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2016 (5) TMI 716 - ITAT CUTTACK

2016 (5) TMI 716 - ITAT CUTTACK - [2016] 47 ITR (Trib) 758 - Reduction of written down value of plant and machinery by reduction of subsidy amount - Held that:- The hon'ble apex court in the case of CIT v. P. J. Chemicals Ltd. [1994 (9) TMI 1 - SUPREME Court] have stated that the Government subsidy is intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, the specified percentage of the fixed capital cost, which is the basis for determining the su .....

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Disallowance of expenses - Held that:- The Assessing Officer and the learned Commissioner of Income-tax (Appeals) in their orders have disallowed 20 per cent. with regard to advertisement, sales promotion and product development expenses under section 37(1) for the assessment year 2004-05 for the inability of the assessee to provide direct evidence to establish that these expenses wholly and exclusively incurred for the purpose of business. We find that the disallowance has been restric .....

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ur of assessee partly

Denial of benefit of MAT under clause (vii) of section 115JB on the ground that the assessee has himself paid MAT - Held that:- This issue squarely covered by the decision of the Income-tax Appellate Tribunal Cuttack Bench in the assessee's own case for the assessment year 2005-06 wherein, it has been held that the assessee is not liable to be taxed under section 115JB. We further appreciate the judicial pronouncements put forth by the assessee which suggest that .....

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e common order of the learned Commissioner of Income-tax (Appeals), Bhubaneswar, dated January 31, 2011, for the assessment years 2004-05, 2005-06 and 2007-08, respectively. 2. These appeals were disposed of by the Income-tax Appellate Tribunal, vide order May 21, 2015. However, it was noticed that some issues were not adjudicated and, therefore, the appeals were recalled by the Income- tax Appellate Tribunal by M. A., vide order dated November 6, 2015, to adjudicate the grounds in respect of th .....

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e Central Government in the year 1987 in accordance with a scheme for providing impetus in setting up industries in backward districts. Since that year in which subsidy was received, the said amount has been shown under the head "reserves and surplus" in the balance- sheet of the assessee. It is the contention of the assessee that since the said subsidy amount was received as an incentive not for specific purpose of meeting a portion of the cost of the assets, hence, it does not partak .....

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that any kind of subsidy received should have been reduced from the cost of capital asset while computing depreciation and since the assessee had not done so it was examined whether this deduction can be done now. The first question which the Assessing Officer brought out in his order is what should be the treatment of an amount received as a subsidy or grant or contribution of capital nature and to this aspect, the Assessing Officer brought Explanation 10 to the definition of "actual cost& .....

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such nature then it cannot be directly relatable to any particular asset, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of which or with reference to which such grant or reimbursement or subsidy is received, shall not be included in the actual cost of the asset to the assessee. This Explanation 10 to section 43(1) was introduced by the Finance (No. 2) Act, 1998, with effect from April 1, 1999 .....

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per the law prevalent in that year. The Assessing Officer also observed that in case the capital receipts have been received against no specific asset proportionate reduction from the block of assets needs to be done as provided in Explanation 10 to section 43(1) of the Act. This is so even if the law standing during the year or receipt did not require the reduction. The same formula for computing the written down value may be adopted even if the assets do not continue in the block and proporti .....

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Commissioner of Income-tax (Appeals), the assessee objected to the disallowance by placing reliance on the decision of the hon'ble Supreme Court in the case of CIT v. P. J. Chemicals Ltd. [1994] 210 ITR 830 (SC). The learned Commissioner of Income-tax (Appeals) noted that the decision of the hon'ble Supreme Court was pronounced on September 14, 1994, and Explanation 10 to section 43(1) was inserted with effect from April 1, 1999. Since the decision relates to a prior period before the a .....

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), the assessee is in further appeals before us. 6. At the time of hearing, learned counsel for the assessee reiterated the submissions made before the authorities below and stated that the issue is squarely covered by the decision of the hon'ble Supreme Court in the case of CIT v. P. J. Chemicals Ltd. [1994] 210 ITR 830 (SC). The learned authorised representative further relied on a plethora of judgments filed in paper book as under : (a) CIT v. Godavari Plywoods Ltd. [1987] 168 ITR 632 (AP .....

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ls Ltd. [1994] 210 ITR 830 (SC) decided on September 14, 1994, is the subsequent judgment to Calcutta Electric Supply Corpn. Ltd. v. CIT [1992] 194 ITR 294 (SC), decided on January 15, 1992. He referred to the observation of the hon'ble Supreme Court in the case of CIT v. P. J. Chemicals Ltd. [1994] 210 ITR 830 (SC) as under (headnote) : "Where Government subsidy is intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, the specified perc .....

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amount of subsidy is not to be deducted from the 'actual cost' under section 43(1) for the purpose of calculation of depreciation, etc." It is submitted that the decision in CIT v. P. J. Chemicals Ltd. [1994] 210 ITR 830 (SC) has settled the law on this point. Before this decision given on September 14, 1994, there was a sharp divergence of judicial opinion. Considering the entire controversy it was held in CIT v. P. J. Chemicals Ltd. [1994] 210 ITR 830 (SC) as follows (page 841) : .....

