TMI Blog2022 (3) TMI 1558X X X X Extracts X X X X X X X X Extracts X X X X ..... ing order giving effect to the order of the CIT(A). Therefore, consistent with the view taken by the coordinate Bench, we direct the AO to delete addition made towards disallowance of depreciation on capital subsidy received from SIPCOT. Disallowance u/s.43B(c) - performance incentive paid to employees - HELD THAT:- As in assessee s own case for assessment year 2015-16 [ 2021 (9) TMI 1070 - ITAT CHENNAI] under identical circumstances, the Tribunal has held that payment made to an employee which is in the nature of bonus or commission for services rendered is covered u/s. 36(1)(ii) of the Act, and thus, if such payment is not made on or before due date of filing of return of income u/s.139(1) of the Act, then same cannot be allowed as deduction, as per section 43B(c) - we are inclined to uphold the order of the AO as well as the directions of ld.DRP and reject ground taken by the assessee. Fresh claim made by the assessee - Nature of receipts - VAT incentive received from Government of Tamil Nadu - Assessee has treated above incentive as revenue receipt both for its books of account and its tax returns. However, during the course of assessment proceedings, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d exclude from total income? - HELD THAT:- As in assessee s own case for the assessment year 2015-16 [ 2021 (9) TMI 1070 - ITAT CHENNAI] held that duty credit scrips received from Govt. of India under Focus Market Scheme is revenue in nature. Deduction towards education and secondary education cess u/s.37(1) - HELD THAT:- We find that the Tribunal had considered an identical issue for assessment year 2015-16 [ 2021 (9) TMI 1070 - ITAT CHENNAI] where the issue has been remanded back to the file of AO to consider the issue denovo on merits in accordance with law, has set aside issue to the file of Assessing Officer. Appeal filed by the assessee is treated as partly allowed for statistical purposes. - SHRI V.DURGA RAO, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER For the Appellant : Shri Sri Ram Seshadri, CA For the Respondent : Shri S. Palani Kumar, CIT ORDER PER G. MANJUNATHA, AM: This appeal filed by the assessee is directed against final assessment order passed by the Assessing Officer u/s.143(3) r.w.s 144C(13) r.w.s.144B of the Income Tax Act, 1961 (hereinafter the Act ) dated 26.09.2018, in pursuant to the directions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in law, erred in disallowing expenditure incurred by the Appellant towards performance reward as it is not in the nature of bonus . 5. Tax Treatment of Output VAT Incentive The lower authorities have, in the facts and circumstances of the case and in law, erred in not adjudicating and not allowing the claim made by the Appellant to treat output VAT incentive income offered to tax for the subject AY, as a capital receipt not chargeable to tax. 6 . Disallowance of investment allowance under section 32AC of the Act 6.1 The lower authorities have, in the facts and circumstances of the case and in law, erred in disallowing investment allowance amounting to INR is 156,19,82,157 under section 32AC of the Act. 6.2 The lower authorities have, in the facts and circumstances of the case and in law, failed to appreciate that the investment made by the Appellant was in a plant , and that a plant would be acquired only on being installed. 6.3. The lower authorities have, in the facts and circumstances of the case and in law, failed to appreciate that the new engine plant was installed and put to use during the relevant AY 2014-15 and hence is eligible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant additional grounds of appeal raised by the assessee are reproduced as under:- Without prejudice to the main grounds of appeal, the Appellant prefers the following additional grounds among other grounds of appeal: 1. On the facts and circumstances of the case and in law, the Appellant prays that the licenses received under the Focus Market Scheme are capital in nature and ought to be excluded from the computation of total income of the Appellant for the subject AY. 2. On the facts and circumstances of the case and in law, the Appellant prays that Education Cess and Secondary Education Cess be allowable as a business expenditure in the computation of total income of the Appellant. The Appellant craves leave to add/ modify/ alter the additional ground. The Appellant submits that the omission to raise the aforesaid Additional Grounds of Appeal in the original grounds of appeal was neither deliberate nor willful and prays that the Hon b1e ITAT may consider it as part of the original Grounds of Appeal . 4. Brief facts of the case are that the assessee M/s. Hyundai Motor India Ltd., is wholly owned subsidiary of M/s. Hyundai Motor Company Ltd., South ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unting to Rs.83,20,451/-. The facts with regard to impugned dispute are that during the year under consideration, the assessee has earned dividend income from mutual funds, however, did not made any suo-motto disallowance of expenditure relatable to exempt income. Therefore, the Assessing Officer has invoked provisions of Rule 8D of Income Tax Rules, 1962, and determined disallowances of Rs.83,20,451/- u/s.14A of Income Tax Act, 1961. 7.1 The ld.AR for the assessee, at the time of hearing submitted that this issue is covered in favour of the assessee by the decision of ITAT., Chennai in assessee s own case for the assessment year 2015- 16 in IT(TP)A No.10/Chny/2020, wherein the Tribunal by following the earlier Tribunal order for assessment year 2013-14 in ITA No. 3192/Chny/2017, held that disallowance u/s.14A should be restricted to the extent of exempt income earned for the impugned assessment year. 7.2 The ld.DR on the other hand, fairly agreed that this issue is covered in favour of the assessee. 