TMI Blog2023 (1) TMI 970X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee has purchased new machinery, which was eligible for additional depreciation at 20% u/s 32(1)(iia) after 01/10/2010, the assessee only claimed 10% of the additional depreciation in the assessment year 2011-12. The balance 10% of additional depreciation was claimed in the year under consideration - HELD THAT:- As decided in own case [ 2017 (2) TMI 578 - ITAT MUMBAI ] intention of the legislation is absolutely clear, that the assessee shall be allowed certain additional benefit, which was restricted by the proviso to only half of the same being granted in one AY., if certain condition was not fulfilled. But, that, in our considered view, would not restrain the assessee from claiming the balance of the benefit in the subsequent AY. The Tribunal, in our view, has rightly held, that additional depreciation allowed u/s.32(1)(iia) of the Act is a one-time benefit to encourage industrialisation, and the provisions related to it have to be construed reasonably, liberally and purposively, to make the provision meaningful while granting the additional allowance. We are in full agreement with such observations made by the Tribunal. Thus we hold that the assessee was entitled to claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her issues but did not challenge the order passed by the learned CIT(A) granting relief to the assessee on the similar issue. Hon ble Supreme Court in Radhasoami Satsang [ 1991 (11) TMI 2 - SUPREME COURT ] held that while strictly speaking res judicata does not apply to Income-tax proceedings but where the fundamental aspect permeating through the different assessment years has been followed as the fact one way or the other and parties have allowed that position to be sustained by not challenging the order it would not at all be appropriate to allow the position to the change in the subsequent year. - Decided against revenue. Additional ground raised by the assessee - Deduction u/s 80 IA in respect of profit and gains from the generation of steam - AO objected to the claim on the basis that the said claim was neither made in the original return of income nor in the revised return of income and the same cannot be entertained now - HELD THAT:- As it is evident that the AO has not drawn any adverse inference as to the claim of deduction u/s 80IA of the Act on the generation of steam and the method of computation adopted by the assessee. Thus, once the deduction u/s 80IA of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For the Assessee : Shri S.S. Nagar a/w Shri Vipul Jain For the Revenue : Shri R.S. Srivastav ORDER PER SANDEEP SINGH KARHAIL, J.M. The present appeal has been filed by the Revenue challenging the impugned order dated 31/08/2020, passed under section 250 of the Income Tax Act, 1961 ( the Act ) by the learned Commissioner of Income Tax (Appeals) 12, Mumbai, [ learned CIT(A) ], for the assessment year 2012 13. 2. In its appeal, the Revenue has raised the following grounds: 1. On the facts and circumstances of the case and in law, whether the Ld CIT(A) is justified in restricting the disallowance u/s 14A of the Income Tax Act r.w.r. 8D(2)(iii), to the extent of exempt Income received by the assesseeduring the year under consideration without appreciating the Circular No.5 of 2014 dated 11.02.2014 of CBDT. 2. On the facts and circumstances of the case and in law, whether the LdCIT(A) is justified in holding that the assessee is entitled to claim 10% additional depreciation in the year under consideration ignoring the second proviso to section 32(1) of the Act, which clearly suggests the intention of legislature to give such additional depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me (FPS) as capital receipts, claims of which have been made in appellate stage by way of filing a letter, ignoring the fact that the assessee has never made the claim in the return of income filed u/s 139 for the year under consideration. 10. On the facts and circumstances of the case and in law, whether the LdCIT(A) is justified in treating the SHIS. FMS and FPS as capital receipts ignoring the findings of the Assessing Officer in the remand report. wherein the AO has strongly objected the admission of fresh claims. 11. On the facts and circumstances of the case and in law, whether theLd CIT(A) is justified in treating the SHIS, FMS and FPS as capital receiptsignoring the ratio laid down in the decision of the Hon'ble Supreme Court in the case of M/s Goetze India Ltd. 12. On the facts and circumstances of the case and in law, whether the LdCIT(A) is justified in ignoring the amendment in Finance Act. 2015 w.e.f. 01.04.2016 which ultimately culminated into the taxing belt with the due insertion of sub-clause (xviii) in Section 2(24) of the IT Act, 1961 providing an inclusive definition of the expression 'income' under the tax law, which includes assistan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee is a company and is engaged in the business of manufacture of chemicals and bulk drugs. For the year under consideration, the assessee filed its return of income on 29/11/2012 declaring a total income of Rs.18,50,97,133/-. The return of income filed by the assessee was selected for