TMI Blog2022 (1) TMI 922X X X X Extracts X X X X X X X X Extracts X X X X ..... available to the new units, are clearly in the nature of capital receipt not liable to tax under the Act. The manner in which the concession is given is not material. Even if any concession/ rebate is given in respect of revenue items, the intent of the concession/rebate being the development of the rural economy and upliftment of backward areas, the same would, in our view, be in the nature of capital receipt not liable to tax. Since all the Notifications issued by the State Government for different reimbursements/ remissions, pursuant to the Scheme and in furtherance of the avowed objectives of the State Government in issuing the Scheme, the incentive/ benefit/ subsidy being made available, it has been stated that, it is clearly in the nature of capital receipt not liable to tax under the Act. Even if any concession/rebate is given in respect of revenue items, the intent of the concession/rebate being the development of the rural economy and upliftment of backward areas, the same would still be in the nature of capital receipt not liable to tax. Accordingly, we hold that the subsidy received by the assessee is a capital receipt not allowable for taxable. Accordingly, the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that, in case, the assessee has taken the deduction and the amount claimed in the return of income for AY 2015-16 of a sum of ₹ 62,42,42,420/-, the said claim should be withdrawn and the same is allowable deduction in the year under consideration. The assessee is also directed to file an application before the AO to claim the same. Deduction u/s 80IA in respect of profits of the power generating units located at Raigarh - HELD THAT:- We agree with the submissions of the assessee and hold that inter-division of transfer of power from the captive power plants be made at ₹ 3.29/3.72 per unit being the price at which power is sold by the State Electricity Boards to the assessee since the said price was the fair market value of power and hence, in conformity with the provisions of sub-section (8) of section 80-IA of the Act. Accordingly, the order of the ld. CIT (A) is confirmed and the ground raised by the Revenue is dismissed. Depreciation of on the assets of the power generating undertaking viz. Turbine and 220KV transmission lines, at the rates specified in Appendix 1 read with Rule 5(1) of the Income Tax Rules, 1962 - depreciation was claimed on the written do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d any interest on illusionary basis. We find that no interest was accrued by the appellant on the aforesaid loans for immediately two preceding years and the said stand was accepted by the Department.Since there being no change either in facts or in law in this regard, as compared to the earlier years, the position accepted by the Department has to be followed even as per the principle of consistency. There could be no accrual of notional / imputed interest on the given facts and circumstances of the case, and, therefore, disallowance of interest paid to the extent of such notional / imputed interest was rightly been deleted by the CIT(A). Consequently, ground no.5 is determined against the Revenue. Deduction as ESOP expenditure amortized equally over the vesting period - whether expenditure incurred in order to compensate employees in lieu of services rendered in the form of ESOP? - HELD THAT:- This issue now stands covered by the decision of Hon ble Delhi High Court in the case of CIT vs. Lemon Tree Hotels Limited [ 2015 (11) TMI 404 - DELHI HIGH COURT] and the decision of Biocon Limited [ 2013 (8) TMI 629 - ITAT BANGALORE] - This decision of the Tribunal has been af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure of lease rent towards cost of the aircraft - HELD THAT:- In the present case, the agreement entered into between the appellant and GE, the lessor and owner of the aircraft, is, undoubtedly a lease agreement. During the lease period, the ownership in the aircraft vests with lessor. The assessee only has an option to purchase the aircraft after the expiry of the lease period from lessor. Further, the said option is conditional upon the lessee/ assessee not defaulting in any of the lease payments. In case there is a default in making any of the lease payments the clause granting purchase option cannot be exercised and ownership in the asset shall remain with the lessor. In fact the lessee/ assessee would be required to return back the equipments to the lessor, in case the lessee defaults in making any of the lease rent payment.- Thus, in the present case also if the claim of lease rent has been allowed in the earlier and the subsequent year, but the same has been disallowed in the year under consideration, will lead to an absurd and anomalous situation, hence same is allowed. - SHRI AMIT SHUKLA, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER Assessee by: Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting that complete evidence to this effect was filed before the assessing officer/ CIT(A). 4. That the Commissioner of Income-tax (Appeals) erred on facts and in law in upholding the action of the assessing officer in charging interest under section 234B of the Act. Additional Grounds: Section 80HHC That on the facts and circumstances of the case and in law the assessing officer may kindly be directed to allow deduction of ₹ 34,90,377, instead of ₹ 17,45,188 as claimed in the original return of income, while computing book profits in terms of clause (iv) of Explanation 1 to section 115JB of the Act. 1. That on the facts and circumstances of the case and in law the assessing officer erred in restricting the deduction of export profits allowable in terms of clause (iv) of Explanation 1 to section 115JB of the Act to the extent specified in section 80HHC even while computing book profits 1.1 That the assessing officer failed to appreciate that the entire export profits are allowable as deduction while computing book profits under section 115JB and the same are not required to be restricted to the extent specified in sub sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r attention to the Hon ble Supreme Court decision in the case of Goetze India Limited (supra) which has been relied upon CIT(A). In that case, the assessee had, in the course of assessment proceedings, sought to claim a deduction through a letter addressed to the assessing officer. The assessing officer disallowed the said deduction on the ground that there was no provision under the Act to make amendment in the return of income at the assessment stage through an application without revising the return. The decision of the assessing officer was confirmed by the Tribunal and the Delhi High Court. On further appeal, the decision of the High Court was affirmed by the Supreme Court. 