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Birla Corporation Ltd. Versus D.C.I.T., Circle-6, Kolkata And Vice-Versa

2017 (9) TMI 962 - ITAT KOLKATA

Disallowance of deduction u/s 80IA - basis of sale price considered by the TPP for sale of power to the cement units of the appellant company - whether electricity duty and cess has to be excluded from the price while determining profits derived from the business? - Held that:- Identical issue has already been decided in assesee’s own case for A.Y.2008-09 and 2009-10 as held that as during the previous year relevant to the Asst Year 2009-10, the assessee in fact sold electricity at rates higher .....

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indication of the market value of electricity and the assessee did not commit any error 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 El .....

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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 purpose of allowing deduction u/s 80IA of the Act - Decided against assessee. - Compensation paid for infringement of mining right - revenue or capital - whether infringed mining right transferred in lie .....

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nged by the mining activity is revenue in nature. - Subsidy received - nature of receipt - Held that:- The subsidy in question is a capital receipt and not chargeable to tax. We also hold that capital receipt need not be reduced from the cost of the assets and under Explanation 10 to section 43(1) of the Act. We accordingly allow ground raised by the assessee in its appeal. - Disallowance u/s 14A r.w.r. 8D - whether only investments from which exempt income was received should be conside .....

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n (remaining portion). Ground raised by the assessee is allowed. - Provision for leave encashment - whether it is neither a statutory liability nor contingent liability and therefore not to be considered for the purpose of computing disallowance u/s.43B(f)? - Held that:- We set aside the order of CIT(A) and remand the issue to the AO to pass order based on the outcome in the proceedings pending before the Hon’ble Supreme Court in the case of Exide Indusries Ltd. (2008 (9) TMI 921 - SUPREME C .....

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s 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 .....

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, AR For The Department : Shri G.Mallikarjuna, CIT (DR) ORDER Per N.V.Vasudevan, JM ITA No.686/Kol/2014 is an appeal by the Assessee while ITA NO.1101/Kol/2014 is an appeal by the revenue. Both these appeals are directed against the order dated 25.02.2014 of C.I.T.(A)-VI, Kolkata relating to A.Y.2010-11. ITA No.1101/Kol/2014 (Revenue s appeal): 2. There is a delay of about 8 days in filing the appeal by the revenue. The same has been explained by the AO in an affidavit filed before us as owing t .....

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ssessing Officer due to difference in rate of power was not correct, ignoring the fact that there was huge difference in rate on which power was purchased by the cement units with that of power purchased by the Rajasthan & MP state electricity regulatory authority . This ground can be conveniently decided together with grounds no. 2 to 6 raised by the assessee in its appeal. These grounds read as follows :- 2. That on the facts and circumstances of the case, the Ld.CIT(Appeals) erred in not .....

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excluding Electricity duty and Cess charges does not represent the market value of electricity at which it could be sold to any consumer and, therefore, the same has no relevance for the purpose of Section 80IA. 5. That on the facts & circumstances 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 s .....

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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 the Thermal Power Plant of the assessee was consumed by the assessee i .....

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by the consuming units in the previous month, which was a sum of ₹ 6.82 Rs. Per unit. The AO was of the view that tariff for sale of Electricity from Captive Power Plants as determined by orders of Rajasthan Electricity Regulatory Commission and M.P. Electricity Regulatory Commission during the financial year 2009-10 should be considered as sale price. In his show cause notice dated 5.3.2013 (copy of which is at page 194 of the paper book), the AO proposed to adopt the rates adopted by the .....

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s of Section 80lA (8) and the Explanation to the sub-section provide for adoption of the market values for the purpose of computation of profits and gains of the eligible business where its goods or services are transferred to any other business carried on by the assessee. The explanation defines Market Value to mean the price that would ordinarily be fetched in the open market. ii) The price at which State Electricity Boards sell electricity to consumers is representative of the price that elec .....

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8377; 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 da .....

