TMI Blog2019 (12) TMI 367X X X X Extracts X X X X X X X X Extracts X X X X ..... a deeming fiction, operates only in a particular conditions and in order to remove an anomaly, which otherwise would have been created under the other provisions of the Act. It thus follows that while interpreting Explanation (3), one needs to be aware of the intention of the statute. These provisions along with their intent have been explained elaborately by the Hon'ble Bombay High Court [ 1990 (7) TMI 44 - BOMBAY HIGH COURT] Accordingly, in terms of Explanation (3) to section 43(6), in the present case, unless the unabsorbed depreciation of the amalgamating companies is carried forward in the hands of the amalgamated company u/s 32(2) of the Act, Explanation (3) cannot be read into Explanation (2) to simply conclude that depreciation 'actually allowed' also includes unabsorbed depreciation. The meaning of the term actually allowed is interpreted by the Hon'ble Supreme Court, in the case of CIT v. Doom Dooma India Ltd. [ 2009 (2) TMI 9 - SUPREME COURT] The WDV in the hands of the amalgamated company was to be calculated without considering the unabsorbed depreciation of the amalgamating companies, for which set off was never allowed. - Decided in favor o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest liability. - IT Appeal No. 156 (Bang.) Of 2011, Co No. 59 (Mum.) Of 2012 - - - Dated:- 29-11-2019 - Pawan Singh, Judicial Member And G. Manjunatha, Accountant Member Kanchun Kaushal and Ms. Hirali Desai for the Appellant. Samatha Mullamudi CIT (DR) for the Respondent. ORDER G. Manjunatha, This appeal filed by the revenue and cross objection filed by the assessee is directed against order of the Ld. Commissioner of Income tax (Appeals)-1, Bangalore, dated 19/11/2010 for the AY 2006-07. Since, the facts are identical and issues are common, the appeal filed by the revenue and cross objection filed by the assessee is heard together and are disposed-off, by this consolidated order. ITA.No.156/Bang/2011:- 2. The revenue has raised the following grounds of appeal 1. The order of the learned CIT (Appeals), in so far as it is prejudicial to the interest of the revenue, is opposed to law, facts and circumstances of the case. 2. The learned CIT (Appeals) is not justified in directing the Assessing Officer to allow the depreciation of ₹ 30,73,444 /- claimed on account of ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant assessment order by The Assessing Officer while treating The same as revenue receipts. 10. The learned CIT (Appeals) has erred in relying on the decisions in the cases of CIT v M/s Ponni sugars and Chemicals Ltd. S Others. 30G ITR 392(SC) and DCIT vs. M/s Reliance' Industries Ltd., 68 ITD 273 (ITAT. Mumbai Bench) which are not applicable to the facts of the assessee's case. 11. The learned CIT(Appeals) has erred in holding that interest u/s 234B of the I.T.Act 1961 amounting to Rs,9,8494367/- attributable to the provision of ₹ 433,61,00,000/-for deferred ; which was inter-all a added to the net profit while commuting the book profit u/s 1l5JB of the act, 1961 on account of retrospective amendment of the provisions of section 115JB inserting clause (h) in Explanation 1 To Section 115JB of the I.T.Act,1961w.r.e.f 01. 4.2001. 12. The [earned CIT (Appeals) has failed to appreciate that interest u/s 234B is chargeable with reference to assessed tax as defined in Explanation 1 below section 234B{1) of the, I.T. Act, 1961 and the CIT (Appeals)'s finding that interest u/s. 234B is chargeable with reference to a pan of such assessed tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issue, i.e where, the sales tax incentives is considered as capital receipt , the same should also not be considered while computing the book profits u/s 115JB of the I.T. Act, 1961. 4. Ground No.1 of revenue appeal is general in nature and does not require separate adjudication, and hence, the same is dismissed. 5. The first issue that came up for our consideration from ground No. 2 and 3 is disallowances of depreciation of ₹ 30,73,444/- on fixed assets due to increase in cost of assets on account of loss arising on cancellation of forward, foreign exchange contracts. The facts borne out from the records shows that during the previous year, the assessee had borrowed various foreign currency loans for the purpose of purchase of certain plant and machinery from outside India. For safeguarding its interest from foreign exchange fluctuations, the assessee has entered into forward contracts with authorized dealers for receiving foreign currency at the rates specified in contract, at future stipulated dates to enable repayment of installments of foreign currency loans. During the year under consideration, the said contacts were settled/cancelled resulting in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered the matter in detail. Section 4$A was inserted by Finance Act 1967 with, effect from 1st April, 1967. ft applies, as a result of change in the rats of exchange. There may be increase fir decreased in the liability of tin assesses in terms of Indian rupee. The east of assets procured in foreign exchange may increase or decrease. The crucial feature in law stated in sec. 43A till the amendment brought in bit Finance Act 2002 was that an assessee has to revalue the foreign exchange liability at the end of every previous year and provide for the increase or decrease as a result of foreign exchange fluctuation. These adjustments have to be made even in a case where payment was