the CIT(A) erred on facts and in law in confirming the action of the assessing officer in disallowing ₹ 5,91,106/- on account of additional depreciation claimed by the appellant under section 32 .....

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of provision for gratuity. 3.1 That the CIT(A) erred on facts and in law in confirming the aforesaid action of the assessing officer without appreciating that the above amount was suo motu disallowed and added back 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 S .....

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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. It was noted that the submission of the assessee was that the unit at Raigarh w .....

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ch as minimum investment of ₹ 1,00 crores in fixed capital assets was a condition precedent to eligibility under the scheme and therefore the sales tax, entry tax and electricity duty incentive were envisaged to encourage the setting up of industries in backward area and not for supplementing business receipts. It was submitted that incentive received under the scheme by way of exemption from payment of certain taxes of duty was just a mode adopted to disburse the subsidy by the State Gove .....

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(supra) relying on the principles laid down by Supreme Court in the case of Sahney Steel & Press Works Ltd. (supra) came to the conclusion that since the incentives were given for bringing about addition to necessary infrastructure in processing/developing the backward area, the same would be in the nature of capital receipt not liable to tax. Further reliance was placed on the judgment of Apex Court in the case of Ponni Sugars & Chemicals (supra) and decision of Delhi Bench of the Tribu .....

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as 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 .....

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xemption is operative for the sales tax, there is no right of State Govt. over any amount as sales tax . iii) The Assessee pointed out towards section 64 of the Sales of Goods Act, 1930. Plain reading of section 64 shows that it is not relevant to the issue. It is talking about a situation where a contract of sale is made without stipulations as to the payment of tax; iv) The Assessee also could not rebut the argument that entire amount, received in lieu of transfer of property in goods is to be .....

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and v) the case laws relied upon by the assessee do not help it s cause. 56. Apart from the above it has been held that its subsidy has four ingredients i.e. firstly money should be paid (generally, by the Govt.) secondly, the money should be paid to reduce the cost of goods/machinery/land, thirdly (which is a logical inference), the money paid cannot be more than (100% of the actual market cost of the goods/machinery/land which it intends to subsidize and fourthly it is granted after examinatio .....

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tion (or otherwise) arise. It was specifically held that till assessment year 2007-08 (last assessment year) the assessee itself was treating the entire amount as part of profit and gains and there was no dispute that the entire money is income of the assessee since according to the assessee itself, (major) part of this money is falling within the definition of income , therefore, this money in entirely falls within the definition of income . 57. Apart from the above it has been concluded that t .....

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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/ .....

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incentive are provided in lieu of money . In such (exceptional) cases, the Govt. expresses its intention by way of explicit and specific declaration. Such declarations are contained in the Scheme which have been referred to and relied upon by various courts while delivering those judgments. In case of the assessee, any scheme showing intention of the State Govt. that these tax incentives are provided in lieu of money could not be pointed out by the assessee, in spite of ample of opportunities pr .....

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by transferring it to Sales Tax Subsidy is added to the income of appellant company for the instant year. 59. The CIT(A) upheld the aforesaid addition and concluded as under: The AO has at great length, dealt with the issue of whether the subsidy should be treated as revenue receipts or capital receipts. He has, in paras 4.3.1 to para 24 (pages 29 to 96 of the assessment order) dealt with in great detail as to why the entire amount is being treated as revenue receipts. (This is not being reprod .....

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d 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 ₹ 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- .....

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ks 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 be given to all new industrial undertakings which commenced production on or after 1.1.1969 with capital investment not exceeding ₹ 5 crores and the incentives were to be allowed for a period of five years from the date of commencement of production and incentive was in the form of refund of sales ta .....

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ry object was rapid industrialization of the State and this object was sought to be achieved by various incentives. It was contended there that since subsidy was calculated on the basis of quantum of investment in capital, such subsidy cannot be considered to have been received by the assessee on revenue account. The Hon'ble Apex Court held: "That contention of assessee that subsidies were of capital nature and were given for the purpose of stimulating the setting up and expansion of in .....

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it was further held that sales tax refund and the relief on account of water tax, land revenue as well as electricity charges were intended to enable the assessee to run the business more profitably. It was further held by Hon'ble Court that payments were made only after the industries have been set up and therefore payments were not made for the purpose of setting up of the industries but the package of incentives were given to the industry to run more profitably for a period of five years .....

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hat 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 manufacturi .....