7.3 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. An identical issue has been considered by Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kottai. The assessee has treated subsidy received from SIPCOT as capital receipt and did not reduce the same from cost of assets, as it was not directly or indirectly used for purchase of any asset. The Assessing Officer has held that capital subsidy received from SIPCOT being utilized by the assessee for capital expenditure, same ought to have been reduced from the cost of asset added in that year by contending that subsidy was directly or indirectly used to purchase of asset and as per explanation (10) to section 43, the same needs to be deducted from cost of assets and consequently, reworked depreciation by reducing amount of subsidiary and disallowed a sum of Rs.1,72,435/-. 8.1 The learned AR for the assessee submitted that this issue is covered in favour of the assessee by the decision of ITAT., Chennai, in assessee s own case for assessment year 2015-16 in IT(TP)A No.10/Chny/2020, wherein the Tribunal by following the earlier Tribunal order for assessment years 2006-07 2013-14 in IT(TP)A.No.14/Chny/2018 ITA No. 3192/Chny/2017, held that subsidiary received from SIPCOT is capital receipt not liable for tax. 8.2 The learned DR, on the other hand, fairly agreed that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommission for services rendered is covered u/s. 36(1)(ii) of the Act, and thus, if such payment is not made on or before due date of filing of return of income u/s.139(1) of the Act, then same cannot be allowed as deduction, as per section 43B(c) of the Act. The assessee has filed objections before learned DRP and challenged additions made by the AO. The learned DRP vide its directions dated 18.09.2018 has rejected objections filed by the assessee and confirmed additions made by the AO. 9.1 The learned A.R for the assessee submitted that the learned DRP erred in sustaining additions made by the AO towards disallowance of performance incentive paid to employees u/s.43B(c) of the Act, without appreciating fact that said payment is neither bonus nor commission and thus, same cannot be brought within the ambit of provisions of section 36(1)(ii) r.w.s.43B(c) of the Income Tax Act, 1961. 9.2 The ld.DR on the other hand strongly supporting order of the ld.DRP submitted that this issue is covered against the assessee by the decision of ITAT., Chennai in assessee s own case for assessment year 2015-16 in IT(TP)A No.10/Chny/2020, wherein the Tribunal by following the earlier Tribunal o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be covered u/s. 36(1)(ii) of the Act. 24. We have given our thoughtful consideration to facts brought out by the ld. AO in light of arguments of the ld. AR for the assessee and we do not ourselves subscribe to the arguments of ld. AR for the assessee, for simple reason that once performance incentive is paid for rendering services, then such payment is in the nature of bonus or commission which comes under the provisions of section 36(1(ii) of the Act. It is immaterial whether the assessee terms it as performance reward or bonus. But, what is relevant is nature of payment and purpose of payment. In this case, it is in the nature of bonus or commission and such payment is for services rendered by employees. Just because nomenclature was changed to some other name, a particular expenditure would not change its original character. In this case, sum was paid to employees for services rendered and further, this sum would not have been paid as profits or dividend had it not been paid as commission or performance reward. Therefore, we are of the considered view that provisions of section 36(1)(ii) of the Act is squarely applicable and consequently, mischief of section 43B(c) wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the file of AO for earlier years and hence, this year also the issue may be remanded back to the file of Assessing Officer. 10.3 Having heard both the parties and considered material on record, we find that the Tribunal had considered an identical issue for assessment year 2015-16 in IT(TP)A No.10/Chny/2020, wherein the Tribunal by following the earlier Tribunal orders 2011-12 2013-14 in ITA Nos.853/Chny/2014 3192/Chny/2017, where the issue has been remanded back to the file of AO to consider the issue denovo on merits in accordance with law, has set aside issue to the file of Assessing Officer. Facts being identical for the year under consideration, by following the decision of Tribunal in assessee s own case for assessment year 2015-16, we set aside the issue to file of the AO and direct him to reconsider the issue in accordance with law. 11. The next issue that came up for our consideration from ground no.6.1 to 6.3 of the assessee appeal is disallowance of investment allowance u/s.32AC of the Income Tax Act, 1961. 11.1 The brief facts of the impugned dispute are that the assessee claimed that a sum of Rs.17,95,41,84,175/- has been invested in plant and machiner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of introduction of said provision to the statute in light of Budget speech of the Hon ble Finance Minister and came to the conclusion that statute has provided investment allowance to promote growth of economy and boost employment after specified date and thus, investments made after specified date is only entitled for allowances. The Assessing Officer had also discussed the issue in light of memorandum explaining Finance bill for introduction of provisions of section 32AC of the Act, and observed that purpose is very clear as per which investment allowance is provided to enhance investment and boost economy and thus, if at all, the legislature intend to give benefit on investment made in earlier financial year, then it would not have specifically mentioned the