TMI Blog2022 (7) TMI 389X X X X Extracts X X X X X X X X Extracts X X X X ..... years, forming part of the additional case law paper book, we find that suo moto disallowance offered by the assessee, by taking into consideration 5% of salary of CFO, Deputy CFO and Head Treasury, 5% of salary of staff as well as 10% overheads thereon, has been accepted by the Revenue. However, only in the year under consideration, the AO, while giving effect to the directions of learned CIT(A), did not consider the suo moto disallowance offered by the assessee. As the assessee has also in-principle agreed to the disallowance by invocation of provisions of section 14A of the Act and is also agreeable to methodology adopted by the Assessing Officer for assessment year 2006 07 and methodology upheld by the DRP for assessment year 2007 08, with a view to avoid litigation. In its appeal for assessment year 2005 06, which was heard along with present appeal, assessee has accepted the disallowance made under section 14A of the Act, pursuant to learned CIT(A) s directions. In view of the fact that that there is no change in facts insofar as disallowance under section 14A is concerned, in preceding and subsequent assessment years and as the present appeal pertains to around 17 years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shi a/w Shri Vanish Bhansali For the Revenue : Smt. Somogyan Pal, CIT DR ORDER PER SANDEEP SINGH KARHAIL, J.M. The present cross appeals have been filed by the assessee and Revenue challenging the separate impugned orders dated 21/01/2011, and 31/01/2012, passed under section 250 of the Income Tax Act, 1961, ( the Act ) by the learned Commissioner of Income Tax (Appeals) 6, Mumbai, [‗learned CIT(A) ], for the assessment years 2004-05 and 2005 06, respectively. 2. Since both the cross appeals pertain to the same assessee and issues involved are, inter-alia, common, therefore these appeals were heard together as a matter of convenience and are being adjudicated by way of this consolidated order. Further, as the basic facts in both the cross appeals are same, we have elaborately mentioned only the facts for the first assessment year (i.e. 2004 05) before us for the sake of brevity. However, if any particular issue is arising in other year for the first time, facts pertaining to the same are discussed accordingly. ITA No. 2440/Mum./2011 Assessee s appeal AY 2004 05 3. In this appeal, the assessee has raised the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue arising in ground no. 2, raised in assessee s appeal, is pertaining to disallowance of subscription paid to Tata Sons Ltd under the Brand Equity and Business Promotion Agreement. 6. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is manufacturer and dealer of various types of organic, inorganic and heavy chemicals. The assessee is a major producer of soda ash, salt, cement and fertilisers. During the year, assessee continued to produce all these products. For the year under consideration, assessee filed its return of income on 01/11/2004 declaring total income of Rs.349,71,39,843, under the normal provisions of the Act. The assessee filed revised return of income on 20/04/2005 declaring total income of Rs. 371,48,26,981, under normal provisions of the Act. During the course of assessment proceedings, from the perusal of clause 17 (a) of tax audit report, it was observed that assessee has paid an amount of Rs.3,89,81,600 as subscription for brand equity, however, the same has not been treated as capital expenditure. Accordingly, following the approach adopted in earlier years, the Assessing Officer vide order dated 07/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following the precedents in assessee s own case, by observing as under: 10. We have heard the rival submissions and perused the relevant materials on record. Similar issue arose before the Tribunal in assessee's own case for AY 2002-03 in ITA No. 3383/Mum/2015, wherein it is noted that the same issue has been decided in favour of the assessee in its own case for AY 2000-01 (ITA No. 5446/M/2014, dated 21.06.2017) and AY 2001-02 (ITA No. 6366/M/2014, dated 15.09.2017) by the Tribunal. Also in the case of its subsidiary company i.e. Rallis (India) Ltd., the same issue has been decided in favour of the assessee by the Tribunal in ITA No. 5257/M/2008 vide order dated 30.08.2001. Therefore, the Tribunal in AY 2002-03 affirmed the order of the Ld. CIT(A) deleting the addition made by the AO. Facts being identical, we follow the above order of the Co-ordinate Bench in assessee's own case and delete the addition of Rs.3,73,88,538/- made by the AO. Thus the 2nd ground of appeal is allowed. 11. The learned DR could not show any reason to deviate from the aforesaid order and no change in facts and law was alleged in the relevant assessment year. The issue arising i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyed for investment in shares which is worked out as under. A. Total Fund Rs.4129.68 crore B. Total loan Rs.765.54 crore C. Ratio of B to A 18.54% D. Total investment Rs.559.07 crore E. Investment out of borrowed fund = 18.54% of D Rs.103.65 crore F. Ratio of E to B 13.54% G. Total interest expenses Rs.58.27 crore H. Interest related to exempt income = 13.54% of G Rs.7.88 crore Accordingly, an amount of Rs.7.88 crores is attributed as interest expense towards the investment in shares and securities and units of Mutual fund, income from which is exempt from tax and hence Rs.7.88.00.000/ is disallowed u/s. 14A of the I.T. Act. 14. