Income Tax Appellate Tribunal - Mumbai
Bhgyalaxmi Rolling Mills P.Ltd, Mumbai vs Dcit Cir 6(1), Mumbai on 3 March, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH, MUMBAI
BEFORE SRI MAHAVIR SINGH, JM AND SRI RAJESH KUMAR, AM
ITA No.3428/Mum/2016
(A.Y:2011-12)
Bhgyalaxmi Rolling Mills P. Ltd Dy. Commissioner of Income Tax,
603 Laxmi Villa, M.G. Rd Vs. Circle 6(1), Room No.506,
Kandivali (W), Mumbai-400 067 M.K. Road, Mumbai-20
Appellant .. Respondent
PAN No. AADCB0390C
Assessee by .. Shri J P Bairagra , AR
Revenue by .. Shri N. P. Singh ,CIT DR
Date of hearing .. 01-03-2017
Date of pronouncement .. 03-03-2017
ORDER
PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of CIT(A)-12, Mumbai, in appeal No. CIT(A)-12/IT 05/DCIT 6(1)(2)/2014-15 dated 17-03- 2016. The Assessment was framed by DCIT Circle-6(1), Mumbai for the A.Y. 2011-12 vide order dated 06-02-2014 under section 143(3) of the Income Tax Act, 1961 (hereinafter 'the Act').
2. The first issue in this appeal of assessee is against the order of CIT(A) in confirming the disallowance of depreciation by reducing the incentives received from Maharashtra State Government from the cost of the building and plant and machinery and further by enhancing the income by holding that subsidiary receipt from Maharashtra Government for putting a mega project in backward area is Revenue receipt liable to tax. For this assessee has raised following three grounds: -
"1. The Ld. CIT(A) erred in confirming the disallowance of depreciation of Rs. 1,60,30,125/- by reducing the incentive received from Maharashtra State Government from the cost of building and plant and machinery.ITA No.3428/Mum/2016
Bhgyalaxmi Rolling Mills P. Ltd; AY.11-12
2. The Ld. CIT(A) further erred in enhancing the income of the appellant by Rs.9,91,44,875/- under the provisions of Section 251(i)(a) of the Income Tax Act.
3. The Ld. CIT(A)further erred in holding that the subsidy received from the Maharashtra Government for putting the Mega project in backward area amounting to Rs.11,51,75,000/- is revenue receipt and full amount of the subsidy is taxable in this year."
3. Briefly stated facts are that the assessee a Private Limited Company is engaged in the business of manufacturing of steel. During the assessment proceedings, the AO noticed from the accounts of the assessee that the assessee has claimed depreciation on assets consequent upon receipt of incentives from State Government. The assessee company has received subsidy from State Government as an industrial promotional subsidy in order to encourage the dispersal of industries to the less developed areas. State Government has been given package of incentives to new / expansion units set up in developing regions of the Sate since 1964 under a scheme popularly known as Package Scheme of Incentives. This Package Scheme of Incentives of 2007 outlines liability criteria, quantum of incentives and long term mechanism for administering the incentives. The AO noticed that the receipt of subsidy from the Government is because of the assessee's initiative of setting up an industry in a low HDI district along with regular employment opportunities and not for specific assets. The AO held that subsidy is deductible from actual cost under the provision of Section 43(1) explanation 10 of the Act and disallowed the claim of depreciation of assessee. Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) after considering the submission of the assessee and various case laws noted that the total subsidy sanctioned by the Government to the assessee was to the tune of Rs.11,82,75,000/- out of which a sum of Rs. 31,00,000/- was received in the immediate preceding year relevant to the AY 2010-11 and balance subsidy was received in the relevant AY under consideration amounting to Rs. 11,51,75,000/-. According to CIT(A), assessee Page 2 of 33 ITA No.3428/Mum/2016 Bhgyalaxmi Rolling Mills P. Ltd; AY.11-12 treated the subsidy as capital receipt and AO also treated it as capital receipt but in view of explanation 10 to section 43(1) of the Act, he reduced subsidy from the actual cost of asset while computing depreciation and disallowed the claim of depreciation. The CIT(A) after considering the submissions of the assessee and various other provisions enhanced the assessment by treating the entire subsidy receipt as Revenue receipt.
4. The CIT(A) while treating the entire subsidy as Revenue receipt observed as under : -
" I have carefully perused the referred decision. It is seen that in this case, the subsidy is granted on the scheme framed by the Government of Maharashtra in1979. The Hon'ble High Court noted that "Tribunal has come to the conclusion that the thrust of the Scheme is that the assessee would become entitled for the sales tax incentive even before the commencement of the production, which implies that the object of the incentive is to fund a part of the cost of the setting up of the factory in the notified backward area. The Tribunal has, at more than one place, stated that the thrust of the Maharashtra Scheme was the industrial development of the backward districts as well as generation of employment thus establishing a direct nexus with the investment in fixed capital assets. It has been found that the entitlement of the industrial unit to claim eligibility for the incentive arose even while the industry was in the process of being set up. According to the Tribunal, the Scheme was oriented towards and was subservient to the investment in fixed capital assets. The sale tax incentive was envisaged only as an alternative to the cash disbursement and by its very nature was to be available only after production commenced. Thus, in effect, it was held by the Tribunal that the subsidy in the form of sales tax incentive was not given to the assessee for assisting it in carrying out the Page 3 of 33 ITA No.3428/Mum/2016 Bhgyalaxmi Rolling Mills P. Ltd; AY.11-12 business operations. The object of the subsidy was to encourage the setting up of industries in the backward area."
It is seen that the case of Reliance Industries is not applicable to the appellant's case on two accounts Firstly, the Hon'ble ITAT in Reliance Industries Ltd (in view of the IPS policy at that time) observed that assessee would become entitled for sales tax incentive even before the commencement of the production. Accordingly, the Hon'ble ITAT held that the object of the incentive is to fund a part if the cost of the setting up of the factory in notified backward area but in the case before me here, there is no such condition. The IFS policy, for the year under consideration only sets up the limit which is 100% of the eligible investment, ie, only the criterion that how much the assessee will get incentive from the IPS polices. There is no direct nexus between the funding of investment and setting up of the factory.
