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2019 (10) TMI 353

..... s Ltd. vs. Union of India [2007 (6) TMI 175 - CALCUTTA HIGH COURT] quashing the statutory provision itself to be ultra vires. Hon'ble apex court [2009 (5) TMI 894 - SC ORDER] has stayed operation thereof vide order dated 08.05.2009. The assessee’s instant former substantive ground is restored back to the Assessing Officer to be decided afresh after the final outcome in Revenue’s appeal in Exide Industries Ltd. Disallowance in computing the book profit u/s 115JB relating to Industrial Promotion Assistance and Sales Tax Incentive - HELD THAT:- Subsidy was given by the Govt. of West Bengal for the purpose of enabling the entrepreneurs to establish new industry and also expand the existing industries. Under normal computation of income the subsidy given to promote the industries are not subject to tax, therefore, an item which is not taxable cannot be brought to tax under the provision of MAT. In holding so, we rely on the order of this co-ordinate Bench of this Tribunal in the case of Sicpa India (P) Ltd. [2017 (3) TMI 1383 - ITAT KOLKATA] The undisputed fact is that the incentive received by assessee is not in the nature of income earned during the course of business. .....

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..... 88/Kol/2018 by the assessee. 4. Ground No.1 raised by the assessee is in general and no adjudication is required. 5. Ground No.2(a) & 2(b) raised challenging the action of CIT(A) in confirming the addition made on account of leave encashment in the facts and circumstances of the case. We find the issue in hand is covered by the orders of this Tribunal from Assessment Years 200506 to 2011-12 in assessee s own case which are placed on record from Pages 259 to 310. The latest order being dated 05.07.19 in assessee s own case for Assessment Year 2009-10 is reproduced hereinbelow: 4. The only issue is to be decided is as to whether the CIT(A) is justified in confirming the addition made by the Assessing Officer on account of leave encashment in the facts and circumstances of the case. 5. Heard both parties and perused the materials available on record. The Hon ble Supreme Court in the case of Exide Industries Ltd. vs. Union of India granted stay against the decision of Hon ble High Court of Calcutta in the case of Exide Industries Ltd. reported in 292 ITR 470(Cal) until further orders vide order dated 08.09.2008. Further, during the pendency of Civil appeal the Hon ble Supreme Court .....

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..... ok profit u/s 115JB of the Act. 10. During the year, assessee declared profit after taxes in its profit and loss account for ₹45,55,43,545/- only. The assessee while determining the book profit u/s.115JB of the Act has reduced following receipts:- Sl.No Particulars Amount 1 Sales tax remission since capital in nature 3,98,70,574/- 2 State capital subsidy since capital in nature 59,75,000/- The assessee claimed that the above receipts are not taxable in the hands of assessee under the normal provision of computation of income. Therefore, same are also eligible for deduction u/s 115JB of the Act. The assessee also submitted that sales tax remission and state capital subsidy was received by it under the West Bengal Incentive Scheme, 2000, which was given to it to achieve industrialization of backward areas as well as to generate employment opportunities. However, the AO observed that there is no provision under the Income Tax Act for allowing deduction on account of capital receipt under the provision of Sec. 115JB of the Act. Accordingly, AO disallowed the claim of assessee and added to the total amount of subsidy received by it while calculating the tax under Minimum Alternate .....

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..... ported that, that in their opinion, the profit and loss account and the balance sheet are in compliance with the accounting standards referred to in sub-section (3C) of section 211 of the Companies Act, and further reported that the balance sheet and profit and loss account, give the information required by the Companies Act, 1956 in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted. The appellant has contended that an item without any element of profit or income ,when credited to the profit and loss account prepared under Part-2 & Part III of Schedule IV of the Companies Act, 1956, lays down that' P& L should be made to closely disclose the "working" of the company. Since, in the present case, the subsidy has been credited to P& L a/c, in order to work out the real profit of the company u/s 115JB said amount needs to be deducted, following the decision of the Hon'ble Supreme Court in Apollo Tyres (2002) 255 ITR 273 (SC) rw Indo Rama Synthetics (I) Ltd vs CIT(2011) 330 ITR 363(SC). The appellant has also relied upon the judgment in the case of CIT vs Veekaylal Investments CO.(P) Ltd (20 .....