not actually made. The adjustments have to be made on the basis of the liability as on the last day of the previous year. This position of law continued till it was substituted by insertion of sec. 43A through Finance Act 2002 which brought a change with reference to the time of recognition of the liability for the purpose of adjusting the increase or decrease in the cost/ profit and loss account. For that purpose, the amendment made it dear that increase or decrease may be adjusted at the time of making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he present case, there is no dispute regarding the facts of the case as explained by She assessee that the foreign exchange contracts were made for the purpose of acquiring capital assets and, the forward contracts users settled during the previous year relevant to the assessment war under appeal. Therefore, the claim of the assessee to adjust for the lass of ₹ 397892211/- is legitimate. 10. As the settlement has resulted in loss to the above extent, the said amount needs to be added to the cost of the concerned capital assets. Depreciation shall be allowed on the enhanced value of the capital assets. This issue is decided in favour of the assessee. (emphasis supplied) 9. In this view of the matter and consistent with view taken by the coordinate bench in assessee own case for the earlier years, we are of the considered view that there is no error in the findings recorded by the ld.CIT(A), while deleting additions made towards disallowances of depreciation on fixed assets on account of adjusted cost of fixed assets towards loss arose on account of cancellation/settlement of forward foreign exchange contracts. Hence, we are inclined to uphold findin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the extent of ₹ 5,85,045/-, in case of Euro coke and of ₹ 13,12,05,089/- in case of Euro Ikon. For better understanding, the relevant details of actual depreciation and depreciation actually allowed during the AY 2005-06 is as follows. 5.4 The assessment of Euro Coke and Euro Energy was completed after allowing normal depreciation and computing the written down value of assets of both the companies as an 31 March 2005 as under: Particulars Euro Coke Euro Ikon Total Actual Cost /WDV as on 31.03.2004 1,90,78,08,292 2,81,67,54,825 Less: Normal Depreciation (23,79,92,360) (34,79,81,822) WDV as on 31.03.2005 1,66,98,12,932 2,46,87,73,003 4,13,85,935 5.5 However, due to insufficient profits, the aforesaid depreciation could be absorbed in AY 2005-06 only to the extent given below ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly stated under the Explanation (2) to section 43(6) of the Act. Explanation 3 to section 43(6), which works under a deeming fiction, cannot be relied upon to import the meaning of the word 'actually allowed', since the assessee company is not being able to carry forward, the unabsorbed depreciation in terms of section 32(2) of the Act. Accordingly, Explanation (2) to section 43(6) has to be read independently and the words actually allowed have to be ascribed their natural meaning. The Ld. AR further submitted that assessee has computed the WDV of assets so transferred on amalgamation in accordance with the provisions of explanation (2) to section 43(6) of the Act. Accordingly, if the depreciation is not fully absorbed in the preceding year in the case of the amalgamating companies, then, the unabsorbed depreciation will be added to the WDV of the amalgamating companies. In this regard, he relied upon various judicial precedents including the decision of Hon'ble Bombay High Court in the case of CIT v. Silical Metallurgic Ltd. [2010] 324 ITR 29. 15. We have heard both the parties, perused the material available on record and gone through orders of the authoriti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on actually allowed. However, as against Explanation (2), Explanation (3) to section 43(6) of the Act, operates as a deeming fiction, wherein depreciation which is carried forward u/s 32(2) of the Act, is deemed to have been actually allowed. In our considered view, Explanation (3) being a deeming fiction, operates only in a particular conditions and in order to remove an anomaly, which otherwise would have been created under the other provisions of the Act. It thus follows that while interpreting Explanation (3), one needs to be aware of the intention of the statute. These provisions along with their intent have been explained elaborately by the Hon'ble Bombay High Court, in the case of Hindustan Petroleum Corporation Limited (supra), where it was held that explanation (3) to section 43(6) of the Act, seeks to find certain anomalies which would have otherwise exists under the Act. The intention of explanation (3) is not a simply to nullify the provision of explanation (2) to section 43(6), as has been read by the Ld.AO. This is also evident from the fact that the Explanation (2) has been introduced from 01.4.1988, whereas Explanation (3) was always on statute, which clearly im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of provision of section 72A had been considered and even after the courts held that deprecation actually allowed shall not include any unabsorbed depreciation. Therefore, we are of the considered view that the WDV in the hands of the amalgamated company was to be calculated without considering the unabsorbed depreciation of the amalgamating companies, for which set off was never allowed. The Ld.CIT(A) after considering relevant facts has rightly deleted additions made by the Ld.AO. Hence, we are inclined to uphold the findings of Ld.CIT(A) and reject ground taken by the revenue. 