6.2 The Supreme Court, however, made it clear that the decision in Goetze India Limited (supra) was restricted to the power of assessing authority to entertain a claim for deduction otherwise than by a revised return and the same, did not impinge on the power of the Tribunal under Section 254 of the Act to permit a new claim. Further, the Supreme Court also held that the decision in the case of National Thermal Power Company Ltd. v CIT: 229 ITR 383 dealing with powers of appellate authority to admit new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l admitted and considered similar claim of the assessee on merit. Further, Delhi Bench of the Tribunal in assessee s own case for assessment years 2002-03 and 2005-06 in ITA Nos.368 and 168/ Del/ 2009 also admitted and considered the similar claim on merits. 6.6. In view of the aforesaid, ld. counsel prayed that the Tribunal may admit and adjudicate the aforesaid claim of the assessee on merits. 6.7 Ld. DR on the other hand objected for admission of this ground; however, he submitted that this issue is covered against the assessee by the Tribunal in assessee s own case by the Tribunal in earlier years. 7. After considering the aforesaid submissions and on perusal of the material placed on record, we agree with the contentions of the ld. counsel for the assessee that, since this claim was made during the assessment proceedings and it is a purely a legal claim which goes to the very taxability of the subsidy receipt, therefore, the same is admitted in view of the principles laid down in the aforesaid judgments as cited by the ld. counsel before us. Accordingly, we admit the same and in the succeeding paragraphs, the matter is adjudicated. 8. As regards merits of exemption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government of Madhya Pradesh behind providing tax incentive had always been promotion of industrialization in the State and generation of employment. 06.05.1994 Industrial Policy and Action Plan, 1994 was announced by the Government of Madhya Pradesh. The Policy proposed various incentives (including tax incentives) for setting up industries in the State of Madhya Pradesh with special motive of regional development, acceleration of industrial development, generation of employment, encourage backward classes and women for entrepreneurship, etc. wherein objectives of the Policy are expressly set out. The Policy broadly defined the action plan and the use of tax as instrument for achieving the purpose of the policy. The relevant extracts of the Scheme are as follows: In para 2 of the Scheme, it is clearly stated that the Industrial Policy shall use taxation as an instrument for increasing employment generation and developing synergistic linkages between different sectors. The relevant para is reproduced hereunder: The Industrial Policy and Action Plan, 1994 takes into account the rapid economic changes ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of special schemes. xv) Encorage private sector participation in infrastructure development. xvi) Encourage Cooperative sector for industrial development. xvii) Facilitate commercial activity, so that commerce can become a vibrant factor in promoting industrial growth. xviii) Ensure simplification of administrative procedures with a view to transparency and speedy disposal. xix) Create transparency in administrative procedures for continuing interaction with entrepreneurs. In para 5.6 of the Scheme, the maximum amount of benefit based on capital investment in fixed assets has been spelt out on the basis of categories of the districts in which the unit is set up. Para 5.26 provides that special packages of concession will be prepared to attract mega investments. In para 5.27, specific reference has been made to the incentives for establishment of integrated steel plant with capital investment of more than ₹ 1,000 crore, which reads as under: 5.27. A special incentive scheme will be prepared for all types of new units with an investment of Rs. five hundred crore or more. Concessions, on the lines of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pursuant to Industrial Policy and Action Plan, 1994, Government of Madhya Pradesh issued Notification No. A-3-24-94- ST-V (108) granting exemption of sales tax under State Act and Central Act to ₹ 1000 crore plus integrated Steel Plants. In the aforesaid notification, Raigarh has been notified as Category B area (Backward Area) entitled to higher exemption. Though the case of the assessee is not covered by this notification, the same is placed on record to point out that exemption from sales tax had earlier been granted for setting up new industrial units in the backward areas, which include Raigarh area where investment entailing investment of more than ₹ 1,000 crores was made by the appellant. This notification also supports the contention of the assessee that incentives were granted by the State Government to promote industrialization, create employment and development of the backward area of Raigarh under the Industrial Policy and Action Plan, 1994. 06.11.1997 Notification No. A31295STV(96) was issued by the government of Madhya Pradesh granting exemption from Entry Tax and Central Sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the CIT while passing order under section 263 of the Act for A.Y 2008-09 and the assessing officer while order consequential to the order of the CIT prior to making the impugned assessment order. Dec 1999 to April 2000 23.12.1999 03.02.2000 14.02.2000 16.2.2000 25.02.2000 24.04.2000 Request for formulation of special incentive package was considered by the Department of Commerce and Industry and the Council of Ministers of Government of Madhya Pradesh. On perusal of the interdepartmental communications placed on record, it is patently clear that incentives/ subsidy were granted to the assessee for industrialization of the under-developed areas of the State, employment generation, objects in larger public interest. Specific reference may be made to the following: Abstract prepared by Department of Commerce and Industry, Gove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notifications were issued on 24.04.2000 and 29.07.2000 in respect of sales tax, entry tax and electricity duty. The aforesaid documents/ correspondences establishes, beyond any doubt, that the purpose of granting incentive/ subsidy to the assessee was to achieve achievement industrialization and consequent development of the under-developed areas of the State, for employment generation, for development of ancillary industries/ business, etc., which are objects in larger public interest. It is also pertinent to note that these documents have not been considered by the Tribunal in the assessment years 2002- 03, 2004-05 and 2005- 06. 