TMI Blog2018 (1) TMI 758X X X X Extracts X X X X X X X X Extracts X X X X ..... cial responsibility is allowable as business expenditure u/s 37(1). Depreciation claimed in respect of intangible assets in the form of right in relation to power from APGPCL - Held that:- We hold that to ascribe 2/3rd value of the APGPCL investment to intangible commercial rights of cost effective power supply rights an 1/3rd value to the tangible rights a share holder will be a reasonable estimate ascribable to these constituents. The AO will accordingly word out the eligible depreciation on intangible rights u/s 32(I)(ii) on 2/3rd value of APGPCL investment and 1/3rd to share holder rights and work out the block of asset of intangible rights for depreciation and 1/3rd to value of APGPCL shares. The allowances, claim of LTCG on sale of shares whenever sold will be worked out accordingly. Depreciation in respect of assets retired from active used - Held that:- As decided in assessee's own case the expression "used for the purposes of the business" as found in section 32 when used with respect to discarded machinery would mean that the user in the business was not in the relevant financial year/ previous year but in the earlier financial years. The discarded machinery would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Counsel for the assessee that the donation of Nandi foundation for providing mid- day-meal under the Government of Rajasthan Scheme, is allowable as business expenditure. Section 37(1) operates in a different field. In our view there has to be direct nexus between the amounts spent and the business of the assessee. In the present case, there is no evidence suggesting that the expenditure is laid out or expended wholly and exclusively for the purpose of business of the assessee. Therefore, this ground of the Revenue’s appeal is allowed. The finding of the Ld. CIT(A) on this issue is set aside and that the Assessing Officer is restored. Addition on a/c of waiver of electricity duty - Held that:- Essentially such waiver of electricity duty is related to setting up and expansion of industry hence capital in nature as per notification issued by the State Government. Under these undisputed facts, we do not see any reason to disturb the finding of the Ld. CIT (A), same is hereby affirmed. This ground of the revenue’s appeal is dismissed. Disallowance as exchange rate difference on loan - Held that:- We find merit into the contention of the Ld. Counsel for the assessee that after c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 87,97,262/- made by the AO for the claim u/s 80IA of the Act. IX. Directed to allow donation of ₹ 1,10,52,000/- given to Nandi Foundation as an expenditure u/s 37(1) of the act in-spite of the view taken by the AO in allowing the same u/s 80G @ 50%. X. Deleted the addition of ₹ 8,55,50,700/- on a/c of waiver of electricity duty. XI. Deleting the disallowance of ₹ 11,15,00,000/- as exchange rate difference on loan. XII. Directed not to reduce the profits of the business, the amount eligible for deduction u/s 80IA of the IT Act. 2. At the time of hearing, both the ld. Representative of the parties submitted that the Ground no. 1,2,3,4,5,6 are covered by the decision of the Co-ordinate Bench of this Tribunal, in the case of the assessee, pertaining to the earlier assessment years. However, Ld. DR supported the Assessment Order. 2.1 We have heard the rival contentions, perused the material available on record and gone through the order the authorities below. We find that Ground no. 1 is covered by the decision of this Tribunal in ITA No. 612/JU/2009, wherein this Tribunal was pleased to hold as under:- 4. Ground no. 1, it is stated by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fare expenditure is incurred through various bodies in consultation with such staff unions. These facts coupled with findings of ld. CIT (A) that expenditure is genuine. Wholly for business purposed and allowed in various earlier years even after verification have neither been dislodged by revenue nor controverted in any manner except raising a specious plea that issue may be set aside again. Its vehemently contended that setting aside amounts to be a burden of fresh proceedings on assessee which should not be restored to be appellate authorities in routine and casual manner. Ld. Counsel contends that it amounts to reassessment proceedings and in this case after 15 years, various courts have expressed their strong displeasure on perfunctory reassessment. In our considered view the following propositions of law in the realm of tax jurisprudence as contended by ld. Counsel for the assessee deserve merit that: (i) Principles of res Judi cata do not apply to IT proceedings (ii) Every assessment yea is a separate and distinct unit of assessment and stands on its own facts. (iii) What is settled should not be ordinarily unsettled unless there are justifiable reasons i.e. the pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ground no. 1 of the Revenue s appeal is dismissed. 