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the purchase price determined in accordance with statutory parameters and norms for the purchase of electricity by the Electricity Distribution Companies does not represent the open market value of electricity. The Electricity Distribution Companies do not and will never sell electricity to any consumer at these rates and the same have no relevance for the purpose of section 80lA(8). There can be no question of adopting such purchase cost for determining the profits and gains of the eligible bu .....

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its by the Satna Unit and ₹ 7,18,61,971/- earned on fixed deposits by the Chanderia Unit should also be considered as part of the profits derived from the industrial undertaking for the purpose of allowing deduction u/s.80IA of the Act. The AO held that fixed deposits were made out of surplus funds in bank for short period cannot be considered as derived from the industrial undertaking as it has not direct nexus with the industrial undertaking. In coming to the above conclusion the AO reli .....

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T(A) following the order of CIT(A) in A.Y.2009-10 directed the AO to adopt weighted average basis of annual consumption. The following were the relevant observations of CIT(A) : 5.2. It is seen that this is also a recurring issue in the appellant s case. In the immediately preceding year i.e. AY 2009-10, the issue came up before my ld. Predecessor. While deciding appeal no.245/CIT(A)-VI/Circle-6/2011-12, my ld. Predecessor vide his order dated 07.12.2012, my Id. predecessor had dealt with this i .....

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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 .....

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a working based on calculated average basis which was found to be fair and reasonable by my ld. predecessor. Similar view had been taken in AY 2008-09 as well. The factual and legal position in the year under consideration is practically identical. I have, therefore, no reason to differ from the view taken by my ld. predecessor. The appellant has, during the appellate proceedings submitted a working of deduction u/s 80lA of the Act based on methodology approved in the appellate orders in the ear .....

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10. On the issue of non-consideration of interest income for the purpose of allowing deduction 80lA of the Act, the Assessee submitted before the CIT(A) the interest was earned on temporarily surplus business funds of the thermal power plants deposited with banks and forms part of the profits of the business of the thermal power plants eligible for deduction under section 80IA of the Act. 11. The CIT(A) found that identical issue was considered and decided against the Assessee in AY 2009-10. The .....

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ating 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 .....

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, 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., in the price to be adopted for determining profits derived from the business of the industrial undertaking and not including interest income as part of the income derived from the industrial undertaking, the Assessee has raised Gr.No.2 to 6 before the Tribunal. 13. At the time of hearing the parties agreed that identical issue has already been decided in ass .....

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e of ITC Ltd., for AY 2002-03. When the appeal of the Revenue in Assessee s case for AY 09-10 was heard by the Tribunal, the revenue pointed out before the Tribunal that the very basis of allowing relief to the Assessee was the decision of the Tribunal in the case of ITC Ltd., and that the Hon ble Calcutta High Court had reversed the order of the Tribunal in the case of ITC Ltd., reported in CIT v ITC Ltd., (2016) 236 Taxman 612 (Cal). In ITC s case (supra) it was held by the Hon ble Calcutta Hi .....

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ons of Indian Electricity Act, 1910 and Electricity (Supply) Act, 1948 that were in force upto the year 2003. It was pointed out before the Tribunal that The Electricity Act, 2003 (hereinafter referred to as the 2003 Act ) repealed the erstwhile legislation and the new legislation came into force on June 10, 2003. The 2003 Act was applicable and in force during the previous years relevant to the Asst Years 2009-10. It was also pointed out before the Tribunal as per the provisions of the 2003 Act .....

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erence 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 relia .....

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taking into account the relevant provisions of Indian Electricity Act, 1910 and Electricity (Supply) Act, 1948. These Acts were repealed and a new Electricity Act 2003 was introduced with effect from 10.6.2003. Hence for the Asst Years 2008-09 and 2009-10 (i.e the years under appeal before us), the assessee would be governed by the provisions of Electricity Act, 2003. 5.6.1. We have already seen that the ITC s case in Hon ble Calcutta High Court, proceeded on the basis that the open market for t .....

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twithstanding the tariff fixed by the State Regulatory Commission. We find that during the previous year relevant to the Asst Year 2009-10, the assessee in fact sold electricity at rates higher than that charged from it by the State Electricity Board. The assessee nevertheless made the computation for the purpose of section 80IA of the Act with reference to the price charged from it by the State Electricity Board. In such circumstances, we hold that, when it was permissible for the assessee to s .....