24.04.2000 Notification No. A3- 9/2000/S.T-V (40) granting exemption to the assessee from Central Sales Tax Act, 1956 (Sales Tax exemption) 24.04.2000 Notification No. A3- 9/2000/S.T-V (41) granting exemption to the assessee from Entry Tax 17.05.2000 Letter by Managing Director of the assessee to the Chief Minister expressing gratitude for granting incentives to the proposed investment of more than ₹ 1000 crores in District Raigar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Madhya Pradesh and also to create employment opportunities. The purpose/ object of grant of subsidy for setting up of the new integrated steel plant by the assessee, was in larger public interest for development of the region/ State. Thus, applying the purpose test , it was stated that it is clear that incentive/ subsidy availed by the appellant, is clearly in the nature of a capital receipt, not liable to tax. 11. Further, it was pointed out that in order to appreciate the facts, certain additional evidences have been furnished which was obtained by the assessee by way of RTI application in July 2014, which were in the form of letters/documents/notifications etc. which are already available with the AO and also in the public domain. Further, similar evidences have been filed before the Tribunal during the appellate proceedings for AY 2008-09 in the appeal u/s 263 and 143/263 of the Act which were admitted and considered by the Tribunal while adjudicating the appeal in ITA Nos.3283/Del/2013 3128/Del/2014. 12. Since these additional evidences which are already on the record and in the public domain and also relevant for adjudicating the issues, as incorporated in the afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 24th April, 2000 was issued in respect of Entry Tax under section 10 of the Entry Tax Act, 1976; Notification dated 29th July, 2000 was issued in respect of Electricity Duty under section 3B of the Madhya Pradesh Electricity Duty Act, 1949. 17. We have considered the scheme and the objective of the subsidy. In the case of taxation of incentives/subsidy, what all needs to be examined is purpose test and the objects for which the said segments were notified by the State Government. Here, in this case, as noted from the incentive schemes, it was given to various industries for setting up necessary infrastructure in the backward areas of the State and not for enhancing the profitability of the eligible unit. Incentive received under the scheme by way of exemption from payment of certain taxes or duties was just a mode adopted to disburse the incentives by the State Government. The taxation of incentive/subsidy is determined by the purpose for which the subsidy is granted and not the form, mode or manner in which the subsidy received or disbursed. Way back, Hon ble Supreme Court in the case of V.S.S.V. Meenakshi Achi reported in 60 ITR 253 held that the character of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21. It is pertinent to note that, a similar issue has been considered by the Special Bench of the Tribunal in the case of DCIT v. Reliance Industries Limited reported in 88 ITD 273 (Mum). In that case, the assessee Patalganga unit was eligible for the incentives announced by the Government of Maharashtra under its Scheme of year 1979, wherein the assessee was exempt from liability for payment of sales tax for a period of 5 years. The assessee claimed the sales tax exemption amount as capital receipt not liable to tax. The aforesaid claim was rejected both by the assessing officer and the CIT (Appeals) on the following grounds: Under the scheme announced by the State Govt., the assessee was not required to charge any sales tax from its customers and to pay any purchase tax on its purchases. No amount of subsidy either in cash or in kind had been given by the Government. In the invoices, the assessee did not charge any amount separately under the head sales tax . Under the scheme, at no point of time, was the assessee required to pay any sales tax to the Government, and The assessee did not maintain any separate sales tax account, any separate incentive account n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the acceleration of development of industries in the State was contemplated with the object of generation of employment in the State of Jammu and Kashmir and the generation of employment, so contemplated, was not only casual or temporary; but was on the other hand, of permanent nature. 25. Considered thus, the paramount consideration of the Central Government in providing the incentives to the New Industrial Units and Substantial Expansion of the existing units, was the generation of employment through acceleration of industrial development, to deal with the social problem of unemployment in the State, additionally creating opportunities for self-employment, hence a purpose in Public Interest. 26. In this view of the matter, the incentives provided to the Industrial units, in terms of the New Industrial Policy, for accelerated Industrial development in the State, for creation of such industrial atmosphere and environment, which would provide additional Permanent source of Employment to the unemployed in the State of Jammu and Kashmir, were in fact, in the nature of creation of New Assets of Industrial Atmosphere and Environment, having the potential of employment gene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be Capital Receipt in the hands of the assessees. 25. Most pertinently, appeal filed by the Revenue against the order of the Hon ble High Court, vide order dated 19.04.2016, has been dismissed by the Hon ble Supreme Court in Civil Appeal No. 10061 of 2011. 