Income Tax Appellate Tribunal - Delhi
M/S Rai Bahadur Narain Singh Sugar Mills ... vs Dcit, New Delhi on 16 May, 2018
1
IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI 'F' BENCH,
NEW DELHI
BEFORE SHRI C.M. GARG, JUDICIAL MEMBER AND
SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER,
ITA No. 5620/DEL/2014
[A.Y 2011-12]
&
ITA No. 94/DEL/2016
[A.Y 2012-13]
M/s Rai Bahadur Narain Singh Vs. Addl. C.I.T
Sugar Mills Ltd Range - 15
Plot No. 5, B-Block Middle Circle New Delhi
Opp Indra Palace Building,
Connaught Place, New Delhi
PAN : AAACR 0924 M
[Appellant] [Respondent]
Date of Hearing : 10.05.2018
Date of Pronouncement : 16.05.2018
Assessee by : Shri M.P. Rastogi, Adv
Revenue by : Shri Atiq Ahmed, Sr. DR
ORDER
PER N.K. BILLAIYA, ACCOUNTANT MEMBER,
These two appeals by the assessee are preferred against two separate orders of the CIT(A)-XVIII, New Delhi pertaining to A.Ys 2011- 12 and 2012-13. Sine common issues are involved in both these 2 appeals, they were heard together and are disposed by this common order for the sake of convenience and brevity.
2. First common ground relates to the addition of the amount contributed to Molasses Reserve Fund under the UP Sheera Niyantran Adhiniyam' for the purposes of computing 'Book Profit' u/s 115JB of the Income-tax Act, 1961 [hereinafter referred to as 'the Act'.
3. The ld. Counsel for the assessee pointed out that in the earlier year, an identical issue has been decided against the assessee. On such concession, we have perused the order of the coordinate bench in ITA No. 703/DEL/2013 for A.Y 2009-10. The relevant findings of the coordinate bench read as under;
"5. In view of above, at the very outset, we note that the assessee company has transferred impugned amount to a reserve which has not been specified u/s 33AC of the Act, therefore, as per Explanation 1 attached to provisions of section 115JB of the Act, the book profit is required to be increased by the amount carried to any reserve account. We also note that the AO has rightly relied on the decision of Hon'ble Apex Court in the case of State Bank of Patiala reported as 219 ITR 706(SC) 3 wherein it was clearly held that the issue of what construes "reserve" and "provision" and the ratio laid down in theseITA No.703/Del/2013 AY 2009-10 decisions clearly enlighten us that to constitute a reserve, a particular amount set aside out of the profit and other surpluses, should be such as not designated to meet a liability, contingency, commitment or diminution in the value of assets known to at the date of balance sheet. Hence, the reserve can be set aside out of the profits and surpluses and the same cannot be claimed as deduction because it is not an expense laid out for the purpose of business. Coming to the facts of the present case, the contribution to the Molasses reserve fund can be viewed as a provision in nature and it is not an actual liability and the provision created for additional storage facility is obviously in the nature of provision for contingent liability, therefore, the impugned amount being contingent in nature deserves to be added back while computing income u/s 115JB of the Act. Finally, we reach to a conclusion that the action of the AO as well as order of the CIT(A) is well founded and justified and we are unable to see any perversity, infirmity or any other valid reason to interfere with the same on this issue. Accordingly, ground no. 2 of the assessee being devoid of merits is dismissed."4
4. Respectfully following the findings of the coordinate Bench, the common ground raised in both these appeals are dismissed.
5. Ground No. 2 in ITA No. 5620/DEL/2014 relates to the addition on account of capital subsidy of Rs. 8,13,912/- to the books profits while computing income u/s 115JB of the Act.
6. We find that a similar issue came up for consideration before the coordinate bench in assessee's own case in ITA No. 703/DEL/2013.