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aff as well as 10% overheads thereon, has been accepted by the Revenue. However, only in the year under consideration, the Assessing Officer, while giving effect to the directions of learned CIT(A), did not consider the suo moto disallowance offered by the assessee. 18. It is further pertinent to note that the assessee has also in-principle agreed to the disallowance by invocation of provisions of section 14A of the Act and is also agreeable to methodology adopted by the Assessing Officer for assessment year 2006 07 and methodology upheld by the DRP for assessment year 2007 08, with a view to avoid litigation. In its appeal for assessment year 2005 06, which was heard along with present appeal, assessee has accepted the disallowance made under section 14A of the Act, pursuant to learned CIT(A) s directions. In view of the fact that that there is no change in facts insofar as disallowance under section 14A is concerned, in preceding and subsequent assessment years and as the present appeal pertains to around 17 years old assessment year, therefore, in the larger interest of justice, we deem it appropriate to direct the Assessing Officer to apply the similar methodology as adopt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and it is directly related to the sale of fertilizer to the farmers. For example, the cost of fertilizer production and its distribution to the manufacturer is ₹ 300 and if it is sold to the farmers at the maximum retail price of ₹ 200 and the balance price of Rs 100/- is recovered from the government by way of the above subsidy. Thus, the manufacturers are paid the above subsidy to enable them to sell the fertilizers at or below the indicated maximum retail price to the farmers. The issue is whether that Rs 100/- received from Government is part of profit derived from the business of eligible undertaking or not. 022. We find that now the issue squarely covered in favour of the assessee by the decision of the honourable Supreme Court in case of Meghalaya steel (supra) wherein it has been held as Under:- 9. We have heard learned counsel for the parties. Before embarking on a discussion of the relevant case law, we think it is necessary to set out Sections 80-IB and 80-IC insofar as they are relevant for the determination of the present case. 80-IB Deduction in respect of profits and gains from certain industrial undertakings other than infrastruct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee, used in India; (b) such machinery or plant is imported into India from any country outside India; and (c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee. (iv) Explanation 2- Where in the case of an industrial undertaking, any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed twenty per cent of the total value of the machinery or plant used in the business, then, for the purposes of clause (ii) of this sub-section, the condition specified therein shall be deemed to have been complied with; in a case where the industrial undertaking manufactures or produces articles or things, the undertaking employs ten or more workers in a manufacturing process carried on with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or an enterprise from any business referred to in sub-section (2), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains, as specified in sub-section (3). 10. There is no dispute between the parties that the businesses referred to in Section 80-IB are businesses which are eligible businesses under both the aforesaid Sections. The parties have only locked horns on the meaning of the expression any profits and gains derived from any business . 11. The aforesaid provisions were inserted by the Finance Act, 1999 with effect from 1.4.2000. The Finance Minister in his budget speech for the year 1999-2000 spoke about industrial development in the North Eastern Region as follows:- Mr. Speaker, Sir, I am conscious of the fact that, despite all our announcements, the industrial development in North Eastern Region has not come up to our expectations. To give industrialisation a fillip in this area of the country, I propose a 10 year tax holiday for all industries set up in Growth Centres, Industrial Infrastructure Development Corporations, and fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion (2) clearly states what were the circumstances in which Sub-section (2) came to be passed, what was the mischief for which Section 52 as it then stood did not provide and which was sought to be remedied by the enactment of Sub-section (2) and why the enactment of Sub-section (2) was found necessary. It is apparent from the speech of the Finance Minister that Sub-section (2) was enacted for the purpose of reaching those cases where there was under-statement of consideration in respect of the transfer or to put it differently, the actual consideration received for the transfer was 'considerably more' than that declared or shown by the assessee, but which were not covered by Sub-section (1) because the transferee