TMI Blog2023 (4) TMI 380X X X X Extracts X X X X X X X X Extracts X X X X ..... wance has been made in the scrutiny proceedings carried out As alleged disallowance is based on merely conjectures, surmises and suspicion and the same deserves to be deleted. Thus, the addition for ad-hoc disallowance made is deleted. Decided in favour of assessee. Ad-hoc disallowance at the rate of 10% on foreign travel expenses - HELD THAT:- Taking a consistent view and observing that the alleged disallowance for foreign travel expenses is merely ad-hoc in nature, we delete the said disallowance. Disallowance of brokerage - HELD THAT:- The brokerage bill was received, accounted for and settled during the year under appeal. Tax at source has been deducted thereof. The genuineness of the brokerage expenses has not been doubted by the Revenue authorities. This being a genuine claim of business expenditure towards brokerage, the same deserves to be allowed. We, thus, set aside the finding of ld. CIT(A) and delete the said disallowance - Decided in favour of assessee. Nature of receipt - sales tax incentives - whether the sales tax incentive is a capital receipt and is to be excluded for the purpose of computing book profit u/s 115JB? -HELD THAT:- The sales tax inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnment petition filed by assessee as well as date till adjournment sought for i.e. 13.01.2022 and passed the order u/s 250 on 10.01.2021. Thus, passing the ex-parte order ignoring the adjournment petition is complete denial of Natural Justice. 2. That the Ld. CIT(A) erred in confirming adhoc disallowance of Rs. 2,15,597/- being 10% of the credit card expenses of the directors 8i managerial persons alleging that the personal expenses incurred in name of sales promotion by family members and the spouses of the Directors. The said expenses were incurred for furtherance of the business by the Directors only and are allowable expenses. Hence, the adhoc disallowance confirmed by Ld. CIT(A) merely based upon assumption and presumption and totally relied upon Ld. AO findings is completely wrong and needs to be deleted. 3. That the Ld. CIT(A) erred in confirming adhoc disallowance of Rs.3,73,483/- being 10% of Foreign Travel Expenses alleging that the same was incurred by the spouses of the Directors. The said expenses were incurred only by the directors for business promotion company and are allowable expenses. Hence, the adhoc disallowance confirmed by Ld. CIT(A) merely based u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. That the Ld. CIT(A) erred in confirming adhoc disallowance of Rs. 2,98,975/- being 10% of the credit card expenses of the directors managerial persons alleging that the personal expenses incurred in name of sales promotion by family members and the spouses of the Directors. The said expenses were incurred for Hence, the adhoc disallowance confirmed by Ld. CTT(A) merely based upon assumption and presumption and totally relied upon Ld. AO findings is completely wrong and needs to be deleted. 3. That the Ld. CIT(A) erred in confirming adhoc disallowance of Rs. 4,97,356/- being 10% of Foreign Travel Expenses alleging that the same was incurred by the spouses of the Directors. The said expenses were incurred only by the directors for business promotion company and are allowable expenses. Hence, the adhoc disallowance confirmed by Ld. CIT(A) merely based upon assumption and presumption and totally relied upon Ld. AO findings is completely wrong and needs to be deleted. 4. Additional Grounds: 4.1 That on the facts and in the circumstances of the case, Sales Tax incentive amounting to Rs. 1,24,406,609/-availed during the year under consideration be treated as capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only and are allowable expenses. Hence, the adhoc disallowance confirmed by Ld. CTT(A) merely based upon assumption and presumption and totally relied upon Ld. AO findings is completely wrong and needs to be deleted. 3. That the Ld. CIT(A) erred in confirming adhoc disallowance of Rs. 1,41,520/- being 10% of Foreign Travel Expenses alleging that the same was incurred by the spouses of the Directors. The said expenses were incurred only by the directors for business promotion company and are allowable expenses. Hence, the adhoc disallowance confirmed by Ld. CIT(A) merely based upon assumption and presumption and totally relied upon Ld. AO findings is completely wrong and needs to be deleted. 