3. Apropos to ground no. 2, it is stated by the Ld. Representative of the parties, that the issue is covered by the decision of the Co-ordinate Bench in Assessee s own case. We find that the ground no. 2, is covered by the decision of this Tribunal in ITA no. 612/JU/2009, wherein the Hon ble Tribunal decided the issue in para 5 to 5.2 as under:- 5. Apropos to Ground no. 2 it is stated by the representative of the parties, that the issue is covered by the decision of the Co-ordinate Bench in assessee s own case. We find that the Co-ordinate Bench in ITA No. 235/JU/2008, decided this issue in para 12.1 and 12.2 by observed as under: 12.1 As regard ground 6 of the Revenue challenging allowability of publicity and PR expense, we find that the similar issue has been decided by us in assessee s own case for the assessment year 2003-04 vide our order dated 11-03-2016 ( in ITA No. 537/JU/2007- Revenue) wherein Revenue s Ground no. 6 has been dismissed by following observations. 16.2 We have heard the rival contentions and perused the materials available on record. We find that this issue has already been decided by this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue regarding the allowability of depreciation on APGPCL shares, we find that the similar issue has been decided by us in assessee s own case for the assessment year 2003-04 vide our order dated 11-03-2016 (in ITA No. 537/JU/2007 - Revenue) wherein revenue s Ground No. 4 has been partly allowed by following observations. 14.2 We have heard the rival contentions and perused the materials available on record. We find that Ground No. 6 of the Revenue is similar to Ground No. 6 of the Revenue for the assessment year 2002-03 and this ground is partly allowed by this Bench vide its order dated 09-03-201 by following observations. 15.1 Apropos ground No. 6 regarding deleting disallowance of depreciation of ₹ 19,50,74,094/- on shares of APGPCL claiming it to for acquisition of intangible commercial rights for use of power generated by APGPCL at a cost. Both parties agreed that the issue is similar to AY 2001-02 and the same decision may be applied. 15.2 We have heard the rival contentions and perused the materials available on record. Similar issue came up first time before us n assessment year 2001-02, by a detailed order we have partly upheld the order of the ld. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dominant intangible asset and other rights is to be arrived at. In the cases a discussed above, the value of intangibles are either deduced by way of a residuary methodology where consideration paid over and above the net book value has been considered as value of intangible or there could be a specific consideration agreed with the seller towards acquisition of intangibles. 17.24 In light of above discussion facts, circumstances and case laws of Smiff Securities. Bharti Teletech and others (supra) we hold that to ascribe 2/3rd value of the APGPCL investment to intangible commercial rights of cost effective power supply rights an 1/3rd value to the tangible rights a share holder will be a reasonable estimate ascribable to these constituents. The AO will accordingly word out the eligible depreciation on intangible rights u/s 32(I)(ii) on 2/3rd value of APGPCL investment and 1/3rd to share holder rights and work out the block of asset of intangible rights for depreciation and 1/3rd to value of APGPCL shares. The allowances, claim of LTCG on sale of shares whenever sold will be worked out accordingly. 17.25 In the entirety of facts, circumstances, contentions and case laws we p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... akin to a license which is one of the items falling in Section 32(I)(ii). (viii) Even if strictly the rights do not amount to license, in any case they constitute another genus of other commercial rights of similar nature as envisaged by sec. 32(I)(ii). (ix) The shares are the written means to acquire and enjoy the rights of electricity under a policy formulated by APSEB and AGPGCL under the aegis of policies of AP Govt. Therefore the rights being achieved in the form of zero dividend share certificated cannot militate aginst the real nature of transaction. Our view is fortified by Hon ble Supreme Court judgments in the case of Kedarnath Jute Mill and Sutlej Cotton Mills (supra), Therefore, acquisition of rights being the dominant and prime motive in impugned transaction, depreciation in terms of sec. 32(I)(ii) is to be allowed in terms of para 17.24 above. (x) Though no adverse judgment has been cited on the interpretation and scope of sec.32(I)(ii) and the issue, assuming even that more than one interpretation is possible, even the one favourable to assessee is to be adopted in view of the Hon ble Supreme Court judgments in the case of Vegetable Product and Vatika To ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch vide its order dated 09/03/2016 by following observations. 