Income Tax Appellate Tribunal - Chandigarh
Steel Strips Wheels Ltd., Chandigarh vs Department Of Income Tax on 17 July, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCH 'A' CHANDIGARH
BEFORE Ms.SUSHMA CHOWLA, JUDICIAL MEMBER
AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER
ITA No. 1115/CHD/2010
Assessment Year: 2007-08
ACIT, Circle 5(1), V M/s Steel Strips Wheels Ltd.
Chandigarh. SCO 49-50, Sector 26,
Madhya Marg, Chandigarh.
PAN: AACCS-3003L
&
ITA No. 1139/CHD/2010
Assessment Year: 2007-08
M/s Steel Strips Wheels Ltd. V ACIT, Circle 5(1),
SCO 49-50, Sector 26, Chandigarh.
Madhya Marg, Chandigarh.
(Appellant) (Respondent)
Department by : Smt. Jyoti Kumari
Assessee by : Shri Rajesh Garg
Date of Hearing : 17.07.2012
Date of Pronouncement : 29.08.2012
ORDER
PER MEHAR SINGH, AM
These are cross-appeals, filed by the Revenue and the assessee respectively, against the order dated 14.06.2010 passed by the ld. CI T(A) u/s 250(6) of the Income-tax Act,1961 (in short 'the Act') for the assessment year 2007-08.
2. In ITA No.1115/Chd/2010, The Revenue has raised the following Grounds of Appeal:
"1. On the facts and in the circumstances of the case and in 2 law, the Ld. CIT(A) has erred in allowing appeal of the assessee without appreciating the facts of the case.
2. On the facts and in the circumstances of the case and in law the Ld.CIT (A) has erred in deleting the addition of Rs.9,32,34,275/- made by the A.O. on account of die and tool charges expenditure. The Ld. CIT(A) has failed to appreciate the facts that the expenditure is to be capitalized and not to be treated as revenue expenditure.
3. On the facts and in the circumstances of the case and in law the Ld. CIT (A) has erred in deleting the addition of Rs. 15,59,413/-made by the A.O. on Technical know-How. The Ld. CIT(A) has failed to appreciate the facts that the expenditure on technical know-how is to be capitalized and not to be treated as revenue expenditure.
4. On the facts and in the circumstances of the case and in law the Ld. CIT (A) has erred in deleting the addition of Rs. 13,94,043/- on account of prior period expenses by not appreciating the facts that every year is an independent year and as per accounting standard and method of accounting being following by the assessee, no expenses related to any previous year shall be allowed as deduction in the subsequent year.
5. On the facts and in the circumstances of the case arid in law the Ld. CIT (A) has erred in deleting the addition of Rs.60,34,757/- (Rs. 11,19,043/- on account of prior period consultancy +Rs. 9,15,714/- on account of redemption Premium on OCPS). The assessee follows mercantile system of accounting and both these items do not relate to the relevant assessment year in which these have been claimed.
6. It is prayed that the order of the Ld. CIT (A) be set aside and that of the Assessing Officer may be restored.
7. The appellant craves leave to add or amend any grounds of appeal before the appeal is heard or is disposed off."
3. In ITA No. 1139/Chd/2010, the assessee has raised the following grounds of appeal :
"1. That the ld. CIT(A) has erred in confirming the disallowance of Rs.4,68,87,361 being notional sales tax liability on account of sales tax exemption/subsidy treating the same as revenue receipt, whereas, the same is a capital receipt. Therefore the addition of Rs.4,68,87,361/- may kindly be deleted.
2. That the ld. CIT(A) has erred in confirming the charging of interest u/s 234B, whereas the assessee is not liable to pay any interest under Section 234B of the Income-tax Act, as the assessee was under bona fide belief that the Sales Tax Subsidy is a capital receipt not liable for tax. Therefore, interest charged u/s 234B may please be deleted.
3. That assessee craves leave to add, alter and amend the above ground of appeal before the same is heard or disposed of.3
4. It is respectfully prayed that the relief may kindly be allowed to the assessee keeping in view of the aforesaid ground of appeal."