26. In view of the aforesaid legal position and since all the Notifications issued by the State Government for different reimbursements/ remissions, pursuant to the Scheme and in furtherance of the avowed objectives of the State Government in issuing the Scheme, the incentive/ benefit/ subsidy being made available, it has been stated that, it is clearly in the nature of capital receipt not liable to tax under the Act. Even if any concession/rebate is given in respect of revenue items, the intent of the concession/rebate being the development of the rural economy and upliftment of backward areas, the same would still be in the nature of capital receipt not liable to tax. 27. Before us, it has been pointed out that the aforesaid issue of treatment of subsidy as capital or revenue receipt has been decided against the assessee by the ITAT in assessee s own case for AY 2004-05 in ITA No.3319/Del/2008. The said de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... teel (supra) has been misconstrued for the reasons that In para 49, the Tribunal agreed with the assessee s contention that the object of the industrial policy was to industrialize the State and utilize the human resources with an aim to increase employment for better utilization of human and State resources and also agreed that the industrial policy used taxation as an instrument for increasing employment and developing scenario linkages between different sectors. 32. The Tribunal, however, concluded despite accepting that the purpose behind disbursement of subsidy was, inter alia, industrialization of the State and generation of new employment opportunities, that the subsidy received was taxable revenue receipt, proceeding on an erroneous premise that on identical facts, the apex Court in Sahney Steel (supra) held similar subsidy/ incentive to be revenue receipt. 33. In fact, in the case of Sahney Steels (supra), the Court rejected the claim of the assessee that subsidy was granted to encourage setting up of new industries which is evident from the following observation so the Hon ble Apex Court :- That contention of assessee that subsidies were of capital nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar, Hon ble Apex Court did not hold that the subsidy received by the assessee to be a capital receipt solely on the ground that the amount received was to be utilized for repayment of loan. The fact that there was an obligation to utilize the subsidy for repayment of loan was referred to as an additional factor in support of the conclusion that the subsidy received was in the nature of capital receipt not liable to tax, on application of the purpose test , i.e. the purpose for which subsidy is given. This is clearly evident from the discussion on the said issue on pages 399 to 401 of the judgment (306 ITR 392). 37. On perusal of the aforesaid, it will be noticed that in para 14, the Supreme Court, first considered the principles laid down by the Supreme Court in the case of Sahney Steel (supra). Thereafter, the Supreme Court discussed the decision of House of Lords in para 15 and subsequently, in para 16 referred to the fact that in the facts of that case there was also an obligation on the assessee to utilize the money for repayment of loan. The ultimate conclusion, however, is contained in para 17 wherein the Court held that applying the above facts, i.e. the purpose test, to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in case of CIT vs. Chaphalkar Brothers 351 ITR 309 wherein it has been held that the purpose for which the subsidy was given was the relevant factor and if the object of subsidy was to enable the assessee to set up new unit, then the receipt of the subsidy would be on capital account. The Hon ble Court observed that, once the object of the subsidy was to industrialize the state and to generate employment in the state, (like the case here), the fact that the subsidy took particular form and the fact that it was granted only after the commencement of production would make no difference. These judgments in the case of Chaphalkar Brothers and the decision of Hon ble Apex Court in the case of Balaji Alloys (supra) has been rendered subsequent to the decision of the Tribunal in AY 2004-05, therefore, the Tribunal did not give the benefit of these judgments. 42. In the case of Chaphalkar Brothers (supra), the Hon ble Court has held that subsidy is not meant for repaying the loan taken for construction of multiplex could not be a ground to hold that the subsidy receipt was on revenue account. 43. Accordingly, we hold that the subsidy received by the assessee is a capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 003-04 and 2004-05. In the order dated 18.08.2008 passed by the CIT(A) for the assessment year 2004-05, it was held that existence of the M/s. Shree Ganesh Steel Rolling Mills Pvt. Ltd., prima facie, cannot be disputed. However, since the assessing officer had referred to certain enquiries which were not confronted to the assessee, the CIT(A) directed the assessing officer to conduct further enquiries on the said issue, observing as under: . On a perusal of the additional evidence it has been found that the existence of M/s Shri Ganesh Rolling Mills, prima facie, cannot be disputed. However, since the AO has conducted physical enquiries, the nature and results of which have not been confronted to the assessee, the AO is directed to further conduct enquiries on this issue for which the assessee is being directed to co-operate in the proceedings; in case the AO is satisfied as to the existing of the concern that he should allow the commission claim of the assessee after examining whether the three conditions i.e. identity of the recipient, the services rendered by the recipient of the commission and the legitimate business needs of the assessee as to the services fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B of the Act to the extent specified in section 80HHC even while computing book profits 1.1 That the assessing officer failed to appreciate that the entire export profits are allowable as deduction while computing book profits under section 115JB and the same are not required to be restricted to the extent specified in sub section (1B) of the section 80HHC of the Act. That the assessing officer failed to appreciate that the entire export profits are allowable as deduction while computing book profits under section 115JB and the same are not required to be restricted to the extent specified in sub section (1B) of the section 80HHC of the Act. 57. The facts in brief are that the assessee filed return of income declaring Nil income under the normal provisions of the Act, after claiming deductions under section 80IA and 80IB of the Act. Tax was however, paid by the assessee on deemed income of ₹ 1,78,94,70,272 in accordance with the provisions of section 115JB of the Act. In the return of income, the assessee claimed deduction under section 80HHC to the extent specified in sub-section (1B) of that section, in respect of export profits allowable while comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , directed various allottees of the coal block, including the assessee, to pay an amount of ₹ 295 per metric ton of coal extracted as an additional levy in order to compensate the exchequer based on the assessment Report on Performance Audit of Allocation of Coal Blocks and Augmentation of Coal Production (Ministry of Coal), issued by Comptroller and Auditor General of India ( CAG ). 