22.7 We have heard the rival contentions and perused the materials available on record. We find that this issue is squarely covered by the decision of Hon ble Delhi High Court in the case of CIT vs. Yamaha Motor India(P) Ltd. (2010), 328 ITR 297 wherein it is held as under:- Held dismissing the appeal, that as long as the machinery was available for use, though not actually used, it feel within the expression used for the purpose of the business and the assessee could claim the benefit of depreciation. An actual user was not required as had been contended by the Revenue. Use and discarding were not in the same field and could not stand together. However, a harmonious reading of the expressions used for the purpose of the business and discarded it would show that used for the purposes of the business only means that the assessee had used the machinery for the purpose of the business in earlier years. The expression used for the purposes of the business as found in section 32 when used with respect to discarded machinery would mean that the user in the business was not in the relevant financial year/ previ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this Tribunal in ITAT No. 612/JU/2009, wherein the Hon ble Tribunal decided this issue in para 8 to 8.2 as under:- 8. Apropos to ground no. 6, it is stated by the ld. Representatives of the Parties, and that identical issue is decided by the Co-ordinate Bench in ITA No. 235/JU/2008 in assessee s own case pertaining to the assessment year 2004-05 in para 13.1 to 13.2 has reads as under:- 13.1 As regards ground 7 of the Revenue challenging Ghosunda Damn expenses we find that the similar issue has been decided by us in assessee s own case for the assessment year 2003-04 vide our order dated 11-03-2016( in ITA No. 537/JU/2007- Revenue) wherein Revenue s Ground No. 7 has been dismissed by following observations. 17.2 We have heard the rival contentions and perused the materials available on record. We find that Ground No. 11 of the Revenue is similar to Ground No. 10 of the Revenue for the assessment year 2002-03 and this issue has been decided against the Revenue by this Bench vide its order dated 09- 03-2016 by following observations; 17.1 Apropos revenue Ground No. 10 regarding deleting disallowance of ₹ 4,19,12,571/- u/s 37(I) on account of enabling assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO was not justified in disallowing the expenditure incurred on Gosunda Dam amounting to ₹ 9,3,45,17/- , the same is deleted. With regard to other disallowances of ₹ 4,79,519/- in the appellant proceedings also, the ld. AR did not file any details. Therefore, the ascertainment is not possible. Hence, the disallowance is confirmed. 15.2 Ld. Counsel for the assessee contends that this issue is covered and settled in its favour of the assessee, ITAT allowed these claims in AYs 1991-92 and 1992-93; aggrieved revenue preferred appeals before Hon ble Rajasthan High Court which was pleased to dismiss revenue appeals by the order dtd. 30/01/09 in ITA Nos. 52 78/2002 by following observations:- 12 Adverting to the facts of the present case, admittedly, the assessee s super smelter plant requires adequate quantity of water for its operation and unless and until, water is available, the super smelter plant would not function and would not be able to produce any items. Admittedly, the Ghosunda Dam has been constructed by the State Govt. and the assessee has made expenditure for its alteration so as to ensure sharing of the water with the State Govt. without havin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue is decided in para 12.1 to 12.3 as under:- 12.1. Apropos Ground No. 3 regarding deleting the disallowance of ₹ 2,53,19,060/- on account of Mines Development Expenses. 12.2. We have heard the rival contentions and perused the materials available on record. The similar issue arose in the assessment year 2001-01 and 2001-02 this issue in question has been set aside and restored to the file of the ld. CIT(A) by ITAT with following observations:- 16.5 Ld. Counsel further contends that mining operations for procuring ore is an essential and continuous process and not static one. The expenditure is incurred after setting up of business being it recurring in nature. The expenditure is incurred for Cutting Drives including Shafts, Cuts and other excavations. To make mines preparatory for development of the block for ore extraction and to make passage from surface to underground through provision of Shafts. The development of different level for approach and creating area of drilling operations create approaches for movement of mucking equipment, transportation of blasted oars in haulage levels provision of ventilation. Mine development is a continuous process to susta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciding the same, after considering submissions of the assessee and verifying the records. 