4. Ground NO. 1 raised by the revenue is general in nature and needs no adjudication. Therefore, the same is dismissed.
5. In Ground No.2, revenue contended that CI T(A) erred in deleting addition of Rs.9,32,34,275/-, made by the AO, on account of die and tool charges expenditure.
6. In the course of present appellate proceedings, it transpired that the issue is covered by the order of the Tribunal dated 27.11.2007, in assessee's own case in I TA No. 341/Chd/2007, assessment year 2004-05 vide para 7 & 8 of the order.
7. We have carefully perused the ground raised by the revenue. The identical issue is found covered by the order of the Tribunal, in assessee's own case, as indicated above. For the sake of ready reference and proper appreciation of the issue in question, relevant part of the said order of the Tribunal is reproduced hereunder :
"7. It is agreed by the parties that the issue is covered in favour of the assessee by the decision of the Tribunal in assessee s own case for assessment year 2001-02 (supra). The relevant discussion and findings on this issue contained in para Nos 12 and 13 o! the order which are reproduced hereunder and adopted for the disposal of the ground of appeal raised by the Revenue:
12. The next ground raised by the revenue is that the Id CIT(A) erred in treating the die Tooling charges as revenue expenditure as assessed 4 as capital expenditure being of enduring nature.
The Id DR supported the assessment order and placed reliance upon the decision in CIT vs Saraswati Industrial Syndicate ltd (166 ITR 366) and 78 ITD 327. On the other hand the contention of the learned counsel for the assessee that for earlier assessment years, on identical fact, it was allowed as revenue expenditure Reliance was a/so placed upon the decision in the case. of CIT vs Madras Spinners Ltd (177 ITR 495) and 275 ITR 403.
13. We have considered the rival submissions and perused the material available on the file. The claim of the assessee before the Id assessing officer was as under:-
"The company has claimed die tooling charges of Rs.55791 08/- as revenue expenditure whereas the same has been capitalized in the books of account but the company has not claimed any depreciation on the same in the income tax return. The company has incurred the above said expenditure for development of die toolings to manufacture the automotive wheel rims with an object of achieving the maximum output. The expenditure has been incurred with an object of improving the existing products already manufactured by the company and d o e s n o t r e l a te to s e t t i n g u p to a l t o g e t h e r n e w product or for selling up of a new unit. The company by incurring such expenditure has only effected ec onomy and efficiency in manufacturing of the e x is tin g p r o d u c t s a n d o b ta in e d o n ly b u s in e s s advantage. As the expenditure incurred is not of enduring nature to put in the category of capital expenditure and hence 'the same may please be allowed as revenue expenditure.
However, the Id assessing officer treated the impugned amount as capital expenditure which was deleted by the Id CIT(A) against which the revenue is in appeal before the Tribunal We have found that the Tribunal in the case of DC/7" vs Metalman Auto Private Ltd (78 ITD 227) Chandigarh, on identical fact, decided in 5 favour of the assessee it was held to be revenue in nature since the expenditure were incurred for modernization of existing projects which was already manufacturing the same products, and simply to increase the business more efficiently and more profitability especially when the expenses were incurred for making technological changes, it is not the case of the revenue that new machinery was installed rather t h e a s s e s s e e i n c u r r e d e x p e n s e s f o r t h e improvement of product and quality with an object of achieving maximum output by improving the already existing machinery, therefore, it cannot be said that it is setting up of altogether new business. The assessee company by incurring such expenditure has only improved the efficiency in manufacturing of existing products more e c o n o m i c a l l y f o r t h e of getting maximum business advantage view of these facts, we have no t found any defect in the conclusion of the Id CIT(A). Consequently this ground of the revenue is also dismissed."
8. Since the decision of the CIT(A) is in accord with the decision of t h e Tribunal in assessee's case referred to above, we find no j u s t i f i c a t i o n t o i n t e r f e r e with the order of t h e Commissioner of Income-tax (A). The ground of appeal raised by the Revenue is, thus dismissed".
9. In view of the identical issue covered by the decision of the Tribunal in assessee's own case, reproduced above, we are of the considered opinion that this ground of appeal, raised by the revenue, stands covered. Therefore, respectfully following the decision of the Tribunal, this ground of appeal of the revenue is dismissed.