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uld not be applicable to the case of the Assessee, the Tribunal thereafter went into the question as to what would be appropriate 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 commod .....

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f 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 of specific prohibition in the erstwhile Electricity Act and as such the price to the consumer could not be taken into account. We find that that is not the position in the instant c .....

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priate as it factors in variations as and when they take place. 15. 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. The following were the relevant observations of the Tribunal. 5.6.5. Exclusion of Electricity Duty and Cess as directed by ld CITA Now coming to the decision of the ld CITA to exclude electricity duty and cess, we find tha .....

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rect the ld AO to accordingly modify the earlier years profits also which were modified by him, in the same lines as directed for Asst Years 2008-09 and 2009-10 herein. Accordingly, the grounds raised by the assessee in this regard deserve to be allowed and that of the revenue deserve to be dismissed. 16. The aforesaid decision of the tribunal would apply to the present AY also. Respectfully following the order of the Tribunal we allow grounds 2 to 4 & 6 raised by the assessee in its appeal .....

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e 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 .....

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ctivity. The Assessee claimed the compensation so paid was a revenue expenditure and allowable as a deduction while computing income from business. It was the plea of the Assessee that by incurring these expenses, no interest in land and that compensation has to be paid in order to obtain the raw material for the assessee's business, thereby facilitating the carrying on of its business. The AO however found that in earlier years such claims were disallowed treating it as capital in nature as .....

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by order dated July 9, 2010 deleted the addition made by the AO. Against the said order, the revenue preferred further appeal before the Hon 'ble Tribunal, being ITA No. 1936 (Kol) of 2010. The said appeal has since been rejected by the Hon'ble Tribunal by order dated July 29,2011 (Page 71 to 87 the Paper Book - paragraphs 10-15 at page-77 to 84). The said decision was rendered after considering the judgment of the Hon'ble Supreme Court in Enterprising Enterprises v Deputy Commission .....

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d by the order of the CIT(A), the revenue has raised Gr.No.2 before the Tribunal. 22. At the time of hearing it was brought to our notice that identical issue was considered by the Tribunal in assesee s own case for A.Y.2008-09 and 2009-10 in ITA Nos. 971/Kol/2012 & 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 f .....

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hose 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 progressively distributed as they work, as they proceed .....

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to that in earlier years and hence respectfully following the order of this tribunal supra, we don t find any infirmity in the order of the ld CITA in this regard. Accordingly the grounds raised by the revenue in this regard are dismissed. 23. Following the aforesaid decision we uphold the order of CIT(A) and dismiss ground no.2 raised by the revenue. 24. Ground No.3 raised by the revenue reads as follows :- 3. That on the facts and in the circumstances the case, the CIT(A) erred in law as well .....

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59,12,890/- allowed by State Government is in the nature of capital receipt but erred in directing the Assessing Officer (AO) to reduce the same from the cost of Fixed Assets for the purpose of computing depreciation by applying the Explanation 10 ofSecA3(1) of the I.T.Act. 26. During the previous year relevant to AY 2010-11, the Assessee received Industrial Promotion Allowance provided to one of its unit Durgapur Hi-tech, Durgapur under West Bengal Investment Scheme, 2000 to the tune of ₹ .....

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ct 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 cl .....

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jected by the AO and he held that the receipt under IPA was a revenue receipt chargeable to tax. On appeal by the assessee the CIT(A) found that same issue was also involved in the assessment for earlier years. In the order for immediately preceding year i.e. AY 2009-10, his Id. predecessor has held as under:- I have carefully considered the observations of the Assessing Officer in the assessment order and submissions of the appellant. Respectfully, following the judgment of the Hon'ble Juri .....

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dgment of the Hon'ble Jurisdictional High Court in the case of CIT vs. Rasoi Ltd. (supra), this ground of appeal has been partly allowed and IPA has been considered as capital subsidy, the issue of depreciation is to be considered accordingly as per Explanation 10 to Section 43 w.e.f. 01-04- 1999 provides that actual cost means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or auth .....