8. Apropos to ground no. 7, the ld. Departmental Representatives submitted that the CIT(A) was not justified in deleting the addition made on account of under- valuation of closing stocks. He submitted that the identical issue was raised before this Tribunal in ITA No. 612/JU/2009. He submitted that in view of the judgment of the Hon ble Supreme Court rendered in the case of CIT vs. British Paints India Ltd. (1991) 188 ITR 44 (SC), the value of the stocks is to be adopted on cost or net realizable value. The assessee cannot adopt notional value of the closing stock of ore. Per contra ld. Counsel for the assessee opposed the submissions and submitted that the assessee has valued its stock in accordance with the accounting principles. He supported the order of the ld. CIT(A). He submitted that ore is nothing but soil. Therefore, notional value of ₹ 1 per MT is adopted by the assessee. 8.1 We have heard the rival contentions, perused the material available on record and gone through the order of the authorities below. The identical issues before this Tribunal in assessee s own case i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant and is in line with the accounting principles. Since the closing stock of the relevant year becomes the opening stock of the next year the same is revenue neutral. Thus, the accounting method of stock valuation is done by bonafide intention to arrive at true profit of the business. It is further observed by the ld. CIT(A) that in the order dated 16/03/2005 pertaining to the assessment year 2001-02 and subsequently, in 2002-03 and 2004-05 wherein it has been decide the claim of the valuation of closing stock of ore etc., is allowable. It is pointed out by the Ld. Counsel for the assessee that the issue has been decided in favour of the assessee in ITA No. 95/JU/2007, ITA No. 537/JU/2007 and ITA No. 235/JU/2008. We find that the Tribunal in ITA No. 95/JU/2007, the Tribunal has noted the fact in that year in para 20.2 as under: Brief of the case are that during the year under consideration, the production activities at Sargipalli and Maton Mines were discontinued. Accordingly the stores and spares stock lying at the Mines as on March 31,2002 were valued at 25% of the cost, resulting in decrease of profits by ₹ 98.63 lacs. This is as per perusal of the notes on accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain value of such stocks. Needless to say, that the Assessing Officer would afford sufficient opportunity to the assessee for furnishing of evidence in support of the value of the stocks. This ground of the Revenue s appeal is allowed for statistical purposes . 8.2 There is no change into facts and circumstances in the year under appeal. Therefore, taking a consistent view, this issue is also restored to the file of the assessing officer for decision afresh for valuing the stock. The AO would decide the issue in the light of direction given in ITA No. 612/JU/2009 pertaining to the assessment year 2005-06. Hence, the Ground no. 7 is allowed for statistical purpose. 9. Ground no. 8 is against deletion of reduction of ₹ 87,97,262/- made by the Assessing Officer for the claim u/s 80IA of the Act. The Ld. Departmental Representatives adopted the same argue as were made in ITA No. 612/JU/2009. He submitted that the assessee has not apportioned the expenses related to Head Office and CPP. He submitted that Director s fee is same for the Head Officer as well. 9.1 On the contrary, ld. Counsel for the assessee submitted that the expenses are duly apportioned and the word de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le supreme Court. This crucial omission has resulted in AO s conclusion that: (i) The proportionate depreciation of other common assets is allocable to be reduced from the profits of eligible CPP unit. (ii) The proportionate part of the employees remuneration and benefits, administrative and selling expense such a remuneration of managers, directors, auditors, financial advertisers, amenities and Head Officer assets is also require to be allocated to CPP Debari. (iii) Ld. AO instead of establishing any direct of proximate relation between these unconnected proportionate expenses reduced them from eligible profits under a notion that even the remote and unconnected proportionate expenses are allocable. (iv) The ld. AO held that HO is not a profit earning centre and Captive Power Plant, Debari, is not a standalone unit, having independent functioning and a separate profit center and on such erroneous assumption reduced the deduction u/ 80IA by aforesaid expenses of other independent and functionally different units. Ld. Counsel has demonstrated that other units of the Company cannot use the fixed assets, like