10. In Ground No.3, revenue contended that CIT(A) erred in deleting the addition of Rs.15,59,413/- made by the AO on technical know-how. It is, further, contended 6 therein that CIT(A) failed to appreciate the facts that expenditure on technical know-how is to be capitalized and not to be treated as revenue expenditure.
11. In the course of present appellate proceedings, it transpired that the identical issue is covered by the above referred order of the Tribunal, in assessee's own case. The relevant part of the Tribunal's order, as contained in para 3 to 5, is reproduced hereunder, for the purpose of proper appreciation of the issue involved and the findings of the Tribunal :
"3. Ground N o . 1 r a i s e d by t h e R e v e n u e is as under :-
' On the facts and in the circumstances of the case, the learned Commissioner of Income-tax ( A ) h a s erred In Allowing relief of Rs.45,45,968/- in respect of technical know how expenses treating th e same as revenue expenses as against capital expenditure assessed by the Assessing Officer"
4. The parties agreed that the issue is covered in favour of the assessee by the decision of the Tribunal for assessment year 2001-02 in ITA No. 750 Chandi/2005 order dated 30.7.2007. The said order has further been followed in assessment year 2003 04 in I . T . A . N o . 897/Chandi/2006 order dated 3 0 . 7 . 2 0 0 7 For t h e sake of ready reference and a d o p t i n g t h e r e a s o n i n g we reproduce para N o s - 9 t o 1 1 o f t h e order of the Tribunal in I.T.A No 750/Chandi/2005 ( s u p r a ) as under :
"9. Next ground raised by the revenue is that the Id CIT(A) erred in allowing relief to the assessee on account of disallowance of expenses on technical 7 know-how at Rs. 58.44. 71 1/- treating them as revenue as against capital expenditure- as assessed by Id assessing officer. In nutshell, the ld Sr DR supported the assessment order Reliance was placed upon the decision in 224 ITR 342 and 251 ITR 155. On the other-hand, the Id counsel for the assessee filed the copy of agreement by contending that it was expansion of the business. Reliance was placed upon 236 ITR 471 269 369. I TA "No 1 4 6 9/Chd/95 and 236 !TR 314(SC)
10. We have considered the rival submissions and perused the material available on the file. The assessee paid a sum of Rs.58,44,711/- under technical collaboration agreement, to M/s Ring Tech-
Company Japan. A sum of Rs.25,53,906/-
was paid under the o ri gi n al agr e e m e n t f or t he pe r i od of 3 y e ar s f r om 23.6.97 to 22.6.2000 and Rs. 32.90.805/- was paid under the new agreement which is extension of original agreement from 23.6.2000 to 22.6.2002 for a period of 2 years. As per the assessee the main purpose of these agree me nts was to increase the productivity from present average level of 210 wheels per hours to 340 wheels per hours and further for reduction of rejections substantially. Similarly, the main object of the second agreement was to improve productivity resolution of licenses chronic quality problems reducing process rejection/rework, and technical up-
gradation in the existing car line and Introducing of the manufacturing facility of tractor wheels. The contention of the revenue is that it should be assessed as 8 capital expenditure Th e o b s e r va ti o n o f th e I d a s s e s s in g o ff ic e r i s reproduced herewith:
"Attention is invited to section 32(1 )(n) wherein know how is considered to be an intangible asset .w.e.f. 1 . 4 . 9 9 . It may be pointed out that the Technical Collaboration agreement signed originally on 23.6. 1997 by the assessee's own admission has been renewed from 2 3 . 6 2000 and is therefore squarely covered under the said provision of the statute The case law cited as CC/T v Met aim an A LI to (P.) L t d (78 ITR 327) is not applicable to the instant case since the same pertains to assessment year 1 9 9 1 - 9 2 when the Income Tax Act did not recognize technical kn ow how a s an intangible a sset on w hich depreciation is allowable.
Further. it is seen that the Technical Collaboration agreement has specific clauses regarding the training of engineers w r . t specific items viz training in rims, training in discs and training in design etc The venues fro training vary with the specific items as aIso training schedules. It has also been categorically specified in the technical collaboration agreement that the expenses towards the foreign and domestic travel of t h e technicians would have to be borne by the assesses From the details of the foreign traveling expenses, it is noticed that the entire expenditure has been incurred towards to & fro travel between Japan and India for the purposes of training as per the technical collaboration agreement."