63. Pursuant to the order of the Hon ble apex Court, the assessee paid ₹ 2000 crore (approx.) under protest during the financial year 2014-15. The assessee also filed review petition before the Hon ble Supreme Court, which was dismissed vide order dated 28.01.2016. 64. The aforesaid amount of additional coal levy paid by the assessee includes an amount of ₹ 62,42,42,420 relating to coal extracted during the previous year relevant to assessment year 2003-04. Complete bifurcation of levy of coal quantified year wise based on the extraction done during various years is tabulated as under:- (Amount in Rs.) Financial Year Total Paid Charged-off to PL Account in FY 2014-15 and claimed deduction Paid under prote ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clarified that the said amount of ₹ 62,42,42,420 has been claimed as deduction by the assessee in the return of income for assessment year 2015-16. It has been submitted that since levy of ₹ 62,42,42,420 related to the coal extracted/ mined by the assessee during the relevant year, the said levy is directly linked to the business of the assessee for the year under consideration, and hence allowable as business deduction for the year under consideration. 66. Further, it has been stated that under mercantile system of account, deduction of any expenditure is allowable in the year to which the expenditure relates, as has been held in the following decision: Perfect Equipments v. DCIT: 85 ITD 50 (Ahd.):- In that case, debit notes for commission issued by selling agent was received by assessee in assessment year 1991-92 but deduction was claimed in assessment year 1992-93. The assessing officer disallowed that claim without considering alternative contention of assessee that claim may otherwise be allowed for assessment year 1991-92. In these facts, the Tribunal held that the expenditure was allowable for assessment year 1991-92, i.e., the year to which it pertain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at ₹ 65,93,67,681/- allowed by the AO. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in allowing depreciating of ₹ 1,60,52,491/- under section 32 of Income-tax, Act against Rs.l,59,10,047/- straight line method adopted by the AO. 3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in allowing depreciating of ₹ 2,36,30,757/-under section 32 of Income-tax, Act against ₹ 49,81,364/- straight line method adopted by the AO on 220 KV Transmission line. 4. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in allowing the appeal w.r.t. addition made on account of forfeited shares application which was treated as income from other sources of ₹ 1,00,00,000/-. 5. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in allowing the appeal w.r.t. disallowance of interest expenditure of ₹ 78,70,148/-. GROUND NO.1 70. The facts in brief are that During the relevant previous year, the assessee claimed deduction under section 80IA of the Act amounting to ₹ 112,76,27,767, in respect of profits of the power generat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80IA of the Act, is available with reference to the profits derived from the eligible undertakings. The said section provides that in case of an assessee having multiple units, the profits derived by the eligible units has to be computed as if the eligible unit(s) were separate and distinct entity, dealing with the other unit owned by the assessee at arm s length. 74. In the case of assessee, since part of the power produced was captively consumed by the manufacturing units owned by the assessee, the rate of transfer of the power was accordingly recorded at the market rate i.e., the rate at which the electricity is supplied by the SEB s to the industrial consumers. Accordingly, sale of power to other units was recorded at ₹ 3.29/3.72 per unit. The transfers were not recorded at the rate at which the surplus electricity was sold by the assessee to the SEB, i.e. ₹ 2.32 per unit on the ground that the price of ₹ 2.32 was the price determined and dictated by the SEB and thus, could not be treated as the market value of power. 75. Thus, deduction allowable to the assessee under section 80-IA of the Act was computed by taking the price charged by the SEB to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Board. Generation and distribution of electricity being the monopoly of the State, the producers of power were therefore not allowed to sell the same in the open market. Thus the assessee was not in the position to bargain the rate at which the power would have been otherwise sold to the State Electricity Board; on the contrary, the assessee was obliged to sell the surplus power to the State Electricity Board at the price mandated by the said Board. 80. In the present case, in terms of the Power Purchase Agreement entered into by the company with SEB the power generated by the captive plants was required to be consumed by the manufacturing units of the assessee. The company was restricted to sell the power to other consumers, which stipulates that the surplus electricity generated by the captive power plant shall be fed into the transmission system of Grid. In terms of the wheeling agreement entered into by the company with MPEB/CSEB, where the units consumed by the company are less than units wheeled/fed into the transmission system of the Board, the excess is to be treated as deemed sale to the MPEB by the company at the stipulated rate. 81. The rate of purchase of power is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cribed by the SEB is a price imposed upon the assessee as a condition precedent to sell excess power to the only purchaser, i.e. SEB. It is the price at which power is supplied to the SEB under compulsion. The same cannot be regarded as indicative of free market price. To put it differently, it is the price at which, the assessee without any option was to sell excess power generated under duress/compulsion. 85. It was thus submitted by the assessee that ₹ 2.32 cannot, by any stretch of imagination be treated/ considered as the price of power in the open market. 