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..... tion 115JB. It is well settled that the adjustments to the profit and loss account of the company can be carried out only in accordance with the provisions set out in the Explanation to section 115J. This is in view of the definition of 'book profit' as given in the Explanation to section 115JB, the net profit as shown in the profit and loss account, in the relevant previous year, can only be adjusted i.e., increased or reduced, as the case may be, by reference to heads referred in clauses (a) to (ha) and clauses (i) to (iv) of the Explanation to section 115JB. It is found from findings of fact on record that the assessee admittedly, had itself credited the amounts of S.T subsidy and state investment subsidy to the profit and loss account which was duly certified by the auditors ,in view thereof the A.O correctly held that no adjustment could be made subsequently for computation of MAT profits by reducing the impugned receipts from the 'book profit' for the purpose of 115JB of the Act. It is the case of the assessee that since these impugned receipts are in the nature of capital, receipts, it was contended that the same shall not be charged to tax and as such the sa .....

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..... e of Apollo Tyres Ltd. v. CIT[2002] 255 ITR 273/122 Taxman 562. But the fact remains that the propositions laid down by the hon'ble Supreme Court in the case of Apollo Tyres Ltd. (supra) have been reiterated and relied upon by the Supreme Court in the case of CIT v. HCL Comnet Systems & Services Ltd. [2008] 305 ITR 409/174 Taxman 118 which has been rendered in the context of section 115JA of the Act. As per sub-section (5) of section 115JB of the Act, which reads as "save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being a company, mentioned in this section". Having regard to expression "save as otherwise provided in this section" used in this subsection (5) of section 115JB of the Act, we are of the considered opinion that the expression "save as otherwise provided in this section 115JB" clearly means that what is provided in section 115JB should be religiously followed and anything over and above the matter provided in section 115JB will be subject to other provisions of the Act. The provisions of section 115JB have an overriding effect upon other provisions of the Act as is evident f .....

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..... he AO has no power to alter the net profit shown by the companies for the purpose of computing the book profit. Thus, it is clear that under MAT, the Assessing Officer should take the net profit as computed by the assessee and then make the adjustments under sec. 115JB. The moot question that needs to be decided is whether Parts IT and II of Sch. VI to the Companies Act permit the exclusion of the capital gain from the P&L Account or not? In other words, can a P&L A/c drawn up without considering the capital gain said to be in accordance with the provisions of Parts II and II of Sch. VI to the Companies Act or not?" It was accordingly held that in the absence of any provision for exclusion of exempted capital gain in the computation of book profit under the provisions contained in Explanation to section 115JB of the Act, the assessee is not entitled to the exclusion thereof as claimed. Thus, the argument that impugned capital receipts are to be reduced from the net profit shown in the profit and loss account prepared under the Companies Act for the purpose of computing book profit under section 115JB of the Act is not tenable. If such reduction is allowed from the net .....

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..... particularly when one reads Section 9(1)(i) with Section 5(2) (b) of the Act. What is contended on behalf of the Revenue is that under Section 9(1) (i) it can "look through" the transfer of shares of a foreign company holding shares in an Indian company and treat the transfer of shares of the foreign company as equivalent to the transfer of the shares of the Indian company on the premise that Section 9(1)(i) covers direct and indirect transfers of capital assets" ... The language of the section is unambiguous and there is no doubt regarding its interpretation particularly when there is specific mechanism provided in sec.115JB, which is a code in itself for computation of deemed income of MAT companies. The exclusion of the impugned capital receipts sought by the appellant is not tenable by giving purposive interpretation particularly since such interpretation is to transform the concept of Book profit for the purpose of section 115JB of the Act. On the contrary, the sections which impose the charge or levy, should be strictly construed and this position though was reiterated by the Apex Court in CIT v. Mahaliram Ramjidas [1940] 8 ITR 442; and subsequently by the Sup .....

