TMI Blog2018 (11) TMI 1628X X X X Extracts X X X X X X X X Extracts X X X X ..... le to tax in view of the proposition laid down in the case of Shree Balaji Alloys Ors [ 2016 (4) TMI 1161 - SC ORDER]. Addition u/s 36(i) (iii) on account of interest free advances given by the assessee - HELD THAT:- Assessee was possessed of own surplus funds more than the interest free advances given. He has observed that the assessee had share capital of ₹ 10.10 crores and free reserves of ₹ 43.06 crores, whereas, the interest free advances given to the assessee were to the tune of ₹ 12.28 crores. No reason to interfere in the well justified order of the CIT(A) on this issue and, therefore, this issue is accordingly decided in favour of the assessee. Disallowance of proportionate interest on investments made - HELD THAT:- CIT(A) has discussed this issue in para 8 of the impugned order, wherein, he has observed that the assessee was possessed of sufficient own funds to make the aforesaid investments. We do not find any infirmity in the order of the CIT(A) on this issue also. Disallowance of deduction claimed u/s 80IC in respects of Misc. receipts - HELD THAT:- AO held that the Misc. receipts of ₹ 1,64,980/- was not income earned from the busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wrongly and illegally confirmed the disallowance of deduction U/s 8OIC by an amount of ₹ 1,70,78,838/- being received as transport subsidy to reimburse the excess transport expenses incurred on transportation of raw material finished goods in the hilly areas ignoring the submissions, pleading and evidence on record or alternatively should be treated as capital receipt being non-taxable. 3. That the learned Appellate Authority wrongly and illegally confirmed the disallowance of deduction U/s 80IC by an amount of ₹ 24,98,964/- being the sale tax rebate not paid under sales tax deferment rebate scheme ignoring the submissions, pleading and evidence on record or alternatively should be treated as capital receipt being non taxable. 4. That the learned Appellate Authority wrongly and illegally held that interest income of ₹ 23,00,560/- on FDRs obtained for ILC/FLC opened for raw material purchase, is not eligible for deduction U/s 80 IC ignoring the submissions, pleading and evidence on record and alternatively be reduced from the cost of raw material in view of Apex court judgment in the case of Karnal Co-op Sugar Mills Ltd. 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue being covered by Meghalaya Steel Ltd.) (Page No.1-23 of Compilation of Judgments), whereas, so far as the issue of sales tax rebate under sales tax deferment scheme is concerned, the Hon'ble Supreme Court has allowed Civil Appeal No. 15563 15564 filed by Appellant against the P H High Court judgment in case No. ITA 352/2013 decided on 4.8.2015 for assessment year 2007-08. The relevant part of the order of the Hon'ble Supreme Court in group of cases with the lead case being Commissioner of Income Tax vs M/s Vijay Steel Industries in Civil Appeal No.5107/2015 Dt.21-09-2017 is as under:- After hearing the learned counsel for the parties we find that the issue raised in these appeals is covered against the Revenue by the decision of this Court in Commissioner of Income Tax, Madras Vs. Ponni Sugars and Chemicals Ltd. reported in (2008) 9 SCC 337, or in the alternate, in Commissioner of Income Tax Vs. M/s. Meghalaya Steels Ltd. , reported in (2016) 3 SCALE 192. Therefore, the appeals of the Revenue are dismissed and the appeal (s) of the assessee(s) is allowed. However, in a particular case, if it is found that the facts or issue is dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is for the setting up of new industry, then the receipts are to be considered as capital in nature. However, if the receipts are in the nature of facilitation / helping hand to the trade, the same are to be construed as Revenue in nature. What is important is the object for which the subsidy / incentive is granted. That the object is carried out in a particular manner is irrelevant. Once the object of the subsidy was to industrialize the State and to generate employment in the State, the fact that a subsidy took a particular form and that it was granted only after commencement of production, would not make any difference. The Hon'ble Supreme Court made reference to the decision of the Hon'ble J K High Court in the case of Shri Balaji Alloys v CIT (supra), wherein, the Hon'ble High Court while considering the scheme of refund of excise duty and interest subsidy, has held that the receipts were capital in nature despite the fact that the incentives were not available until and unless the commercial production has started and despite the fact that these incentives were not given to the assessee expressly for the purpose of capital assets. The relevant