was not directly or indirectly connected with the assessee. The object and purpose of Sub-section (2), as explicated from the speech of the Finance Minister, was not to strike at honest and bona fide transactions where the consideration for the transfer was correctly disclosed by the assessee but to bring within the net of taxation those transactions where the consideration in respect of the transfer was shown at a lesser figure than that actually received by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icity. (Para 8) 14. In CIT v. Sterling Foods [1999] 104 Taxman 204, this Court had to decide whether income derived by the assessee by sale of import entitlements on export being made, was profit and gain derived from the respondent's industrial undertaking under Section 80HH of the Indian Income Tax Act. This Court referred to the judgment in Cambay Electric Supply Industrial Co. Ltd.'s case (supra) and emphasized the difference between the wider expression attributable to as contrasted with derived from . In the course of the judgment, this Court stated that the industrial undertaking itself had to be the source of the profit. The business of the industrial undertaking had directly to yield that profit. Having said this, this Court finally held:- We do not think that the source of the import entitlements can be said to be the industrial undertaking of the assessee. The source of the import entitlements can, in the circumstances, only be said to be the Export Promotion Scheme of the Central Govt. where under the export entitlements become available. There must be for the application of the words derived from , a direct nexus between the profits and gain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the quantum of deduction to a specified percentage of profits. This is the importance of the words derived from industrial undertaking as against profits attributable to industrial undertaking . 35. DEPB is an incentive. It is given under Duty Exemption Remission Scheme. Essentially, it is an export incentive. No doubt, the object behind DEPB is to neutralize the incidence of customs duty payment on the import content of export product. This neutralization is provided for by credit to customs duty against export product. Under DEPB, an exporter may apply for credit as percentage of FOB value of exports made in freely convertible currency. Credit is available only against the export product and at rates specified by DGFT for import of raw materials, components etc.. DEPB credit under the Scheme has to be calculated by taking into account the deemed import content of the export product as per basic customs duty and special additional duty payable on such deemed imports. 36. Therefore, in our view, DEPB/Duty Drawback are incentives which flow from the Schemes framed by Central Government or from S. 75 of the Customs Act, 1962, hence, incentives profits are not profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of such subsidies. However, Shri Radhakrishnan stressed the fact that the immediate source of the subsidies was the fact that the Government gave them and that, therefore, the immediate source not being from the business of the assessee, the element of directness is missing. We are afraid we cannot agree. What is to be seen for the applicability of Sections 80-IB and 80-IC is whether the profits and gains are derived from the business. So long as profits and gains emanate directly from the business itself, the fact that the immediate source of the subsidies is the Government would make no difference, as it cannot be disputed that the said subsidies are only in order to reimburse, wholly or partially, costs actually incurred by the assessee in the manufacturing and selling of its products. The profits and gains spoken of by Sections 80-IB and 80-IC have reference to net profit. And net profit can only be calculated by deducting from the sale price of an article all elements of cost which go into manufacturing or selling it. Thus understood, it is clear that profits and gains are derived from the business of the assessee, namely profits arrived at after deducting manufacturing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ckward area and is entitled to the benefit of the scheme. Further is the fact that transport expenditure is an incidental expenditure of the assessee's business and it is that expenditure which the subsidy recoups and that the purpose of the recoupment is to make up possible profit deficit for operating in a backward area. Therefore, it is beyond all manner of doubt that the subsidies were inseparably connected with the profitable conduct of the business and in arriving at such a decision on the facts the Tribunal committed no error. 22. However, in CIT v. Andaman Timber Industries Ltd., [2000] 242 ITR 204/109 Taxman 135 (Cal.), the same High Court arrived at an opposite conclusion in considering whether a deduction was allowable under Section 80HH of the Act in respect of transport subsidy without noticing the aforesaid earlier judgment of a Division Bench of that very court. A Division Bench of the Calcutta High Court in Cement Mfg Co. Ltd.'s case (supra) by a judgment dated 15.1.2015, distinguished the judgment in Andaman Timber Industries Ltd.'s case (supra) and followed the impugned judgment of the Gauhati High Court in the present case. In a pithy d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s anything but operation subsidies. These subsidies were given to encourage setting up of industries in the State of Andhra Pradesh by making the business of production and sale of goods in the State more profitable.' 