Secondly, In the case of Reliance Industries Ltd., the Hon'ble ITAT observed that the entitlement of the industrial unit to claim eligibility for the incentive arose even while the industry was in the process of being set up. But, in the instant case, industrial promotion subsidy will be admissible only after company employs at least 250 employee person on a regular basis within two years from the date of commencement of commercial production in the first phase, and least 75% of these employee are to be local persons. The admissibility of the IFS is directly related to the employment and employment of local persons.
In view of the above facts, it cannot be held that the appellant's case is squarely covered by the decision of Page 4 of 33 ITA No.3428/Mum/2016 Bhgyalaxmi Rolling Mills P. Ltd; AY.11-12 Hon'ble High Court in the case of Reliance Industries Limited as claimed by the appellant.
The second decision referred by the appellant is of Harinagar Sugar Mills Ltd. On careful perusal of the said decision it is seen that in this case the subsidy was granted as per Bihar Incentive Package, 2006" for undertaking expansion of the capacity from 8500 TCD to 10000 TCD. The said scheme was formulated by the Government of Bihar to promote the establishment of new units and for expansion of capacity existing units. In that case the revenue's contention was that the subsidy was a capital receipt and it should be reduced in view of explanation 10 to section 43(1). But, in this case, the argument is not that, here the question is whether the subsidy is a capital receipt or revenue receipt. In the case of Harinagar Sugar Mills Ltd. Hon'ble [TAT, vide para 2.3 of the order noted that" A reading of the incentive package of the Bihar Government dated 12.09.2006 indicates that the object of the said scheme is for development of sugar industry in the state and establishment of new sugar mills, establishment of co- industries based on sugarcane and to supplement the effort in expanding capacity of present Sugar Mills, and in order to solve the problem of additional financial load faced by the investor and in order to minimize the burden on them the surplus funds so generated by the state incentive policy could be used for repayment of term loan taken from central financial institution and banks so that these project could become viable. Para 2 of the said resolution further states that under the new industrial Policy of the state, under the provision of attracting capital investment for technical development and expansion capacity of the sugar factory as well as for the establishment of new sugar mills approval of planned Page 5 of 33 ITA No.3428/Mum/2016 Bhgyalaxmi Rolling Mills P. Ltd; AY.11-12 "Sugar Industry Incentive Packages' was discussed. So that the Entrepreneurs of the private sector could be attracted for the establishment of sugar industries and other industries based on sugarcane or sugarcane juice could be attracted and working / installed sugar mills also may expand their capacity and may establish other industries based on co-product of the sugarcane in the state.
It is clearly seen from the above para that the scheme framed by the Bihar Government and as that of IPS scheme of Maharashtra Government is totally different and the decision rendered is not on the argument of capital receipt or revenue receipt and as the facts of the case are different, the decision relied on by the appellant is not applicable in the present case.
Third decision referred by the appellant is that of Rasoi Ltd. On careful perusal of the decision of Hon'ble High Court of Calcutta in the case of Rasoi Ltd it is seen that the subsidy granted for is as under:
In order to appreciate the aforesaid question, it will be profitable 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-T Calcutta, the 27-5-1994
Resolution
Whereas certain industries in the State have been passing through all financial crisis and it had been considered necessary to extend financial assistance to tide over such crisis for promotion of such industries, it Page 6 of 33 ITA No.3428/Mum/2016 Bhgyalaxmi Rolling Mills P. Ltd; AY.11-12 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 Bengal of certain industries in the manner hereinafter appearing :
Resolution No. 1460-F.T. Dated 27-5-1994 Whereas the Governor is of the opinion that industrial Units manufacturing certain goods in West Bengal are in need of financial assistance for expansion of their capacities, modernization, and improving their marketing capabilities and accordingly it is necessary to formulate a Scheme of industrial promotion to assist such units for the purposes mentioned hereinbefore:
Now, therefore, the Governor is pleased hereby to introduce a Scheme of industrial promotion to he implemented in the mariner hereinafter appearing;
14. Section 3 of the scheme describes entitlement to the industrial promotion assistance and the same is also quoted below:
"3. Entitlement to the Industrial Promotion Assistance. - Mere a registered dealer manufactures in his unit goods specified in Schedule A or manufactures in his SS1 unit goods specified in Schedule B and sells such goods in the State-in Ira-State or in the course of Page 7 of 33 ITA No.3428/Mum/2016 Bhgyalaxmi Rolling Mills P. Ltd; AY.11-12 inter15tate 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." [Emphasis supplied].
It may be mentioned here that under the said scheme as would appear from sub-section (2) of section 1 that the same was given effect to from 1-4-1994 and initially, was in force only one year from that date and thus, the benefit was then available to the assessee only for that year which is the assessment year we are concerned with.
14A. From the objects and the reasons of the aforesaid scheme as well as the entitlement as indicated in section 3 mentioned above, it is clear That the Government has decided to grant the subsidy by way of financial assistance to tide over the period of crisis for promotion of the industries mentioned in the scheme which have the manufacturing units in West Bengal and which are in need of financial assistance for expansion of their capacities, modernization, and improving their marketing capabilities and such subsidy for the financial year in question was only for that year and was equivalent to ninety per centum of the amount of sales tax paid by the Industry concerned, for any quarter under the Sales Tax Act in respect of sales of such goods."
The facts and circumstance of the scheme framed by the Government of West Bengal under scheme of industrial promotion for expansion of its capacities modernization and improving it marketing capabilities is Page 8 of 33 ITA No.3428/Mum/2016 Bhgyalaxmi Rolling Mills P. Ltd; AY.11-12 totally different as that of the IN scheme of Government of Maharashtra. The scheme of West Bengal Government is for financial assistance to tide over the period of crisis for promotion of industries. In view of those facts the Hon'ble High Court held that subsidy was of capital nature. But in the instant case, the subsidy was granted for the generation of employment in the backward area. Hence, in the instant case there is no linkage between the receipt of subsidy and its purpose for promoting for setting of industries.
Fourth decision referred by the appellant is of Shree Cement Ltd. On careful perusal of the decision, it is seen that in that case subsidy was received under Rajasthan Investment Promotion Scheme, 2003. It is also seen that for availing the benefit under RST/ CST exemption the assessee in that case increased its installed capacity from 20 lacs MT to 26 MT by expanding its business. This is not the case here. Hence, the decision referred by the appellant is not applicable in the present case.