If the aforesaid conclusion of the Id assessing officer is analysed, it says that these expenses are linked to the expansion of the present unit and virtually it is a new unit, therefore, the expenses are of capital nature whereas the conclusion of the Id CIT(A) is as under:-
"The assessee was paying technical know how fees to M/s Ring Tech Co Japan to increase the production and to reduce the rejections so as to improved the production quality and make the operation profitable. No capital asset as such has been acquired by the company which could be considered to be of enduring nature The object was (o effect economy and efficiency in the manufacturing process The acquisition of the knowledge has helped m substantial increase in production but in face of swift changes occurring in the technological world, it cannot be said that the changed method of the technology acquired by the appellant would be of permanent nature. The Hon'ble Supreme Court decision in the case of Alembic 9 Chemical Works Co Ltd v CIT reported in 177 ITR 377 is applicable to the facts of the case S o a l so t h e d e c i s i o n o f t h e H o n ' b l e I TA T Chandigarh Bench in the case of DCIT v Metalman Auto P. Ltd 78 /TO 327. Taking into account all the above facts and following the above judgment, the disallowance made on this account is held to be unjustified and the same is deleted."
11. If the facts of the case and (he conclusion drawn by Id assessing officer/CIT-{A) are analysed, the decision of the Id first appellate authority seems to be more reasoned one which is based on various judicial pronouncements identical to the facts of the present appeal. The assessee /s further fortified by the decision of the Hon'ble jurisdictional High Court in the case of CIT vs Swaraj Engines Ltd (2006) 203 CTR 310(P&H). .wherein the assessee claimed deduction for an amount of Rs. 26,65,340/- paid to M/s Kirloskar Oil Engines Ltd as royalty on the basis of agreement for the purposes of acquiring technical know how. It was decided in favour of the assessee by upholding the decision of the Tribunal The Hon'ble Court has 'a/ready considered (he decision of the Hon'ble Apex Court pronounced in the case of Radha Swami Vs CIT (193 ITR
321). CIT vs Wavin (India) Ltd. (236 ITR 314) and various other decisions The Hon'ble Gujrat Higi Court in the case of C!T vs Mihir Textiles Ltd (2006) 287 ITR 232. on identical fact decided in favour of the assessee by holding ''technical service fee i& deductible. While coming to this conclusion the Hon'ble Court followed the decision in CIT vs Ashoka Mills Ltd (218 ITRi 526)(Guj) The Hon'ble Apex Court in the case of Alemoic Chemical Works Co Ltd v CIT (177 ITR 377) (SC). the 'Hon'ble Kerala High Court in the case of CIT v Madras Spinners Ltd (177 ITR 495) and the Hon'ble Andhra Pradesh High Court in the case of Vejan Hydrair (P) Ltd v CIT ('77 ITR 552). on identical fact, held that the amount so paid under the agreement is revenue expenditure However the Hon'ble Apex Court in the case of Jonas Woodhead & Sons (India) Ltd vs CIT (224 ITR
342) wherein composite payment for supply of technical know how and services for setting up plant and manufacture of product, it was held that the expenditure is of enduring benefit to the assessee, therefore, is of capital nature. The Hon'ble Calcutta High Court in the case of 10 Shri Ram Bearings Ltd (251 !TR 155) wherein the assessee was allowed to use technical know how even after period of agreement, it was held that the benefit is of enduring nature, therefore is of capital in nature However, keeping in view the facts and circumstances and the latest decision of the Hon'ble jurisdictional High Court in the case of Swaraj Engines Ltd dated 1 8" :
May ,2006 wherein the Hon'ble Com: has already followed the : decisions from the Hon'ble Apex Court in the case of Radha Swami Satsang vs CIT (supra) and Wavin India Ltd (supra), we uphold the stand of the Id CIT(A) Consequently, this ground of the revenue is also having no merit,"
Respectfully following the above order of the Tribunal we uphold the view of the Commissioner of Income-tax (A) and dismiss the ground of appeal raised by the Revenue in this regard."
