TMI Blog2017 (9) TMI 962X X X X Extracts X X X X X X X X Extracts X X X X ..... rror in adopting such price for working out the amount eligible for deduction u/s 80IA of the Act. The Tribunal agreed with the submission of the Assessee that the price paid by an assessee for purchase of raw material represents the market price of such raw material produced by the assessee. The Tribunal also held that the method adopted by the assessee viz. to take the average rate charged by the State Electricity Board for the previous month is quite appropriate and reasonable for determining the market value for the month of supply. The tribunal held that the annual weighted average adopted by the ld CITA would result in variations occurring during the year at different times being made applicable uniformly for the whole year and therefore the assessee’s method is more appropriate as it factors in variations as and when they take place. On the issue whether electricity duty and cess has to be excluded from the price while determining profits derived from the business, the Tribunal held that they are also to be considered as part of the price. - Decided against revenue Income derived by Thermal Power Plant cannot be held as income derived from eligible business for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 43B(f) ? - Held that:- This liability is purely notional and cannot be allowed as deduction. It is an admitted position that there is no out flow on this account in any assessment year and the liability is notional and is based purely on entries in the books of account on the basis of notional figures. This may be relevant for the purpose of showing the true and fair view of the state of affairs of the assessee as is required for reporting to share holders and other public authorities. When it comes to computing total income under the Act, such notional liability cannot be allowed as deduction. We concur with the view of CIT(A) in this regard. We are of the view that application of the provision of section 43B(f) of the Act would not be relevant because the liability in question is not otherwise allowable under the Act and Sec.43B of the Act will come into operation only when a expenditure is otherwise allowable under the Act. With this observation we dismiss ground raised by the assessee. Interest subsidy in question is a capital receipt not chargeable to tax. - I.T.A No. 686/Kol/2014 And I.T.A No. 1101/Kol/2014 - - - Dated:- 13-9-2017 - Sri N.V.Vasudevan, JM And Shr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umstances of the case, the Ld.CIT(Appeals) erred in not holding Interest Income derived by the TPP being eligible for deduction uls.80IA of I.T. Act. 6. That on the facts and circumstances of the case, the Ld.CIT(Appeals) further erred in arriving at the sale price on weighted average basis for units consumed by cement plants annually instead of rate considered by TPP on monthly average basis. 4. The Assessee is a company. It is engaged in the business of manufacture of cement and jute goods. During the previous year relevant to A.Y.2010-11 the assessee also derived income from generation of power. During the previous year relevant to A.Y.2006-07 the assessee set up a Thermal Power Plant (TPP) at Satna (Madhya Pradesh) and Chanderia (Rajasthan). Under Section 80IA of the Income Tax Act, 1961 (Act), the assessee was entitled to claim deduction on the profits derived from the manufacture of an article or thing, which also includes generation of power. The Assessment year 2010-11 was the third year in which the benefit of deduction was claimed by the assessee. The assessee had claimed deduction u/s80IA of the Act a sum of ₹ 1,11,89,18,801/-. The power generated by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) During the relevant previous year the Captive Plant of the Assessee at Chanderia sold power to Rajasthan Power Procurement Centre, a Govt. of Rajasthan undertaking at a firm rate of ₹ 6.82 per unit but for calculation of transfer price u/s 80lA, the Assessee had taken the previous month's average grid rate at which it had purchased power from grid which is lower than its sale rate. The Assessee also submitted that the figures proposed by the AO are picked up from the different orders of the Regulatory Authority for fixation of power tariff and do not represent the open market value of electricity at all. The Assessee pointed out that the AO had relied on an order dated August 31, 2009 wherein the Authority determined the tariff for compulsory sale of surplus power generated by captive Power Plants to Electricity Distribution Companies in accordance with statutory parameters and norms. The Assessee pointed out that the AO had also taken figures taken from another order dated March 3, 2010 which represented the purchase cost in respect of transfer of electricity by Power Generating Stations to Electricity Distribution Companies. It was further submitted that the purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le-6/2011-12, my ld. Predecessor vide his order dated 07.12.2012, my Id. predecessor had dealt with this issue as under:- In view of the above judgments as discussed supra