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at page 841 of the Report)." This case was dealing with the law as it existed in the assessment year 1983-84. On the basis of the provisions in the statute book prior to the introduction of the Explanation with effect from the assessment year 1999- 2000. In the instant case now under appeal subsidy was first received from the year 1987-88 relevant to the assessment year 1988-89 that is when the amendment had not come in force. The decision in CIT v. P. J. Chemicals Ltd. [1994] 210 ITR 830 .....

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wing decisions : (i) CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC) ; (ii) CIT v. J. K. Hosiery Factory [1986] 159 ITR 85 (SC) ; and (iii) Union of India v. Onkar S. Kanwar [2002] 258 ITR 761 (SC) ; 7. The learned Department representative supported the orders of the authorities below. 8. We have considered the rival contentions and perused the record of the case. It is the case of the Revenue that the decision of the hon'ble Supreme Court in the case of CIT v. P. J. Chemicals Ltd. [1 .....

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t out any material to show that the assessee has received monetary compensation which would actually reduce the cost directly or indirectly. The hon'ble apex court in the case of CIT v. P. J. Chemicals Ltd. [1994] 210 ITR 830 (SC) have stated that the Government subsidy is intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, the specified percentage of the fixed capital cost, which is the basis for determining the subsidy, being only a measu .....

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en by the assessee for all the assessment years is allowed. 9. In ground No. 4 for the assessment year 2004-05, the assessee has objected to the confirmation of disallowances of expenses as under : (i) ₹ 1,85,142 towards advertisement, sales promotion and product development. (ii) ₹ 1,56,431 towards share maintenance expenses. (iii) ₹ 2,61,386 towards miscellaneous expenses. 10. In ground No. 5 for the assessment year 2005-06, the assessee has objected to the confirmation of di .....

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of the assessment proceedings, the assessee was asked to furnish the details of advertisement, sales promotion and product development expenses. In response, the assessee submitted the ledger account of this expenditure. On examination of the ledger account, the Assessing Officer noticed that several expenses are related to gifts, dinner charges, diaries, entertainment expenses and so on. The assessee was asked to establish the fact that the expenditure was incurred wholly and exclusively for th .....

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the Assessing Officer disal lowed share maintenance expenses of ₹ 1,79,783 and subscription and donation amount of ₹ 2,35,630 under the head "miscellaneous expenses" totalling to ₹ 4,15,396 on the ground that no details were furnished to establish the claim of expenditure. 12. In the first appeal, the learned Commissioner of Income-tax (Appeals) upheld the action of the Assessing Officer for both the assessment years on this issue. 13. At the time of hearing, the lear .....

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the Department to prescribe what expenditure an assessee should incur and in what circumstances. The learned authorised representative further stated while disallowing the expenses, the subordinate authorities have not given specific observation for disallowing the expenses with a speaking order and, accordingly, relied on the decision of the hon'ble Gujarat High Court in the case of Sayaji Iron and Engg. Co. v. CIT [2002] 253 ITR 749 (Guj) ; [2002] 172 CTR (Guj) 339, wherein, it is held tha .....

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nses wholly and exclusively incurred for the purpose of business. We find that the disallowance has been restricted to 20 per cent. without any rhyme and reason. Therefore, the disallowance of expenses is not apparently clear. Under these circumstances, in the interest of justice and fairness, we feel it deem and proper to restrict the disallowance to 5 per cent. of the above disallowances made by the authorities below. We, accordingly, set aside the order of the learned Commissioner of Income-t .....

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s that the determination of MAT profit at ₹ 5,47,03,040 as against ₹ 4,00,17,387 is not justified. No submission regarding the same was filed. In fact, the assessee moved in additional ground stating that the provision of clause (vii) of section115JB(2) is applicable and determination of taxable book profit needs to be cancelled. The assessee relied on the order under section 263, dated March 31, 2010, passed by the learned Commissioner of Income-tax, Bhubaneswar, for the assessment .....

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sclosed the book profit, there is no merit in the additional ground that clause (vii) of section 115JB(2) is applicable to the assessee. In fact on this very ground, the learned Commissioner of Income- tax has set aside the issue to the file of the Assessing Officer for redetermination for the assessment year 2005-06. He considered the order to be prejudicial and erroneous on this very issue. As the assessee himself has opted for MAT under section 115JB and paid the tax accordingly, no merit is .....

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er of the Assessing Officer wherein the Assessing Officer has rightly brought the amount to tax under MAT. Aggrieved, the assessee is in appeal before the Tribunal. 17. The learned authorised representative before us submitted that this issue is squarely in favour of the assessee by the decision of the Cuttack Bench in the assessee's own case in ITA No. 277/CTK/2010 for the assessment year 2005-06 order dated April 4, 2011. The learned authorised representative submitted that the matter rega .....

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er regarding taxability of MAT is a covered matter in favour of the assessee, vide order dated April 4, 2011 (supra). The learned authorised representative also submitted that the Department is not authorised in law to take the advantage of the ignorance or mistake of the assessee and collect tax offered which is not legally payable. For the proposition, the learned authorised representative relied on the following judicial pronouncements : (i) Unichem Laboratories Ltd. v. Collector of Central E .....

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