part of the decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme is only one -there is no larger or immediate object. That the object is carried out in a particular manner is irrelevant, as has been held in both Ponni Sugar and Sahney Steel. Mr. Ganesh, learned Senior Counsel, also sought to rely upon a judgment of the Jammu and Kashmir High Court in Shri Balaji Alloys vs. C.I.T. (2011) 333 I.T.R. 335. While considering the scheme of refund of excise duty and interest subsidy in that case, it was held that the scheme was capital in nature, despite the fact that the incentives were not available unless and until commercial production has started, and that the incentives in the form of excise duty or interest subsidy were not given to the assessee expressly for the purpose of purchasing capital assets or for the purpose of purchasing machinery. After setting out both the Supreme Court judgments referred to hereinabove, the High Court found that the concessions were issued in order to achieve the twin objects of acceleration of industrial development in the State of Jammu and Kashmir and generation of employment in the said State. Thus considered, it was obvious that the incentives would have to be held capital and not reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) to (iii) stood concluded against the assessee and in favour of the Revenue in view of judgement of this Court dated 20.5.2011 in ITA No. 121 of 2011 ( Vishal Tools Forgings Private Limited v. Commissioner of Income Tax, Jalandhar (Punjab). Today, argument have been addressed by learned counsel for the assessee on Question No.(iv) only. He submitted that netting of interest for purposes of calculation required to be done and relying upon judgement of the Apex Court in ACG Associated Capsules Private Limited vs. Commissioner of Income Tax, Central FV, Mumbai, (2012) 3 (SC) 321 and judgement of Delhi High Court in Commissioner of Income Tax Vs. Shashi Export House, (2010) 46 DTK (Del.) 34, submitted that the matter requires to be remanded to the Assessing officer to re-compute deduction under section 80HHC of the Act in terms of the aforesaid judgement of the Apex court. 5. Ld. Counsel for the Revenue did not dispute the aforesaid submission. In view of the above, the Question No. (iv) stands answered in terms of judgement of the Apex Court in ACG Associated Capsules Private Limited s case (supra) and the matter is remanded to the Assessing officer for passi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected to taking of the additional ground at this stage, however, considering the facts and circumstances of the case and also considering the subsequent decisions of the Hon'ble Supreme Court in respect of nature and character of the subsidy received on VAT deferment as capital receipt , we deem it fit to admit this additional ground. 18. In the additional ground, the assessee has claimed that since the subsidy on account of VAT deferment is as capital receipt, the same is not liable to be taxed taking into considering while computing the book profit u/s 115JB of the Act. He in this respect has relied upon the decision of the Lucknow Bench of the Tribunal in the case of ACIT Vs. L.H. Sugar Factory Ltd and Anr in ITA Nos. 339, 417 418/LKW/2013, 518 53/LKW/569 CO No. 26 27/LKW/2013 order dated l9.2.2016. The relevant issue has been discussed in para 50 of the said order, which is reproduced for the sake of convenience. 50. From the above paras, we find that the Tribunal has duly considered the judgment of the Hon ble Apex Court rendered in the case of Apollo Tyres Ltd. ((Supra) and thereafter, it was noted by the Tribunal in this case that as per t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and circumstances of the case, Ld. CIT(A) has erred in holding that the Transport Subsidy received from the Himachal Govt. by the assessee is allowed to be included as profit derived from Industrial Undertaking and eligible as deduction u/s 80IC of the Income Tax Act, 1961, when it has been clearly laid down by Supreme Court in its decision in the cases of Cambay Electric Supply Industrial Co. Ltd. Vs. CIT 1978 (TR/SC) 50:1978) 1/3 ITR 84/SC) that the words derived from referred to in the section 80IC has narrower meaning than attributable to and the freight subsidy cannot be treated as profit derived from Industrial Undertaking through it may be attributable to Industrial Undertaking? 