in my appellate order of assessment year 2008-09 and respectfully following the decision of the Hon'ble ITATs including jurisdictional ITAT, Kolkata decision; the appellant is allowed to charge unit price at the rate being charged by State Electricity Boards i.e. Rajasthan and Madhya Pradesh. The appellant was asked to give a calculation of the total units consumed by the cements units taken from SEB(s) and reduced there-from the incentive(s) received due to optimal utilisation of the demand and supply quantities and also to reduce the electricity duty, CESS, taxes etc., if any. The appellant has given the said calculation as given in Annexure- A . The appellant has not been given electricity duties and cess charges for calculation of per unit charges because these are the charges paid to the State Govt and are not kept by him. The rates have been taken on weighted average basis of both the units in M.P and Rajasthan for the units consumed annually together in one state and the net amount paid by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IA of the Income Tax Act, 1961, by stating as under:- The interest income was not derived from Industrial activity and therefore, it does not qualify for deduction under section 80lA of the Act. The interest income was not in the nature of business income and it had to be treated as income from other sources and, therefore, it does not qualify for deduction under section 80lA of the Act. As per above discussion and relying on the various decisions of the Hon'ble appellate authorities it is held the interest income shown in unit Satna of ₹ 2,63,86,592/- and unit Chanderia of ₹ 1,83,34,999/- respectively is taxable income and not eligible for deduction u/s 80IA. This ground of appeal is rejected. I am in agreement with the view of my ld. Predecessor. Following the reasoning given in the appellate orders of the earlier years, this ground is rejected. 12. Aggrieved by the order of CIT(A) in approving the basis of determining the profits of the TPP units for the purpose of allowing deduction u/s.80IA of the Act, the revenue has raised Gr.No.1 before the Tribunal. Aggrieved by the order of the CIT(A) in excluding electricity duty, cess, taxes etc., i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereof by the States of Madhya Pradesh and Rajasthan, it was open to an assessee having a captive power plant to sell electricity even to a consumer at a mutually agreed rate. In other words, under the provisions of the 2003 Act and the regulations made there under it is not the position that a captive power plant can sell electricity only to a distribution company or a company which is engaged in both generation and distribution. The Tribunal after making reference to the various provisions of the Electricity Act 2003 and the determination of Tariff under the new legislation in the state of Rajasthan and Madhya Pradesh, as claimed by the Assessee before the AO, came to the following conclusions:- 5.6. We have heard the rival submissions and perused the materials available on record including the paper book and the relevant provisions of the Electricity Act, 2003 as detailed supra. We find that the main thrust of order of ld CITA was by placing reliance on the decision of this tribunal in the case of ITC Ltd, which was modified by the Hon ble Jurisdictional High Court. The ld AR fairly brought to our attention the decision of Hon ble Jurisdictional High Court in the case of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppropriate rate to the adopted as sale price by the TPP unit of the Assessee to its Cement manufacturing units. The Tribunal thereafter referred to the decision of the Hon ble Supreme Court in the case of Thiru Arooran Sugars Ltd. v CIT, (1997) 227 ITR 432 (SC), as to the meaning of the word Market Price wherein in the context of market price of sugarcane which was also a commodity whose price was subject to control by the Government held that the price at which a manufacturer buys sugarcane must be taken to be the market price. The Hon ble Supreme held that if the price is controlled by the Sugarcane Control Order, the controlled price will be taken as the market price, because it is at this price that a willing buyer and a willing seller are expected to transact business. The Tribunal agreed with the submission of the Assessee that as held in the aforesaid judgment of the Hon ble Supreme Court, the price paid by an assessee for purchase of raw material represents the market price of such raw material produced by the assessee. The said judgment was held not to apply in ITC s case because the Hon ble Court was of the view that electricity could not be sold to the consumer because ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as income derived from eligible business for the purpose of allowing deduction u/s 80IA of the Act. No specific arguments were advanced on this issue and this issue was not considered in the decision cited before us. This issue is accordingly decided against the assessee and ground no.5 raised by the assessee is dismissed. 