scrutiny and statutory notices u/ss 143(2) and 142(1) of the Act were issued. The Assessing Officer (the AO ) vide order dated 05/03/2015 passed u/s 143(3) assessed the total income of the assessee at Rs.22,00,50,904/- after making various disallowance/addition. In further appeal, the learned CIT(A) vide impugned order partially allowed the appeal filed by the assessee. Being aggrieved, the Revenue is an appeal before us. 4. The issue arising in ground no.1, raised in Revenue s appeal, is pertaining to disallowance u/s 14A of the Act. 5. The brief facts of the case pertaining to this issue are: During the assessment proceedings, it was observed that the assessee has made investments on which it has earned exempt income. Accordingly, the assessee was asked to show cause as to why disallowance u/s14A r.w.r.8D should not be made. After considering the submission of the assessee, the AO computed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 2011-12, following the principle laid down by the Hon ble Jurisdictional High Court in aforesaid decision directed the deletion of addition made u/s 14A r.w.r. 8D(2)(ii). We find that the Hon ble Jurisdictional High Court in Nirved Traders (P.) Ltd. Vs. Dy. CIT, I.T. Appeal No.149 of 2017, vide judgement dated 23.04.2019, has held that disallowance under section 14A of the Act cannot be more than exempt income. Thus, we find no infirmity in the impugned order passed by the learned CIT(A) on this issue. As a result, ground no.1, raised in Revenue s appeal is dismissed. 9. The issue arising in ground no.2, raised in Revenue s appeal, is pertaining to the allowance of additional depreciation. 10. The brief facts of the case pertaining to this issue are: During the assessment proceedings, the assessee was asked to explain the additional depreciation claimed by the assessee during the year in respect of assets purchased after 01/10/2010, which was not claimed in the assessment year 2011-12. In response thereto, the assessee submitted that it had purchased machinery during the assessment year 2011-12. Since, the assessee has purchased new machinery, which was eligible for addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the second proviso to section 32(1)(ii) of the Act, for the AY. 2007-08, the assessee was granted benefit of 50% of the 20% of the amount of depreciation allowable. Dispute 6783-83/M/14910-11(11-12- Aarti Drug Limited 5 arose with regard to the allowance of the balance 10 % depreciation in the next AY. i.e. for the AY.2008-09.The AO, as well as the FAA disallowed the claim of the assessee, whereas the Tribunal, allowed the appeal of the assessee. Challenging the same, the Revenue filed appeal before the Hon ble Court raising the following two substantial questions of law: (i) Whether the Tribunal is correct in extending the benefit of section 32(1)(iia) of the Act to the next AY. When the Income tax Act does not provide for such carryover, thereby violating the legal principles of 'casus omissus' which states that the courts cannot compensate for what the Legislature has omitted to enact? (ii) Whether the Tribunal was correct in holding that additional depreciation allowed u/s.32(1)(iia) is a one-time benefit to encourage industrialisation and the relevant provisions has been construed reasonably and purposive without appreciating that the additional depreciati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of insertion of clause (iia) would be defeated because it provides for per cent deduction which shall be allowed. 10. It has been consistently held by this court, as well as the apex court, that the beneficial legislation, as in the present case, should be given liberal interpretation so as to benefit the 6783-83/M/14910-11(11-12- Aarti Drug Limited 6 assessee. In this case, the intention of the legislation is absolutely clear, that the assessee shall be allowed certain additional benefit, which was restricted by the proviso to only half of the same being granted in one AY., if certain condition was not fulfilled. But, that, in our considered view, would not restrain the assessee from claiming the balance of the benefit in the subsequent AY. The Tribunal, in our view, has rightly held, that additional depreciation allowed u/s.32(1)(iia) of the Act is a one-time benefit to encourage industrialisation, and the provisions related to it have to be construed reasonably, liberally and purposively, to make the provision meaningful while granting the additional allowance. We are in full agreement with such observations made by the Tribunal. 3.4.1. Respectfully, following the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order passed u/s 143(3) of the Act did not agree with the submission of the assessee and held that these expenditures are one-time expenditures towards approval under US FDA regulations and the same is not related to the renewal of the existing certificate of approval. The AO further held that the benefit from the expenditure spread over several years and has enduring benefit to the assessee and therefore, is in the nature of capital expenditure. Accordingly, the AO disallowed Rs.6,49,509/- claimed by the assessee as Revenue expenditure. 