2. In the facts and circumstances of the case, Ld. CIT(A) has erred in holding that the Transport Subsidy was rightly taken into consideration by the assessee in working out the profits and gains of the business undertaking relying on the decision of Calcutta High Court in the case of Merino Ply and Chemicals Ltd. Vs. CIT (1004) 122 CTR (Cal) 262 :(1994) 209 ITR 508 (Cal.) where the point in issue was whether a receipt on account of transport/freight subsidy was of a revenue nature a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 It is prayed that the order of Ld. CIT(A) be set aside and that of the AO restored 7 The appellant craves leave to add or amend any grounds of appeal before the appeal is heard and finally disposed of. 21. Ground Nos. 1, 2, 3 4 : As regarding these grounds are concerned, in view of our findings given above while deciding ITA No. 366/Chd/2013 vide grounds No.2, 3 5 of the appeal of the assessee, these issues are accordingly decided in favour of the assessee. 22. Ground No.5 : Vide this ground, the Revenue has agitated the action of the CIT(A) in allowing on deduction u/s 80IC of the Act in respect of bank interest on FDRs. This issue has been dealt with by us while deciding ground No.4 of the appeal of the assessee in ITA No. 366/Chd/2013. In view of our above observation, this issue is accordingly restored to the file of the Assessing officer to decide it afresh, as per directions, given above. Ground Nos. 6 7 are general in nature and do not require any adjudication This appeal of the Revenue stands partly allowed. ITA No.589/Chd/2014 (A.Y. 2009-10)-Assessee s appeal 23. The ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ored to the file of the Assessing officer, accordingly this ground of the appeal of the assessee is also restored to the file of the Assessing officer for adjudication afresh as per the directions given above while deciding the relevant issue in Revenue appeal. 26. Ground Nos. 3 4: No arguments have been addressed in respect of ground Nos. 3 4 of the appeal, hence, the same are dismissed as not pressed . 27. Ground No.5 is consequential in nature and does not require and adjudication. 28. Ground No.6 is general in nature and needs no specific adjudication. 29. Apart from above, the assessee has taken following additional ground of appeal :- That the amount VAT Deferment of ₹ 89,41,810/- may be excluded while computing book profits u/s 115JB as being the capital receipt and not liable to tax in view of the proposition laid down in the case of Shree Balaji Alloys Ors. 30. The issue raised in this additional ground has already been dealt with and adjudicated by us in favour of the assessee while deciding the additional ground of appeal raised in ITA No. 366/Chd/2013. This ground is accordingly decided in favour o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the ratio of Hon'ble Supreme Court in the cases of M/s Liberty India Vs. CIT 225 CTR 233(SC), CIT vs. Sterling Foods 153 CTR 439, 237 ITR 589, Vellore Electric Corporation Ltd. Vs. CIT 227 ITR 557 (SC). 4. In the facts and circumstances of the case, Ld. CIT(A) has erred in holding that the income from Deferred VAT Rebate received by the assessee is allowed to be included as profits derived from industrial undertaking and eligible for deduction u/s 80IC of the Income Tax Act, 1961, when the assessee received it from the Himachal Govt. for the benefit of any incentive of Sales Tax leviable on the sale of manufactured goods under Himachal Pradesh General Sales Tax Act. 1968 and the income derived from such rebate is not an income derived from industrial undertaking. However, the immediate source of this rebate was the scheme of Govt. to give such rebate and not the conduct of the business of the industrial undertaking. 5. In the facts and circumstances of the case, Ld. CIT(A) has erred in deleting the addition of ₹ 2,19,320/- made on account of Miscellanous Receipts, without appreciating the fact that these receipts have not been derived by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /Chd/2013 for assessment year 2007-08. 36. Ground Nos. 7 8 are general in nature and do not require any adjudication. In the result, appeal of the Revenue is partly allowed. ITA No.590/Chd/2014 (A.Y. 2010-11)- Assessee s appeal 37. The assessee in this appeal has taken following grounds of appeal:- 1. That the impugned appellate order is bad both on facts and law to the extend the additions/ disallowances have been confirmed. 2. That the learned Appellate Authority wrongly and illegally disallowed the interest of Rs. 16,84,582/- without the netting of income of interest by deducting the interest amount which has been incurred in relation to the amounts on which interest of ₹ 1684582/- ignoring the pleadings, evidence and material on record alternatively the total interest income of ₹ 3834078/- should be properly computed after deducting the expenses incurred. 