TaxTMI 
TaxTMI 
2019 (6) TMI 655
X X X X Extracts X X X X
X X X X Extracts X X X X
....all first be taking up the appeal of the Revenue in ITA No.756/Chd/2018, relating to assessment year 2011-12. 2. Ground Nos.i) to iv), it was contended, related to the same issue of treatment of sales tax subsidy received by the assessee, whether capital or revenue in nature and the same read as under: "i) Whether on the facts and in the circumstances of the case, the CIT(A) has erred in following the decision of the Hon'ble ITAT dated 21.10.2015 for AYs 2003-04, 2004-05 & 2008-09 in the case of the assessee itself and deleting the addition of Rs. 1,84,45,151/- holding the sales tax subsidy as capital receipt in nature. ii) Whether on the facts and in the circumstances of the case the decision of the Hon'ble Supreme Court in the case Ponni Sugar and Chemicals Ltd. and treating the sales tax subsidy as capital receipts in nature was wrongly followed despite the observation of the AO in the assessment order that the facts of the present case are distinguishable from that of Ponni Sugar and Chemicals Ltd. iii) Whether on the facts and in the circumstances of the case the fact that sale tax subsidy was given to existing unit and not for setting up new unit or expansi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... No.897/Chd/2006, ITA No.341/Chd/2007 and ITA No 756/Chd/2011 for assessment years 2003-04, 2004-05 and 2008-09, found that the issue of sales tax subsidy had been decided by the I.T.A.T. in favour of the assessee holding the same to be capital in nature. Accordingly, the addition made by the A.O. was deleted by the Ld.CIT(A). Relevant findings of the CIT(A) at page 12 of the order are as under: "I have gone through the Hon'ble ITAT's order in the case of the appellant in ITA No. 897/Chd/2006, ITA No. 341/Chd/2007 & ITA No. 756/Chd/2011 for A.Y 2003-04, A.Y 2004-05 and 2008-09 wherein the matter has been adjudicated as under: "In these cases, the assessee have received Sales Tax Subsidy from Punjab Govt. under the scheme named 'Industrial Policy & Investment Code, 1996'. We have gone through the said policy and found that the scheme though not verbatim as that of West Bengal or Gujarat Scheme, but the sum and substance of all these schemes are the same, therefore, relying on our finding gives in ITA no. 773/Chd/2012, we hold that the Sales Tax Subsidy received by the assessee is Capital in nature." As the addition made by the AO is covered by the order of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eld that the assessee had purchased/acquired technical know-how to completely overhaul its design, plant and manufacturing systems thus getting enduring benefit of permanence and durability. The A.O. held that technical know-how obtained by the assessee was linked to substantial modernization and expansion of existing unit/technique and procedure of production and, therefore, was in the nature of intangible asset and of enduring nature. He further stated that the Department had challenged the order of the I.T.A.T. before the Hon'ble High Court in earlier years. Accordingly, the A.O. treated the technical know-how expenses incurred and claimed by the assessee as capital in nature and disallowed the same. 9. The Ld.CIT(A) allowed the assessee's appeal on finding that identical issue had been adjudicated by the CIT(A) in earlier years in favour of the assessee and appeal of the Revenue against the order of the CIT(A) had been dismissed by the I.T.A.T. vide its order dated 26.9.2013 for assessment year 2009-10. 10. Before us, the Ld. DR heavily relied upon the order of the A.O. though fairly conceded that identical issue had been decided in favour of the assessee in assessment ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n the order of the Ld.CIT(A). 15. We have heard the rival contentions and perused the orders of the authorities below. The factual submissions made by the assessee that the prior period expenses were booked on account of late receipt of bills of units of the assessee located at faraway places and that even prior period incomes were also so booked by the assessee, has not been controverted by the Revenue. The assessee has contended that it was consistently booking such prior period expenses and income from year to year, and this has also not been controverted by the Revenue. 16. In view of the aforesaid facts, we do not find any reason to interfere in the order of the Ld.CIT(A), deleting the disallowance made of prior period expenses, since we find that the said expenses had been booked as per the established and consistent policy followed by the assessee .Further considering the fact that even prior period incomes have been booked, no purpose would be served, we find, by disallowing only prior period expenses since in that case, even prior period income would have to be reduced from the taxable profits of the assessee. In view of the above, ground of appeal No.vi raised by th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 2009-10." 22. It was common ground that the issue raised in the above grounds, pertaining to treatment of technical know how fees paid by the assessee whether revenue or capital in nature, was identical to ground Nos. v) raised in the Revenues appeal in ITA No.756/Chd/2018. 23. Our decision rendered therein at para 11 of our order above will therefore squarely apply to the above grounds also, following which we hold that the technical know how fees paid is revenue in nature and accordingly dismiss the ground No.v) raised by the Revenue. 24. Ground No.vi) raised by the Revenue reads as under: "vi) Whether on the facts and in the circumstances of the case the CIT(A) was right in deleting the addition made on account of disallowances of prior period expenses amounting to Rs. 4,85,459/- ignoring the fact that the assessee was following the mercantile system of accounting." 25. It was common ground that the issue raised in the above grounds, pertaining to allowance of prior period expenses claimed by the assessee, was identical to ground Nos. vi) raised in the Revenues appeal in ITA No.756/Chd/2018. 26. Our decision rendered therein at paras 15 & 16 of our order above will....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd 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 the decision of Special Bench of the Tribunal rendere....