18. The learned CIT(A) vide impugned order allowed the appeal filed by the assessee on this issue by following the decision of the Co-ordinate Bench of the Tribunal in assessee s own case of the preceding assessment year. Being aggrieved, the Revenue is in appeal before us. 19. During the hearing, the learned DR by vehemently relying upon the order passed by the AO submitted that the certificate obtained by the assessee has enduring benefit and therefore expenditure incurred by the assessee is capital in nature. On the contrary, the learned AR placed reliance upon the judicial precedent in assessee s own case and submitted that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its return. In this regard, the assessee submitted that the period of payment comes within the accounting period and therefore the claim was made in the year under consideration. The AO vide order passed u/s 143(3) of the Act did not agree with the submission of the assessee and held that the assessee is maintaining its account on the mercantile basis and therefore, liability if incurred in the earlier year cannot be claimed as deduction during the year under consideration. Accordingly, the AO disallowed the prior period expenses of Rs.78,572/- claimed by the assessee towards foreign bank charges. 24. The learned CIT(A) allowed the appeal filed by the assessee on this issue by following its predecessor's order in assessee s own case in the preceding assessment years. The relevant findings of the learned CIT(A) are as under: 7.3 I have carefully considered the relevant and material facts on record, in respect of this ground of appeal, as brought out in the assessment order and submissions made during appeal proceedings. The appellant has made a submission on facts that it had debited bank charges in profit and loss account, as and when the debit advice from bank has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder passed by the AO submitted that the bank had levied charges during the preceding financial year and therefore, the liability accrued in the preceding assessment year, which cannot be allowed in the year under consideration, being a prior period expenditure. 26. On the contrary, the learned AR submitted that bank advices were received by the assessee after the finalisation of the account for year-end, and therefore as and when the bank advices were received the same were appropriately debited to bank charges. The learned AR further submitted that in the assessment years 2009-10 and 2011-12, the learned CIT(A) allowed a similar claim of prior period expenses, and the Revenue did not file an appeal on this issue before the Tribunal. 27. We have considered the rival submissions and perused the material available on record. In the present case, bank charges levied by the bank in the preceding financial year were debited by the assessee in the year under consideration and the same was not added back in the computation of income filed with the return of income. As per the revenue, since the assessee maintains its account on the mercantile basis, therefore any liability which wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh relating to the earlier year, depends upon making a demand and its acceptance by the assessee and such liability has been actually claimed and paid in the later previous years, it cannot be disallowed as deduction merely on the basis that the accounts are maintained on mercantile basis and that it related to a transaction of the previous year. The true profits and gains of a previous year are required to be computed for the purpose of determining tax liability. The basis of taxing income is accrual of income as well as actual receipt. If for want of necessary material crystallising the expenditure is not in existence in respect of which such income or expenses relates, the mercantile system does not call for an adjustment in the books of account on estimate basis. It is actually known income or expenses, right to receive or liability to pay which has come to be crystallised, is to be taken into account under mercantile system of maintaining books of account. An estimated income or liability, which is yet to be crystallised, can only be adjusted as contingency item but not as an accrued income or liability of that year. .. 30. In the present case, the claim made by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 80IA of the Act is available in respect of profit or gains derived by an undertaking from the business of generation of power. The assessee also furnished audit report in Form no.10CCB in respect of profit and gains derived by its undertaking engaged in the generation of steam. For the purpose of computation of deduction u/s 80IA(4) of the Act, the assessee considered the price at which it has purchased steam for its other units from the third party at Rs.1.67 per kg. 33. The additional ground raised by the assessee was remanded to AO for the report by the learned CIT(A). In the remand proceedings before the AO, the assessee explained the usage of steam by its other manufacturing units. It was submitted that the steam was being used for heating the chemical reaction mass, heating the mixture of solvent and recovery of solvent, drying of wet powder of intermediate products, drying of final wet powder product, and pre-heating of furnace oil before firing in the thermo pack. In its remand report, the AO agreed with the assesses s contention that the generation of steam amounts to the generation of power for the purpose of claiming deduction u/s 80IA of the Act. Further, the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can entertain a fresh claim made by the assessee, even if such a claim was not made in return of income or by way of revised return of income. Thus, we find no infirmity in the impugned order admitting the additional ground filed by the assessee. 