4. That the Ld. CIT(A) erred in confirming disallowance of a sum of Rs. 8,78,771/- on account of brokerage paid to M/s Dheer Marketing merely replied upon Ld. AO findings. Hence, the adhoc disallowance confirmed by Ld. CIT(A) merely based upon misinterpretation of facts given by the Ld. AO and disallowance so made needs to be deleted. 5. Additional Ground: 5.1 That on the facts and in the circumstances of the case, Sales Tax incentive amounting to Rs. 1,37,62,482/- availed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act on 07.11.2013. Assessment proceedings were carried out by issuance of notice u/s 153A of the Act followed by serving of notices u/s 143(2) 142(1) of the Act. Ld. AO on examining the expenses made through credit card made an ad-hoc disallowance of Rs. 2,15,597/- applying the rate of 10%. Similar type of disallowances were made for AY 2013-14 AY 2014-15 also. The assessee failed to get any relief before ld. CIT(A). Before us ld. Counsel for the assessee has contended that the alleged additions made by ld. AO are merely on suspicion and no defect has been pointed out in the details of the expenditure given by the assessee. On the strength of the judgment of Hon'ble Supreme Court of India in the case of Dhirajlal Girdharilal vs. CIT reported in [1954] 26 ITR 736 (SC) as well as the decision of this Tribunal in the case of ITO vs Shyamal Dey in ITA 410/KOL/2012 order dated 20.01.2016 thus prayed that such ad-hoc disallowances deserve to be deleted. 6. On the other hand, ld. D/R vehemently argued supporting the orders of both the lower authorities. 7. We have heard rival contentions and perused the records placed before us. The ad-hoc disallowance at the rate of 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised by the assessee is allowed. 10. The next issue for our consideration is disallowance of brokerage at Rs. 8,78,771/- made in the assessment order for AY 2014-15 and the assessee has challenged the same by raising ground no. 4 for AY 2014-15. Ld. AO made said disallowance observing that the brokerage expenses pertain to earlier years and was not paid for a long time and this being the expenses for earlier years has been booked for this year, therefore, cannot be allowed. The assessee did not get any relief before ld. CIT(A). Before us, ld. Counsel for the assessee has stated that the assessee company followed mercantile system of accounting. The brokerage was received and settled during the year and tax at source has been deducted thereon. 11. On the other hand, ld. D/R supported the orders of both the lower authorities. 12. We have heard rival contentions and perused the records placed before us. We notice that the brokerage expenses of Rs. 8,78,771/- has been claimed which has been paid to M/s. Dheer Marketing. The brokerage bill was received, accounted for and settled during the year under appeal. Tax at source has been deducted thereof. The genuineness of the brok ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oted that Apex Court relied on the following findings in the decision of Kanpur Coal Syndicate (supra): The Appellate Assistant Commissioner has, therefore, plenary powers in disposing of an appeal. The scope of his power is co-terminus with that of the Income Tax Officer. He can do what the Income Tax Officer can do and also direct him to do what he has failed to do. The Apex Court in Jute Corporation (Supra), based on the above, further held, in the context of section 251(1)(a) of the 1961 Act, that there is no reason as to why the appellate commissioner cannot modify the assessment order or admit an additional ground even if not raised before the Income Tax Officer. According to the Apex Court, no exception could be taken to this view as the Act does not place any restriction or limitation on the exercise of appellate power. 2.3 The above decision of the Apex Court in Jute Corporation (Supra) has been followed in the subsequent decision of National Thermal Power Co. Ltd. -vs.-CIT (1998) 229 ITR 383 (SC), [Refer Page 7-9 of 'CLPB'] to hold that, where a Tribunal is only required to consider a question of law arising from the facts, which are on records, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . [Emphasis Added] Similar view has also been expressed in the case of JCIT -vs.- Hero Honda Finlease Ltd. (2008) 115 TTJ 752 (Del). 