Fifthly, the appellant relied on the decision of Indo Rama Synthetics (I) Ltd. In the case of Indo Rama Synthetics (I) Pvt. Ltd., Ld CIT (A) compared the Salient feature of The PSI 1979 (applicable in the case of Reliance Industries Ltd 88 ITD 273) with PSI993 applicable in Indo Rama Synthetics (I) Ltd.). On perusal of PSI for both the period, Ld CIT(A) gave a finding that object of both the schemes is for promotion of industrialisation in backward area of the state of Maharashtra. CIT(A) in this case further noted that PSI 1993 scheme's purpose is for encouraging setting up of manufacturing unit in backward area in the state. But in Page 9 of 33 ITA No.3428/Mum/2016 Bhgyalaxmi Rolling Mills P. Ltd; AY.11-12 the case before me, subsidy was granted with the sole object to augment employment for the local persons.
In view of the above discussion, it cannot be held that the Hon'ble five decisions referred by the appellant is applicable in its case. The appellant was given opportunity to explain why the subsidy received should not be treated as revenue receipt in view of Hon'ble Supreme Court decision in the case of Ponni Sugars & Chemicals Ltd. (174 taxman 87 (SC). The appellant only argued that the purpose/ object of the IPS scheme is for development of backward area by generating employment therein through encouraging setting up industries in such area. I do not find merit in such argument. Hon'ble Supreme Court in the case of Ponni Sugars & Chemical ( Supra) held that determination of character of receipt in the hand of assessee has to be determined with respect to the purpose for which the subsidy is given, in such case purpose test has to be applied. The subsidy granted to the appellant is clearly mentioned in the show cause notice. Every person who wishes to take exemption from the Maharashtra Government has signed MOU. Such letter of intent of both the parties clearly indicates that the thrust of the Maharashtra State Government for granting subsidy is for generation of employment. The specific eligibility condition has been prescribed for that purpose.
In this case, the appellant is eligible for subsidy only when the commercial production is started. Giving the employment more than specific numbers for local and other persons is the main condition for receiving the subsidy. This was the main object / purpose of the state government for granting subsidy. If the conditions were not fulfilled the appellant is not eligible for the subsidy even if the industry is set up in the specific back-ward Page 10 of 33 ITA No.3428/Mum/2016 Bhgyalaxmi Rolling Mills P. Ltd; AY.11-12 area. This clearly indicates that the main eligibility condition in the instant scheme is for generation of employment and that too not less that the specific numbers as agreed with the Government of Maharashtra. The appellant has not proved that the IT'S scheme's purpose is for setting up of industry and given any nexus for the receipt of the subsidy on account of setting up of the industry, The quantum of the subsidy is calculated based on the investment made by the appellant and subsidy is not granted for setting up the new industry. There is no restriction appearing in the eligibility certificate that the amount should be spend for some specific purpose but the appellant was free to use the money in its business, entirely as it liked.
It is a settled legal position that unless and until the assessee is able to establish that the subsidy given was for the purpose of setting up of industry, the question of granting any relief as a capital receipt does not arise. This was noted by Hon'ble Madras High Court in the case of Super Spinning Mills Ltd. (2008) 296 ITR 168. The decision of Hon'ble Apex court reported in CIT V/s Rajaram Maiza products (2001) 251 JTR 427 and Ponni Sugar & chemicals Ltd. (supra) are also applicable here.
In this case, the purpose of granting this subsidy was not as regards for setting up of the industry, there is no such evidence, main eligibility criteria also does not suggest this. The object of the subsidy scheme was to enable the appellant to run the business more profitability and so it could employ more persons to eradicate the unemployment in the specific region and this is the main thrust for which subsidy was granted.
Page 11 of 33 ITA No.3428/Mum/2016Bhgyalaxmi Rolling Mills P. Ltd; AY.11-12 The decision of Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd is applicable in the present case. The Apex Court held as under:
The important point was that all the incentives were production incentives in the sense that the company would be entitled to these incentives only after it went into production. The scheme was not to make any payment directly or indirectly for setting up of the industries. It was only after the industries had been set up and production had been commenced flint the incentives were to be given.
The second important thing to note was that the manner in which the incentives were given was of no consequence for determination of the question raised in this case. Incentives were given by way of refund of sales tax on raw material, machinery and finished goods. Similarly, subsidy on power was confined to 'power consumed for production. In other words, if power was consumed for any other purpose like getting up the plant and machineries, the incentives would not be given. Refund of sales tax would also be in respect of taxes levied after commencement of production and up to a period of five years from the date of commencement of production. Hence, it was difficult to hold these subsidies as anything but operational 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.
The basic principle to be applied for determination as to whether a subsidy payment is in the nature of capital or the revenue has been stated by Viscount Simon in Ostime v. Pontypridd and Rhondda Joint Water Board 28 TC 262. The amount paid to the Page 12 of 33 ITA No.3428/Mum/2016 Bhgyalaxmi Rolling Mills P. Ltd; AY.11-12 assessee in the instant case was in the nature of subsidy from public funds. Therefore, the first proposition of Viscount Simon clearly applied. The funds were made available to the assessee to assist it in carrying on its trade or business. Having regard to the scheme of the Notification, there could be little doubt that the object of various assistances under the subsidy scheme was to enable the assessee to run the business more profitably.