86. It has been further submitted that the Tribunal in assessee s own case for the AYs 2000-01 2004-05 in ITA Nos.3663/ Del/ 2005 and 3319/ Del/ 2008 respectively has decided the issue in favour of the assessee and appeal filed by the Revenue against the said decision has been dismissed by the Hon ble jurisdictional High Court vide orders dated 02.09.2008 in ITA nos. 544/ 2006 and 53/ 2008 respectively. Further, the Tribunal in AYs 2002-03 7 2005-06 in ITA Nos.608/Del/2009 and 221/Del/2009 respectively vide consolidated order dated 06.03.2014 also decided this issue in favour of the assessee. 87. Accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e used for the purposes of the business or profession of the assessee at any time during the previous year. (1A) The allowance under clause (i) of sub-section(1) of section 32 of the Act in respect of depreciation of assets acquired on or after 1st day of April, 1997 shall be calculated at the percentage specified in the second column of the Table in Appendix IA of these rules on the actual cost thereof to the assessee as are used for the purpose of the business of the assessee at any time during the previous year: Provided that the aggregate depreciation allowed in respect of any assert for different assessment years shall not exceed the actual cost of the said asset: Provided further that the undertaking specified in clause (i) of sub-section(1) of section 32 of the Act may, instead of the depreciation specified in Appendix IA, at its option, be allowed depreciation under sub-rule(1) read with Appendix I, if such option is exercised before the due date for furnishing the return of income under sub-section(1) of section 139 of the Act, (a) for the assessment year 1998-99, in the case of an undertaking which began to generate power prior to 1st day of April, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce with Rule 5(1) of the Rules. It is as mandated by the Rules that once option is exercised in the initial assessment year, the assessee is irrevocably bound by the same. 92. Similarly, the assessee had installed 220KV Transmission Line in the previous year relevant to assessment year under consideration and being the initial operational year, the assessee in the return of income had claimed depreciation on the basis of Written Down value at the rates as prescribed in Rule 5(1) of the Income Tax Rules. Since the assessee, as stated above, claimed depreciation on fixed assets of the power generating unit/undertaking in accordance with Rule 5(1), in the initial assessment year the assessee thereby exercised the option available under second proviso to Rule 5(1A) of the Rules and was hence bound to claim depreciation in the succeeding years on the same basis as well. Accordingly, in the subsequent years, including the year under consideration, the assessee continued to claim depreciation in accordance with Rule 5(1) read with Appendix 1 of the Rules. It was thus respectfully submitted that the assessee has no choice in the matter and was obliged in law to claim depreciation on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 100. Thus, In view of the aforesaid decision of the Tribunal and the facts as discussed above, we hold that the assessee is eligible to claim depreciation as per Rule 5(1) and not Rule 5(1A) of the Income-tax Rules, 1962, therefore, the AO is directed to allow the depreciation as per WDV of impugned assets as opposed to straight line method adopted in the assessment order. Accordingly, grounds no.2 3 taken by the Revenue are dismissed. GROUND NO.4 101. Brief facts are that the assessee forfeited ₹ 1,00,00,000 received in respect of 20 lacs preference shares of ₹ 100 each allotted to Oswal Agro Mills Ltd. with a paid-up capital of ₹ 5 each. The assessee credited the said receipt in the capital reserve account as per the provisions of the Companies Act, 1956. The assessing officer, treating the said receipt as revenue in nature, taxed the same under the head Income from other sources . The assessing officer observed that at the time of receipt of preference share application money, the same is capital receipt but legal ownership and the character of the money had been changed after forfeiture of shares and hence made an addition of ₹ 1,00,00,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est income should have been accrued and offered to tax by the appellant and observed that (i) M/s Jindal Holding Ltd. is a revenue generating company having substantial holdings, (ii) the assessee had honored the interest payments in respect of the debentures which also devolved upon the assessee pursuant to restructuring, and (iii) the assessee has itself charged interest on the said loan outstanding in the financial year 1999-2000. On appeal, the CIT(A) deleted the disallowance. 106. After considering the relevant finding given in the impugned orders, we find that the grounds given by the assessing officer for disallowance of interest are not tenable for the following reasons: 1. Jindal Holding Limited is not a related company in terms of section 40A(2)(b) of the Act; 2. The assessee had not divested interest bearing funds to Jindal Holding Limited free of interest inasmuch as: (i) the amount had originally been advanced by Jindal Strips Limited and not the assessee; and (ii) loan was interest bearing and interest was also recognized upto financial year 1999-2000; 3. Jindal Holdings Ltd. had, as a matter of fact, huge accumulated losses and had no effective source to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt laid down three tests to determine accrual, viz., (a) whether the income accrued to the assessee is real or hypothetical; (b) whether there is a corresponding liability of the other party to pay the amount to the assessee; and, (c) the probability or improbability of realization of the income by the assessee considered from a realistic and practical point of view. Further, since the recovery of principal itself was doubtful, the assessee had not accrued any interest on illusionary basis. 109. That apart, we find that no interest was accrued by the appellant on the aforesaid loans for immediately two preceding years and the said stand was accepted by the Department. 110. Since there being no change either in facts or in law in this regard, as compared to the earlier years, the position accepted by the Department has to be followed even as per the principle of consistency. 