18. Ground no.2 raised by the revenue reads as follows :- 2. That on the facts and in circumstances of the case, the CIT(A) erred in holding that amount of compensation of ₹ 23, 71,340/- paid for infringement of mining right was revenue in nature, ignoring the fact that infringed mining right transferred in lieu of compensation had got benefit of enduring nature, hence capital in nature . 19. We have already seen that the Assessee is also in the business of manufacturing of cement. Limestone is the main raw material for manufacture of cement. The Assessee obtained mining lease from the State Government for quarrying limestone. It had to pay royalty to the State Government in terms of the mining lease. The terms of the mining lease also provided that over and above the royalty payable to the State Government, the Assessee is also required to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 298/Kol/.2013 and this tribunal on an identical issue held as follows :- 2.2. We have heard the rival submissions. We find that the issue under dispute is squarely covered by the decision of this tribunal in assessee s own case for the Asst Year 2006-07 wherein it was held that :- We have heard the parties and perused the material placed on record. The Ld. Counsel for the assessee has elaborated the facts of the case making reference of several decisions of Tribunal and Hon'ble Supreme Court and High Courts. After careful consideration of the same and evidences filed on record and in the paper book, we find that the assessee is required to pay compensation as determined by the local authority/ court to the persons whose rights are infringed because of the mining activity. We also observe that Ld. CIT(A) has properly analyzed the facts of the present case and distinguished the facts decided by the Hon ble Apex Court in the case of Enterprising Enterprises vs. DCIT (supra) and then only had come to a conclusion that the compensation was paid for the damaged caused on the infringement of right of the land owner. He has also analyzed that the payments are progressiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ects in the large and medium sectors were eligible for the incentives under the scheme provided such projects were covered by a detailed feasibility report/project report and the project had been approved and sanctioned by the financial institutions/banks. It was the claim of the Assessee that its Durgapur Hi-tech unit fell under Group B and it was an expansion project which qualified as a Mega Project and it was eligible for the incentives under the 2000 Scheme. The amount of IPA to which the assessee was entitled was quantified at 75% of the sales tax paid in the preceding year and the amount of assistance was to be adjusted against the sales tax liability of the year of claim. It was the claim of the Assessee that the Incentive Scheme 2000 Scheme the registration and eligibility certificates granted to the assessee would clear show that the object of the assistance under the 2000 Scheme was to enable the assessee to expand its existing unit. The assistance granted under the 2000 Scheme was in effect an alternative cash disbursement to meet the capital cost of the assets and was a capital receipt and cannot be subjected to tax. 27. The claim of the Assessee was rejected by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Asst. year 2008-09, the Assessing Officer is directed to re-compute the depreciation on all capital assets in which the capital subsidies have been received by the appellant after taking into consideration explanation 10 to section 43 as held in assessment year 2008-09. This ground of appeal is partly allowed. The CIT(A) agreed with the view of his predecessor. The CIT(A) held that the IPA was a capital receipt not chargeable as it was a capital receipt. He however directed the AO to re-compute depreciation on all capital assets in which the capital subsidies have been received by the Assessee in accordance with Explanation 10 to section 43. 28. Aggrieved by the order of CIT(A) in holding that the subsidy in question is a capital receipt not chargeable to tax, the revenue has raised ground no.3 before the Tribunal. Aggrieved by the order of CIT(A) holding that the amount of subsidy should be reduced from the actual cost of the assets acquired out of the subsidies received for the purpose of allowing depreciation, the assessee has raised ground no.7 before the Tribunal. 29. At the time of hearing it was agreed by both the parties that identical issue was considered by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ground No. 2 That Ld.CIT(A)-VI Kolkata has erred in law as well as on facts by deleting the addition made by the AO on account of Sales Tax Subsidy received by the assessee as revenue income of ₹ 12,38,000/-. The decision rendered thereon by this tribunal is as under:- 7. We have heard rival contentions on this issue and gone through the facts and circumstances of the case. We find that the facts are discussed in detail and which are undisputed. It is admitted that the assessee's issue of Sales Tax Incentive is capital in nature for the reason that the very scheme under which the expansion of the unit and subsidy under Rajasthan Sales Tax Scheme, 1998 was received