term acquire and install new asset after 31.03.2013 but before 1st April, 2014. He therefore, opined that there is no merit in arguments taken by the assessee that even plant or machinery acquired in immediately preceding financial year and kept in capital work in progress is also entitled for investment allowance, when such capital work in progress was converted into plant after successful installation of plant or machine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t behind this investment allowance and stated inter alia the following: To attract new investment and to quicken the implementation of projects, I propose to introduce an investment allowance for a new high value investments. A company investing 100 crore or more in plant and machinery during the period 1.4.2013 to 31.3.2015 will be entitled to deduct an investment allowance of 15 percent of the investment. This will be in addition to the current rates of depreciation. There will be enormous spill-over benefits to small and medium enterprises. This speech clearly explains that the intention of the legislature was to promote growth, creating of jobs by giving incentive to investment to be made within a specified period commencing 31st March 2013. The key words to see here are Attract new investment and to quicken the implementation of projects and during the period 1.4.2013 to 31.32015 . From the above, it can be seen that the intention of the legislature is to ensure more investments during the period 1.4.2013 to 31.3.2015 in the form of new investments, but not for the investments already made in the prior years. As mentioned by the assesse, large projects take a l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 32AC these assets are not eligible for the claim of investment allowance as per Section 32AC of the Act. The legislation was not aiming at the boost that may happen out of the commercial activities after the entire plant comprising these assets commences commercial production. In contrast to that, It is safely intended to create economic benefits and multiplier actions out of the acquisition of the assets. Thus the items of assets acquired whether installed or not that are kept in Capital Work in Progress (CWIP) are not to be considered as eligible for investment allowance within the meaning of the section 32AC of the Act. The assessee makes another claim that the plant was installed during the period 01-04-2013 to 31-03-2014 and therefore the investment allowance should be allowed as the entire plant which is complex unit was installed. Again the reasoning of the assessee while being imaginative lacks serious backing of reason and misleading. In the first place, this investment allowance is to be allowed on the Capital Expenditure incurred on assets acquired and installed during the specified period. It is a fact that these assets form part of the overall complex plant The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investments already under in the prior years. An asset is said to be acquired when the assessee purchases the asset and receives it. In other words, the assessee becomes the owner of the asset. When such assets are brought to the assessee s premises (where they are required to be used) and made them ready for use, the assets are said to be installed . This processes starts after the transportation of the assets purchased to the assessee s premises. This process involves assembling of different components/assets in are / or several units, making alternations, fixing of the asset with some civil works on to the platforms, aligning the various components/assets in a series to perform coordinated jobs of manufacturing work, integrating with each other, and so on. This process continues till the asset (or where various individual components are brought together for coordinated simple purpose, it is called plant) is ready to perform the task for which it is intended for. Once it is ready for purpose, the asset (or plant) is said to be installed . When the manufacturing of goods/articles by using the above assets/plant actually states, the assets are said to be put to use. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new engine plant which would facilitate in production of petrol as well as diesel engines for which the assessee had purchased certain machinery prior and post March 31, 2013. However, installation of new engine plant was completed in financial year 2013-14 i.e., year in which claim was made by the assessee. The assessee further submitted that it is very important to understand difference between the term plant and machinery . The word machinery is not defined in the Act. However, the term plant is defined to mean a set of machines, tools, apparatus etc. necessary to conduct manufacturing enterprise or other business. The word machinery is different in scope than plant . The word plant includes within its scope a set of machines put together. Therefore, when the assessee is in the process of setting up of a plant, it has to acquire various machines and tools necessary for setting up of a plant which may take place prior to specified period under the provisions of section 32AC of the Act, but what is to be seen is that such plant was completed during specified period or not. Since, the assessee has successfully installed plant for manufacturing of engines and said insta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, the learned DRP opined that investment allowance claim on capital work in progress being plant or machinery acquired before 01.04.2013 is not eligible for investment allowance and thus, rejected arguments of the assessee. The relevant findings of the learned DRP are as under:- The assessee claimed that assets (plant machinery) for Rs.1795,41,l75/- were eligible for investment allowance. However. AO noticed that Rs.1041,32,14,382/- worth of these plant and machinery were