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character and were liable to tax. 49. The facts and circumstances of the present case are similar to the facts and circumstances of Sahney Steel & Press Works Ltd. (supra) wherein the Govt. of Madhya Pradesh with a view to industrialize the State and utilize the human resources with an aim to increase employment had provided subsidies in the form of sales tax exemption, electricity duty and entry tax to the assessee for having made investment for a minimum amount of ₹ 1000 crores. The .....

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case and present case are similar. The Supreme Court in the case of Sahney Steel & Press Works Ltd. (supra) has clearly held that refund of sales tax or relief of electricity charges cannot be treated as an aid to setting up of an industry of the assessee and therefore cannot be said to be of capital receipt. The argument of Ld AR that the industrial policy of Madhya Pradesh Govt. had tried to use taxation as an instrument for increase in employment, developing scenario linkages between diff .....

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he amount of subsidy was not available to the assessee for use in any way as it liked but it was specifically paid to the assessee for repayment of outstanding loans. The benefits of the scheme had to b e utilized only for repayment 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 .....

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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 case laws relied upon by the assessee are discussed as under:- 50. Rasoi .....

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te and for acceleration of industrial development which had lagged behind. The Hon'ble Court had held that incentives were provided to eradicate social problems of un-employment and were held to be in public interest and therefore were held to be capital in nature. The facts and circumstances of the present case are not similar as in the present case, incentives were provided under normal industrial policy of State Govt. and facts of present case are directly similar to facts and circumstanc .....

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sh exempted the assessee from paying sales tax collected to the extent of quantified amount of subsidy. Therefore, the facts and circumstances of the present case are distinguishable. 54. Sham Lal Bansal (supra). The subsidy in this case was received by the assessee under the Technology Up-gradation Fund Scheme of Ministry of Textiles, Govt. of India. The subsidy was received for re-payment of loan taken for building, plant & machinery etc. and therefore Hon'ble Court had rightly held it .....

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gment 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 c .....

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trial unit which is not the case in the present appeal. 58. The Ld AR also argued that assessee had created fixed assets with the help of huge borrowings and these borrowings in any case will have to be repaid over a period of time and assessee will utilize amount of subsidies for repayment of loans and therefore same should be treated as capital receipt but we are not in agreement with Ld AR as his argument is based upon hypothesis only. What is important to be seen is whether assessee was boun .....

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amount of subsidy was revenue in nature. Therefore, this ground of appeal of assessee is dismissed. 61. In fact subsequently the ITAT in his order dated 6.3.2014 in ITA No. 368/D/2009 and 168/2009 for Assessment years 2002-03 and 2005-06 in the case of assessee company has followed the aforesaid decision of Tribunal in ITA No. 3319 /Del/2008 for Assessment year 2004-05 dated 22.2.2013 and confirmed the order by observing as under: 10. We have carefully considered the arguments of both the sides .....

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parties agreed that it is a matter of judicial propriety/judicial discipline that one Division Bench of the Tribunal should not take a contrary view to the view taken by another Division Bench. If at all one Division Bench is not able to follow the view of another Division Bench, then the only option left is to refer the matter to the Larger Bench. However, the dispute between the parties is that as per the assessee s counsel s contention, the ITAT, while passing the order for AY 2004-05, has v .....

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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 A .....

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of the recipientwhether revenue or capital-will have to be determined, having regard to the purpose for which the subsidy is given. The source of the fund is quite immaterial. However, if the purpose is to help the assessee to set up its business or complete a project the monies must be treated as having been received for capital purposes. But if monies are given to the assessee for assisting him in carrying out the business operations and the money is given only after and conditional upon comm .....

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gnized, that the object with which the subsidy is given is decisive. It did recognize, following the distinction pointed out by the Supreme Court that if the subsidy is given for setting up or expansion of the industry in a backward area, it will be capital receipt, irrespective of the modality or the source of funds through or from which it is given and that if monies are given for assisting the assessee in carrying out the business operations only after, and conditional upon, the commencement .....

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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 .....

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s 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 promoting industrial growth in a particular area and the subsidy given conditional upon the commencement of production and after actual commencement of production. It is not correct to understand the judgment as laying down the broad proposition that wherever the subsidy is given after the commencemen .....

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fferent. Therefore, for arriving at the conclusion whether the subsidy received by a particular assessee is capital or revenue would depend on the consideration of the incentive scheme of that particular State. In this case, we find that the ITAT has considered the factual aspect in paragraph 49 of the order in the light of the decision of Hon ble Apex Court in the case of Sahney Steel and Press Works Ltd. (supra) and then arrived at the conclusion that the incentive received by the assessee as .....