explains the purpose of the scheme as incurring capital expenditure for installation of plant and machinery and for eligible for fixed capital investment. Even the issue of assessee is covered in its favour by Tribunal's decision in assessee's own case all along from A Ys 2002-03 to 2006-07. It is not brought to our notice by the Revenue that the matter has been decided by Hon'ble Calcutta High Court, despite a query from the Bench, In such circumstances, and taking a consistent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that if the subsidy is asset-specific, such subsidy goes to reduce the actual cost. If the subsidy is to encourage setting up of the industry, it does not go to reduce the actual cost, even though the amount of subsidy was quantified on the basis of the percentage of the total investment made by the assessee. The law is already settled on the subject. Now, the only wavering is with reference to Explanation 10 provided under sec.43(l) of the Act. The said Explanation provides that where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee. It is further, provided thereunder, that where such subsidy or grant or reimbursement of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. We accordingly allow ground no.7 raised by the assesse in its appeal. 31. Ground No.4 raised by the revenue reads as follows :- 4. That on the facts and in circumstances of the case, the CIT(A) erred in law as well as on facts in holding that for computing disallowance u/s 14A read with Rule 8D, only investments from which exempt income was received should be considered and restricted the disallowance u/s14A to Rs.l 07.61 lacs instead of ₹ 4.17 Cr, ignoring the fact that investments are made in anticipation to earn dividend income and as per provisions of Rule 8D total investments has to be considered to arrive at the quantum of disallowance . 32. This can be conveniently taken up together with ground nos. 12 and 13 raised by the assessee in its appeal. These grounds read as follows :- 12. That on the facts and circumstances of the case, the Learned CIT (Appeals) erred in not. deleting the excess disallowance of ₹ 4,17,64,978/- treated by Learned DCIT as expenses attributable to earning dividend income for the year and did not hold that expenses of ₹ 5,84,022/- only have been incurred to earn the said income. 13. That without preju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o submitted that during the relevant previous year, there was no change in the share investments of the assessee. In respect of its share investments, the assessee received 6 dividend warrants for an aggregate sum of ₹ 86, 82,091/- which were deposited in the assessee's bank account for the purpose of encashment. The rest of the dividend income of ₹ 20, 28,65, 775/- was from investment in schemes of mutual funds providing for declaration of dividend. Out of the said amount, the sum of, ₹ 18,31,31,836/- was reinvested in units without physically receiving the warrants. Only 3 warrants for an aggregate sum of ₹ 1,97,33,939/- were physically received and had to be deposited in the bank. Break-up as on March 31, 2010 of the assessee's investments which provided for payment of dividend and those which did not so provide was tabulated thus:- As at 31.3.09 (Rs. in lakh) As at 31.3.10 (Rs. in lakh) Average (Rs. in lakh) Percentage 1.Investments in mutual fund schemes and other assets including shares which provided for payment of dividend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure. The assessee's share investments are practically non-moving with only some small additions taking place, if at all. The expenditure of ₹ 5,84,022/- incurred in connection with management/maintenance of the assessee's investment portfolio has been correctly tabulated by it in the statement submitted to the Assessing Officer. The said statement includes not only the concerned employees' remuneration but also other office expenses. No other infrastructure of the assessee was utilised in connection with the management/maintenance of its investment portfolio. The Assessing Officer wrongly did not accept the assessee's statement of expenditure and worked out the disallowance under section 14A by invoking rule 8D at 0.5% of the assessee's average investment of ₹ 846.97 crores amounting to ₹ 4,23,49,000/-. In the facts of the assessee's case, the quantum of investment or the amount of investment income are not at all determinative of the quantum of expenditure incurred by the assessee in connection therewith. 37. It was argued that under section 14A (2) of the Act, Assessing Officer is empowered to determine the amount of expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Rules. He however, accepted the alternate plea of the Assessee that only investment which provided for payment of exempt dividend income should be considered for purpose of Rule 8D. Since the material facts in the year under consideration remained the same, the CIT(A) was of the view that there was no reason to differ from the view taken by his Id. predecessor. Following the reasoning given in the said order, while the disallowance made in accordance of Rule 8D was, in principle, confirmed, the assessing officer was directed to exclude the amount of investment which did not provide for any exempt income. The CIT(A) directed the AO to verify the claim of the Assessee that after such exclusion, the average investment to be considered for disallowance under Rule 8D would be reduced to ₹ 21521.25 lakhs and the disallowance should be worked out to ₹ 107.61 lakhs. 