acquired in the Previous year 2012-13 and shown in the balance sheet as on 31.03.2013. As per the provisions of Section 32AC the assessee who acquires and installs new assets after 31.03.2013 but before 1STApril, 2015 alone are eligible to claim investment allowance. As brought out clearly by the AO in the order, in order to be eligible to claim investment allowance. There should be new asset/s The new asset/s should have been acquired between 01.04.2013 31.3.2015 and The new asset/s should have been installed between 01.4.2013 31.3.2015 Unless the above conditions are satisfied, the assessee is not eligible. The provisions of 32AC(I) are introduced specifically with a vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tax Act, 1961. The learned AR further referring to term plant and machinery argued that it is important to understand difference between the term plant and machinery . The word machinery is not defined in the Act. However, the term plant is defined to mean a set of machine, tools, apparatus etc. necessary to conduct manufacturing of an enterprise or business. The word machinery is different in scope than plant . The word plant includes within its scope a set of machines put together. Therefore, when the assessee is in the process of setting up of a plant, it needs to acquire various machines and tools necessary for setting up of a plant which may take place prior to specified period under the provisions of section 32AC of the Act, but what is to be seen is that such plant was completed since the assessee has successfully installed plant for manufacturing of engines and said installation was completed in financial year 2013-14 relevant to the assessment year 2014-15. The said plant can be termed as new plant or machinery which qualifies for investment allowance u/s.32AC of the Income Tax Act, 1961. The learned A.R further referring to various decisions of courts, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and speech of Hon ble Finance Minister while presenting Budget submitted that sole purpose of insertion of provisions of section 32AC of the Act is to attract new investments and to quicken implementation of projects to accelerate growth and employment in manufacturing sector. Therefore, when the provision was inserted to give benefits to the industry, such provision should be construed liberally so as to achieve larger objectives. The Hon ble Finance Minister very categorically stated that said provision is even applicable to projects are already initiated and thus, being the case, it is incorrect on the part of the authorities below to restrict meaning of acquisition and installation of plant machinery to only assets or plants or machineries purchased, acquired and installed during relevant period. Therefore, he submitted that there is clear error in the findings recorded by the Assessing Officer as well as learned DRP in disallowing investment allowance on capital work in progress and hence, the Assessing Officer may be directed to allow investment allowance as claimed by the assessee. In this regard, the assessee has relied upon following judicial precedents:- 1. ITAT., D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l investments, including assets acquired prior to 01.04.2013 contrary to the provisions. The learned DR further submitted that case law relied upon by the assessee is on the issue of depreciation claimed u/s.32(1)(ii) of the Act, but not on the issue of investment allowances. The newly inserted provisions of section 32AC has made it mandatory for any assessee to make investments by acquiring and installing plant machinery and other assets within the specified period. Unless the assessee fulfills two conditions, it cannot claim additional allowance. Therefore, the learned Assessing Officer and learned DRP have rightly rejected investment allowance claimed by the assessee and their orders should be upheld. 11.8 We have heard both the parties, perused material available on record and gone through orders of the authorities below. We have also carefully considered various case laws cited by the assessee. There is no dispute with regard to fact that the assessee has claimed investment allowance @ 15% on total assets of Rs.1795.42 crores, which includes a sum of Rs.1041.32 crores pertains to assets acquired before 01.04.2013 and kept in work in progress. The argument of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clear that in order to claim benefit of investment allowances, the assessee should acquire new assets and new assets should have been acquired between 01.04.2013 and 31.03.2015. Further, new asset should be installed between 01.04.2013 and 31.03.2015. From the plain language used in section 32AC of the Act, it is obvious and clear that there is nothing to interpret, because provisions has been inserted in a plain language as per which in order to claim benefit, the assessee must satisfy two conditions prescribed therein. In this case, the assessee claims that it was in the process of constructing a plant for manufacturing engines and said plant is a continuous process which cannot be installed in a single year. As per claim of the assessee, it started acquiring certain plant and machinery required for constructing plant for manufacturing of engines before 01.4.2013 and same has been kept in capital work in progress. As per the claim of the assessee, the assessee has acquired plant and machinery and other assets worth Rs.1041.23 crores before 01.04.2013 and kept in capital work in progress. The assessee has spent additional amount of 754.10 crores during the financial year relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see has acquired plant and machinery worth of Rs.1041.32 crores prior to 01.04.2013 and kept in capital work in progress. Therefore, to the extent of amount invested before specified period, the assessee cannot claim investment allowance u/s.32AC(1) of the Income Tax Act, 1961. 