23. We are of the view that the judgment in Merinoply Chemicals Ltd.'s case (supra) and the recent judgment of the Calcutta High Court have correctly appreciated the legal position. 24. We do not find it necessary to refer in detail to any of the other judgments that have been placed before us. The judgment in Jai Bhagwan Oil and Flour Mills' case (supra) is helpful on the nature of a transport subsidy scheme, which is described as under: The object of the Transport Subsidy Scheme is not augmentation of revenue, by levy and collection of tax or duty. The object of the Scheme is to improve trade and commerce between the remote parts of the country with other parts, so as to bring about economic development of remote backward regions. This was sought to be achieved by the Scheme, by making it feasible and attractive to industrial entrepreneurs to start and run industries in remote parts, by giving them a level playing field so that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submission that assistance by way of subsidies which are reimbursed on the incurring of costs relatable to a business, are under the head income from other sources , which is a residuary head of income that can be availed only if income does not fall under any of the other four heads of income. Section 28(iii)(b)* specifically states that income from cash assistance, by whatever name called, received or receivable by any person against exports under any scheme of the Government of India, will be income chargeable to income tax under the head profits and gains of business or profession . If cash assistance received or receivable against exports schemes are included as being income under the head profits and gains of business or profession , it is obvious that subsidies which go to reimbursement of cost in the production of goods of a particular business would also have to be included under the head profits and gains of business or profession , and not under the head income from other sources . 29. For the reasons given by us, we are of the view that the Gauhati, Calcutta and Delhi High Courts have correctly construed Sections 80-IB and 80-IC. The Himachal Pradesh High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtised and provided towards lease deposits. While filing the return of income, the provision was disallowed and added back to the computation of income. However, during the course of assessment proceedings, the assessee claimed the said amount of Rs. 2,18,09,383 to be allowed. The Assessing Officer vide order passed under section 143(3) of the Act rejected the request of the assessee in view of decision of Hon ble Supreme Court in Goetze (India) Ltd. Vs CIT: 284 ITR 323. 26. In appeal, learned CIT(A) vide impugned order dismissed the appeal filed by the assessee on this issue, by observing as under: 15.3 I have considered the facts of the issue and the submissions made by the AR. It is noted that as per the lease agreement, the deposit was not required to be amortised by the appellant since as per the lease agreement, during the secondary period of lease, the lease rent had been fixed at 6000/- per month. The said sum of 6000/- p.m. towards the lease rental is already being charged to the profit and loss account and claimed as a deduction. Hence, the amortization of the deposit with the lessor cannot be held to be an allowable deduction. The claim made by the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deposits was adjusted towards the arrears of license fee and the same was not a forfeiture by way of penalty for the breach of any term of the license etc., was a finding of fact and no question of law arose. In Thackers H.P. Co. v. CIT (1982) 134 ITR 21 (MP), the assessee- firm, carrying on the business of purchase and sale of tendu leaves, entered into a contract with Orissa Forest Corporation Ltd. for the purchase of tendu leaves and in connection there with, deposited a certain sum as security with the Corporation. As the contract was not fulfilled, the Corporation forfeited the security. For the AY 1974-75, the assessee claimed the security money so forfeited, as a business loss, which was disallowed by the AO. On appeal, the first appellate authority allowed the assessee's claim. On further appeal, the Tribunal restored the order of the AO, holding that the impugned security deposit was in the nature of capital expenditure for commencing the venture and, therefore, could not be deducted as a business loss. On appeal by the assessee, the Hon'ble High Court held that : Tata Chemicals Ltd. 22 ITA Nos. 2965 3383/Mum/2015 It is well settled that the for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining the lease is for the acquisition of a capital asset which enables the lessee to carry on its business. It is a capital expenditure. It cannot be split up into the number of years of the duration of the lease in order to claim a proportionate fraction as revenue expenditure each year. The acquisition is of exclusive right or privilege over the lease, it a strong point that the consideration paid is on capital account. Receipts and payments in connection with acquiring or disposing of lease are usually on capital account. In view of the above, we uphold the order of the Ld. CIT(A) and dismiss the 7th ground of appeal. 