41. Aggrieved by the order of CIT(A) in holding that while computing the average value of investment only investments which yield exempt income should be considered, the revenue has raised ground no.4 before the Tribunal. Aggrieved by the order of CIT(A) in not accepting the Assessee s claim of disallowan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of mutual funds providing for payment of dividend, the assessee is liable for capital gains tax upon disposal / redemption of the units since such schemes are also not equity oriented. We find that the ld AR also made an alternative argument that only dividend bearing investments should be reckoned for disallowance under Rule 8D(2)(iii) of the Rules and that strategic investments should be excluded. We find lot of force in the alternative argument of the ld AR that only dividend bearing investments are to be considered for making disallowance u/s 14A of the Act. In this regard, the reliance placed by the ld AR on the decision of this tribunal in the case of REI Agro Ltd reported in 144 ITD 141 (Kol) is very well founded wherein it was held that :- 8.1 Thus, not all investments become the subject-matter of consideration when computing disallowance under section 14A read with rule 8D. The disallowance under section 14A read with rule 8D is to be in relation to the income which does not form part of the total income and this can be done only by taking into consideration the investment which has given rise to this income which does not form part of the total income. Under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4A r.w. Rule 8D because it cannot be termed as expense / interest incurred for earning exempted income. Under the circumstances, Ld. Commissioner of Income Tax (Appeals) is correct in holding that disallowance of a further sum of ₹ 40,556/- calculated @ 2% of the dividend earned is sufficient. Under the circumstances, we do not find any infirmity in the order of the Ld.Commissioner of Income Tax (Appeals), hence we uphold the same. On going through the above observations we are of the view that this is merely a question of fact and does not involve any question of law much less a substantial question of law, as the Tribunal held that the expenses which have been claimed by the assessee were not towards the exempted income. The disallowance, therefore, was rightly limited to a sum of ₹ 40,556/-. The question of interpreting Rule 8-D is not in dispute and the only dispute is with regard to facts which have been settled by the Tribunal. In view of the aforesaid findings and respectfully following the judicial precedents relied upon, we deem it fit and appropriate to remand this issue to the file of the ld AO with the direction to consider all investments (exclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and installed after March 31, 2005 by an assessee engaged in the business of manufacture or production of any article or thing. Such initial depreciation is to be allowed as a deduction under clause (ii). The second proviso to section 32(1) restricts the allowance of depreciation to 50% if the plant and machinery acquired during the previous year is put to use for a period of less than 180 days in that previous year. The said second proviso specifically makes a reference to an asset referred to in clause (iia). It is because of the said proviso that the assessee claimed only 50% initial depreciation during the assessment year 2009-10. The conditions for allowance of initial depreciation are acquisition, installation and use of the plant and machinery in the manufacturing business and once the conditions are fulfilled, the entire allowance is admissible. The right of the Assessee to such initial depreciation in full should not get affected because of the number of days for which the plant and machinery is used in the year of acquisition and installation. Initial depreciation is not the same as normal depreciation allowed under section 32( 1) (ii) as it is granted as an incentive to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 008-09 by order dated March 29, 2012 and for 2007-08 by order dated February 28, 2011. The assessee relied on the decision of the Hon ble Delhi Bench of the Hon 'ble Tribunal in Deputy Commissioner of Income Tax v. Cosmo Films Ltd., (2012) 24 taxmann.com 189, wherein similar claim for additional depreciation spread over for two years was allowed by the Tribunal. 