TMI Blog2017 (1) TMI 1214X X X X Extracts X X X X X X X X Extracts X X X X ..... nce, the same cannot be treated as revenue and thus, the income approach of accounting for capital subsidy received as government grant is not applicable in this case as per AS-12 where in para 5.2 it has been made clear that the capital approach is to be followed in respect of government grants and it is inappropriate to recognize government grants in profit and loss statements because they are not earned to represent an incentive provided by the government. Accordingly, conclusion of the CIT(A) on this issue is not found to be sustainable and we demolish the same by directing the AO that the amount of capital subsidy to the book profits while computing the income u/s 115JB of the Act is not an appropriation of profits and there is no such debit to the profit and loss account for the alleged appropriation and, therefore, the same cannot be added while computing the income u/s 115JB of the Act. Accordingly, ground of the assessee are allowed. Consultancy fee incurred in relation to plant and machinery - revenue v/s capital expenditure - Held that:- 70% of the payment was towards purchase of a new plant and machinery, which forms part of block of plant and machinery for the purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d therefore the same has to be added back for computing Book Profits under section 115JB of the Act. (b) That, in this connection, the learned CIT(A) has erred in interpreting the provisions of section 115JB of the Act stating that the appellant had transferred the amount of ₹ 17,84,404/- to a reserve which has not been specified under section 33AC, without giving credence to the fact that the amount of ₹ 17,84,404/- is not an appropriation of profits and there is no such debit to profit loss account for the alleged appropriation. 3. That the learned CIT(A) has erred in sustaining the addition of ₹ 1 Lakh on account of forfeiture of security deposit by characterizing the receipt under section 28(iv) of the Act as it results in value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession . 4. That the appellant craves leave to add, amend and/ or alter the grounds at a later stage. 3. The grounds of appeal raised by the Revenue in ITA No. 2980/Del/2014 are as under: 1. Whether on the facts 8s circumstances of the case, Ld. CIT(A) has erred in allowing the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the parties and perused the relevant material on record. We find that in para-5 of the order of the Tribunal in ITA No. 703/Del/2013, the issue in dispute has been decided by the Tribunal as under: 5. In view of above, at the very outset, we note that the assessee company has transferred impugned amount to a reserve which has not been specified u/s 33AC of the Act, therefore, as per Explanation 1 attached to provisions of section 115JB of the Act, the book profit is required to be increased by the amount carried to any reserve account. We also note that the AO has rightly relied on the decision of Hon ble Apex Court in the case of State Bank of Patiala reported as 219 ITR 706(SC) wherein it was clearly held that the issue of what construes reserve and provision and the ratio laid down in these decisions clearly enlighten us that to constitute a reserve, a particular amount set aside out of the profit and other surpluses, should be such as not designated to meet a liability, contingency, commitment or diminution in the value of assets known to at the date of balance sheet. Hence, the reserve can be set aside out of the profits and surpluses and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest liability aggregating to ₹ 27,55,420/- on loan from the Central Govt. is treated as having been discharged in view of the fact that an equivalent amount is received as cash subsidy for the specific purpose to the company's undertaking by the Govt. The Hon'ble ITAT, New Delhi, for the A.Y. 1990-91 in the company's own case, has held that the subsidy received from the Central Govt. is capital in nature. Accordingly, the interest amounting to ₹ 27,55,420/- has been debited to the statement of profit and loss under the head 'Financial Expenses' and the corresponding amount has been credited to capital subsidy under the head' Reserves and Surplus'. 9. It is also undisputed that the amount of interest paid by the assessee to the Central Government on loan for 1990-91 has been allowed as revenue expenditure by the ITAT, New Delhi, wherein it was held that the corresponding subsidy is a capital subsidy. We also note that the appeal of the revenue against the order of the Tribunal has been dismissed by Hon ble High Court on the contention that no substantial question of law arises out of the order of the Tribunal. From bare re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actual cost in section 131(1) of the Act needs to be interpreted liberally and subsidy does not partake of the character of a payment intended either directly or indirectly to meet the actual cost . As we have noted above that it has already been accepted by the Hon ble High Court in assessee s own case for AY 1990-91 that the subsidy received by the assessee is in the nature of capital subsidy, hence, the same cannot be treated as revenue and thus, the income approach of accounting for capital subsidy received as government grant is not applicable in this case as per AS-12 where in para 5.2 it has been made clear that the capital approach is to be followed in respect of government grants and it is inappropriate to recognize government grants in profit and loss statements because they are not earned to represent an incentive provided by the government. Accordingly, conclusion of the CIT(A) on this issue is not found to be sustainable and we demolish the same by directing the AO that the amount of capital subsidy to the book profits while computing the income u/s 115JB of the Act is not an appropriation of profits and there is no such debit to the profit and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal before the Hon ble High Court of Delhi but it could not succeed as the Hon ble High Court dismissed the appeal of the Revenue on the basis that no substantial question of law arises out of the order of the Tribunal The Tribunal has also decided the issue in favour of the assessee in the appeals for the Assessment Years 1993-94, 1944-95 and 1998-99. In the appeals for the Assessment Years 1995-96, 1996-97, 1998-99, 2001-02, 2002-03, 2003-04, 2004-05 and 2005-06, the Tribunal has held that' in the appeals preferred by the assessee, the amount of interest on the Central Government loan cannot be disallowed. In view of this finding of the Tribunal on the issue we are of the view that Ld. CIT(A) was right in deciding the issue in favour of the assessee following the above decisions and was thus justified in deleting the addition in question. The same is upheld. The ground No.1 is accordingly rejected. 10.1 The identical issue in question has already been decided in favour of the assessee by the Tribunal (supra), thus, respectfully following the above decision, we reject the ground of the appeal. 11. In ground No. 3, the Revenue has challenged the finding of the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inery and utility services at the existing facilities with a view to increase efficiency and output of the plant. He also observed that recommendation of the said firm ultimately did not metalize. He, therefore, held that the expenditure was of a capital nature. The Hon ble Bombay High Court held as under: 8. We have carefully considered the facts of the case. It appears that the object of the exercise for which the services of Messrs. Ralph M. Parsons Co., of Asia were availed of by the assessee was for rationalisation of its administration and modernisation of its machinery with a view to derive maximum benefit out of the existing resources. The object seems to be to improve the productive efficiency. It was not in connection with a new plant or a new project or a new product. It was to improve the production of the existing project with a view to increase its profitability. There is no element of enduring benefit in it. From an overall view of the entire facts and circumstances of the case, we are of the clear opinion that this is not a case where the expenditure incurred by the assessee can be termed to be capital expenditure or an expenditure which has resulted in any e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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