In the instant case, payments were made only after the industries had been set up payments were not being made for the purpose of setting up of the industries. But the package of incentives were given to the industries to run more profitably for a period of five years Iron: the date of the commencement of production. In other words, a helping hand was being provided to the industries during the early days to enable them to come to a competitive level with other established industries. Further the payments were made to assist the new industries at the commencement of business to carry on their business. Hence, there are nothing but supplementary trade receipts. It was true that the assessee could not use this money for distribution as dividend to its shareholders. But the assessee was free to use tile money in its business entirely as if liked and was not obliged to spend the money for a particular purpose. By no stretch of imagination could the subsidies whether by way of refund sales tax or relief of electricity charges or water charges he treated as an aid to setting up of the industry of the assessee as the payments were to be made only if and when the assessee commenced its production. The said payments were made for a period of five years calculated from the date of commencement of production in the assessee s factory. Hence, the subsidies were operational subsidies and not capital subsidies.Page 13 of 33 ITA No.3428/Mum/2016
Bhgyalaxmi Rolling Mills P. Ltd; AY.11-12 The contention that the refund of sales tax on purchase of machinery must be treated as capital did not hear close scrutiny. It is not the source from which the amount is paid to the assessee which is determinative of the question whether the subsidy payments are of revenue or capital nature. The first proposition stated by Viscount Simon in Ostime's case (supra) is that if payments in the nature of subsidy from public funds are made to the assessee to assist him in carrying on his trade or business, they are trade receipts. The sales tax upon collection forms part of the public funds of the State. If any subsidy is given, the character of the subsidy in the hands of the recipient- whether revenue or capital- will have to be determined by having regard to the purpose for which the subsidy is given. If it is given by way of assistance to the assessee in carrying on of his trade or business, it has to be treated as trading receipt. The source of the fund is quite immaterial. For example, if the scheme is that the assessee will be given refund of sales tax on purchase of machinery as well as on raw materials to enable the assessee to acquire new plants and machinery for further expansion of its manufacturing capacity in backward area, the entire subsidy must be held to be a capital receipt in the hands of the assessee. It will not be open to the revenue to contend that the refund of sales tax paid on raw, materials or finished products must be treated as revenue receipt in the hands of the assessee. In both the cases, the Government is paying out of public funds to the assessee for a definite purpose. If the purpose was to help the assessee to set up its business or complete a project the monies must be treated as to have been received for capital purpose. But if monies were given to the assessee for assisting him in carrying out the business operation and the money was given only Page 14 of 33 ITA No.3428/Mum/2016 Bhgyalaxmi Rolling Mills P. Ltd; AY.11-12 after and conditional upon commencement of production, such subsidies must be treated as assistance for the purpose of the trade.
In the instant case, subsidies had not been granted for production of or bringing into existence any new asset. The subsidies were granted year after year only after setting up of the new industry and commencement of production. Such a subsidy could only be treated as assistance given for the purpose of carrying on of the business of the assessee and, therefore, these were of,3P6zue character and would have to be taxed accordingly.
As discussed, in the Apex Court order that if the purpose was to help assessee to set up its business or complete a project the monies must be treated as to have been received for capital purpose. But, in the instant case, the appellant failed to substantiate that purpose was for setting up of its factory, there is no evidence filed on records to prove that subsidy had been granted for production of or filed on records to prove that subsidy had been granted for production of or bring into existence any new assets and hence it cannot be held as capital receipt. Also Hon'ble Apex Court held that the subsidy granted year after year only after setting up of new industry and commencement of production such subsidy could only be treated as assistance given for the purpose of carrying on of the business the assessee and therefore, these were of revenue character and would have been to be taxed accordingly. IN the instant case also, the subsidy was granted after setting up of industry and granted year after year accordingly as held by the Apex Court such a subsidy would be of revenue nature.Page 15 of 33 ITA No.3428/Mum/2016
Bhgyalaxmi Rolling Mills P. Ltd; AY.11-12 The Hon'ble High Court of Calcutta in the case of Kesoram Industries & Cotton Mills Ltd. Reported in 191 ITR 518 held as under
Having regard to the slow pace of industrialization in the State and with a view to stimulating rapid industrialization throughout the State, the Government of Andhra Pradesh had offered facilities and incentives for new industrial unit to be set up in Andhra Pradesh in the form of subsidies and refunds. It had been provided that subsidies, refunds and other financial concessions granted would he deemed to be a development grant for each unit which would be used wholly and solely for the development of the Unit. The subsidy, in the instant case, was not intended to be a contribution towards capital outlay of the industrial unit. The subsidy was received by the assessee from the Government regularly. It was given with the object of enabling the assessee to carry on its business, although the purpose behind it was to encourage industrialization.
Further, the sales-tax liability was a trading liability and to the extent the assessee obtained refund of sales tax, it received a benefit in the course of its business. This benefit was incidental to its business. Thus, in view of the decision of the Andhra Pradesh High Court in CIT v. Sahney Steel and Press Works Ltd. [1985] 152 ITR 39, the amount of subsidy received by the assessee was assessable as a revenue receipt.
This view of Hon'ble High Court of Calcutta quoted above is also applicable to the appellant's case here.
Further, while confirming the revenue stand the Hon'ble High Court of Calcutta noted that as observed by Page 16 of 33 ITA No.3428/Mum/2016 Bhgyalaxmi Rolling Mills P. Ltd; AY.11-12 the Andhra Pradesh High Court Vs Sahney Steel & press Works Ltd (1985) 152 LTR 39, the amount in question was refunded to the assessee because he had set up a new industrial undertaking and had commenced producing goods and continued in production it is not possible to divorce the said payment from the character of the business carried on by the assessee. Further Hon'ble High Court held that the sales tax liability was a trading liability and to the extent the assessee obtained refund of sales tax, it received a benefit in the course of its business. This benefit is incidental to its business thus, in view of the decision of the Andhra Pradesh High Court in CIT v/s Sahney Steel & press works ltd.(1985) 152 ITR 39, the amount of subsidy received by the assessee was assessable as a revenue receipt.
Similar is the situation here. In the instant case the appellant has refunded the amount as it set up industry in back ward area and received such subsidy after it commenced producing goods and fulfilling the main criteria, i.e. giving employment. Also, in this case, the appellant has received the sales tax refund which is incidental to its business and hence it is a revenue receipt. Thus in the light of the above discussed finding the receipt of subsidy is treated as a revenue receipt and accordingly an amount of Rs.11,51,75,000/- is taxed as revenue receipt is taxed as revenue receipt instead of capital receipt and hence the income of the appellant is enhance under section 251(1)(a) at Rs.9,91,44,875/- (Rs. 11,51,75,000-Rs.1,60,30,125/-).