2.7 On the basis of the aforesaid decisions, it can be said that the powers exercised by CIT(Appeals) are vast than Assessing Officer. The CIT(Appeals) can do what the Assessing Officer can do and direct him to do what the Assessing Officer had failed to do in order to impart justice to the assessee as per the provisions of the Act. 2.8 In this connection it is further submitted that under Article 265 of the Constitution, the State is entitled to recover or realize only that tax which is imposed in accordance with law. It is the duty of the State to see that justice is done to its citizen. Therefore, shelter should not ordinarily be taken behind the procedural technicalities with a view to defeat a just claim of an assessee. Reliance is placed on the decision in the case of Taylor Instrument Co. (India) Ltd. -vs.- CIT (1992) 198 ITR 1 (Del). 2.9 In this regard, the Central Board of Revenue (now CBDT) vide Circular No. 14 (XL - 35) of 1955 dated 11-04-1955, states that, officers of the department must not take advantage of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal's following co-ordinate benches have already adjudicated the very issue in assessee's favour:- i) Dorf Ketal Chemicals (I) Pvt. Ltd. vs. DOT ITA No.3736.Mum/2012 ii) M/s Narendra Vegetable Products Pvt. Ltd. Vs. ACITITA No. 118/Nag/2013 iii) Faisal Abbas vs. DCIT ITA Nos. 3485/Hyd/2015 946/Hyd/2015 iv) A Snnivasa Rama Raju vs. DCIT ITA No. 975/Hyd/2015 v) ACIT vs. N.N. Devadoss ITA No. 1219/Mad/2012 AH these co-ordinate benches are of the view that nothing comes in the way of the concerned assessee in seeking original claim of deduction in proceedings involving search assessment u/s. 153A as well. We thus express our concurrence with the CIT(A)'s impugned action entertaining the assessee's foregoing additional ground seeking to treat its sales tax incentive subsidy as capital and not revenue receipt which had been erroneously recorded under the latter head in the computation of income. We make it dear that purpose of an assessment framed under the provision of the Act is to determine the correct taxable income than that based on estopple only since the Income Tax Act does not involve adversarial proceedings as per (1972) 83 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of Value Added Tax under the West Bengal Value Added Tax Act, 2003 and Central Sales Tax Act, 1956. 14.3. Section 3 of the Scheme 1994 describes entitlement to the industrial promotion assistance and provides that where a registered dealer manufactures specified goods in his SSI unit and sells such goods in the State-intra-State or in the course of inter-State trade or commerce within the meaning of section 3 of the Central Sales Tax Act, 1956 (Act No. 74 of 1956), from any place in the State, such dealer shall be entitled to a payment of a sum equal to ninety per centum of the amount of sales tax paid by him, for any quarter under the Sales Tax Act in respect of sales of such goods, as industrial promotion assistance. The above Scheme is the earlier version of the present scheme floated by the Government of West Bengal in 2010 under which the appellant received the incentive, i.e., Scheme 2010. The above fact is clearly evident from the Circular No.2 dated 29-04-2010 issued by the Directorate of Commercial Tax, West Bengal. 14.4. The appellant has its manufacturing unit of Dyeing Bleaching at Domjur, Jalan Industrial Complex, Gate-3, Howrah. The manufacturing activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in the backward region of the State of West Bengal, it would constitute capital receipt in the hands of the appellant, as it has been granted for carrying out capital investments in backward areas of the State and hence not taxable under normal provision of the Act. 2.3 In this regard, it will be imperative to refer to the object of the grant of subsidy by the State of West Bengal as reflected from the original resolution as well as the subsequent resolution which was amended with retrospective effect from 27-5-1994 those are quoted below: No. 1460-F-TCalcutta, the 27-5-1994 Resolution Whereas certain industries in the State have been passing through an acute financial crisis and it had been considered necessary to extend financial assistance to tide over such crisis for promotion of such industries, it has been decided in the public interest to formulate a scheme to allow financial assistance to the manufacturing units in West Bengal of such industries for industrial promotion: Now therefore, the Governor is pleased hereby to sanction the implementation of the aforesaid scheme for allowing financial assistance for promotion of industrial units in West B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions: i) CIT vs. Rasoi Ltd. [2011] 11 taxmann.com 220 (Calcutta) ii) ACIT vs. Shantinath Detergents Pvt. Ltd. [in IT(SS)A No. 27 to 32/Kol/2019 dated 20-03-2020] iii) ACIT vs. Budge Budge Refineries Ltd. 2016 (10) TMI 1307 ITAT Kolkata iv) DCIT vs. Birla Corporation Ltd. 2021 (1) TMI 154 ITAT Kolkata v) CIT vs. Ponni Sugars Chemicals Ltd. (2008) 306 INCOME TAX RETURN 392 (SC) vi) DCIT vs. Reliance Industries Ltd. (2004) 88 ITD 273 (Mum)(SB) 17. On the other hand, ld. D/R stated that the assessee has not raised this issue in the proceedings below and has itself claimed it as a Revenue income in the profit and loss account. However, ld. D/R failed to rebut the ratios laid down by the Hon'ble Courts before this Tribunal by placing any other binding precedence. 