X X X X Extracts X X X X
X X X X Extracts X X X X
....poses of levying Miminum Alternate Tax (MAT) as per the provisions of section 115JB of the Act. 32. We have gone through the order of the ITAT in the case of H.M Steels, cited by the Ld.Counsel for the assessee before us. We find that identical issue has been dealt with by the ITAT in the said case holding the VAT subsidy, being capital in nature, as not includible in the Book Profits u/s 115JB of the Act. The ITAT, while holding so has taken note of the decision of the Hon'ble apex court in the case of Apollo Tyres (supra) as per which any adjustment to the Profit and Loss account prepared by the assessee was ruled out for the purposes of calculating the Book Profit amenable to tax. The ITAT held as per section 115JB the profit and loss account prepared should be in accordance with Part II & III of Schedule VI to the Companies Act,1956 and therefore adjustments to the same can be made to make it compliant with the Schedule. The ITAT accordingly held that Sales tax/VAT subsidy being capital in nature would have to be reduced from the profits. 33. The fact in the case before us, we find is identical to that in H.M Steels ,with the Sales tax subsidy having been held to be capital....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ircumstances of the case the CIT(A) was right in deleting the addition made on account of technical knowhow fees amounting to Rs. 1,25,75,000/- on the basis the decision of the Hon'ble ITAT dated 26.09.2013 for AY 2009-10." 38. It was common ground that the issue raised in the above grounds, pertaining to treatment of technical know how fees paid by the assessee whether revenue or capital in nature, was identical to ground Nos. v) raised in the Revenues appeal in ITA No.756/Chd/2018. 39. Our decision rendered therein at para 11 of our order above will therefore squarely apply to the above grounds also, following which we hold that the technical know how fees paid is revenue in nature and accordingly dismiss the ground No.v) raised by the Revenue. In effect the appeal of the Revenue is dismissed. We now take up assessee's appeal in ITA No.731/Chd/2018: 40. The ground No.1 of appeal raised in this appeal reads as under: 1. That the Ld. CIT (Appeals) has grossly erred in law as well as on facts in confirming the disallowance of claim of the assessee for Rs. 37876511/- on account of sales tax subsidy as deduction from the Book Profits u/s 115JB being in the nature of c....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that the debts should have been taken into account while computing the income, which has not been fulfilled in the present case. The Ld. DR heavily relied upon the findings of the lower authorities. 47. We have heard the rival contentions and perused the orders of the authorities below. It is not disputed that the amount claimed as bad debts related to advances given, as admitted by the Ld. counsel for assessee also. There is, therefore, no question of the same having been debited or considered while computing the income of the assessee. Further the assessee has been unable to demonstrate the same even before the lower authorities or even before us. Also undoubtedly, for claiming the write off of any amount as bad debts, the necessary pre-requisite is that the said amount should have been earlier taken into account while computing the income of the assessee. In view of the above facts and position of law, we have no hesitation in upholding the order of the Ld.CIT(A) in disallowing the claim of the assessee of bad debts amounting to Rs. 60,410/-. The ground of appeal No.2 raised by the assessee is, therefore, dismissed. 48. Ground No.3 raised by the assessee reads as under: ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eping driver, is clearly no allowable being in the nature of penalty for infringement of law. Similarly, also, the amount of Rs. 75,000/- levied by the Arbitral Tribunal on the assessee to compensate the respondent in a case filed by it to the Tribunal is, we hold, rightly held by the CIT(A) to be in the nature of penalty and thus disallowed u/s 37(1) of the Act. Moreover, it is an undisputed fact that the order levying penalty/cost by the Tribunal was dated 17.2.2013. Therefore, we agree with the authorities below that the liability to pay the fine accrued in assessment year 2013-14 and, therefore, did not pertain to the impugned year at all. In view of the above, we agree with the Ld.CIT(A) that the amount of Rs. 77,000/- was in the nature of penalty paid by the assessee and further out of the above Rs. 75,000/- pertained to the earlier year and, therefore, for the aforesaid reasons, the said amount was not allowable to. Ground of appeal No.3 raised by the assessee is, therefore, dismissed. 53. Ground of appeal No.4 raised by the assessee reads as under: "4. That the Ld. CIT (Appeals) has grossly erred in law as well as facts in confirming the disallowance of deduction of pr....