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pex Court was against the decision of Hon ble Andhra Pradesh High Court. However, in the said decision at page 267, their Lordships discussed the decision of Hon ble Madhya Pradesh High Court in the case of CIT Vs. Dusad Industries [1986] 162 ITR 784. In the above decision, Hon ble Madhya Pradesh High Court has held the sales tax subsidy to be a revenue receipt after considering the incentive scheme of Madhya Pradesh Government. However, Hon ble Apex Court held that the view taken by Hon ble Mad .....

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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 o .....

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e industry which was already there but as an assistance after the industry commenced production. The view taken by the Madhya Pradesh High Court is erroneous. 14. From the above, it is evident that Hon ble Apex Court in the case of Sahney Steel and Press Works Ltd. (supra) impliedly held that as per the scheme of the incentive of Madhya Pradesh Government, sales tax subsidy is taxable. The view taken by the ITAT in assessee s own case for AY 2004-05 is similar. In view of the above, we are unabl .....

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judicial discipline demand that we, as a subsequent Coordinate Bench deciding the appeal of the same assessee, should not take a contrary view. We, therefore, respectfully following the decision of ITAT in assessee s own case for AY 2004-05 hold that the amount of sales tax and other subsidies received by the assessee were revenue in nature. Accordingly, ground No.1 of the assessee s appeal is rejected 62. We find that the facts and circumstances of the present case are identical as the facts in .....

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ot brought any new fact. It is pertinent to state here that that prior to the year under consideration, the assessee used to treat the Central Sales Tax exemption amount as part of trading receipt 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 .....

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he 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 business at the stage of computation of income only. In the year under consideration, total amount of both e .....

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by the CIT(A) and grounds raised by the assessee are dismissed. 63. The Grounds No. 2 to 2.1 challenge the action of the AO in disallowing ₹ 5,91,106/- on account of additional depreciation claimed by the appellant under section 32(1)(iia) of the Act in respect of computer software Primavera. 64. The AO pursuant to the order u/s 263 of the Act after considering the explanation of the assessee held in the assessment order that software Primavera was not actually installed within any manufac .....

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s for project and resource management. The primavera software is used by companies for online management of projects portfolio management solutions/decisions, for evaluation of risks and rewards associated with projects for determination of resource balance qua work on hand etc. It was submitted that computer software forms part of head computers in the asset list of appellant as per Appendix I read with Rule 5 of the Income Tax Rules, 1962. . It was also submitted that the head computers , per .....

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rmed 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 t .....

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management tool. We find that Hon ble Gujarat High Court in the case of CIT v Statronics and Enterprises (P) Ltd. (supra) has held that computers and data processing machines , even though installed in office premises, constitutes plant and machinery and are eligible for additional deprecation as per the provision of section 32(1)(iia) of the Act. Their Lordships have held as under: 9 It is to be noted that the words "office premises" have not been defined in the Income-tax Act. The w .....

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such computer would not be entitled to investment allowance and/or additional depreciation. In the present case, the words "office premises" though would be covering office but, industrial premises would not come within office premises if the said premises are used for data processing. In the present case, undisputedly, the office premises are used as industrial premises for production of the data processors. The submission of the learned counsel is based on a narrow interpretation of .....

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gement for review etc. and planner/scheduler. It is a tool like any other office equipment which helps assessee s top management to manage project in a better way. It is not part of plant and machinery which is used in the process of manufacturing. Having regard to the above we do not find any merit in the claim of assessee and hence the grounds of the assessee are dismissed. 69. The Grounds 3 to 3.3 challenges the addition of ₹ 49,41,850/- on account of provision for gratuity. 70. The rel .....

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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 ₹ 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 ₹ 1 .....

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ference between the 2 figures i.e. B/S vs TAR in terms of these liabilities. It has been seen that in AY 2006-07 and 2007-08 if disallowances u/s 40A(7) were considered and taken into account, the said amounts tallied with the figure on the balance sheet. Therefore, such reconciliation was possible in this year also. However, the assessee could not show that the amount of ₹ 49,41,850/- (added back u/s 40A(7) was disallowed out of the current year s provision for gratuity (outstanding as on .....

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4-payment made on 5.1.2008) 1,03,34,161 (C) The balance of outstanding liability pertaining of earlier years included in the figure of liability as on 31.3.2008 (A)-(B) 4,74,53,448 (D) Total outstanding liability (of gratuity) as on 31.3.2008 as per B/s of FY 2007-08 7,69,98,850 (E) Total outstanding liability (of gratuity) pertaining to the current year included in the figure as on 31.3.2008 (D( - (C) 2,95,45,402 According to the AO as per such calculation, an amount of ₹ 2,95,45,402/- ou .....

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