12. We have carefully perused and considered ground of appeal raised by the revenue and identical issue, covered by the Tribunal in assessee's own case, referred to above and found that the said ground raised by the revenue, is squarely covered by the decision of the Tribunal, reproduced above. Respectfully following the Tribunal's order, this ground of appeal of the revenue is dismissed.
13. In Ground No.4, revenue contended that on the facts and circumstances of the case, and in law, CIT(A) erred in deleting the addition of Rs.13,94,043/- on account of prior period expenses, by not appreciating the facts that every year is an independent year and as per accounting standard, and method of accounting, being followed by the assessee, no expenses related to any previous year, shall be allowed as deduction in subsequent year.
14. Ld. 'DR' supported findings of the AO, as contained in assessment order. He, further, referred to para 9 of the 11 order of the first appellate authority. Ld. 'AR', on the other hand, supported the findings of the CI T(A).
15. We have carefully perused the rival submissions, facts of the case and the relevant record in the matter. The AO, found that the appellant had claimed prior period expenses, amounting to Rs.13,94,043/- in the Profit & Loss Account. The AO, rejected the explanation filed by the assessee, in the matter that as the assessee was following mercantile system of accounting, such expenses should have been debited in the year, when loss actually occurred to the assessee. It was, further, observed by the AO that each financial year is an independent year and as per accounting standards, and the method of accounting being followed by the assessee, no expenses, pertaining to any previous year are allowable expenses. Consequently, AO, made an addition of Rs.13,94,043/- to the income of the assessee. 15(i) In the course of appellate proceedings, before the CIT(A), it was contended by the appellant that AO erred in considering the fact that assessee had written-off loss in the current assessment year, as it became irrecoverable in the current year itself and loss has actually occurred in the current year and written-off a sum of Rs.2,75,000/- as income, which is also pertaining to earlier years. The Department cannot take different stands, while taxing the previous income during the current year and disallowing the expenditure which admittedly occurred and written-off in the current year itself. It was collectively decided by the top officials of the company to write-off the amount as the same 12 is not recoverable. The approval note dated 31.5.2006, authorized by concerned Departmental Head for writing-off the amount, has been enclosed. The company is run by the concerned officials and the decision is taken by them, to write-off the amount during assessment year 2007-08. Therefore, the same has been ordered and ascertained during the year and written-off, on 10.6.2006. This amount was expended wholly and exclusively for the purpose of assessee's business, as the amounts were not recovered, so had to be written-off in the books of account. Ld. CIT(A), allowed this ground of appeal of the assessee by following the decision of the Gujrat High Court, in the case of Saurashtra Cements & Chemicals Industries Ltd. V CIT, 213 I TR 523 (Guj) and the decision of the Bombay High Court in CIT V Nagri Mills Co. Ltd. 34 ITR 68. A bare perusal of para 12 of the appellate order, whereby this ground is allowed, reveals that ld. CIT(A) has passed cryptic and laconic order, without even marshalling out the facts of the case properly, in the context of the relevant provisions of the Act and the findings given by AO. The assessee appellant has taken the decision to write-off the loss in the assessment year under reference as is evident from the submission made before the CI T(A), without establishing the factum that the loss has occurred in the period under reference. Mere writing-off loss by taking a decision by the Management, does not render the appellant eligible for deduction u/s 37 of the Act. Further, it is not the case of the assessee appellant that provisions of Section 36(1)(vii) 13 read with sub-section (2) thereof, are applicable to the fact- situation of the present case. Even, ld. CI T(A) has cited, just case-laws, without contextualizing the ratio of the case- laws, to the fact-situation of the present case. In view of such a situation, we deem it fit, to restore the issue in question to the file of CIT(A), to meet the end of justice and to adjudicate the issue afresh, as per the relevant provisions of the Act. Accordingly, the issue in question is restored to the file of the CIT(A), with a direction, to pass speaking order, having regard to the fact-situation of the present case and the relevant provisions of the Act. Needless to say that CIT(A) must afford reasonable and proper opportunity to both the parties. Thus, this ground of appeal is allowed for statistical purposes.