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..... h of this Tribunal in the case of Sicpa India (P) Ltd. vs. DCIT (2017) 80 taxmann.com 87 (Kolkata-Trib) after considering the judgment of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. vs. CIT (20102) 255 ITR 273/122 taxman 562 has decided the issue in favour of assessee. The ld. AR in support of assessee s claim also relied on the judgment of Hon'ble Supreme Court in the case of CIT vs.Chaphal Kar Brothers, Pune reported in 400 ITR 279 (SC). He requested the Bench to decide the issue on merit. On the other hand, Ld. DR supported the order of Authorities Below. 13. We have heard the rival contentions of both the parties and perused and carefully considered the material on record; including the judicial pronouncements cited and placed reliance upon. From the foregoing discussion, we note that subsidy was given by the Govt. of West Bengal for the purpose of enabling the entrepreneurs to establish new industry and also expand the existing industries. Under normal computation of income the subsidy given to promote the industries are not subject to tax, therefore, an item which is not taxable cannot be brought to tax under the provision of MAT. In holding so, we rely on .....

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..... 3. We have already seen that the issue whether subsidies in question can be regarded as income at all is no longer res integra and has been concluded by the Hon'ble Jammu & Kashmir High Court in the case of Balaji Alloys (supra). In the aforesaid decision the Hon'ble J & K High Court on identical facts held that excise duty subsidy and interest subsidy were capital receipts not chargeable to tax. In view of the aforesaid decision of the Hon'ble High Court rendered on identical facts as that of the Assessee's case, there can be no doubt that subsidies in question does not have any character of income. 24. When a receipt is not in the character of income, can it form part of the book profits for the purpose of Sec.115JB of the Act, is the question that arises for consideration. The ITAT Kolkata Bench in the case of Dy. CIT v. Binani Industries Ltd. [2016] 178 TTJ 658 : had to deal with a case where the question was as to whether receipts on account of forfeiture of share warrants amounting to ₹ 12,65,75,000/-, being a capital receipt, would be liable for taxation u/s 115JB. The tribunal after referring to several decisions on the issue viz., the Hon' .....

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..... come would be chargeable to tax and such items of income should also be included as part of the book profits. But where a receipt is not in the nature of income at all it cannot be included in book profits though it is credited in the profit and loss account. The Bench followed the decision of the Lucknow Bench in the case of L.H. Sugar Factory Ltd. (supra), where receipts on account of carbon credits which were capital receipts not chargeable to tax and hence not in the nature of income were held not included in the book profits. The Bench also referred to the decision of the Mumbai Bench of the ITAT in the case of Shivalik Venture (P.) Ltd. (supra) which was a case where the question was whether profits arising on transfer of a capital asset by a company to its wholly owned subsidiary company which is not treated as income" u/s 2(24) of the Act and since it does not form part of the total income u/s.10 of the Act and therefore does not enter into computation provision at all under the normal provisions of the Act, the same should be considered for the purpose of computing book profit u/s 115JB of the Act. The Mumbai Bench held as follows: '26. We shall now examine the sc .....