111. In view of the aforesaid settled legal position, there could be no accrual of notional / imputed interest on the given facts and circumstances of the case, and, therefore, disallowance of interest paid to the extent of such notional / imputed interest was rightly been deleted by the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als), Rohtak has grossly erred on facts and in the circumstances of the case and in law in upholding the action of the assessing officer in charging interest under section 234B of the Act. Additional Ground That on the facts and circumstances of the case and in law the assessing officer may kindly be directed to allow deduction of ₹ 18,68,15,848 while computing book profits in terms of clause (iv) of Explanation 1 to section 115JB of the Income Tax Act, 1961 ( the Act ). Additional Ground Deduction of Additional Coal Levy That on the facts and circumstances of the case and in law, additional coal levy relatable to year under consideration amounting to ₹ 156,64,61,210 paid on account of extraction of coal pursuant to the order(s) of the Hon ble Supreme Court, be directed to be allowed as business deduction. GROUNDS NO.1, 2, 3 4 114. Since we have already decided this issue in assessee s own case for AY 2003-04 in ground no.1, respectfully following the same, grounds no.1 to 4 taken by the assessee are allowed. GROUND NO.5 115. This issue is also decided by us in assessee s own case for AY 2003-04 in groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground is not pressed by the ld. counsel for the assessee at the time of hearing, hence the same is dismissed as not pressed. ADDITIONAL GROUNDS IN RESPCT OF DEDUCTION OF ADDITIONAL COAL LEVY 120. The aforesaid additional grounds have also been decided by us in the assessee s appeal for AY 2003-04 above and following the same, these additional grounds are determined in favour of the assessee. 121. In the result, the appeal filed by the assessee for AY 2006-07 is partly allowed. ITA NO.341/DEL/2010 (AY 2006-07) FILED BY THE REVENUE 122. In the grounds of appeal, the Revenue has taken the following grounds of appeal :- 1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was right in restricting the claim of deduction made u/s 80IA of the Act, 196] from ₹ 3,65,71,39,107/- to ₹ 2,53,05,43,080/- by following his earlier order, without appreciating the additional facts and arguments brought on record by the AO for the first time in the assessment order, which is a subject matter of appeal. 1(a) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was right in holding that electricity ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GROUNDS NO.1 1(a) 123. Since we have already decided this issue in Revenue s case for AY 2003-04 in ground no.1, respectfully following the same, grounds no.1 1(a) taken by the Revenue are dismissed. GROUNDS NO.2 2(a) 124. Facts in brief are that during the relevant previous year the assessee incurred expenditure of ₹ 2,68,33,219 and ₹ 2,49,42,909 relating to construction of Hospital and School Auditorium respectively in the district of Raigarh, in terms of understanding entered into with the Society owning the same, for the benefits of its employees and their children and also as part of its corporate social responsibility initiatives. 125. The assessing officer disallowed the aforesaid expenditure holding the same to be capital in nature. On appeal, the CIT(A) held that such expense was related to employee welfare and is accordingly allowed under section 37(1) of the Act. 126. The assessee, is carrying on the business/ manufacturing activities in the backward and small city of Raigarh in the State of Chhattisgarh. Further such small town is not equipped with other necessary facilities that may be necessary to meet the regular/basic nee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal facilities to its employees. In the MOU, it was agreed by JEWS to give preferential treatment to the employees of the assessee like quota in admission for children of the assessee s employees, concession in tuition fee and other fees charged by the school and also fees charged by hospital, priority services to the employees of the assessee, etc, in lieu of assessee giving financial assistance; (b) Fee structure of O.P. Jindal School, Raigarh during the session 2005-06 to 2009-10 along with a list of students of employees of the assessee and other students during the financial year 2005-06. On perusal of the same, it will be kindly noticed that substantial concession in fees is given to the employees of the assessee vis- -vis the other students; (c) A graph showing growth in strength of the school and its composition into students of the employees of the assessee vis-a-vis other students. (d) Certain photographs showing usage of school auditorium for various meetings by the assessee; (e) Patient Admission report for the year 2008 depicting treatment of employees of the assessee and other persons. 131. On perusal of the same, it was pointed out that a large number ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... koned as wholly and exclusively for the purpose of business and an allowable deduction. Accordingly, the order of the ld. CIT(A) is confirmed and the ground is dismissed. GROUNDS NO.3 3(a) 136. Facts in brief are that the assessing officer has, in the assessment order, while holding the impugned subsidy as revenue receipt, simultaneously reduced the same from cost of fixed assets, while applying provisions of Explanation 10 to section 43(1) of the Act resulting in double taxation of same amount of subsidy. 137. It has been submitted by the assessee that even assuming, without admitting, that the subsidy received is a revenue receipt, the action of the assessing officer in reducing such subsidy from cost of fixed assets by applying the provisions of Explanation 10 to section 43(1) of the Act is patently erroneous as the same resulted in double taxation of the very same amount, viz., (i) by bringing the amount received to tax as income; and (ii) by reducing the claim of depreciation on account of reduction of the very same amount from the cost of the depreciable assets. Ld. Counsel submitted that the assessing officer, , cannot blow hot and cold in the same breadth an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... like, industrialization of the backward state, employment generation, etc., such subsidy is not required to be reduced from the cost of assets in terms of Explanation 10 to section 43(1) of the Act. 141. Ld. DR supported the order of the Assessing Officer and pointed out that the nature and manner in which subsidy was received is nothing but for acquisition of assets. 