16. In Ground No.5, revenue contended that CI T(A) erred in deleting addition of Rs.60,34,757/- {Rs.11,19,043/- on account of Prior Period Consultancy + Rs. 49,15,714/- on account of redemption premium (OCPS) }. It was, further, contended that assessee is following mercantile system of accounting and both these items relate to the relevant assessment year, in which these have been claimed. 16(i) In the course of present appellate proceedings, ld. 'DR' placed reliance on the order passed by the AO, whereas ld. 'AR' referred to page 9 of the appellate order and para 8 of assessment order. Ld. 'AR' further placed reliance on the submission filed before CIT(A) and decision as reported in Saurashtra Cements & Chemicals Ind. Ltd. (supra). The appellant is aggrieved by the action of the AO, for not 14 allowing the following deductions, while computing book profit u/s 115JB of the Act, by observing that there is no such provision in Section 115JB of the Act :
"i) Fringe benefit tax Rs.10.15 lacs
ii)
(a) Redemption premium on OCPS Rs.49.15 lacs
Consultancy fee w/off Rs.60.34 lacs
(b) (Rs.13.94 lacs-Rs.2.75 lacs) Rs.11.19 lacs
(Booked under the head prior -------------------
Period adjustment)"
17. Ld. CIT(A), on appreciation of the detailed submissions and case-laws stated therein, adjudicated the issue in favour of the revenue. The relevant findings of the CI T(A), as contained in para 21 to 26 are reproduced hereunder :
"21. Having considered the contentions of the assessee, I find that the issue of FBT is covered by Circular 8 of 2005 dated 29.8.2005. CBDT has clarified the issue vide Q.No. 103 which is reproduced as under :
103. Whether FBT would be allowable deduction while computing 'bookprofit' under section 115JB?
Ans. FBT is a liability qua employer. It is an expenditure laid out or expended wholly and exclusively for the purposes of the business or profession of the employer. However, sub-clause (ic) of clause (a) of section 40 of the Income-tax Act expressly prohibits the deduction of the amount of FBT paid, for the purposes of computing the income under the head 'profits and gains of business or profession'. This prohibition does not apply to the computation of'bookprofit'for the purposes of section 115JB. Accordingly, the FBT is an allowable deduction in the computation of 'bookprofit' under section 115JB of the Income- tax Act.
22. In view of the above, the AO is directed to exclude the FBT from computation of book profit.
23. Further, I find that the appellant has correctly debited the premium amount on the redemption of optionally convertible preference shares as the same is in accordance with the generally accepted accounting principles. If the profit has been determined in accordance with Part-II & Part-Ill of Schedule VI of the Companies Act, 1956 and is consequently inconsistent with the generally accepted accounting principles, then profit cannot be disturbed for the purpose of determining the MAT liability. In the instant case, neither the Assessing Officer has objected that the treatment of premium paid on the redemption of optionally convertible preference shares is not in accordance with the Schedule VI / generally accepted accounting principles nor is there any material on record to the contrary.
24. Regarding consultancy fee, the appellant has correctly written off the non- refundable part of consultancy fee to the profit & loss account under the 15 head 'prior period adjustment' as the same was audited & accepted by the Statutory Auditor of the Company. Once the accounts are audited and there is no audit objection, profits cannot be disturbed.
25. Besides, for the purpose of determining the MAT liability, I rely upon the principle laid down by the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. vs. CIT, 255 ITR 273. As per the ratio of this judgement, once the profit has been determined in accordance with the Part-II & III of Schedule VI of the Company's Act, 1956 and the accounts audited by the auditor of the Company having no audit objection with respect of Schedule VI, then the net results as declared by the profit & loss of the assessee is to be accepted unless the Assessing Officer brings on record, the necessary material/evidence to establish that profit & loss account was inconsistent with Schedule VI of the Company's Act 1956. In the instant case, the assessee has already discharged its onus by placing on record the financial statement e Assessing Officer has failed to establish that the accounts were not prepared in accordance with the Schedule VI of the Company's Act.