29. Thus, respectfully following the order passed by the coordinate bench of Tribunal in assessee s own case cited supra, ground no. 7 raised in assessee s appeal is dismissed. 30. The assessee, vide application dated 31/05/2019, sought admission of following additional ground of appeal: That the amount of Rs.4,72,42,353, written off in the Appellant s accounts ought to be allowed as a deduction for bad and doubtful debts under section 36(1)(vii) of the Act. 31. During the course of hearing, the aforesaid additional ground was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form of the mechanism through which the subsidy is given is irrelevant. In the present case when once the object of subsidy is to industrialize state, it is capital receipt. All the judgments cited before us also lay down the same ratio. Even otherwise subsidy is included in the definition of Income u/s 2 (24) (xviii) with effect from 1/4/2016. Accordingly, we hold that Sales tax incentive money received of Rs 430,61,201/ being the amount retained by the company in accordance with Section 41 of the West Bengal sales tax act, 1944 read with the West Bengal incentive scheme, 1999 was a capital receipt not chargeable to tax under the income tax act. 35. The learned DR could not show any reason to deviate from the aforesaid order and no change in facts and law was alleged in the relevant assessment year. Thus, respectfully following the order passed by the coordinate bench of Tribunal in assessee s own case cited supra, we hold that sales tax incentive money of Rs. 51,81,985 being the amount received by the company in accordance with section 41 of the West Bengal Sales Tax Act, 1944 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n confirming the disallowance made under section 14A pertaining to dividend income for the purpose of book profit u/s 115JB. 4. The learned Commissioner of Income Tax (Appeals) erred in upholding the disallowance u/s 14A. 5. The learned Commissioner of Income Tax (Appeals) erred in upholding the disallowance of deduction of premium payable on maturity of FCCB Bonds at Rs. 45.02 lacs. 6. The learned Commissioner of Income Tax (Appeals) erred in upholding the disallowance of machinery hire charges (provision for lease deposit) amounting to Rs.2,17,15,334. 42. At the outset, learned counsel submitted that grounds no. 1, 2, and 5 are not pressed. Accordingly, the aforesaid grounds raised by the assessee are dismissed as not pressed. 43. The assessee, vide application dated 31/05/2019, sought admission of following additional ground of appeal: That the amount of Rs.4,72,42,353, written off in the Appellant s accounts ought to be allowed as a deduction for bad and doubtful debts under section 36(1)(vii) of the Act. 44. During the course of hearing, the aforesaid additional ground was not pressed by the learned counsel. Accordingly, the same is dismi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed. ITA No. 2553/Mum/2012 Revenue s appeal - AY 2005 06 51. The issue arising on ground no.1, raised in Revenue s appeal, is pertaining to deletion of disallowance made under section 40A(9) of the Act. 52. The brief facts of the case pertaining to this issue, as emanating from the record, are: During the year under consideration, the assessee made contributions to various societies or trusts, which fall within the purview of section 40A(9) of the Act. Details of these expenses are as under: Amount (Rs.) A CORPORATE OFFICE: 1 Tata Sports Club 3,30,000 2 Fort Medical Society 1,454,500 B MITHAPUR 3 Mithapur Nutan Balshikshan Sangh 1,900,000 4 Kindergarten Primary School 1,075,000 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the ITAT in favour of the assessee in assessee's own case for earlier assessment year. In the case of Tata Sports Club, similar issue has been decided by the Tribunal in favour of the assessee in AY 1995-96 (ITA No. 3082/M/02, dated 26.07.2006) and AY 1996-97 (ITA No. 6496/M/04, dated 17.08.2007). In case of Nutan Bal Sikshan Sangh and Kindergarten Primary School and Mithapur/Kamgar Club, Mithapur, in AY 1992-93 (ITA No. 4442/M/96, dated 04.02.2000), in case of Tata Chem Sports Cultural Club, Babrala in AY 1995-96 (ITA No. 3082/M/02, dated 26.07.2006), AY 1996-97 (ITA No. 6496/M/04, dated 17.08.2007), AY 1992-93 (ITA No. 4442/M/96, dated 04.02.2000), in case of Flag Day Collection in AY 1992-93 (ITA No. 4442/M/96, dated 04.02.2000), in case of Fort Medical Society in AY 1995-96 (ITA No. 3082/M/2002, dated 26.07.2006), in AY 1996-97 (ITA No.6496/M/04, dated 17.08.2007) and in case of Tata Chem Co-op. Credit Society in AY 1995-96 (ITA No. 3082/M/02, dated 26.07.2006), in AY 1996-97 (ITA No. 6496/M/04, dated 17.08.2007), A.Y. 1992-93 (ITA No. 4442/M/96, dated 04.02.2000), similar issues have been decided by the Tribunal in favour of the assessee. Tata Chemicals L ..... X X X X Extracts X X X X X X X X Extracts X X X X
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