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..... ly and dismiss Gr.No.2 raised by the Revenue. Similarly, we further find that Hon'ble Supreme Court in the case of Chaphas Kar Brother Pune (supra) has decided the issue in favour of assessee. The relevant extract is reproduced below:- 27. Since the subsidy scheme in the West Bengal case is similar to the scheme in the Maharashtra case being to encourage development of Multiplex Theatre Complexes which are capital intensive in nature, and since the subsidy scheme in that case is also similar to the Maharashtra cases, in that the amount of entertainment tax collected was to be retained by the new Multiplex Theatre Complexes for a period not exceeding four years, we are of the view that West Bengal cases must follow the judgment that has been just delivered in the Maharashtra case. The undisputed fact is that the incentive received by assessee is not in the nature of income earned during the course of business. Therefore, in our considered view, same cannot be regarded as income for the purpose of MAT u/s 115JB of the Act. Thus, the amount of incentive received by assessee should be excluded from the determination of book profit under the provision of Section 115JB of the Act. Th .....

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..... e on this issue and dismiss Grounds No. 3 & 4 of the Revenue s appeal. 13. In view of the above discussion and further thereto, it is noted that this Tribunal in assessee s own case for Assessment Year 2010-11 held that subsidies given to promote industries are not subjected to tax vide order dated 27.04.18 at page 208 of paper book and the same has been followed in Assessment Year 201112 vide order dated 12.09.2018 at page 229 of paper book. It is noted that the CIT(A) placed reliance on the order of Kolkata Tribunal. Therefore, we find no infirmity in the order of CIT(A). Thus Ground No.2 raised by the Revenue is dismissed. 13. In view of the above, we find no infirmity in the order of CIT(A) and it is justified. Ground No.1 raised by the Revenue is dismissed. Ground No.2 is relating to deletion of disallowance made u/s 14A of the Act. 14. We find no dividend income earned by the assessee in the year under consideration when there is no dividend income earned the disallowance u/s 14A is not maintainable. It is noted that same issue arose in Assessment Year 2009-10 and this Tribunal by placing reliance in the case of Oil Industries Development Board of Hon ble Supreme Court vi .....

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..... no disallowance u/s 14A can be made in this case. Accordingly the addition made by the A.O of ₹ 19,246,532/- is hereby deleted. The appeal of the assessee on this issue is allowed. 16. Further to the above, the Hon ble Supreme Court in the case of Oil Industries Development Board vide order dated 16.02.2018 upheld the ratio laid down by the Hon ble High Court of Delhi in the case of Cheminvest Limited (supra). For ready reference, the relevant portion of which is reproduced hereinbelow: The Revenue s appeal challenges an order of the Income Tax Appellate Tribunal (ITAT) which had set aside the disallowance of ₹ 1,62,49,000/- under Section 14A of the Income Tax Act, 1961 (hereinafter referred to as the Act ). The Assessing Officer (A.O) and later the CIT(A) made the disallowance by taking into account only the investment patterns of the assessee for the concerned assessment. The ITAT relied upon the ruling of this Court in Cheminvest Limited vs. Commissioner of Income Tax-VI, (2015) 378 ITR 33 which ruled in the absence of any exempt income, disallowance under Section 14A of the Act of any amount was not permissible. Since the decision in Cheminvest Limited (supra) was .....

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..... the case of Goetze India Limited reported in 32 SOT 101, wherein it was held that the provisions of sub-section (2) and sub-section (3) of section 14A could not be imported into clause (f) of Explanation (1) to section 115JA. 26. We have heard the arguments of both the sides and also perused the relevant material available on record. As agreed by the ld. representatives of both the sides, this issue involved in Ground No. 6 of Revenue's appeal for AY 2007-08 is squarely covered, inter alia, by the decision of the Coordinate Bench of this Tribunal in the case of Goetze India Limited (supra), wherein the similar addition made to the book profit of the assessee-company computed under section 115JB on account of disallowance of expenses made under section 14A was held to be unsustainable by the Tribunal holding that the provisions of section 14A could not be imported into Clause (f) of Explanation (1) to section 115JA. Respectfully following the said decision of the Coordinate Bench of this Tribunal in the case of Goetze India Limited, we uphold the impugned order of the ld. CIT(Appeals) giving relief to the assessee on this issue and dismiss Ground No. 6 of the Revenue's appe .....

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