18. The next issue that came up for our consideration from ground No. 6 to 8 of revenue appeal is treatment of interest of ₹ 40,68,488/- as business income instead of income from other sources. During the year under consideration, the assessee earns certain interest income on fixed deposits with banks. The fixed deposits were kept with banks in the normal course of business for extending guarantee to the Government authorities, in respect of disputed taxes, duties and letter of credits opened for import of capital goods, etc. The assessee has considered the interest income under the head in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sources. Thereafter, against the said order of the Hon'ble Karnataka High Court, the assessee preferred an appeal before the Hon'ble Supreme court, wherein the Hon'ble Supreme Court vide order dated 29th September, 2009 in SLP (Civil Appeal) No. 6555 of 2009 set aside the order of the Hon'ble Karnataka High Court and directed to answer the question of law, which was raised before it. In set aside proceedings, the Hon'ble High Court vide its order dated 17/08/2011 had decided the issue in favour of the assessee and held that interest income earned by the assessee from fixed deposit in the normal course of business was to be taxed as business income. The relevant findings of the court are as under:- 23. Therefore, from the aforesaid judgment, ii is dear, that till the company commences its business and earns income, if they have kept their surplus funds in short deposits in order to earn interest that interest income is chargeable under section 56 of the Act, However, once the assesses commences business and earns income and in addition to the income so corned, the company also earns interest by way of such deposits, then the said income cannot be const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... early be of revenue nature. 23. Therefore, from the aforesaid judgment, it is clear that till the company commences its business and earns income, if they have kept their surplus funds in short deposits in order to earn interest that income is chargeable under section 56 of the Act. However, once the assessee commences its business and earns income and in additions to the income so earned, the company also earns interest by way of such deposits, then the said income cannot be construed as income from other sources. 23. From the above decision, it is clear that the matter has been finally settled by the Hon'ble Karnataka High Court, in favor of the assessee and hence, we are of the considered view that there is no error in the findings of Ld.CIT(A) in treating interest income from fixed deposits under the head income from business and accordingly, we reject ground taken by the revenue. 24. The next issue that came up for our consideration from ground no 9 and 10 of revenue appeal is treatment of sales tax subsidy received of ₹ 36,15,49,828/-, as capital in nature instead of revenue in nature. The facts borne out from records show that in the ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax so charged and deposited on sales was refunded on a monthly basis as Sales Tax subsidy . A Notification to this effect was also passed by the Government of Karnataka, vide No. FD 56 CSL 2005(I), dated 18/04/2005, by which the tax payable under the Karnataka Sales Tax Act, 1957 was treated as exempt subject to certain conditions. 25. In the return of income filed for AY 2006-07, the assessee had claimed that since, sales tax subsidy was intrinsically related to set up of the plant in the backward area, the same was on capital account and hence, not taxable . During the course of assessment proceedings, the AO rejected the contention of the assessee and concluded that sales tax exemption was given by the State Government of Karnataka to help the assessee to use the funds for its day to day activities and hence, the Sales tax subsidy was revenue in nature and taxable in the hands of the assessee. On appeal before the first appellate authority, the Ld.CIT(A) allowed relief to the assessee and held that sales tax subsidy received by the assessee was not given to facilitate the business operations of the assessee, but was given as an incentive for development of the backwar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aka that the incentives scheme was given to attract new industrial investments, in the state of Karnataka and to create additional employment opportunities with a direction for employment in under developed backward areas of Karnataka. In other words, the subsidy was granted to the assessee, since it is fulfilled the criteria specified in the scheme for grant of concession and incentives. The purpose of the concession /incentives was very clear, as per which the assistance was not given for general assistance to carry on its business as alleged by the Ld.AO. The Ld. AR, further submitted that there is a distinction between the subsidy given with the object of encouraging the industrial growth and setting up industries in backward areas and subsidy given with the object of assisting industries for a period after they are setup. The Ld. AR for the assessee referring to plethora of judicial precedents, including the decision of Hon'ble Supreme Court, in the case of Chaphalkar Brothers (CA Nos. 6513 6514 of 2012) submitted that the position of the Hon'ble Supreme Court on this issue is very categorical in the catena of the decisions, where it has been held that the mechanism, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proposed to set up a integrated steel plant for manufacturing of 1.25 million tons per annum (MTPA) of Hot rolled (HR) Coils at Village Torangallu, Bellary Hospet, Karnataka state with an initial investment of ₹ 3,200 crores. It is also not in dispute that the assessee has made an application under the industrial policy to the Government of Karnataka, for which the order has been passed by the Government of Karnataka granting exemption from payment of purchase tax and entry tax and also exemption from payment of sales tax on sale of finished goods. 