11.11 As regards arguments of the assessee that it is in the process of continuous process plant which takes longer period and thus, even if certain plant and machinery was acquired before specified period, but when whole plant was completed during the specified period, then additional investment allowance cannot be denied. We find that law is very clear from the said provision of section 32AC(1), as per which it was intended to attract additional investment in manufacturing sector and consequently, allowances is provided to investments made within the specified period between 01.04.2013 and 31.03.2015. Therefore, even if, the assessee acquires certain plant and machinery which are used in plant meant for manufacturing of certain engines and completed during the financial year relevant to the assessment year 2014-15, we are of the considered view that unless the assessee satisfies conditions prescribed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, we are inclined to uphold findings of the learned DRP and reject ground taken by the assessee. 12. The next issue that came up for our consideration from ground no.7 of assessee appeal is transfer pricing adjustment made towards brand development services. During the year under consideration, the learned TPO has made upward adjustment of Rs.209,16,43,935/- in relation to brand fees receivable from its AEs towards enhancement of brand value of assessee parent company. The learned TPO used Spearman s Rank Correlation method to conclude that there is positive correlation between the brand value of Hyundai Motor India Limited and market capitalization of Hyundai market Corporation, South Korea. Therefore, by applying Spearman s Rank Correlation method, the ld. TPO has computed incremental brand value and attributed a portion of the same to the assessee in proportionate to its sales. 12.1 The ld.AR for the assessee, at the time of hearing submitted that this issue is covered in favour of the assessee by the decision of ITAT., Chennai in assessee s own case for the assessment year 2015- 16 in IT(TP)A No.10/Chny/2020, wherein the Tribunal by following the earlier Tribunal order f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fered to tax. Based on certain subsequent decisions, the assessee has raised additional ground and argued that subsidy received under Focus Market Scheme is capital in nature and not chargeable to tax. 13.1 The ld.AR for the assessee submitted that the character of receipt has to be determined with respect to purpose for which subsidy is given and in the present case, if you consider the purpose for which subsidy was given, it is clearly it is in the nature of capital receipts, because said subsidy was given to explore new market across the globe. Therefore, the same is in the nature of capital receipt and not chargeable to tax. In this regard, he relied upon the decision of ITAT Chennai, in the case of Eastman Exports Global Clothing Pvt. Ltd. in ITA No.47 48/Chny/2016, where the issue relating to taxability of subsidy received under Focus Market Scheme was held to be capital in nature. 13.2 The ld.DR, on the other hand, strongly supporting order of learned DRP submitted that this issue is covered against the assessee by the decision of ITAT, Chennai for the assessment year 2015-16 in IT(TP)A No.10/Chny/2020, wherein the Tribunal by following the earlier Tribunal orders 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of our exporters to compete with other export markets to these regions. However, various courts including Hon'ble Supreme Court in number of cases has examined nature of subsidy received from Govt. of India on the basis of purpose test and has held capital or revenue in nature depending upon purposes for which said subsidy was given. In our considered view, this controversy can be resolved if we apply test laid down in the judgement of Hon'ble Supreme Court in the case of Sahney Steel Press Works Ltd. Vs. CIT (228 ITR 253). The importance of judgement of Hon'ble Supreme Court in the above case lies in the fact that it has discussed and analyzed the entire case laws on the issue and it has laid down basic test to be applied in judging the character of subsidy. That test is the character of 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 purpose for test. The point of time at which subsidy paid is not relevant. The source is immaterial. The form of subsidy is immaterial. 33. Therefore, in the light of decision of the Hon'ble Supreme Court, in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et cost incurred for exploring new market including higher freight cost and further, said expenditure is in the nature of revenue expenditure, then any subsidy including duty credit scrips given by Govt. of India for such purpose is definitely in the nature of revenue receipt. Thus, at any stretch of imagination, the amount received under Focus Market Scheme cannot be considered as capital in nature, which is given to offset cost or part of cost of any asset or facility created by the assessee. Moreover, in this case, the assessee itself had considered amount received under Focus Market Scheme as revenue receipts and offered to tax, considering nature and purpose of receipt of subsidy from the Govt. of India. It is a well known fact that the assessee is best judge to decide a particular item of income or expenditure, because it is well aware facts of its case. In this case, the assessee, after considering nature and purpose of amount received under Focus Market Scheme, has very well considered the same as revenue receipt and offered to tax. Therefore, based on some judgements of higher forum making a claim for excluding said receipt from tax by claiming that it is in the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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