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t has not considered the amendment carried out as per explanation 10 to subsection 5 of section 43 in the case of CIT vs. Rasoi Ltd. (supra) regarding the depreciation on the capital assets since the matter involved was assessment year 1995-96 and the amendment in the explanation 10 was brought into force w. e. f 1.4. 1999. Therefore, in view of the above decision and following my own order of Asst. year 2008-09, the Assessing Officer is directed to re-compute the depreciation on all capital ass .....

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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 o .....

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certificate issued by the competent authority approving the expansion of existing unit thereby approving the fact of assessee falling under the category of Mega Unit under the said scheme. We find that Subsidy could be reduced from the cost only if it is found that the cost for acquiring the asset was directly or indirectly met out of the subsidy. In order to apply the proviso, it is necessary to show that the subsidy had been directly or indirectly used to acquire the asset though it may not be .....

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the sales tax liability of the year of claim. The industrial promotion assistance was clearly not used directly or indirectly to acquire the assets nor any part of the cost of the assets was met directly or indirectly from the industrial promotion assistance. We find that the issue under dispute is squarely covered by the decision of this tribunal in assessee s own case for Asst Year 2007-08 in ITA No. 683 & 581 /Kol/2011 dated 8.12.2014 wherein the grounds raised by the assessee as well as .....

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red 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 .....

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r has been decided by Hon'ble Calcutta High Court, despite a query from the Bench, In such circumstances, and taking a consistent view, we hold that the CIT(A) has rightly treated the sales tax subsidy receipt as 'capital in nature' . 8. In respect to the issue of application of Explanation-10 to Sec.43(1) of the Act we find from the facts of the case that the Rajasthan Govt. has framed a incentive scheme i.e., R.S.T/C.S.T. Exemptions Scheme 1998 for encouragement of setting up of in .....

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m the actual cost/WDV of the fixed assets while claiming depreciation. It is also a fact that revenue during scrutiny assessments of the assessee for AY s 2002-03 to 2006-07 added the subsidy amount as revenue receipt but Tribunal has considered the receipt as 'capital', accepting the contention of the assessee. Even Hon'ble Supreme Court in the case of PJ. Chemicals. Ltd. (supra) has considered this issue and held that where Government subsidy is intended as an incentive to encourag .....

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ubsidy is an incentive not for the specific purpose of meeting a portion of the cost of the assets, though quantified as a percentage of such cost, it does not partake the character of payment intended either directly or indirectly to meet the actual cost . By implication, the above judgment also provides that if the subsidy is intended for meeting a portion of the cost of the assets, then such subsidy should be deducted from the actual cost, for the purpose of computing depreciation. As per Hon .....

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n 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, .....

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ubsidy was directly or indirectly used for acquiring an asset. This is again a question of fact. The relatable subsidy to such asset can be reduced from the cost only if it is found that the cost for acquiring that asset was directly or indirectly met out of the subsidy. Likewise in the proviso, it is necessary to show that the subsidy has been directly or indirectly used to acquire an asset but it is not possible to exactly quantify the amount directly or indirectly used for acquiring the asset .....

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ve cases. 9. In view of the above facts and circumstances of the case and legal position explained by Hon'ble Supreme Court in the case of P.J. Chemicals Ltd. (supra), we are of the vie that subsidy receipt should not be reduced from the actual cost of fixed assets for computing depreciation under the provisions of the Act. Accordingly, this issue of revenue s appeal is dismissed and that of the assessee is allowed . Respectfully following the aforesaid decision of this tribunal supra, we ho .....

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o hold that capital receipt need not be reduced from the cost of the assets and under Explanation 10 to section 43(1) of 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 consider .....

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T (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 prejudice to ground no.12 above, the ld. CIT(Appeals), erred in confirming the disallowance to the extent of ₹ 107.61 lacs for earning exempt income i.e. dividend income. The Learned CIT(Appeals) furthe .....