29. In this factual back ground, if you examine the claim of the assessee that sales tax subsidy received from State government of Karnataka is capital or revenue in nature which is liable to tax, one has to understand the purpose for which said subsidy was given by the State Government. If you go through, the industrial policy, 1993 announced by the State Government and consequent notification issued there under, it is abundantly clear that the incentive scheme was granted within an objective to attract new industrial investments in the state of Karnataka and to accelerate industrial development in backward areas of Karna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Birla VXL Ltd. in ITA No.s 316 to 318 of 2013, where it was held that the purpose of the subsidy is relevant to decide the nature, whether it is on capital account or revenue account. The court further held that though, the benefit was computed in terms of sales tax liability in the hands of the recipient, the same was not meant to be given any benefit and day to day functioning of the business or for making the industry more profitable. The principle aim of the scheme was to cover the capital outlay already made by the assessee in undertaking special modernization of its existing industry. A similar view has been expressed by the Hon'ble Gujarat High court, in the case of Munjal Auto industries (supra). The Hon'ble Jammu Kashmir High Court, in the case of Shri Balaji Alloys ITA No. 02/2010 had considered an identical issue and held that the purpose for which subsidy was given is very relevant to decide the nature of recipient, but not the manner in which such subsidy was quantified. The Hon'ble Gujarath High court in the case of Shivshakti Flour Mills (P.) in ITA No 06/2014 had considered an identical issue and held that the purpose of the transfer su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound taken by the revenue. 32. The next issue that came up for our consideration from ground No. 11 to 13 of revenue appeal is levy of interest u/s 234B of the Act, of ₹ 9,84,94,367/- on total income computed u/s 115JB of the I.T. Act, 1961 on account of retrospective amendment to section 115JB of the Act. The facts borne out from the records show that in the profit and loss account for the year ended 31/03/2006, the assessee had debited provision for deferred tax of ₹ 433.61 crores/-. In the return of income filed for AY 2006-07, the aforesaid provision was not added back while computing Book profit u/s 115JB of the Act. However, subsequently Finance Act, 2008 made a retrospective amendment to Section 115JB of the Act, by inserting clause (h) in Explanation 1 to section 115JB of the Act, according to which book profits are required to be increased by an amount of deferred tax and provision thereof and the said amendment was made with retrospective effect from AY 2001-02. Accordingly, during the course of assessment proceedings, while computing book profits under section 115JB of the Act, the Ld. AO added the provision for deferred tax liability and consequentl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of computing book profits u/s 115JB. It is also made clear that amendment is retrospective with effect from the assessment year 2001-02. If academically speaking, the said amendment which is retrospective w.e.f assessment year 2001-02 is applicable to the impugned assessment year 2005-06 as well. 17. But as rightly contended by the appellant, by the tie the amendment was brought in the year 2008, the relevant previous year 2004-05 was already over and the appellant had not occasion to add back the deferred tax provision to compute the book profits u/s 115JB. By the time the retrospective amendment was made, the financial years 2004-05 to 2007-08 relevant to the AY 2005-06 to 2008-09 have already been over and the appellant could not have paid any advance tax retrospectively in respect of these years. The appellant cannot call back the bygone time. Even though a retrospective amendment is possible, a retrospective physical of advance tax is impossible. Therefore, we cannot over look the acclaimed principle. LEX NON COGIT AD IMPOSSIBILLA. The law dos not command to do which is impossible to do. The legal view prevailed at the time of previous year 2004-0 was that de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... known during the period of the relevant previous years. 