TMI Blog2016 (7) TMI 165X X X X Extracts X X X X X X X X Extracts X X X X ..... , the subsidy was issued in reference to the machinery. Assessee submitted letter of approval of subsidy but from that letter it could not be established whether the subsidy was issued for the benefit of business or for the expansion of business. Moreover, the letter of approval was addressed to VVS Pharmaceuticals & Chemicals Pvt. Ltd., which is the previous name of the assessee, as claimed by the AR. We, therefore, remit the matter back to the file of the AO to check the above deficiencies. AO may check the type of subsidy from the policy of the Central Government on investment subsidy scheme and how the subsidy was received by the assessee when the same was addressed to old name of the assessee. Assessee may be given proper opportunity of being heard. Addition on account of delay in payment of PF & ESI - Held that:- It is a fact that the remittance of PF & ESI were made before filing of return of income. The Hon’ble Supreme Court in the case of CIT Vs. Alom Extrusions Ltd. [2009 (11) TMI 27 - SUPREME COURT ] held that the amendments to section 43B brought out by the Finance Act, 2003 with effect from 01/04/2004 are retrospective in nature and would operate from 01/04/1988. Va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of revenue liability on account of exchange difference as on the date of the Balance Sheet is an item of expenditure allowable under section 37(1). As per AS 11, exchange difference arising on foreign currency transactions have to be recognized as income or expense in the period in which they arise. An enterprise has to report the outstanding liability relating to import of raw-material using closing rate or exchange and the same has to be recognized in the prof it & loss account for the reporting period. Hence, the same may be allowed. Revision u/s 263 - Held that:- CIT re-examined the issues which are already considered by AO during the assessment proceedings. Since AO already considered and taken a stand and formed an opinion, may be a possible view at that point of time, passed the assessment order based on the above opinion. The CIT cannot exercise the revisional jurisdictional power on the same issue again and take different view. The co-ordinate bench of this tribunal has taken a stand that the re-examination of assessment orders on the same set of facts is against the law and even the honorable jurisdictional high court and honorable apex court has opined that this is ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing the order in respect of MIS. VIVIMED LABS LIMITED, for the Assessment Year 2008-09 where in, it was held that the assessment order passed by the assessing officer u/s 143(3) dated 30/12/2010 The following are the Grounds of Appeal which may please be considered in favour of the assessee. 1. The Assessee, M/s. Vivimed Labs Ltd. has filed its return of income declaring a total income of ₹ 5,41,18,320/-. 2. Disallowance of the claim of Interest on Foreign Currency Convertible Bonds: The CIT(Appeal)-IV erred while passing order, where in confirmed the order of the assessing officer towards disallowance of interest on Foreign Currency Convertible Bonds ₹ 57,98,000/- with the contention that, TDS has not been deducted for the said interest. The Assessing Officer, while passing the Order, disallowed the claim of interest on Foreign Currency Convertible Bonds of ₹ 57,98,000/- on the contention that TDS required u/s. 195 of the Income Tax Act, 1961 has not been deducted. We would like to submit that, Citi Bank Singapore had debited ale with interest, Bank Charges during the year and the same were accounted under Interest Financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e allowed to the Assessee Company. 5. Disallowance of expenditure on scientific research: The CIT(Appeal)-IV erred while passing order, where in confirmed the order of the assessing officer while disallowing total claim of ₹ 89,86,705/- towards expenditure on scientific research. The Assessing Officer, while passing the Order, disallowed the claim of expenditure on scientific research of ₹ 89,86, 705/-. The Assessing Officer contended that during the course of scrutiny proceedings, the Assessee Company has been required to furnish the quantum of expenditure approved by the prescribed authority for the assessment year under consideration for the allowance of its claim. We would like to submit that, the assessee company has already complied with all the necessary requirement/Conditions for the allowance of claim u/s 35(2AB) and got the approval from the competent authority. In view of that, the expenditure may please be allowed to the assessee. 6. Disallowance of expenditure u/s. 40(a)(ia): The CIT(Appeal)-IV erred while passing order, where in confirmed the order of the assessing officer has erred while disallowing remunera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s be allowed on revenue account and is not related to purchase of machinery etc., which could be disallowed on capital account. In view of the above explanation, the Fluctuation in Foreign Exchange is allowed u/s. 37(1) as amount is related to the payment made to the creditors and thus he allowed on revenue account and is not related to purchase of machinery etc which could be disallowed on capital account. 