Aggrieved, now assessee is in second appeal before Tribunal against the confirmation of disallowance of depreciation as well as against enhancement by treating the subsidy as Revenue receipt.Page 17 of 33 ITA No.3428/Mum/2016
Bhgyalaxmi Rolling Mills P. Ltd; AY.11-12
5. Before us, the learned Counsel for the assessee drew our attention to this Package Scheme of incentive, 2007 issued by Government of Maharashtra Industries Energy and Labour Department Resolution No. PSI-1707/ (CR-
50)/IND-8 Mantralaya, Mumbai-400 032 dated 30-03-2007, wherein the preamble of the scheme reads as under: -
"In order to encourage the dispersal of industries to the less developed areas or the State, Government has been giving a Package of Incentive to New/ Expansion Units set up in the developing region of the State since 1964 under a Scheme popularly known as the Package Scheme of incentives.
The Package Scheme of Incentives, introduced in 1964, was amended from time to time. The last amended Scheme, commonly known as the 2001 Scheme is operative from 1st April, 2001 to 31st March, 2007.
The state has declared the new industrial, investment, infrastructure policy 2006 to ensure sustained industrial growth through innovative initiatives for development of key potential sectors and further improving the conductive industrial climate in the State, for providing the global competitive edge to the State's industry. The policy envisages grant of fiscal incentives to achieve higher and sustainable economic growth with emphasis on balanced regional development and employment generation through Greater Private and Public Investment in industrial development. The Package Scheme of Incentives 2007 outlines the eligibility criteria quantum of incentives and monitoring mechanism for administering the incentives.".
Further, the assessee has installed a mega project and mega project has been defined in this scheme at 3.2(iii) which reads as under: -
Page 18 of 33 ITA No.3428/Mum/2016Bhgyalaxmi Rolling Mills P. Ltd; AY.11-12 "(iii) Mega projects: Industrial Projects with investment more than Rs500 crores or generating employment for more than 1000 persons in A & B area or investment more than 250 crores or generating employment for more than 500 persons in rest of Maharashtra.
However, Industrial projects with investment of more than Rs 100 crores or generating employment for more than 250 persons coming up in low human development district as mentioned in Annexure II will qualify as Mega Project.
Note: The mega project claiming the benefits based on employment criteria will have to employ the qualifying number of employees throughout the year and 75% of such employees should be local persons."
6. The learned Counsel for the assessee further drew our attention to the letter issued to assessee by the office of a Principal Secretaries Energy and Labour Department dated 29-03-2008, wherein the assessee was offered the status of mega project by Government of Maharashtra under the provisions of Package Scheme of Incentives, 2007, wherein the following is the subsidy: -
"1. Electricity Duty exemption for the period of 7 years from the date of commencement of commercial production.
2. 100% exemption from payment of stamp duty.
3. The Government of Maharashtra would give industrial promotion subsidy (IPS) equivalent to 100% of your "Eligible investment" (as defined in PSI 2007) i.e. Rs. 23.89 crores to be made w.e.f. 30-07-2007. The IPS will, however, be limited to 100% of your eligible investments less the amount of benefits available at Sr. No. 1 & 2 as per the period prescribed therein or to the Page 19 of 33 ITA No.3428/Mum/2016 Bhgyalaxmi Rolling Mills P. Ltd; AY.11-12 extent of taxes paid to the State Government within a period of 7 years, whichever is lower.
4. 75% reimbursement of exemption of expenditure incurred on account of employer's contribution towards Employees State Insurance (ESI) and Employees Provident Fund (EPF) for a period of 5 years limited to 25% of Fixed Capital investment.
Further, the learned Counsel for the assessee drew our attention to the eligibility certificate issued under Package Scheme of Incentives 2007 vide No. DI/PSI- 2007/Mega Project/ EC-08/2009/B-401 dated 03-01-2009. In the eligibility certificate the director of Industries has considered the capital cost invested by the assessee as under: -
1. Capital cost (Rs. In lacs) Particulars Maximum Admissible Fixed Capital Investments w.e.f.
Land & Site 0.00
Development
Building 666.67
Plant & Machinery 1719.52
(Including Electricals,)
Others 2.81
Total 2389.00
(Rupees twenty three cores
eighty nine lacs only) As per
Government offer letter
dated 29.05.2008
2. Date of start of 01.01.2008
Commercial Production
3. Validity period of EC & 7 years: from 01.02.2008 to 31.01.2015 Period for ED Exemption
4. Date of effect of the EC 01.02.2008
5. Period of Investment From 30.07.2007 to 29.07.2012 Page 20 of 33 ITA No.3428/Mum/2016 Bhgyalaxmi Rolling Mills P. Ltd; AY.11-12
7. As per eligible certificate clause 12 (which is given at page 85 of assessee's paper book) the above investment should be incurred within a period from 30-07-2007 to 29-07-2012 and the holder of the certificate i.e. eligibility certificate was to communicate to the director of industries, the value of fixed asset acquired to the aforesaid date within one month from such date. The assessee accordingly complied with the above condition. The learned Counsel for the assessee has given detail of land, building, plant and machinery acquired from BSAPL, the following are the details: -
8. The learned Counsel for the assessee also drew our attention to the relevant Para 3.2 of PSI-2007 listing eligible unit as under: -
""However, Industrial Projects with investment of more than Rs. 100 Crores or generating employment for more than 250 persons coming up in low human development district as mentioned in Annexure II will qualify as Mega Project Note: The Mega projects claiming the benefits based on employment criteria will have to employ the qualifying number of employees throughout the year and 75% of such employees should be local persons.Page 21 of 33 ITA No.3428/Mum/2016
Bhgyalaxmi Rolling Mills P. Ltd; AY.11-12 Extracts from Pan ii of Eligibility Certificate granted to Assessee"
The IPS will be admissible only after the Company employs at least 250 persons on a regular basis within two years from the date of commencement of commercial production in the first phase, and at least 75% of these employees are local persons."
Extracts from Pan 15 of Eligibility Certificate granted to Assesse if during the period/quarter, the number of persons employed on regular basis jails below 250 and/ or the percentage of' local employment falls below 75%, the Entrepreneur shall loose its Mega unit status and excess incentives drawn will be repaid forthwith together with penalty to be calculated at 15%.