permanent residential buildings of Udaipur unit which are w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions. f) The aforesaid expenses of salary and wages, contribution to provident fund etc. and other benefits to employee insurance, consultancy and other administrative expense as alleged by ld. AO, have in fact, been incurred at Udaipur Office for goods manufactured i.e. zinc and lead by the appellant . Consequently, such expenditure is deductible while computing the profit of assessee s manufacturing business of zinc and lead. Any part thereof cannot be hypothetically attributed to independent CPP unit situated at Debri. Such presumptive and notional reduction of claim u/s 80IA is arbitrary and unsustainable. g) The words derived from have been used by the Legislature in the restricted sense and therefore, there must be direct nexus between the expenditure and industrial activity. Since there is no direct nexus of the alleged expense with CPP unit, neither allocation nor reduction of 80IA claim has justification. It is settled law that allocation, if any, cannot be made by demonstration of direct nexus between alleged proportions of expenses with power generation operations of PP unit situate at Debari, ld. CIT(A) has rightly deleted the reduction in 80IA claim. i) Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es should not be reduced while calculating deduction u/s 80IA. Hon ble Bomaby High Court upheld assessee s claim. Ld. CIT(A) in this case while deleting the reduction from assessee s claim u/s 80IA has applied nearly similar observation. In view thereof no infirmity can be attributed to the order of ld. CIT(A) which is upheld. In the given facts, circumstances and legal position, we hold that the said HO Expenses with the eligible industrial undertaking i.e. CPP, therefore the unrelated proportionate HO expenses cannot be reduced while computing deduction u/s 80IA. This ground no. 12 of the Revenue is dismissed. However, we find that the certain expenses which are common to both to the Head Office and Captive Power Plant has not been allocated. Therefore, the issue is restored to the file of the Assessing Officer for re-computation of reduction. The Assessing Officer would re-work allocation of the expenses related to the director s fees, auditor s fees and donation for charity. To this extent, the order of the Ld. CIT(A) is modified. This ground of the Revenue s appeal is partly allowed for statistical purposes. 9.3 There is no change into facts and circumstances. Therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Ld. CIT(A) on this issue is set aside and that the Assessing Officer is restored. Thus, Ground no. 9 of the revenue s appeal is allowed. 11. Ground no. 10 is against deletion of addition of ₹ 8,55,50,700/- made on account of waiver of electricity duty. The ld. CIT (DR) vehemently argued that ld. CIT(A) failed to appreciate the fact in right perspective. He submitted that waiver of the electricity duty is nothing but remission of liability which cannot be termed as subsidy. Subsidy is different from the waiver of electricity duty. This aspect was not considered by the ld. CIT (A) while deciding the issue. He submitted that the case laws as relied by the ld. Counsel for the assessee do not help as those case laws relate to the subsidies. He submitted that Sahney Steels and Press Works Ltd. Vs. CIT(A) 228 ITR 253, the Hon ble Apex Court has held that the power subsidies are of revenue nature and have to be taxed accordingly. He submitted that even if it is assumed that the waiver of electricity duty is subsidy without prejudice to the submission that same is not a subsidy even then in the light of the judgment of the Hon ble Supreme Court in the Case of Sahney Stee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all commence commercial production/operations owing to such investment during the operative period of the scheme. Clause-5: Eligibility: The benefit (subsidies as per Clause 7 and exemption as per Clause 9 under this scheme shall be available to all units, other than those covered in the list of ineligible units subject to the fulfillment of the following conditions:- (i) To claim wage/employment subsidy the unit shall provide:- (a) Direct employment to at least then persons in case of a new unit and (b) Twenty five percent additional direct employment subject to a minimum of ten persons in case of diversification, modernization or expansion. (c) The unit shall be eligible for interest subsidy and/or wage/employment subsidy only if it commences first commercial production/operation during the operative period of the scheme. Clause-7: Subsidies: In case of new investment made, the sum total of interest subsidy and wage/employment subsidy would be subject to a maximum limit of fifty percent of the tax payable and deposited under the Rajasthan Sales tax Act, 1994, the Central Sales tax