51. The CIT(A) however preferred to follow his predecessor s order for AY 2009-10 and held that the provision of section 32(1) specifically restricts that the depreciation will be provided at half the rate if the assets is used for less than 180 days in the year. Therefore, the same was rightly disallowed by the Assessing Officer. He also held that depreciation u/s 32(1)(iia) of the Income-tax Act, 1961 is available to the Assessee as per provision depending from the period for which it is used. There was no vested right to the Assessee to claim the depreciation u/s 32(1)(iia) in the year in which the machinery was not installed. The CIT(A) also held that the decision of Delhi Bench of Hon'ble tribunal in the case of Cosmo Films Ltd. (supra) cited by the Assessee was contrary to the clear and un-ambiguous provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case therein are that the assessee being an existing industrial undertaking had acquired and installed new plant and machinery in the F. Y 2006-07 and claimed 50% of additional 20% depreciation i.e, 10% additional depreciation under section 32(1)(iia) of the Act in the corresponding assessment year 2007- 08 for the reason that the new machinery was acquired after 01-10-2006. The relevant portions at page no 's at 9 and 10 of which is reproduced herein below for below for better understanding:- The language used in clause (iia) of the said section clearly provides that a further sum equal to 20 per cent. of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii) . The word shall used in the said clause is very significant. The benefit which is to be granted is 20 per cent. additional depreciation. By virtue of the proviso referred to above. only 10 per cent. can be claimed in one year, if plant and machinery is put to use for less than 180 days in the said financial year. This would necessarily mean that the balance 10 per cent. additional deduction can be availed of in the subsequent assessment year, otherwise the very purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... similar to the decision supra relied on by the assessee. Therefore, we are of the view that the law laid down by the Hon 'ble High Court of Karnataka in the case of CIT and another vs Rittal India Private Lid supra is applicable to the present case, thus we hold that the assessee is entitled to claim remaining 50% depreciation of such 20% which is equal to the actual cost of new plant and machinery, accordingly ground no-I raised by the assessee is allowed. Respectfully following the same, we dismiss Ground No. 2 raised by the revenue . Respectfully following the said decision supra, we hold that the assessee is entitled for remaining portion of additional depreciation in the asst years 2008-09 and 2009-10 and accordingly the grounds raised by the assessee in this regard are allowed. 53. Respectfully following the decision of the Tribunal the assessee is entitled to additional depreciation (remaining portion). Thus ground no.1 raised by the assessee is allowed. 54. Ground No.8 raised by the assessee reads as follows :- 8. That on the facts and circumstances of the case, the Ld. CIT(Appeals) erred in not holding that provision for leave encashment of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arth Movers case (supra). 57. The Department filed SLP against the decision of the Hon ble Calcutta High Cour t and while admi tt ing the same, the Hon ble Supreme Court vide i ts judgment dated 08.09.2008 stayed the judgment of the Hon ble Calcutta High Court unti l fur ther orders. By another Interim Order passed by the Hon ble Supreme Court on 08.05.2009, which is as fol lows: Pending hearing and final disposal of the Civi l Appeal, Depar tment is restrained from recovering penal ty and interest which has accrued ti ll date. I t is made clear that as far as the outstanding interest demand as of date is concerned, it would be open to the Depar tment to recover the amount in case Civil Appeal of the Depar tment is al lowed. We further make it clear that the assessee would during the pendency of this Civil Appeal, pay tax as if sect ion 43B( f ) is on the Statute Book but at the same t ime i t would be enti tled to make a claim in its returns . 58. The assessing officer added back the provision for leave encashment u/s 43B(f) of I.T.Act, 1961. 59. On appeal by the Assessee, the CIT(A) upheld the order of the AO. Aggrieved by the order of the CIT(A), the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revised 2005). In accordance with the said standard, the assessee provided a sum of ₹ 10,35,870/- in its profit and loss account for the previous year relevant to the assessment year 2010-11. The said amount was determined by actuarial method to assess the liability including for death-service and incapacity benefits on year wise basis taking into account the following assumptions, which are consistent with the requirements of AS15 (Revised 2005) such as : (a) Discount rate per annum; (b) Rate of increase in salary; (c) Rate of return of plan assets; (d) Expected average remaining working lives of employees. This has been done to meet the statutory guidelines issued by the Institute which every company has to follow while preparing its accounts. On retirement or once an employee leaves his job, corresponding amount is reversed and re-credited in the profit and loss account. It was contended that the said amount of ₹ 10,35,870/- does not fall within the ambit of section 43B(f) of the Act as said liability was neither a statutory nor a contingent liability and the same should have been allowed as business expenditure. 