From the above, it is clear that the assessee has to employ more than 250 persons throughout the year in low human development district i.e. Jalna which is treated as low human development district in PSI 2007. Amongst the aforesaid employees a condition was prescribed to have minimum 75% of employees to be local persons. Thus, according to the learned Counsel the only purpose of subsidy is for the dispersal of industries in low human index developed district and it has nothing to do with subsidizing cost of fixed assets / meeting cost of fixed assets. In order to fixed cost of subsidy, the minimum limit of subsidy is fixed at a certain percentage of fixed assets invested by assessee. Therefore, according to the learned Counsel for the assessee this is capital receipt of subsidy and not Revenue in nature. As regards to the disallowance of depreciation by the AO by invoking explanation 10 to section 43(1) of the Act and reduced amount of subsidy from fixed assets and consequently disallowed depreciation. It was argued by the learned Counsel for the assessee that the wordings of explanation 10 are unambiguous. In the present case, the cost of the asset is incurred and paid by the assessee and not met by the Government in form of subsidy. The method Page 22 of 33 ITA No.3428/Mum/2016 Bhgyalaxmi Rolling Mills P. Ltd; AY.11-12 of quantification i.e. the maximum subsidy limit is the only linked with cost of fixed assets. This quantification is for putting cap on maximum amount of subsidy eligibility. This method of quantification does not mean, in any way, that subsidy is given to offset cost of asset. It is very clear from PSI scheme as well as Eligibility certificate that subsidy is given to generate local employment in low human index district and receipt is in not for meeting or subsidizing cost of asset by Govt. The learned Counsel for the assessee relied on the various case laws, we will discuss latter on. On the other hand, the learned CIT DR relied on the assessment order and that of the CIT(A).
9. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that above facts are undisputed. The assessee received subsidy from Maharashtra Govt. for putting up mega project in backward area amounting to Rs. 11,51,75,000/- during the year under consideration. The assessee's project was eligible mega project as certified by directorate of industries. The assessee treated the subsidy as capital receipt. The AO while framing assessment disallowed depreciation by reducing the incentive received from Maharashtra State Government from the cost of the building and plant and machinery. The CIT(A) enhanced the income of the assessee by an amount of Rs. 9,91,44,875/- by holding that the subsidy received from the Maharashtra Govt. for putting up the mega project by the assessee in backward area is revenue receipt and full amount of the subsidy is taxable in this year. For applying explanation 10 to section 43(1) of the Act the AO relied on the decision of Hon'ble Delhi High Court in the case of Steel Authority of India Ltd. v. CIT (2012) 348 ITR 150 (Del) The CIT(A) for treating the subsidy as capital receipt relied on the decision of the Hon'ble Supreme Court in the case of CIT v. Sahney Steel and Press Works Ltd. [1985] 152 ITR 39 (SC). We find that the CIT(A) while deciding the nature of subsidy granted to the assessee has considered only the form in which the subsidy is granted and conditions based on which the subsidy is granted mainly being generation of employment of local persons. We find that this incentive was granted to the assessee under the Package Scheme of Incentive 2007 as notified by Govt. of Maharashtra. The Page 23 of 33 ITA No.3428/Mum/2016 Bhgyalaxmi Rolling Mills P. Ltd; AY.11-12 object of this scheme was to encourage the dispersal of industries to the less developed areas of the States and further improving conducive industrial climate in the State for providing global competitive edge to the states Industry. The policy envisage grant of fiscal incentive to achieve higher and sustainable economic growth with emphasis on balance regional development and employment generation through greater private and public investment in industrial development. As per this scheme of industrial projects, mega project has been defined, which is with investment of more than of Rs. 100 crore or generating employment for more than 250 persons coming up in low human development district as mentioned in Annexure-II of scheme qualified as mega project. Further, the mega project claiming the benefit based on employment criteria will have to employ 75% of such employees from local persons throughout the year. In view of these facts, it is evident that a purpose of the subsidy of IPS 2007 of Maharashtra Govt. is to dispersal of industries to less developed areas of State and to ensure sustained industrial growth. According to us, the subsidy received by the assessee under IPS-2007, in view of the above scheme and given facts of the case, is for industrial development in States backward area, which is capital in nature.
10. For this we are relying on the decision of Hon'ble Bombay High Court in the case of CIT v. Reliance Industries Ltd. (2011) 339 ITR 632 (Bom) wherein the same IPS-2007 was under consideration and Hon'ble Bombay High Court has held subsidy to be capital in nature by observing as under: -
" 4. So far as question (D) is concerned, the Tribunal relied upon the Tribunal Mumbai Bench "J" (Special Bench) decision in the case of assessee itself in Dy. CIT vs. Reliance Industries Ltd. (2004) 82 TTJ (Mumbai)(SB)765 : (2005) 273 ITR 16 (Mumbai)(SB)(AT). We may gainfully reproduce the following portion : "The scheme framed by the Government of Maharashtra in 1979 and formulated by its resolution dt. 5th Jan., 1980, has been analysed in detail Page 24 of 33 ITA No.3428/Mum/2016 Bhgyalaxmi Rolling Mills P. Ltd; AY.11-12 by the Tribunal in its order in RIL for the asst. yr. 1985-86 which we have already referred to in extension. On an analysis of the scheme, the Tribunal has come to the conclusion that the thrust of the scheme is that the assessee would become entitled for the sales-tax incentive even before the commencement of the production, which implies that the object of the incentive is to fund a part of the cost of the setting up of the factory in the notified backward area. The Tribunal has, at more than one place, stated that the thrust of the Maharashtra scheme was the industrial development of the backward districts as well as generation of employment thus establishing a direct nexus with the investment in fixed capital assets. It has been found that the entitlement of the industrial unit to claim eligibility for the incentive arose even while the industry was in the process of being set up. According to the Tribunal, the scheme was oriented towards and was subservient to the investment in fixed capital assets. The sales-tax incentive was envisaged only as an alternative to the cash disbursement and by its very nature was to be available only after production commenced. Thus, in effect, it was held by the Tribunal that the subsidy in the form of sales-tax incentive was not given to the assessee for assisting it in carrying out the business operations. The object of the subsidy was to encourage the setting up of industries in the backward area."