18. We have heard rival contentions and perused the records placed before us. We notice that the assessee company has shown the accrued income from the sales tax incentive for the following amount: AY 2012-13 AY 2013-14 AY 2014-15 1,35,74,366/- 1,24,46,609/- 1,37,62,482 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecause the amount of subsidy was equivalent to 90 per cent of the sales tax paid by the beneficiary does not imply that the same was in the form of refund of sale tax paid. As pointed out by the Supreme Court in the case of Senairam Doongarmall v. CIT AIR 1961 SC 1579, it is the quality of the payment that is decisive of the character of the payment and not the method of the payment or its measure, and makes it fall within capital or revenue. Thus, in the case before us, the amount paid as subsidy was really capital in nature. 17. In the case of CIT v. Abhishek Industries Ltd. [2006] 156 Taxman 257 relied upon by Mr. Nizamuddin, a Division Bench of the Punjab and Haryana High Court was dealing with a case of subsidy granted in the form of sale tax exemption and thus, the Division Bench held that in the absence of any document or policy of the State Government to show the kind of subsidy it had granted it should be treated as a revenue receipt. In the case before us, having regard to the objects and reasons behind the grant of the subsidy we find that it is a case of capital receipt 20.1. Similar issue was also decided in the case of DCIT -vs.- Strassenburg Pharmaceuticals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edents, the Hon'ble ITAT held that the subsidy is to be treated as capital receipt not chargeable to tax in the hands of the assessee. It observed that sole purpose behind the grant of assistance is to tide over the financial crisis and promotion of industries and that both these activities are related to capital field and cannot be linked up with day-to-day operations of the appellant in any manner. 20.4. In the case of DCIT -vs.- Emami Biotech Limited 2019 (3) TMI 1833 - ITAT Kolkata, the sales tax incentives was held to be treated as a capital receipt. Relevant extract of the order of the jurisdictional ITAT is reproduced below: 34. Having regard to all the relevant facts of the case and keeping in view the legal position emanating from the various judicial pronouncements discussed above, we are of the view that the subsidy in question received by the assessee in the form of refund of sales tax under the West Bengal Incentive Scheme, 2004 was capital in nature as the purpose of the same was for the expansion of the existing industry of the assessee. 20.5. In the case of DCIT -vs.- Birla Corporation Ltd. 2021 (1) TMI 154 ITAT Kolkata, the jurisdictional Kolkata ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... racter of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. The main eligibility condition in the scheme with which we are concerned in this case is that the incentive must be utilized for repayment of loans taken by the assessee to set up new units or for substantial expansion of existing units. On this aspect there is no dispute. If the object of the subsidy scheme was to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand the existing unit then the receipt was on capital account. Therefore, it is the object for 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. 20.9. The Hon'ble Apex Court in the case of CIT -vs.