3. That the learned Appellate Authority wrongly and illegally confirmed the disallowance of ₹ 4969652/- being the memorandum entries relating to the purchase value in foreign exchange of Import of raw material on credits paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 49,69,652/- under head gain on foreign exchange fluctuation'. During the assessment proceedings, the appellant submitted that During the year assessee has imported raw material for use in the manufacturing in the industrial undertaking situated in Kale-Aam. For import of raw material, assessee's company has opened letter of credit in favour of the supplier of the raw material. The payment against FLC is made after some period after the receipt of material i.e. the suppliers extend the credits against the FLC. The appellant passes the entry in his book of purchase of material in Indian currency on the date of receipt of the material and conversion rate of Indian Rupees and US$ is considered. The payment of FLC was made by the assessee to the Bank at a later date i. e. on expiry on FLC. Bank charges at the conversion rate applicable on that date. Copy of the statement showing the value of Indian rupees on the date of receipt of material when a relevant entry passed in the books of account although no payment was made and in column-6 amount actually paid in Indian rupees on due date, is enclosed. Appellants real and actual liability of the payment is when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mere passing of entry on the date of receipt of material, in our view, does not affect the nature of the gain earned by the assessee due to fluctuation in foreign exchange as the same is directly linked towards the reduction in the cost of raw material. This cannot be said to be an income earned by the assessee. Rather, it is the effect of reduction of cost of expenditure in the raw material and the resultant benefit is nothing but the business income of the assessee liable for deduction u/s 80IC of the Act. This issue is accordingly decided in favour of the assessee. 45. Ground No.4: The assessee vide this ground has agitated the disallowance of ₹ 1,63,064/- being profit on sale of bus, while computing the profit and gains for deduction u/s 80IC of the Act. The Ld. Counsel of the assessee has submitted that the profit earned on sale of bus is a capital receipt, hence, not liable for deduction u/s 80IC of the Act. However, he has further submitted that since the sale price is adjustable in block of asset as per section 32, hence, this income needs to be excluded even from the total assessed income. 46. We agree with the above contention of the Ld. Counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d also taking into consideration the claim of the assessee that the funds were given out of business expediency, we do not find any justification on the part of the lower authorities in disallowing the aforesaid claim of the assessee. This issue is accordingly decided in favour of the assessee and the disallowance made by the lower authorities is hereby ordered to be deleted. 49. Ground No.7 : Ground No. 7 is consequential in nature and does not require any adjudication. 50. Ground No. 8 : This ground is general in nature and does not require any specific adjudication. 51. Apart from above, the assessee has taken following additional ground of appeal :- That the amount VAT Deferment of ₹ 25,53,547/- may be excluded while computing book profits u/s 115JB as being the capital receipt and not liable to tax in view of the proposition laid down in the case of Shree Balaji Alloys Ors. 52 The issue raised in this additional ground has already been dealt with and adjudicated by us in favour of the assessee while deciding the additional ground of appeal raised in ITA No. 366/Chd/2013. This ground is accordingly decided in f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer on this issue. 55. After hearing the Ld. Representatives of the parties, we do not find any reason to interfere in the well justified order of the CIT(A) on this issue and, therefore, this issue is accordingly decided in favour of the assessee. 56. Ground No.2 : Vide ground No. 2, the Revenue has agitated the action of the CIT(A) in deleting the addition of ₹ 54,75,479/- made by the Assessing officer on account of disallowance of proportionate interest on investments made. This issue raised vide this ground is identical of the issue raised in ground No.1. The Ld. CIT(A) has discussed this issue in para 8 of the impugned order, wherein, he has observed that the assessee was possessed of sufficient own funds to make the aforesaid investments. We do not find any infirmity in the order of the CIT(A) on this issue also. 57. Ground No. 3: The Revenue vide ground No.3 has agitated the action of the CIT(A) in deleting the addition of ₹ 1,64,980/- made on account of disallowance of deduction claimed u/s 80IC of the Act in respects of Misc. receipts. This issue has been discussed by the Ld. CIT(A) in para 9 of the order. The Assessing officer h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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