142. After considering the aforesaid facts as well as order of the AO and ld. CIT (A), we find that if the purpose of subsidy was for industrialization of the backward state, employment generation, etc. and is in the form of capital nature, such subsidy is not required to reduced from the cost of asset u/s 10 to section 43(1) of the Act. Hon ble Supreme Court in the case of CIT v. P.J. Chemicals Ltd. reported in 210 ITR 830 has observed that in that case, the assessee had received a capital subsidy, which was claimed as capital receipt, not exigible to income-tax. In the assessment proceedings, the assessing officer held that such subsidy is liable to be reduced form the cost of assets, in terms of the provisions of section 43(1) of the Act. The appeal preferred by the appellant before the Commissioner of Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e we have already decided this issue in Revenue s case for AY 2003-04 in ground no.3, respectfully following the same, ground no.4 taken by the Revenue are dismissed. GROUND NO.5 145. Facts in brief are that during the previous year 2004-05, the assessee had taken an aircraft on lease from GE Capital Services India ( GE ). In accordance with Accounting Standard 19 (AS-19) on Leases issued by the Institute of Chartered Accountants of India ( ICAI ), the said lease qualified as finance lease for the purpose of accounting treatment. AS-19 on Leases provides that in case of finance lease , lessee has to capitalize the leased asset at an amount equal to the present value of future lease payments and a corresponding amount is recognized as a liability. Accordingly, out of total lease rental of ₹ 7,94,22,735, ₹ 1,04,47,179 was charged to the P L account and the balance amount of ₹ 6,89,75,556 was adjusted against the outstanding liability towards value of the aircraft. In the return of income, total lease rental amounting to ₹ 7,94,22,735 was claimed as an admissible deduction under section 37(1) of the Act. Further, no depreciation was claimed on cos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 001 dated 9.2.2001: 247 ITR (St.) 53 issued by the Central Board of Direct Taxes ( CBDT ), wherein it has been clarified that the aforesaid accounting standard issued by ICAI creating distinction between finance lease and operating lease will have no implications under the provisions of the Act. The relevant excerpt of the said Circular are reproduced herein below: Under the Income-tax Act, in all leasing transactions, the owner of the asset is entitled to the depreciation if the same is used in the business, under section 32 of the Income-tax. The ownership of the asset is determined by the terms of the contract between the lessor and the lessee . .. It has come to the notice of the Board that the New Accounting Standard on Leases issued by the Institute of Chartered Accountants of India require capitalization of the asset by the lessees in financial lease transaction. By itself, the accounting standard will have no implication on the allowance of depreciation on assets under the Act. 149. The legal position that emerges from the aforesaid is that Accounting Standard 19 issued by ICAI, by itself, has no implication on the allowance of depreciation on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA NO.2280/DEL/2011 (AY 2007-08) FILED BY THE ASSESSEE 156. In the grounds of appeal, the following grounds raised by the assessee :- 1. That the Commissioner of Income Tax (Appeals), Rohtak has grossly erred on facts and in the circumstances of the case and in law in holding the subsidy of ₹ 932,188,629/- being a capital receipt as trading receipt. 2. That the Commissioner of Income Tax (Appeals) , Rohtak has grossly erred on facts and in the circumstances of the case and in law in holding the capital subsidy amounting to ₹ 932,188,629/- as revenue receipt for the reason that benefit of the subsidy part became operative only at the time of commencement of the production, in defiance of the settled law that the point of time when the subsidy is paid is irrelevant. 3. That the Commissioner of Income Tax (Appeals), Rohtak has grossly erred on facts and in the circumstances of the case and in law in not adjudicating the inter-connected additional ground in respect of exemption of capital subsidy of ₹ 11,55,71,730/- on account of exemption from entry tax in respect of New Industrial Unit No.III. 4. That the Commissioner of Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld. CITCA) was right in deleting the disallowance of ₹ 12345347/- made by the AO on account of depreciation by applying the Straight Line Method, without appreciating the provisions of section 32(1)(i) and Appendix 1A of the Income-tax Rules, 1962. 3. Whether On the facts and in the circumstances of the case, the Ld. CIT(A) has was right in treating the capital expenditure of ₹ 99404674/- made on construction of Auditorium, Hospital, School etc. as admissible u/s 37 of the Income-tax Act, 1961 without appreciating the legal position that the capital expenditure is specifically excluded from the purview of section 37 and the MOU between the assessee and its employees cannot convert capital expenditure to revenue expenditure. GROUNDS NO.1 1(a) 161. Since we have already decided this issue in Revenue s case for AY 2003-04 in ground no.1, respectfully following the same, grounds no.1 1(a) taken by the Revenue are dismissed. GROUND NO.2 162. We have already decided this issue in Revenue s case for AY 2003-04 in ground no.3, respectfully following the same, ground no.2 taken by the Revenue are dismissed. GROUND NO.3 163. This is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in assessee s own case for AY 2003-04 in ground no.2 and respectfully following the same, ground no.4 taken by the assessee is allowed. GROUND NO.5 168. This issue has also been decided by us in assessee s own case for AY 2006-07 in ground no.6 and respectfully following the same, ground no.5 taken by the assessee is allowed. 169. In the result, the appeal filed by the assessee for AY 2008-09 is allowed. ITA NO.4067/DEL/2011 (AY 2008-09) FILED BY THE REVENUE 170. In the grounds of appeal, the Revenue has taken the following grounds of appeal :- 1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was right in allowing the claim of deduction made u/s 80IA of the Act, 1961 from to ₹ 4,28,94,98,566/- as against the deduction of ₹ 2,23,80,25,060/- given by the AO by following his earlier order, without appreciating the additional facts and arguments brought on record by the AO for the first time in the assessment order, which is a subject matter of appeal. 1(a) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was right in holding that electricity rates charged by Chhattisgarh State ..... X X X X Extracts X X X X X X X X Extracts X X X X
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