5. Thus, it can clearly be seen that a finding has been recorded that the object of the subsidy was to encourage the setting up of industries in the backward area by generating employment therein. In our opinion, in answering the issue, the test as laid down by the Supreme Court in CIT vs. Ponni Sugars & Chemicals Ltd. & Ors. (2008) 219 CTR (SC) 105 : (2008) 13 DTR (SC) 1 : (2008) 306 ITR 392 (SC) will have to be considered. The Supreme Page 25 of 33 ITA No.3428/Mum/2016 Bhgyalaxmi Rolling Mills P. Ltd; AY.11-12 Court has held that the test of the character of the receipt of a subsidy in the hands of the assessee under a scheme has to be determined with respect to the purpose for which the subsidy is granted. The Court further observed that in such cases, what has to be applied is the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. Form of subsidy is material. The Court then proceeded to observe as under: "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 of the subsidy was on capital account."
6. Therefore, let us apply the purpose test based on the findings recorded by the Special Bench. The object of the subsidy was to set up a new unit in a backward area to generate employment. In our opinion, the subsidy is clearly on capital account. In that view of the matter, question (D) as framed, would also not arise."
11. Similarly, Hon'ble Supreme Court in the case of CIT(A) v. Ponni sugars & Chemicals Ltd. (2008) 306 ITR 392 (SC) considering whether under a subsidy scheme, assessee a sugar mill, was obliged to utilized subsidy only for repayment of term loans undertaken by it for setting up new unit/ expansion of existing business, receipt of subsidy was held to be capital in nature. Hon'ble Supreme Court held that the character 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 this case one has to apply the purpose test and the point of time of payment of Page 26 of 33 ITA No.3428/Mum/2016 Bhgyalaxmi Rolling Mills P. Ltd; AY.11-12 subsidy is not at all relevant the source is immaterial and the form is also immaterial. If the object of the subsidy scheme was to enable the assessee to run the business more profitably, then the receipts was on revenue account but if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand its existing unit, then receipt of the subsidy was capital in nature.
12. In the present case before us also the assessee has set up a manufacturing unit in notified low human development district Jalana. The assessee has been granted eligibility certificate under PSI-227 No. DI/PSI-2007/ Mega Project /Ec- 08/2009/B-401 dated 03-01-2009 on specific criteria that the assessee shall employ 250 employees and at least 75% of same should be local persons. Accordingly, the assessee on complying all conditions of scheme, has received Industrial promotion Subsidy (Capital Incentive) from Govt. of Maharashtra under PSI-2007 Scheme. The same was claimed to be capital receipt and credited to capital reserve account by the assessee. We find that in the present case, the cost of the asset is incurred and paid by the assessee and not met by the Government in form of subsidy. The method of quantification i.e. the maximum subsidy limit is the only linked with cost of fixed assets. This quantification is for putting cap on maximum amount of subsidy eligibility. This method of quantification does not mean, in any way, that subsidy is given to offset cost of asset. It is very clear from PSI scheme as well as Eligibility certificate that subsidy is given to generate local employment in low human index district and receipt is in not for meeting or subsidizing cost of asset by Govt.
13. As regards to the issue of actual cost of the assets minus subsidy in view of explanation 10 to section 43(1) of the Act, this issue was not taken by Revenue to Hon'ble Calcutta High Court in the case of CIT v. Rasoi Ltd. (2011) 335 ITR 438 (Cal), wherein Hon'ble High Court has confirmed the Tribunal's order qua the issue of subsidy whether capital or revenue. It means the Tribunal's finding in respect to explanation 10 to section 43(1) of the Act has become final, wherein Tribunal following the decision of Hon'ble Supreme Page 27 of 33 ITA No.3428/Mum/2016 Bhgyalaxmi Rolling Mills P. Ltd; AY.11-12 Court in the case of CIT v. PJ Chemicals Ltd. (1994) 210 ITR 830 (SC) has considered the aspect of actual cost by observing as under: -
"6. From the above facts and circumstances, admitted facts are that during the year under consideration assessee company received incentive subsidy from Govt. of West Bengal under West Bengal Incentive Scheme, 1999 (WBIS) as encouragement for setting up of industrial project. It is also a fact that maximum limit of the subsidy was restricted with reference to the value of fixed capital investments in land, building, plant and machinery but no part of the subsidy was specifically intended to subsidize the cost of any fixed asset, therefore, it cannot be said that the subsidy was to meet a portion of cost of the asset. According to us, the assessee has rightly not reduced the amount of subsidy received from the actual cost/WDV of the fixed assets while claiming depreciation. It is also a fact that revenue during scrutiny assessments of the assessee for AY 2003-04 and 2004-05, the above stated subsidy was considered as capital receipt accepting the contention of the assessee. For the sake of consistency also the AO should not have changed the stand now. Even Hon'ble Supreme Court in the case of CIT v. P.J. Chemicals Ltd. [1994] 210 ITR 830/76 Taxman 611 has considered this issue and held that where Government subsidy is intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, the specified percentage of the fixed capital cost, which is the basis for determining the subsidy, being only a measure adopted under the scheme to quantify the financial aid, is not a payment, directly or indirectly, to meet any portion of the actual cost. Therefore, the said Page 28 of 33 ITA No.3428/Mum/2016 Bhgyalaxmi Rolling Mills P. Ltd; AY.11-12 amount of subsidy cannot be deducted from the actual cost under sec. 43(1) for the purpose allowing depreciation. It is further held that if Government subsidy is an incentive not for the specific purpose of meeting a portion of the cost of the assets, though quantified as a percentage of such cost, it does not partake the character of payment intended either directly or indirectly to meet the "actual cost". By implication, the above judgment also provides that if the subsidy is intended for meeting a portion of the cost of the assets, then such subsidy should be deducted from the actual cost, for the purpose of computing depreciation. As per Hon'ble Supreme Court, law is that if the subsidy is asset-specific, such subsidy goes to reduce the actual cost. If the subsidy is to encourage setting up of the industry, it does not go to reduce the actual cost, even though the amount of subsidy was quantified on the basis of the percentage of the total investment made by the assessee.