Act, 1956 and Value Added Tax Act as and when introduced in the state; Prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cided; whether on the facts and in the circumstances of the cae and in law the assessee company is justified in its claim that the sales tax incentive allowed to it during the previous year in terms of relevant government order constitute capital receipt and is not to be taken into account in computation of total income. The factual position in this case is as under:- The assessee set up a unit in Patalganga which is a notified area and became eligible for incentive announced by the Govt. of Maharashtra, which begins commercial production in November, 1982. The incentive was in the form of exemption from liable for payment of sales tax for a period of 5 years commencing from 8-6-83 and ending on 7-6-1988. The assessee s claim was that the quantum of the sale tax liable would be claimed as deduction on the basis of that it is a capital receipt or on the basis of that it should be treated as liability under the sales tax liability. But since, it was exempted from payment of sales tax, the same should be treated a paid within the meaning of section 43B so as to adjusted against the amount of subsidy, which the assessee would have received from the statement government. In that yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r plant. Therefore, the decision of the Hon ble Spl. Bench, Bombay in the case of Reliance Industries is fully applicable to the appellant s case. Therefore, the disallowance made by the AO is deleted. The appeal is allowed on this ground. From above, it can be inferred that ld. CIT (A) considered all the judgments as relied by the parties and by following the decision of the Special Bench deleted the addition. In the present case, there is no dispute with regard to the fact that the waiver of electricity duty is linked with the quantum of investment made by the Assessee. The pre condition for availing such incentive is essentially investment made by the assessee. In the Sahney Steel and Press Works Ltd.(supra), the Hon ble Supreme Court examined the issue and laid down principles on the basis of which a subsidy given to the assessee is required to be categorized. If it is an operational subsidy same would fall within the ambit of revenue and if it is a subsidy for a purpose of setting up and expansion of industry that would be within the ambit of capital. Admittedly, in the present case, it is not the case of subsidy given by the State Government but it is a sort of incentive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduction, and therefore, such a subsidy would only be treated as assistance given for the purpose of carrying on the business of the assessee. Consequently, the contentions raised on behalf of the assessee on the facts of that case stood rejected and it was held that the subsidy received by Sahney Steel could not be regarded as anything but a Revenue receipt. Accordingly, the matter was decided against the assessee. The importance of the judgment of this Court in Sahney Steel Press Work s Ltd. s case(supra) lies in the fact that it has discussed any analyzed the entire case law and it has laid down the basic test to be applied in judging the character of a subsidy. The test that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, on has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. The main eligibility condition in the scheme with which we are concerned in this case is that the incentive must be utilized for repayment of loans taken by the assessee to set up n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purpose for payment of assistance. Ordinarily such payments would have been on revenue account but since the purpose of the payment was to curtain/obliterate unemployment and since the purpose was dock extension, the House of Lords held that the payment made was of capital nature. 16. one more aspect needs to be mentioned. In Sahney Press Works Ltd. s case (supra) this court found that the assessee was free to use the money in its business entirely as it liked. It was not obliged to spend the money for a particular purpose. In the case of Seaham Harbour Dock Co. (supra) assesee was obliged to spend the money for extension of its docks. This aspect is very important. In the present case also, receipt of subsidy was capital in nature as the assessee was obliged to utilize the subsidy only for repayment of term loans undertaken by the assessee for setting up new units/expansion of existing business. 