26. In view of the above discussion, the appeal on the issues raised in Ground No.5 is allowed."
18. The circular issued by the CBDT clarified the issue vide question No. 103 which has been reproduced in the appellate order under para 21, wherein it has been stated that prohibition regarding allowability of FBT does not apply to the computation of book profit for the purpose of Section 115JB. Accordingly, FBT is an allowable deduction in computation of book profit u/s 115JB of the Income-tax Act. Therefore, the findings of the CIT(A) based on the Board's Circular, cannot be assailed. Ld. CI T(A) found that the appellant had correctly debited the premium amount on the redemption of optionally convertible preference shares, as the same is in accordance with generally accepted accounting policies. Ld. CIT(A) also placed reliance on the decision of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. V CIT 255 ITR 273, wherein it has been held that once the profit has been determined in accordance with part II and III of Schedule VI of the Companies Act, 1956 and the accounts are audited by the auditor of the company, having no audit objection, with respect to Schedule VI, then net 16 results, as declared by the Profit & Loss Account of the assessee, is to be accepted, unless the AO brings on record the necessary material to establish that Profit & Loss Account was in consistent with Schedule VI of the Companies Act, 1956. In the present case, revenue has not placed any material on record to displace the submission/contentions made by the assessee and to distinguish the applicability of the ratio of the decision relied upon by the CI T(A).
19. Having regard to the detailed findings given by the CIT(A), in accordance with relevant provisions of the Act, factual matrix of the case and the decision by Hon'ble Supreme Court, in the case of Apollo Tyres Ltd. V CI T (supra), we do not find any infirmity therein, hence, the same are upheld and ground of appeal of the revenue is dismissed.
20. Ground Nos. 6 & 7 are general in nature and need no separate adjudication. Accordingly, the same are dismissed.
21. In the result, appeal of the revenue is partly allowed for statistical purposes.
ITA No. 1139/Chd/2010 (Assessee's appeal)
22. In Ground No. 1, assessee has contended that CIT(A) erred in confirming the disallowance of Rs.4,68,87,361/- being notional sales tax liability on account of sales tax exemption/subsidy, treating the same as revenue receipt, whereas the same is capital receipt.
17
23. We have carefully perused the rival submissions, facts of the case and the relevant record. In the course of assessment proceedings, it was found by the AO that assessee received sales tax subsidy of Rs.4,68,87,361/- and treated the same as capital receipt. Ld. AO, afforded opportunity to the assessee, as to why such sales tax subsidy should not be treated as revenue receipt, following the decision of the Hon'ble Supreme Court in the case of CIT V Abhishek Industries Ltd. 286 ITR 1. On consideration of the submissions filed by the assessee, wherein the decision of the I TAT, Chandigrh Bench in the case of M/s Virender Agro Chemical Ltd., rejected the contention of the assessee by placing reliance on the decision of the jurisdictional High Court in the case of M/s Abhishek Industries Ltd. (supra).
24. We have carefully perused the rival submissions, facts of the case and the relevant record. It would be pertinent to reproduce the relevant part of the decision of the Hon'ble jurisdictional High Court in the case of M/s Abhishek Industries Ltd. (supra), on the direct issue of sales tax subsidy. The relevant part of the decision is reproduced hereunder :
"(ii) That the benefit under rule 4A of the Punjab General Sales Tax (Deferment and Exemption )Rules, 1991, accrued for a period of 10 years from the date of production and the quantum was fixed at 300 per cent of the fixed capital investment for category.
A industries and 150 per cent of the fixed capital investment for category B industries to be availed of within 7 years. Besides this, there was no other document or material to substantiate the assessee's contention that the sales tax subsidy of the kind under consideration should be treated as capital receipt and not a revenue receipt or to show that the kind of subsidy under consideration was given to the assessee for creation of capital 18 asset as an aid to setting up of the unit. Rather, it was evident that the subsidy was an operational subsidy provided by the State after the industry had been set up and commenced commercial production. In the absence of material to show that the subsidy was to enable it to carry out capital investment it could not be presumed that such a subsidy was to enable it to carry out capital investment it could not be presumed that such a subsidy was a capital subsidy.
Sahbey Steel & Press Works Ltd. v. CIT (1997) 228 ITR 253 (S.C) and CIT V Rajaram Maize Products (2001) 251 ITR 427 (S.C) applied."