The relevant observations and findings of the coordinate Bench read as under:
"10. Coming back to the issue involved in ground no. 3(a) and (b) of the extant appeal, at the very outset, we note that as per ratio of the decision of Hon'ble Apex Court in the case of CIT vs HCL Comnet Systems & Services Ltd. (supra) and Apollo Tyres Ltd. vs CIT (supra), the AO has to accept the authenticity of the accounts maintained in accordance with the provisions of the Companies Act which are also certified by the auditors and passed by the company in its Annual General Meeting. In this connection, we may also point out that the ld. DR has not disputed the fact that the subsidy against the interest paid by the assessee company on central government loan is granted with the object of incentive for the entrepreneur to establish sugar industry or to expand the capacity of the existing sugar industry in the state of UP and 5 thus, the said subsidy is given for setting up of an industry or expansion of existing industry. We further find it appropriate to note that SASISRI EXTRACTIONS LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX 122 ITD 428, Coordinate Bench of this Tribunal has held that where subsidy is granted as ITA No.703/Del/2013 AY 2009-10 percentage of fixed capital cost taken as the basis for determining the subsidy that would only be a measure adopted under the scheme to quantify the financial aid. The contention is that it is not a payment, directly or indirectly, to meet any portion of the 'actual cost' but intended as an incentive to entrepreneurs, its quantification determined at a percentage of the fixed capital cost." We further note that the Hon'ble Apex Court in the case of P.J. Chemicals (supra) has held that the expression "actual cost""
in section 131(1) of the Act needs to be interpreted liberally and subsidy does not partake of the character of a payment intended either directly or indirectly to meet the 'actual cost'." As we have noted above that it has already been accepted by the Hon'ble High Court in assessee's own case for AY 1990-91 that the subsidy received by the assessee is in the nature of capital subsidy, hence, the same cannot be treated as revenue and thus, the income approach of accounting for capital subsidy received as government grant is not applicable in this case as per AS-12 where in para 5.2 it has been made clear that the capital approach is to be followed in respect of government grants and it is inappropriate to recognise government grants in profit and loss statements because they are not earned to represent an incentive provided by the government. Accordingly, conclusion of the CIT(A) on this issue is not found to be sustainable and we demolish the same by directing the AO that the amount of capital subsidy to the book profits while computing the income u/s 115JB of the Act 6 is not an appropriation of profits and there is no such debit to the profit and loss account for the alleged ITA No.703/Del/2013 AY 2009-10 appropriation and, therefore, the same cannot be added while computing the income u/s 115JB of the Act. Accordingly, ground no. 3(a) and (b) of the assessee are allowed."
7. Respectfully following the findings of the coordinate bench [supra], Ground No. 2 is allowed.
8. Common Ground No. 3 in A.Y 2011-12 and Ground No. 2 in A.Y 2012-13 relates to the addition made in respect of amount of provision made on actuarial basis in respect of gratuity to the book profits while computing income u/s 115JB of the Act.
9. The AO has added back on the ground that the said provision is a provision for unacertained liability.
10. The assessee's contention is that the provision was made on actuarial basis and, therefore, no adjustments could be made for the purpose of computing book profit u/s 115JB of the Act.
711. We find that the coordinate Bench in the case of DCM Engineering Ltd Vs. ACIT [2012] 20 Taxmann.com 328 [Delhi] has considered an identical issue and held as under:
" 5. We have heard both the parties and gone through the material available on record. Tribunal, Delhi Bench "B" in the case of DCM Ltd. in ITA No. 1983/Del/2009 for asst. yr. 2005-06 dt. 17th Nov., 2009 deleted the similar addition. We also find that Hon'ble Delhi High Court in the case of DCM Shriram Consolidated Ltd. in IT Appeal No. 947/Del/2007, dt. 2nd April, 2009 following the decisions in the case of CIT v. Hewlett Packard India (P) Ltd. (supra)- CIT v. Bechtel India (P) Ltd. (2008) 2 DTR (Del) 145 and in the case of CIT v. DCM Sriram Consolidated Ltd. IT Appeal No. 1249 of2007, dt.
21stNov., 2008 dismissed the appeal filed by the Revenue. The special leave petition filed by the Revenue in the case of DCM Shriram Consolidated Ltd. (supra) was dismissed by Hon'ble Supreme Court vide order dt. 11th Nov., 2009 in CC (16973 of 2009). From these decisions it is clear that the provision for gratuity cannot be added in cl. (c) of Expln. 1 to s. 115 JB of the Act. Since the assessee had made the provision based on actuarial method, respectfully following the decision of Hon'ble Supreme Court referred to above, no adjustment can be made on account of provision for gratuity and leave encashment for computation of book 8 profit under s. 115 JB of the Act. Therefore, this ground of appeal raised by the Revenue in both the years is dismissed."
12. As no distinguishing decision has been brought in favour of the Revenue, respectfully following the decision of the coordinate bench [supra], this ground is allowed.
13. In the result, both the appeals of the assessee in ITA Nos.
5620/DEL/2014 and 94/DEL/2016 are partly allowed.
The order is pronounced in the open court on 16.05.2018.
Sd/- Sd/
[C.M. GARG] [N.K. BILLAIYA]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 16th May, 2018
VL/
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR Asst. Registrar,
ITAT, New Delhi