17. Applying the above tests to the facts of the present case and keeping in mind the object behind the payment of incentive subsidy we are satisfied that such payment received by the assessee under the Scheme was not in the course of a trade but was of a trade but was of capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce the loan was acquired for capital purpose, any accretion to liability was necessarily a capital in nature. The loan was a balance sheet item and held as capital liability and, therefore, any increase therein would also be logically capital in nature. Ld. DR submitted that there is no infirmity into this reasoning of the Assessing Officer. He submitted that as per section 43A of the Act, there shall be adjustment to the actual cost of the asset so imported on account of exchange rate fluctuation in the year of repayment. Section 43A speaks of loan taken specifically for acquiring the assets. Even the benefit of depreciation on increased cost of assets is allowable only in the year of repayment of loan not before that. 12.1. On the contrary, the ld. Counsel for the assessee submitted that the issue is squarely covered by the judgment of the Hon ble Supreme Court in the case of CIT Vs. Woodward Governor (2009) 312 ITR 254 (SC) Ld. Counsel for the assessee submitted that transaction in foreign currency are recorded at the exchange rate prevailing on the date of transaction. All mandatory items denominated in foreign currency reinserted on the year and stop exchange difference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions only as regards cases falling under that sub-section. For instance, in a case where the asset is acquired, or the liability to pay in foreign exchange arises, after the change in the rate of exchange, the said sub-section has no application and the general principles of law must be applied in decided where ther actual cost is increased or reduced as a result of such change. In other words, section 43A(1) applies only where as a result of change in the rate of exchange there is an increase or reduction in the liability of the assessee in terms of the India rupee to pay the price of any asset payable in foreign exchange or to repay moneys borrowed in foreign currency specifically for the purpose of acquiring the asset. Section 43A(1), therefore, has no application unless the asset is a acquired and the liability existed, before the change in the rate of exchange takes effect. In such a case, section 43A contemplates recomputation of the cost of the assets for the purposes of depreciation (section 32 and 43(1), and also as regards capital assets for scientific research (section 35(1)(iv) and also regarding patent right or copyrights (section 35A). 31. As held in Arving Mills ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to paragraph 10 of AS-11 similarly providing for adjustment in the carrying cost of fixed assets acquired in foreign currency, due to foreign exchange fluctuation at each balancesheet date. The relevant paragraph reads as follows: 10. Exchange differences arising on repayment of liabilities incurred for the purpose of acquiring fixed assets, which carried in terms of historical cost, should be adjusted in carrying amount of the respective fixed assets. The carrying amount of such fixed assets should, to the extent not already so adjusted or otherwise accounted for, also be adjusted to account for any increase or decrease in the liability of the enterprise, as expressed in the reporting currency by applying the closing rate, for making payment towards the whole or a part of the cost of the assets or for repayment of the whole or a part of the monies borrowed by the enterprise from any person, directly or indirectly, in foreign currency specifically for the purpose of acquiring those assets. 33. As state above, what triggers the adjustment in the actual cost of the assets, in terms of the unamended section 43A of the 1961 Act is the change in the rate of exchange subsequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed. In the Result, appeal of the Revenue is partly allowed for statistical purposes. Now, we take up Assessee s appeal in ITA No. 606/JU/2008, pertaining to the assessment year 2006-07. The assessee has raised following grounds of appeal. A. In not allowing deductions on account payments made as under, in determining the taxable income:- (i) ₹ 1500000/- towards Jeeva Eduational Trust. (ii) ₹ 286000/- towards Gram Panchayat, Jetusar (iii) ₹ 400000/- towards Pandit Chatur Lal Memorial (iv) ₹ 250000/- towards Dr. Cy. Mehta Rehab Centre. (v) ₹ 150000/- towards Badhir Bal Kalyan Vikas Samiti (vi) ₹ 150000/- towards Vikalang Kalyan Samiti B. Above contributions are allowable u/s 37(1) of the Act also C. The appellant craves to add, amend, alter or modify any of the ground of appeal. 13. In ground no. A B are inter-related. All these relates to a allowability of donations made by the assessee to various charitable trusts, as a business expenditure under section 37(1) of the Act. Ld. Representatives of the parties submitted that the revenue has also raised ground in ITA No. 638/JU/2008, wherein donations made to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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