5. We will adjudicate the appeal, issue-wise as under: A) Disallowance of claim of interest paid on Foreign Currency Convertible Bonds (FCCB): i) AO disallowed the interest paid on FCCB as the assessee has not deducted TDS as required u/s 195 of the Act. ii) Ld. AR submitted that similar addition was made in AY 2009-10 in assessee s own case. The coordinate bench of this Tribunal has deleted the addition made. He has submitted the relevant decision in his paper book. He prayed that the disallowance made in the AY under consideration should also be deleted by following the above decision. iii) Ld. DR relied on the orders of AO CIT(A) and submitted that it may be remitted back to the file of the AO to re-examine the loan agreement and terms of sanction o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial charges: i) During the assessment proceedings, AO found that the assessee made investments in equity share capital and the income derived therefrom is exempt from tax. At the same time, assessee claims expenditure of bank interest and financial charges, but, no explanation was offered as to the investments were out of commercial expediency. AO opined that assessee has secured loans and unsecured loans, had the monies invested in equities been utilized for business purposes, assessee s burden of bank interest should have been reduced to that extent. Accordingly, he had restricted by an amount of ₹ 30,18,000/- u/s 36(1)(iii) of the Act. ii) Ld. AR submitted that similar addition was made in AY 2009-10 in assessee s own case and the coordinate bench of this Tribunal has deleted the addition made. He prayed that this addition also should be deleted by following the above decision. He also submitted that the assessee is having sufficient interest free funds in the business by way of reserves and funds generation in the business. He brought to our notice the balance sheet of this FY (Refer page 43 of paper book). iii) Ld. DR relied on the orders of the lower authoritie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 29,76,676/- under the 15 percent central investment subsidy scheme by the Directorate of Industries, Uttarakhand, Patel Nagar, Dehradun for investment in plant machinery of ₹ 1,98,44,507. The AO observed that the Hon ble Apex court in the case of Ponni Sugar Chemicals Ltd., 306 ITR 392, held that if the object of the assistance under subsidy scheme was to enable assessee to set up a new unit or to expand the existing unit then the receipt for the subsidy was on capital account. He opined that the subsidy/grant-in-aid so allowed will go on to reduce the cost of acquisition of the assets for the purpose of claiming depreciation u/s 32 of the IT Act. The assessee, however, did not reduce the investment subsidy from the cost of the relevant assets, before claiming depreciation for the AY 2008-09. The subsidy of ₹ 29,76,676/- is to be rightly treated on capital account and hence, the same is reduced from the value of additions to assets during the year to determine the depreciation allowable. Accordingly, the AO reduced an amount of ₹ 4,46,501/- being depreciation @ 15% on ₹ 29,76,676/- from the depreciation on block of assets plant machinery. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r for erection of buildings or for working capital or for repaying the loans already borrowed. Hence, unless the subsidy received had a nexus, direct or indirect, to meet a portion of the actual cost of any specific capital asset. it could not be brought within the purview of s. 43(1) of the Act. Therefore, the subsidy could not be deducted from the actual cost of the assets to the assessee and depreciation should be allowed without reducing the same by the amount of subsidy granted. In CIT vs. Grace Paper Industries Pvt. Ltd. (supra), the Gujarat High Court said : The dictionary meaning of `subsidy' is `a grant of money from a Government to a private enterprise considered as beneficial to the public'. The Government, in order to determine the amount of cash subsidy, decided to follow one of the recognised methods of working it out on the basis of the amount invested by an entrepreneur in acquiring capital assets and specified a certain percentage of the amount so invested in the capital assets as cash subsidy. The basis adopted for determining the cash subsidy with reference to the cost or value of fixed assets was only a measure for quantifying the subsidy a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way to his result . In the present case the reasoning underlying, and implicit in, the conclusion reached by the majority of the High Courts cannot be said to be an unreasonable view and on a preponderance of preferability that view commends itself particularly in the context of a taxing statute. The expression actual cost needs to be interpreted liberally. The subsidy of the nature, we are concerned with, does not partake of the incidents which attract the conditions for their deductibility from actual cost . Government subsidy, it is not unreasonable to say, is an incentive not for the specific purpose of meeting a portion of the cost of the assets, though quantified as or geared to a percentage of such cost. If that be so, it does not partake of the character of a payment intended either directly or indirectly to meet the actual cost . We should prefer the reasoning of the majority of the High Courts to the one found acceptable by the High Court of Punjab and Haryana. 