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ses has to be made in terms of Sec.14A of the Act. The Assessee had offered disallowance of a sum of ₹ 5,84,022/- u/s 14A of the Act. The assessing officer was not satisfied with the claim of the Assessee and he invoked Rule 8D according and worked out the disallowance at ₹ 4,23,49,000/-. He accordingly made disallowance of ₹ 4,17,62,918/- over and above disallowance offered by the Assessee. 34. Aggrieved by the aforesaid addition the Assessee preferred appeal before CIT(A). Be .....

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attracts capital gains tax. Substantial part of the mutual fund investments of the assessee are in growth schemes which do not provide for payment of any dividend during the currency of the scheme. Only some of the mutual fund schemes in which the assessee invests provide for payment of dividend. Such dividend is usually reinvested in the respective schemes without being actually received by the assessee. The assessee receives dividend warrants only in respect of some of its investments in mutua .....

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f 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 .....

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/- as expenditure incurred in connection with its investments, offered the said amount for disallowance under section 14A in its return and submitted a detailed statement in course of the assessment proceedings in respect of such expenditure. In the said statement, the assessee included 2% of the remuneration paid to Shri P. K. Chand (Chief Financial Officer) and 15% of the remuneration of Shri R.C. Jha, Manager (Finance & Accounts), who were required to spend only a part of their time in ma .....

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io was ₹ 5,84,022/-, which included appropriate proportion of the emoluments of the employees involved in such management/maintenance. A statement and also another statement listing the job profile of the assessee's Chief Financial Officer and Manager (Finance & Accounts) were filed before the CIT(A). 36. It was submitted that the AO in his order arbitrarily rejected the assessee's figure of expenditure. The disallowance under section 14A of the Act was worked out by Assessing .....

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#39;s statement of expenditure. 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 infrastr .....

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erminative 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 incurred in relation to exempt income in accordance with the method prescribed by rule 8D only if the Assessing Officer is not satisfied with the correctness of the assessee's claim of expenditure. Rule 8D also so provides. It was submitted that in the instant case, there is no .....

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rejudice to the aforesaid contention, it was contended that the formula in rule 8D viz. 0.5% of the average investment could have at best been applied by the Assessing Officer in respect of investments which provided for payment of exempt dividend income, averaging ₹ 21521.25 lakh. There was no question of making any disallowance of 0.5% in respect of investments which did not provide for payment of any dividend and disposal/redemption of such investments was liable to tax. The amount of d .....

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plea of the Assessee and disallowed 0.05% of ₹ 12444.14 lakh that is ₹ 62.22 lakh, being the average of the investments which provided for payment of exempt dividend income. 40. The CIT(A) found that the issue of disallowance of expenses u/s 14A of the Act was also a recurring issue in the Assessee's case. He found that in the AY 2009-10 his predecessor had considered various contentions made by the Assessee Vide his order dated 07.12.2012 and he rejected the claim that disallowa .....

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ning 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. .....

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g the averge value of investments while applying the formula under Rule 8D(2)(iiii) the assessee has raised grounds no. 12 and 13 before the Tribunal. 42. At the time of hearing both the parties agreed that identical issue was considered and decided by the tribunal in assessee s own case in ITA No.971/Kol/2012, 942/Kol/2013, 298 & 329/Kol/2013 for A.Y.2008-08 and 2009-10 in its order dated 25.8.2017 and this Tribunal on the identical issue held as follows :- 3.3. We have heard the rival subm .....

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not proper. He simply resorted to computation mechanism provided in Rule 8D of the Rules and made disallowance thereon under the third limb of Rule 8D(2)(iii). Alternatively he prayed that 0.5% of dividend bearing investments alone be considered ( i.e investments from where dividends were actually received by the assessee alone excluding the dividends that were reinvested) and also prayed for exclusion of investments made in subsidiaries as they are apparently strategic investments. We find tha .....

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essee would be liable to capital gains tax and income from such investments is not exempt under the provisions of the Act. He argued that even in respect of the assessee s investments in other schemes 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 .....

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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 the circumstances, the computation of the disallowance under section 14A read with rule 8D(2)(iii), which is iss .....