7. The law is already settled on the subject. Now, the only wavering is with reference to Explanation 10 provided under sec.43(1). The said Explanation provides that where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee. It is further, provided thereunder, that where such subsidy or grant or reimbursement of such nature that Page 29 of 33 ITA No.3428/Mum/2016 Bhgyalaxmi Rolling Mills P. Ltd; AY.11-12 it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee. In order to invoke Explanation 10, it is necessary to show that the subsidy was directly or indirectly used for acquiring an asset. This is again a question of fact. The relatable subsidy to such asset can be reduced from the cost only if it is found that the cost for acquiring that asset was directly or indirectly met out of the subsidy. Likewise in the proviso, it is necessary to show that the subsidy has been directly or indirectly used to acquire an asset but it is not possible to exactly quantify the amount directly or indirectly used for acquiring the asset. Here also, a finding of fact is necessary that an asset was acquired by directly or indirectly using the subsidy. The above Explanation and the proviso thereto do not dilute the finding of the Hon'ble Supreme Court in the case of P. J. Chemicals Ltd. (supra) that asset-wise subsidy alone can be reduced from the actual cost. The above Explanation and the proviso therein attempt to explain the law. They are not bringing any new law different from the law considered by the Hon'ble Supreme Court in the above cases."
14. From the above, we are of the view that it is only where subsidy is given specifically to offset the cost of an asset, such payment would fall within the expression 'met', whereas the subsidy received merely to accelerate the industrial development of the state cannot be considered as payments made specifically to meet a portion of the cost of the asset. Therefore, incentive in the Page 30 of 33 ITA No.3428/Mum/2016 Bhgyalaxmi Rolling Mills P. Ltd; AY.11-12 form of subsidy cannot be considered as a payment directly or indirectly to meet any portion of the actual cost and thus it falls outside the ambit of Explanation 10 to Section 43(1) of the Act. In the light of the above discussion, for the purpose of computing depreciation allowable to the assessee, the subsidy amount cannot be reduced from the cost of the capital asset. Accordingly, on both the issues we are of the view that the subsidy received by the assessee is capital in nature and it cannot be reduced from the cost of the fixed assets for computing depreciation. Accordingly, this inter-connected issue of assessee's appeal is allowed.
15. The next issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in disallowing advertising and sales promotion expenses on adhoc basis amounting to Rs.19,42,224.
16. At the outset, the learned Counsel for the assessee drew our attention to the relevant findings of the AO while making disallowance, which reads as under: -
"6.4 Since the said Selling & Distribution Expenses are not verifiable as to have been incurred for the purpose of business, and also since most of the expenses are made in cash, there is a high probability that the assessee might have debited excessive expenditure in Profit & Los account to show lower taxable income. In such circumstances, I feel it appropriate to disallow 20% of the expenditure, worked out at Rs.97,11,120 820% =19,42,224/-, which is added back to the total income of the assessee."
Aggrieved assessee preferred appeal before CIT(A), who sent back the matter back to the file of the AO for verification of facts. Aggrieved assessee is in second appeal before Tribunal.
17. We have heard the rival contentions and gone through the facts and circumstances of the case. Before us, the learned Counsel for the assessee stated Page 31 of 33 ITA No.3428/Mum/2016 Bhgyalaxmi Rolling Mills P. Ltd; AY.11-12 that most of the amounts are paid by cheque and only partly small amounts were through cash. It was argued that the total turnover is Rs.284/- crore and expenses are to the tune of Rs.97,11,120/-. The assessee gave details of expenses vis-à-vis turnover and also the details of payment in cash and cheque. It was claimed that the TDS is also deducted wherever applicable. The learned Counsel for the assessee stated that the AO as well as CIT(A) both made addition merely on surmises and without any reason. The assessee has given the following details: -
Head of Expenses Percentage remarks
expenses amount to total
turnover
Advertisement 42,51,534 0.14% Only Rs.21,282 paid by cash, all other
Expenses exps are incurred by cheque. TDS
deducted wherever applicable. Each &
every expense supported by Bail. We
have attached ledger and copies of bills
above Rs. 1 lacc. In most of bills vat or
service tax charged
Central Sales 6,800 0.0002% It is Central Sales tax charged on bill
Tax
Exhibition Exps. 2,36,562 0.008% Includes Rs. 71,475 for exhibition at
ICEA surat, Rs. 56,000/- ACCE Solapur
paid by cheque. All expenses supported
by Bills.
Food Expenses 2,36,562 0.008% It is only 0.013% of sales, supported by
bills. Total marketing staff is more than
100.
Hotel & 9,676 0.013% Small expenditure. Ledger Attached.
Lodging (Mkt)
Local 1,36,746 0.004% Local conveyance of staff. Ledger with
Conveyance full details attached. All supported by
vouchers
Lodging (MKt & 1,33,860 0.004% It is only 0.04% of sales, supported by
Guests) bills. Total marketing staff is more than
100.
Marketing 34,70,647 0.12% Ledger Attached. All supported by bills.
expenses Copies of major bills attached. Includes
Rs.7,90,000/- for purchase of Polaad
bags for Marketing, Rs.2,25,750/- for
500 sweet box at Diwali for marketing
staff, Rs.2,26,042/- for staff at nasik
(TDS deducted)
Page 32 of 33
ITA No.3428/Mum/2016
Bhgyalaxmi Rolling Mills P. Ltd; AY.11-12
Other Expenses 2,55,322 0.009% Small expenses, Ledger attached, all
supported by vouchers.
Printing Exp 2,53,085/- 0.009% Ledger attached, paid by Cheque
Travelling Exp 5,60,530/- 0.018% It is only 0.018% of sales, supported by
(Mkt) vouchers. Total marketing staff is more
than 100.
18. In view of the above details given by the assessee and the fact that the AO has estimated the disallowance on adhoc basis, we are of the view that a reasonable disallowance of Rs. 5 lakhs will meet the end of justice, to which the learned Counsel for the assessee is also agreed. Accordingly, we allow this issue of assessee partly.
19. In the result, the appeal of assessee is partly allowed.
Order pronounced in the open court on 03-03-2017.
Sd/- Sd/-
(RAJESH KUMAR) (MAHAVIR SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 03-03-2017
Sudip Sarkar /Sr.PS
Copy of the Order forwarded to:
1. The Appellant
2. The Respondent.
3. The CIT (A), Mumbai.
4. CIT
5. DR, ITAT, Mumbai
6. Guard file.
BY ORDER,
//True Copy// Assistant Registrar
ITAT, MUMBAI
Page 33 of 33