65. The CIT(A) noted that clause (f) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion is claimed as deduction was also filed before us. 67. We have considered his submissions and are of the view that this liability is purely notional and cannot be allowed as deduction. It is an admitted position that there is no out flow on this account in any assessment year and the liability is notional and is based purely on entries in the books of account on the basis of notional figures. This may be relevant for the purpose of showing the true and fair view of the state of affairs of the assessee as is required for reporting to share holders and other public authorities. When it comes to computing total income under the Act, such notional liability cannot be allowed as deduction. We concur with the view of CIT(A) in this regard. We are of the view that application of the provision of section 43B(f) of the Act would not be relevant because the liability in question is not otherwise allowable under the Act and Sec.43B of the Act will come into operation only when a expenditure is otherwise allowable under the Act. With this observation we dismiss ground no.9 raised by the assessee. 68. Ground Nos. 10 and 11 raised by the assesee read as follows :- 10. . That o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r order of the ld CITA on the very same issue in the earlier year wherein it was held that the subsidy was revenue receipt and taxable. The ld CIT(A) upheld the order of the AO by relying on the order of his predecessor in AY 2009-10 on an identical issue, wherein it was held as follows:- 16. The whole of the subsidy has been given in respect of setting up of a captive power plant which is not in the nature of expansion. This scheme has been termed as a scheme of interest subsidy. Under this scheme an assessee becomes eligible only if it borrows funds from banks/financial institutions etc. for investing in the new industry/expansion/modernization allowed under this scheme. The subsidy amount is calculated @ 5% of the funds borrowed for use in the projects as per this scheme. The subsidy is given only till the assessee pays interest on the borrowed funds. If no interest is payable then the subsidy will not be allowed to the assessee. There is a limit to which subsidy can be claimed which is decided on the basis of the Sales Tax paid in three earlier years. All these features of this scheme show that the subsidy is not given for meeting a part of the capital expenditure incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax in the form of interest being paid by the industry and reimbursement of the same by the State out of the sales tax. Therefore, in view of the above discussion and following the reasoning an decision of my predecessor in the case of the appellant in the assessment year 2007-08, it is held that the reimbursement of interest out of sales tax payable is not a capital receipt in nature as it does not meet the capital expenditure of the assessee and is a profit earned year after year by the appellant. The Hon ble High Court of Gauhati in the case of CIT vs. Meghalaya Steels Ltd. reported in (2011) 12 Taxman.com 451(Gau) has held impliedly in para 14 that the subsidies i.e. interest subsidy and transport subsidy are revenue receipts and have granted after setting off of the new industries and commencement of the production. This grounds of appeal is rejected . 72. The ld CITA also held that the alternate plea taken by the assessee that in case the said interest subsidy is treated as revenue receipt, the same would go to increase the deduction u/s 80IA of the Act to the assessee thereby becoming revenue neutral. This alternate plea was rejected by the ld CIT(A) on the ground that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubsidy amount was adjusted against the sales tax liability and was not used directly or indirectly to acquire the assets and hence the cost of assets cannot be reduced by the amount of subsidy. We also find that the Hon ble Jammu and Kashmir High Court in the case of Shree Balaji Alloys vs. CIT, (2011) 333 ITR 335 (J K) at page 346 held interest subsidy to be a capital receipt. On further appeal by the revenue, the Hon ble Supreme Court by an order dated 19.4.2016 in Civil Appeal No.10061 of 2011 held that the interest subsidy was a capital receipt in view of its decision in Ponni Sugars (supra) and further held that even if it was treated as a revenue receipt, then the assessee was entitled to deduction under section 80IB/80IC as profits derived from eligible business according to its judgment in CIT v Meghalaya Steels Ltd., (2016) 383 ITR 217 (SC). Hence respectfully following the said decision of the Hon ble Supreme Court in Balaji Alloys supra, we hold that the interest subsidy is to be treated only as a capital receipt and accordingly the grounds raised by the assessee in this regard are allowed. 74. Respectfully following the decision of the Tribunal in Assessee s own c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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