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f earning dividend income which is exempt. Hence they would stand differently from other regular investments. Reliance in this regard is placed on the decision of this tribunal in the case of Dy CIT vs Selvel Advertising (P) Ltd reported in (2015) 58 taxmann.com 196 (Kol Trib). We also find that the reliance placed in this regard by the ld AR on the decision of the Hon ble Delhi High Court in the case of CIT vs Oriental Structural Engineers Pvt Ltd in ITA 605/2012 dated 15.1.2013 wherein it was .....

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ich exempted income was receivable. Further, Ld. Commissioner of Income Tax (Appeals) has observed that in respect of investment of ₹ 6,07,75,000/- made in subsidiary companies as per documents produced before him, they are attributable to commercial expediency, because as per submission made by the assessee, it had to form Special Purpose Vehicle (SPV) in order to obtain contracts from the NHAI and the SPVs so formed engaged the assessee company as contract to execute the works awarded to .....

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f ₹ 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 exempt .....

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) which yielded dividend income to the assessee for computing disallowance u/s 14A of the Act r.w. Rule 8D of the Rules . Accordingly the grounds raised in this regard are partly allowed for statistical purposes. 43. Respectfully following the aforesaid decision we partially uphold the order of CIT(A) and dismiss ground no.4 raised by the revenue and partly allow ground nos. 12 and 13 raised by the assessee and direct the AO to consider all investments (excluding investments in subsidiary compan .....

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ssessee in its appeal reads as follows :- 1. That on the facts and circumstances of the case, the Learned CIT(Appeals) erred in not directing the AO to allow balance 50% initial depreciation to the extent of ₹ 13,83,17,412/- u/s 32(1)(ii) on Plant & Machinery put to use for a period of less than 180 days during the financial yer 2008-09 relevant to Asst. Year 2009-10. 47. During the financial year 2008-09 (Asst.Year 2009-10). the assessee had purchased & installed new plan & ma .....

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the balance depreciation this year also. In support of its claim, the assessee submitted that, clause (iia) of section 32( 1) of the Act, as it presently stands after substitution by the Finance Act, 2005 w.e.f. the Asst.Year. 2006-07, provides for allowance of further depreciation equal to 20% of the actual cost of new plant and machinery acquired and installed after March 31, 2005 by an assessee engaged in the business of manufacture or production of any article or thing. Such initial depreci .....

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onditions 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 sect .....

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two years. Further clause (iia) is in the nature of incentive or exemption provision and the courts have taken the view that an exemption provision has to be strictly construed for the purpose of finding out whether an assessee is entitled to the exemption and once eligibility is established the exemption provision will be liberally construed in its application to the assessee. 48. The AO however did not accept the contention of the Assessee. He held that no where in the Act it has been provided .....

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ssessment year 2009-10 also, the department has not accepted the above claim of balance additional depreciation. 49. The Assessee during the course of the assessment proceedings, also submitted before the AO that since the department has not accepted the claim of the assessee on identical claim for additional depreciation during assessment year 2009-10, the claim of depreciation on those assets on which additional depreciation was to be computed as per written down value of the assets as per dep .....

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rder 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 .....

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nch of Hon'ble tribunal in the case of Cosmo Films Ltd. (supra) cited by the Assessee was contrary to the clear and un-ambiguous provisions of the Act. Therefore, with due respect to the Hon'ble tribunal, he chose to follow the order of his predecessor and upheld the order of the AO refusing the claim for additional depreciation. 52. Aggrieved by the order of CIT(A) the assesse has raised ground no.1 before the Tribunal. At the time of hearing both the parties agreed that identical issue .....

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752/Kol/2014 for Asst Year 2008-09 vide order dated 8.3.2017 wherein it was held that :- 6.3. We have heard the rival submissions. We find that the issue under dispute is squarely covered by the decision of the co-ordinate bench of this tribunal supra wherein it was held as under :- 4. Ground no. 1 relating 10 depreciation on plant and machinery which were put to use less than 180 days during the said financial year. During the previous assessment year (2006- 07) the assessee claimed 50% of dep .....