37. It is further evident from the record that the learned CIT(A) sought a remand report from the AO in respect of additional ground raised by the assessee. From the perusal of AO s remand report dated 14/09/2017, forming part of the paper book from pages no. 40-43, we find that the AO accepted the contention of the assessee that the generation of steam amounts to the generation of power for the purpose of claiming deduction u/s 80IA of the Act, and thus the claim of the assessee is reasonable. Further, the AO also noted that the assessee has duly submitted the account of the undertaking and audit report in Form no.10CCB in support of its claim of deduction u/s 80IA of the Act. We further observed that the AO, however, objected to the claim on the basis that the said claim was neither made in the original return of income nor in the revised return of income and the same cannot be entertained now. Therefore, from the above, it is eviden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO, however, objected to the admission of additional ground filed by the assessee claiming non-taxability of receipt under the aforesaid subsidies. The assessee filed detailed submissions in response to the remand report filed by the AO. 41. The learned CIT(A) vide its impugned order admitted the additional ground of appeal filed by the assessee in view of decisions of the Hon ble Jurisdictional High Court. On merits, the learned CIT(A), in view of the decision of the Hon ble Supreme Court in Ponni Sugars and Chemicals Ltd (supra) after analysing the objectives of the subsidies granted under FPS, FMS, and SHIS came to the conclusion that the subsidies under the aforesaid screams are in nature of capital receipt, not includable in the total income of the assessee. In support of its conclusion, the learned CIT(A) placed reliance upon various other judicial pronouncements in respect of subsidies received under the similar scheme. Being aggrieved, the Revenue is in appeal before us. 42. During the hearing, the learned DR vehemently relied upon the remand report filed by the AO. On the other hand, the learned AR by placing reliance upon the impugned order on this issue submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Further, the objective of subsidy under Status Holder Incentive Scrip (SHIS) is laid down in the policy as under: With an objective to promote investment in upgradation of technology of some specified sectors as listed in Para 3.16.4 below, Status Holders shall be entitled to incentive scrip @ 1% the FOB Value of exports made during 2009-10 and during 2010-11 of these specified sectors in the form of duty credit. This shall be over and above the duty credit scrip claimed/availed under this chapter. 45. In this regard, it is also relevant to note that the AO in its remand report dated 11/04/2019, forming part of the paper book from pages No. 117-120 after examining the submissions of the assessee and schemes and various facts placed on record noted that the salient objectives of the FPS/FMS/SHIS subsidy received under the Foreign Trade Policy is to increase percentage share of global trade by increasing the competitiveness in selected markets, technological upgradation and expanding employment opportunity. In para 7.2 of its remand report, the AO further stated that the purpose of introduction of the schemes was to encourage industries, which require industrial growth, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther find that the Hon ble Supreme Court dismissed the Revenue s Special Leave Petition in PCIT Vs. Nitin Spinners Ltd., [2021] 283 Taxman 2(SC), against the aforesaid decision of the Hon ble Rajasthan High Court. Thus, when the objective of the aforesaid subsidies has been admitted to be to encourage industries by providing industrial growth, technological upgradation, and development, we find no infirmity in the impugned order passed by the learned CIT(A) on this issue in treating the amount received by the assessee under the aforesaid schemes as capital receipt. As a result, grounds no. 9-13 raised in Revenue s appeal are dismissed. 49. The issue arising in grounds no. 14-18, raised in Revenue s appeal, is pertaining to the claim of education cess as an allowable expenditure. 50. We find that Finance Act, 2022 with retrospective effect from 01/04/2005 inserted Explanation 3 to section 40(a)(ii), whereby it has been provided that the term tax shall include and shall be deemed to have always included any surcharge of cess, by whatever name called, on such tax. We further find that the Hon ble Supreme Court in JCIT Vs. Chambal Fertilisers Chemicals Ltd., [2022] 145 taxm ..... 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