25. The assessee appellant submitted that the impugned sale tax subsidy is given to the assessee under the scheme is to build a conducive industrial climate, to attract fresh investment and also facilitate the growth and expansion of the industry in the State. For creating more job opportunities for youth, the State Government, has announced a number of incentives, packages under the Industrial Policy and incentive before 1996, one of which is the Sales Tax Subsidy Scheme. Under the scheme, company has been granted Sales Tax exemption for a period of 10 years. The appellant also placed reliance on the decision in the case of CIT V Ponni Sugar & Chemicals Ltd. 219 CTR
105. The assessee also placed reliance on the decision cited before the AO.
26. We have carefully perused the rival submissions, facts of the case, relevant records and the decision relied upon by both the parties. Ld. 'AR' placed reliance on the decision of Jammu & Kashmir High Court in the case of Shri Balaji Alloys V CI T, wherein Excise Duty refund has been considered as capital receipt. Respectfully, it is submitted that the decision of the Hon'ble Jammu & Kashmir High Court is not applicable to the facts of the present case, 19 being factually different and distinguishable. The decision of the Hon'ble jurisdictional High Court in the case of Abhishek Industries (supra) squarely covers the issue in the present case.
26(i) Assessee placed reliance in the case of CI T V Ponni Sugar & Chemicals Ltd. 306 ITR 392 (S.C) and on appreciation of the ratio and facts of the case, relied upon by the appellant, we find that the same is not applicable to the facts of the present case. In the case relied upon by the appellant, the subsidy was granted for repayment of the capital loans and the loan was utilized by the assessee to set up new unit. In view of this, the ratio of the decision relied upon by the assessee is not applicable to the present case. The decision of the Hon'ble Supreme Court, in the case of Sahney Steel Press Works Ltd. V CIT (1997) 228 ITR 253 (S.C) is squarely applicable to the fact-situation of the present case. In this case, Sales Tax Subsidy has been granted by the Government to the assessee, to assist in his business and such subsidy is patently of revenue nature. Such subsidies are subsidiary trade receipts and not capital receipts. It is a subsidy given for running business and the issue in present case is directly covered by the decision of the jurisdictional High Court in the case of Abhishek Industries (supra). Further, in the assessee's case, the issue in question has been decided against the appellant in ITA No. 341/Chandi/2007 A.Y. 2004-05. Hence, this ground of the appellant is dismissed.
20
27. In Ground No. 2, assessee contended that CI T(A) erred in confirming the charging of interest u/s 234B, whereas assessee is not liable to pay any interest under the said Section, as the assessee was under bonafide belief that Sales Tax Subsidy is capital receipt.
27(i) We have carefully perused the rival submissions, facts of the case and the relevant record. The issue has been dealt with by the ld. CI T(A) in para 28 and the relevant para is reproduced hereunder :
"I have carefully considered the issue. Charging of interest is mandatory in nature as held by Hon'ble Supreme Court in the case of Anjum M. H. Ghaswala And Others, 252 ITR 1 (SC). The Hon'ble Punjab & Haryana High Court has also opined that the interest is mandatory in nature as held by it in the case of Upper India Steel Mfg. And Engg. Co. Ltd., 279 ITR 123 (P&H). Reliance is also placed on the decision of Hon'ble Punjab & Haryana High Court in the case of Vinod Kurana, 253 ITR 578. Thus, in view of these judicial opinions, this ground of the assessee is dismissed.
27(ii) Having regard to the findings of the CI T(A), wherein decision of the Supreme Court has been cited, including that of the Hon'ble jurisdictional High Court, this ground of the assessee is dismissed.
27(iii) Accordingly, appeal of the assessee is dismissed.
28. In the result, appeal of the revenue is partly allowed for statistical purposes and that of the assessee is dismissed.
Order pronounced in the Open Court on 29 t h Aug.,2012.
Sd/- Sd/- (SUSHMA CHOWLA) (MEHAR SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 29 t h Aug.,2012. 'Poonam' Copy to:
The Appellant, The Respondent, The CI T(A), The CI T,DR Assistant Registrar, I TAT Chandigarh