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e us submits that the case in hand is squarely covered by the decision of the Hon 'ble Karnataka High Court in the case of CIT & Anr Vs. Rittal India Pvt. Lid reported in (2016) 380 ITR 423 (Karn). 6. The Ld. Sr. DR relied on the orders of the authorities ' below. 7. Heard both the parties and perused the relevant material on record. In this regard, we may refer to the decision of the Hon 'ble High Court of Karnataka in the case of CIT and another vs Rittal India Private Ltd (sup .....

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r 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 .....

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benefit the assessee. In this case, the intention of the legislation is absolutely clear, that the assessee shall be allowed certain additional benefit, which was restricted by the proviso to only half of the same being granted in one assessment year, if certain condition was not fulfilled. But, that, in our considered view, would not restrain the assessee from claiming the balance of the benefit in the subsequent assessment year. The Tribunal, in our view, has rightly held, that additional dep .....

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l depreciation equal to 20% of the actual cost of new plant and machinery acquired and installed after March 31, 2005 with effect from the assessment year 2006-07 to those who engaged in the business of manufacture or production of any article or thing. Therefore, the assessee is entitled to claim 20% of depreciation equal to the actual cost of plant and machinery, but, where as the 2nd proviso to section 32(1) of the Act restrains the authority to allow depreciation to 50% of such 20% if the su .....

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in Clause (iia) to sub-section (1) of section 32 of the Act. The facts of the present are 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, ac .....

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emaining 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 ₹ 1,61,10,394/- is neither a statutory liability nor contingent liability and therefore not to be considered for the purpose of computing disallowance u/s.43B(f) of the I.T..Act, 1961. 55. The AO disallowed the claim of the Assesse .....

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Cal), the Hon ble Calcutta High Court held that the provision for leave encashment cannot been disallowed under sec 43B(f) of the Act. The Calcutta High Court after referring to the decision of Bharat Earth Movers v. CIT (2000) 245 ITR 428 (SC) held that amendment to sec 43B(f) was not constitutionally valid. The Calcutta High Court held the provision to be arbitrary and vulnerable, because there was no disclosure of reasons for the amendment. The High Court ruled that, while the Legislature was .....

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hat leave encashment is neither a statutory liability nor a contingent liability and it is a provision to be made for the entitlement of an employee achieved in a particular financial year. Testing clause (f) with the objects sought to be achieved by the introduction of sec 43B, it was held that the same could not have any nexus with the object sought to be achieved by the original enactment. Sec 43B was originally inserted to plug evasion of statutory liabilities and the introduction of clause .....

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urt 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 se .....

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case in ITA No.971/Kol/2012, 942/Kol/2013, 298 & 329/Kol/2013 for A.Y.2008-08 and 2009-10 dated 25.8.2017. This Tribunal on the identical issue held it could be inferred that the Hon ble Supreme Court had not stayed the judgment of the Calcutta High Court during Leave proceedings. But the Hon ble Supreme Court had only passed an interim order on the impugned issue. Hence the Tribunal thought it fit and appropriate, in the interest of justice and fair play, to remand this issue to the file o .....

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ads as follows :- 9. That on the facts and circumstances of the case, the Ld. CIT(Appeals) erred in holding that provision for sick leave liability of ₹ 10,35,870/- is notional and contingent liability and therefore covered by the provisions of section 43B(f) of the I.T.Act, 1961 . 63. Ground no. 12 relates to addition of ₹ 10,35,870/- in respect of provision for sick leave. The assessing officer observed that the Assessee had made the provision of Rs..1 0,35,870/- towards sick leave .....

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citing any reason and without considering the submissions of the assessee. In respect of provision for sick leave liability, the Institute of Chartered Accountants of India has issued Accounting Standard (AS) 15 (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 .....

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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) of section 43B read thus:- any sum payable by the assessee as an employer in lieu of any leave at the cr .....