23. Therefore, we hold that the levy of interest u/s 234B on the incremental amount of tax computed u/s 115JB is not justified in the present case. Accordingly, the levy of said interest is deleted. (emphasis supplied) 36. In the current year, as well the liability for interest under section 234B of the Act has arisen only on account of a retrospective amendment to the provision of section 115JB of the Act, 1961 with effect from AY 2001-02. Accordingly, the assessee would not have anticipated the retrospective amendment at the time of making the payments for advance tax, but to estimate the liability to pay advance tax on the basis of existing provisions. Therefore, we are of the consider view that there is no error in the findings recorded by the Ld.CIT(A), while deleting the interest liability u/s 234B of the Act. Hence, we are inclined to uphold the findings of Ld.CIT(A) and reject ground taken by the revenue. 37. In the result appeal filed by the revenue is dismissed. Co.No. 59/Mum/2012:- 38. The assesse has raised the following grounds of cross objection. GR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntentionally and on bonafide mistaken of facts and therefore, the same may be condoned and decide the issue on merits. In this regard, he relied upon the decision of Hon'ble Supreme Court, in the case of Collector, Land Acquisition Anantnag and Anr. v.. Katiji and Ors, (167 ITR 471). 40. The Ld. DR, on the other hand strongly opposing condonation petition filed by the assessee submitted that the reasons given for not filing appeal in time does not come under the purview of reasonable cause and hence, the condonation application filed by the assessee should be rejected. 41. We have heard both the parties and perused the material available on record along with case laws cited by the Ld. AR for the assessee. We find that there is a delay of 371 days in filing cross objection filed by the assessee, for which necessary petition along with affidavit has been filed for condonation of delay. According to the assessee, the delay in filing cross objection is under bonafied mistaken of facts. In the light of above averment, if you consider the legal position, we find that the statute provides for a right of appeal to the aggrieved persons against any order passed by an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justice deserves to be preferred, for the other side cannot claim to have, vested right in injustice being done because of a non-deliberate delay. 5. There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact, he runs a serious risk. 6. It must be grasped that the judiciary is respected not on account of its power to legalize injustice on technical grounds but because it is capable of removing injustice and is expected to do so. 42. In this case, the assessee has given reasons for not filing appeal or cross objection within time allowed under the Act, as per which, it was under the bonafide belief that the Ld.CIT(A) had allowed relief, in respect of additions made by the AO and hence, no need to file any appeal or cross objection. But, when the matter came up for hearing in case of revenue appeal, it was noticed that the Ld.CIT(A) did not give consequential relief, in respect of book profit computed u/s 115JB of the I.T. Act, 1961 and therefore, the assessee has decided to file cross objection against order of the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uke Offshore Ltd. v. DCIT (2011) 45 SOT 399 (Mum) B B Infotech Ltd. v. ITO (ITA No. 726/Bang/2014) 45. The Ld. DR, on the other hand, strongly supporting order of the Ld.CIT(A) submitted that the book profit as referred u/s 115JB shall be computed irrespective of the fact that whether particular receipt is taxable under the income tax act or not. He, further, submitted that as per the ratio laid down by the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. Vs CIT (supra), once books of accounts of the assessee are audited and approved by the share holders in the annual general meeting, then the Ld. AO has limited scope to alter the book profit, unless otherwise as provided under Explanation (1) to section 115JB of the I.T. Act, 1961. The assessee case is squarely covered by the decision of Hon'ble Supreme Court in the case of Apollo Tyres v CIT(supra) and hence there is no question of deduction of sales tax subsidy, being capital receipt from book profit completed u/s 115JB of the I.T. Act, 1961. 46. We have heard both the parties, perused the material available on record and gone through orders of the authorities below along with case law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital receipt and hence, cannot be part of book profit computed u/s 115JB of the Act. Similarly, the ITAT Kolkata Bench, in the case of Sipca India Pvt.Ltd. v. DCIT 186 TTJ 289 had considered an identical issue and held that when, subsidy in question is not in the nature of income, it cannot be regarded as income even for the purpose of book profit u/s 115JB of the Act, though credited in the profit and loss account and have to be excluded for arriving at the book profit u/s 115JB of the Act. 49. Insofar as, case laws relied upon by the department , we find that all those case laws have been either considered by the Tribunal or High Court and came to conclusion that in those cases the capital receipt is in the nature of income, but by a specific provision, the same has been exempted and hence, the came to the conclusion that, once particular receipt is routed through profit and loss account, then it should be part of book profit and cannot be excluded, while arriving at book profit u/s 115JB of the Act 1961. 50. In this view of the matter and considering the ratio of case laws discussed hereinabove, we are of the considered view that when a particular receipt is ex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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