- Chaph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ower consumed by the assessee. It is well established from submission of the assessee as enunciated above that once the purpose of a subsidy is established; the mode of computation is not relevant as held in the decisions of the Hon'ble Supreme Court in the case of Sahney Steel and Press Works Ltd. Vs. Commissioner of Income tax [1997] 228IRT 253(SC); CIT Vs. Ponni sugars and Chemicals Ltd. [2008] 306ITR 392 (SC) and the decision of our High Court in case of CIT Vs. Rasoi Ltd. 335 ITR 438 (Cal.) against which SLP has been dismissed. The mode of computation/form of subsidy is irrelevant. The mode of giving incentive is reimbursement of energy charges. The nature of subsidy depends on the purpose for which it is given. Hence the assessee draws support from the decisions already discussed earlier as the same principle will apply here. Thus, the entire reason behind receiving the subsidy is setting up of plant in the backward region of West Bengal, namely, Bankura. Accordingly, we hold the aforesaid incentive subsidies are 'capital receipts' and is not an 'income' liable to be taxed in relevant assessment year 2010-11 on the basis of discussion made above and f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -integra and is squarely covered in favour of the assessee by plethora of judgments including that of the Hon'ble Jurisdictional High Court in the case of Ankit Metals Power Ltd. (supra) and M/s. Krishi Rasayan Exports Pvt. Ltd. (supra). 24.1. Recently in the-recent Jurisdictional Hon'ble Calcutta High Court in the case of PCIT -vs.- M/s. Krishi Rasayan Exports Pvt. Ltd. (in ITA No. 18/2021 dated 14-09-2022) while dealing the question of inclusion of interest subsidy and excise refund for computation of book profits has held that where a receipt is not in the nature of income at all, it cannot be included in the book profit for the purpose of computation under section 115JB of the Act. It has been ruled that the 'interest subsidy' being a capital receipt does not fall within the meaning of income as defined in Section 2(24) of the Act and thus the same cannot be included in the computation of book profit. 24.2. Reference is also drawn to the principle laid down by the Hon'ble Calcutta High Court in the case of PCIT vs Ankit Metals Power Ltd. (2019) 109 taxmann.com 93 (Cal.) wherein the assessee received subsidy under the WBIS 2000 scheme. The question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9; for the first time by Finance Act, 2015 w.e.f. April, 2016 i.e. assessment year 2016-17. The amendment has prospective effect and had no effect on the law on the subject discussed above applicable to the subject assessment years. 24.3. In the case of Sunrise Biscuit Co. Pvt. Ltd. -vs.- Income Tax Officer, Ward-1 (5), Guwahati I.T.A. No. 92/Gau/2019 the Hon'ble Guwahati Tribunal was dealing with the issue of whether subsidy received by the Assessee was capital in nature and therefore not eligible to income-tax, both under normal computational provisions as well as book profit u/s 115JB of the Act. This Tribunal relied upon of the judgement of the Hon'ble Supreme Court in the cases of Sahney Steel Press Works (supra) Ponni Sugar Chemicals Ltd. (supra) and had held that the object or purpose for which the subsidy was given was relevant. It was held that the source of subsidy is immaterial, form of subsidy is equally immaterial and the time at which the subsidy is paid is also immaterial. It was held that the purpose of the scheme which enabled the grant of subsidy to the assessee was the only material factor in determining the taxability of such receipts. Further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uting book profit u/s 115JB of the Act. In the decided case the assessee had received interest subsidy under the WB Incentive Scheme, 2000 and power subsidy under the Power Intensive Industries Scheme, 2005 for setting up Sponge Iron Plant in Bankura. Before this Tribunal, the assessee claimed that receipt of such subsidies in form of remission of interest and power / electricity duty payments etc. was capita! receipt not liable to tax both under the normal computational provisions as well as book profit u/s 115JB of the Act. The Tribunal answered the issue in favour of the assessee. On appeal by the Revenue, the Hon'ble High Court upheld the order of this Tribunal by observing as under: 26. Now the second issue which requires adjudication is as to whether the aforesaid incentive subsidies received by the assessee from the Government of West Bengal under the schemes in question are to be included for the purpose of computation of book profit under Section 115JB of the Income Tax Act, 1961 as contended by the revenue by relying on the decision in the case of Apollo Tyres Ltd. (supra). 27. In this case since we have already held that in relevant assessment year 2010-11 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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