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was no actual financial outflow. The liability was reversed at the time of retirement or quitting of job by the employee, He therefore concluded that the liability was notional and not representing any certain financial liability. He also observed that the liability has been worked out in accordance with Accounting Standard AS-15 but the purpose of Accounting Standard is to encourage prudent accounting by providing for various liabilities. These include, apart from present liabilities, also liab .....

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onal one. The provision for un-availed sick leave as discussed above does not relate to any actual liability but was a provision for notional and contingent liability. The same is also covered by the provisions of sec ion 438 (f) of the I.T.Act. The addition of ₹ 10,35.870/- was accordingly confirmed. 66. Aggrieved by the order of CIT(A) the assessee has raised ground no.9 before the Tribunal. The ld. Counsel for the assessee reiterated the submissions as were made before CIT(A) and also f .....

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at 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 v .....

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the case, the Learned CIT (Appeals) erred in not holding that interest subsidy of Rs.l,1l,42,419/- received from State Government is a capital receipt and to be excluded from total income. 11. That without prejudice to ground no.10 above, the Learned CIT(A) further erred in not holding that the interest subsidy received by one of the Thermal Power Plants (TPP) at Chanderia forms part of income of that unit and should be considered for the purpose of computing deduction u/s.80IA of the Income Tax .....

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nvestment during the operative period of the scheme i.e 1.7.2003 to 31.3.2008. As per the scheme a unit shall be eligible for subsidy under the scheme from the date of payment of sales tax and the amount of subsidy shall be subject to a maximum of 50% of the additional amount of Rajasthan Sales Tax & CST and VAT payable or deposited by the unit over and above the highest tax payable or deposited whichever is higher, in any of the three immediately preceding years. Subject to above clause int .....

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to assist the assessee in acquiring a capital asset and accordingly the said subsidy is incidental to the carrying on the business of the assessee. Based on these observations, he treated the interest subsidy as a revenue receipt. 71. Before CIT(A), the assessee reiterated the submissions made before the ld AO and also tried to distinguish the earlier 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( .....

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ization 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 me .....

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rovided to industries in their early days to enable them to come to competitive level with other established industries. Subsequently, in Paragraph 31 the Supreme Court, while dealing with subsidies granted after setting up of a new industries and after commencement of production, described such subsidies as an assistance given for the purpose of carrying on the business of the assessee. 17. The benefit in payment of interest on borrowed capital has been received in the course of carrying on the .....

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of the assessee and not the primary source of capital investment. This subsidy was to be received year after year by reimbursement from payment of additional sales tax subject to maximum 50% of additional sales tax paid by the industry. The significant fact that under the scheme framed by the Government, no subsidy was given until the time production had actually commenced. Mere setting up of the industry did not qualify an industrialist for getting any subsidy. The subsidy was given as help no .....

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sement 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. Megh .....

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f the Act to the assessee thereby becoming revenue neutral. This alternate plea was rejected by the ld CIT(A) on the ground that the said interest subsidy was not derived from the industrial undertaking and hence not eligible for deduction u/s 80IA of the Act. Aggrieved, the assessee is in appeal before us. 73. At time of hearing, it was agreed by the parties before us that identical issue arose for consideration in Assessee s own case for AY 2009-10 and in that year, the Hon ble Tribunal in ITA .....

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Bhilwara, Government of Rajasthan, sanctioning a sum of ₹ 15,91,813/- towards Interest Subsidy to the assessee. The said order also clearly mentioned that the said interest subsidy of ₹ 15,91,813/- would not be paid to the assessee in cash and instead the same would get adjusted with the sales tax liability payable by the assessee. Based on this, the ld AR argued that the interest subsidy also takes the character of sales tax subsidy and hence to be treated as capital receipt. We fi .....

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the issue as to whether the said interest subsidy is to be reduced from the cost of assets as per Explanation 10 to section 43(1) of the Act was restored back to the file of the ld CITA for fresh adjudication. We find that with regard to treatment of Industrial Promotion Assistance (IPA) as capital receipt or revenue receipt supra in Para 4 above, we have already held it to be a capital receipt and the same need not be reduced from the cost of assets as per Explanation 10 to Section 43(1) of the .....

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