16. In the result, we affirm the judgments of the High Courts which have answered the question against the Revenue and dismiss the first batch of appeals and allow the second batch preferred by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision and held that the amendment to section 43B brought out by the Finance Act, 2003 is retrospective in nature and justified in deleting the additions made on account of delayed payment of Provident Fund of employees contribution. Since, PF ESI are same, respectfully following the decisions of coordinate benches of this Tribunal we direct the AO to delete the addition made on account of PF ESI Payments. E) Disallowance of claim of deduction u/s 35(2AB): i) During the course of assessment proceedings, the assessee company have been required to furnish the quantum of expenditure approved by the prescribed authority for the AY under consideration for the allowance of its claim. The assessee company filed letter No. TU/IV-RD/2509/2005, dt. 27/06/2006 wherein the recognition of Inhouse R D unit of the assessee company was confirmed by the Department of Science and Industrial Research (DSIR), Ministry of Science and Technology, Govt. of India. However, the assessee furnished no order of approval issued by DSIR containing the quantum of expenditure approved, eligible for deduction. ii) The AO noted that as per clause (3) of sub-section (2AB) of section 35, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nternational Ltd., ITA Nos. 488 621/Hyd/2013. iii) Ld. DR submitted that the proceedings u/s 201(1) is separate and assessment is itself different from regular assessment u/s 143(3) of the Act. It is not practicable to initiate proceedings u/s 201(1). If the assessee fails to deduct tax, particular expenditure has to be disallowed u/s 40(a)(ia). He insisted that this issue may be remitted back to the file of the AO for verification. iv) Considering the submissions of the parties and material facts on record, we find that the coordinate bench of this Tribunal has remitted similar issue back to the file of the AO to verify as to whether the Assessee company is treated as an assessee in default u/s 201(1) of the Act for its failure to deduct tax at source from payment made on account of audit fee. As per the provisions of section 201(1), the assessee will be treated in default only when the provisions of section 201(1) is violated. As rightly, the coordinate bench has remitted the matter to the file of the AO to determine whether assessee is in default. Similarly, we also find it proper to remit this matter back to the file of the AO to verify as to whether the assessee is tre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly real income and real losses and no notional income and notional losses are subjected to tax. The assessee is claiming the deduction of exchange rate fluctuation loss u/s 37 which is a residuary provision, as there is no specific provision dealing with adjustment based on foreign exchange fluctuation. The AO opined that the essence of deductibility u/s 37 is that the increase in liability due to foreign exchange fluctuation must fulfill the twin requirements of expenditure and the factum of such expenditure having been laid out or expended. The expression expenditure is what is paid out and something which is gone irretrievable. AO noted that increase in liability at any point of time prior to payment cannot fall within the meaning of the word expenditure in section 37(1). He observed that the requirement of expenditure is not met and similarly the requirement of money being expended or laid out is also not satisfied. AO, therefore, disallowed the assessee s claim of fluctuation in foreign exchange at ₹ 21,48,000/- and added the same to the income of assessee. iii) Ld. AR submitted that the foreign exchange fluctuation is on creditors, which is revenue in nature. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by him is not sub-judice before hon ble ITAT. He also noticed that AO has while completing the assessment u/s 143(3) has erroneously failed to examine the above said issues and its tax implications. Therefore, the above issues were not on the record and not placed in the assessment order. Hence, CIT has power to revise the assessment u/s 263 of the Act. He considered the assessment passed u/s 143(3) of the Act as erroneous and so far as it is prejudicial to the interest of revenue. 10. Ld AR submitted before CIT that all the issues raised by him were already dealt by AO during assessment proceedings and queries raised by AO were already placed on record, 11. CIT did not accept the contention of the assessee and confirmed the revision order u/s 263. 12. Aggrieved with above order, assessee is in appeal before us, raised following grounds of appeal. 1. The order of the Ld. CIT-III, Hyderabad is erroneous both on facts and in law. 2. The Ld. CIT-III, Hyderabad has erred in passing the order u/s 263 observing that the assessment order passed u/s.143(3) by the DCIT, Circle-3(3), Hyderabad is erroneous and prejudicial to the interests of revenue. 3. The Ld. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view. The co-ordinate bench of this tribunal has taken a stand that the re-examination of assessment orders on the same set of facts is against the law and even the honorable jurisdictional high court and honorable apex court has opined that this is against law and as per accepted principle of assessments. Even in the case of Spectra Shares and Scrips Pvt. Ltd. Vs. CIT, 354 ITR 35(AP) case, the hon ble court has opined as below: It was held that the AO had not only taken a possible view but in the circumstances the only view possible and therefore his order could not have been termed as erroneous or prejudicial to the revenue warranting exercise of revisional jurisdiction u/s.263 by the CIT (A). The CIT (A) had no different or new material to take different view from the one taken by the AO and the reasons given by him to reopen the assessment and sustain the revision were totally unacceptable. The CIT (A) was not vested with any power u/s.263 to initiate proceedings for revision in every case and start re-examination and fresh enquiries in matters which have already been concluded under the law. It was further held that the Tribunal had grossly erred in agreeing with the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X
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