DCIT, C-1, LUDHIANA vs. M/S VARDHMAN TEXTILES LIMITED, LUDHIANA

आदेश/ORDER have been preferred against separate orders of the Commissioner of Income Tax(Appeals-I, Ludhiana [(in short referred to as ‘CIT(A)’] dated 8.2.2019, 11.2.2019 and 1.2.2019 relating to assessment years 2008-09, 2009-10 and 2013-14 respectively, passed u/s 250(6)) of the Income Tax Act, 1961 (hereinafter referred to as ‘Act’.

2. That the Ld.CIT(A) erred in law and on facts in upholding the applicability of section 14A of the Income Tax Act, 1961 read with Rule 8D and making disallowance thereunder ignoring the contentions/submissions of the assessee.

4 to 486/Chd/2019 & ITA Nos.611 to 613/Chd/2019 A.Ys. 2008-09, 2009-10 & 2013-14 3. That the Ld.CIT(A) has erred in law and on facts in upholding the action of AO for treating interest received amounting to Rs.9,89,04,000/- as 'Income from Other Sources' instead of 'Income from Business and Profession'.

5. That the Ld. CIT(A) has erred in law and on facts in confirming the action of the AO in reducing Rental income of Rs. 45,75,267/-, Interest from Other of Rs.42,40,928/- and Miscellaneous receipts of Rs.32,18,153/- from the profits of the units eligible for deduction u/s 80IC/80IB of the Income Tax Act, 1961.

6. That the Ld. CIT(A) has erred in law and on facts in upholding the action of the AO in allocating head office expenses to units claiming deduction u/s 80IB/80IC of the Act.

7. That the Ld.CIT(A) has erred in law and on facts in upholding the action of AO for treating line/bay charges amounting to Rs. 4,00,72,000/- as capital expenditure instead of revenue expenditure.”

4. Ground No.2 relates to the issue of disallowance of expenses made pertaining to those incurred for the purpose of earning exempt income, as per the provisions of section 14A of the Act r.w.r. 8D of the Income Tax Rules.

5. Brief facts relating to the issue are that during the impugned year the assessee had earned substantial exempt income amounting to Rs.1,39,15,734/- from holding of investments, for which voluntary and suo moto disallowance of Rs.1 lac was made in the computation of income filed alongwith return of income. Not satisfied with the same the Assessing Officer (AO) invoked the provisions of section contained in Rule 8D for making disallowance u/s 14A of the Act. Accordingly, the AO computed the disallowance Rs.45,94,325/- respectively.

6. The Ld.CIT(A), following the decision of the first appellate authority in the case of the assessee for assessment year 2013-14, directed the AO to recompute the disallowance after excluding interest expenditure of specific purpose borrowings, netting the interest income out of interest expenditure before computing the disallowance and considering only those investments which had yielded exempt income for the purpose of computing the interest income. He further directed that the disallowance in any case should not exceed the exempt income.

Asst. Year Exempt Income Disallowance

2006-07 Rs.1.59 crores Rs.2 lacs 2007-08 Rs.2.19 crores Rs.2.50 lacs

6 to 486/Chd/2019 & ITA Nos.611 to 613/Chd/2019 A.Ys. 2008-09, 2009-10 & 2013-14 2011-12 Rs.12.59 crores Rs.5 lacs 2012-13 Rs.14.87 crores Rs.6 lacs 8. Referring to the above the Ld.Counsel for the assessee pleaded that considering the same since the exempt income earned in the impugned year amounted to Rs.1.39 crores, drawing parity from the orders of the ITAT as above, the disallowance in the present case be restricted to Rs.2 lacs.

The Ld.Counsel for the assessee further pointed out that there were no change in facts and circumstances from the preceding year i.e. assessment year 2007-08 when the disallowance had been restricted by the ITAT to Rs.2.5 lacs since as in that year, in the impugned year also the assessee had sufficient own funds for the purpose of making the impugned investment. Our attention was drawn to the total investment made by the assessee in the said two years as reproduced in its synopsis as under:

Investments 31.3.08 31.3.07 Subsidiaries/Associates = 95.16 Crs 84.63 Crs Investments generating = 0.25 Crs 0.25 Crs taxable income In section 25 companies = 0.85 Crs 0.85 Crs

Investments which = 0.89 Crs 0.89 Crs yield dividend TOTAL Investments = 97.15 Crs 86.62 Crs and to the possession of available surplus as under:

7 to 486/Chd/2019 & ITA Nos.611 to 613/Chd/2019 A.Ys. 2008-09, 2009-10 & 2013-14 Own Funds 31.3.08 31.3.07 Share capital = 57.77 cr. 57.77 cr. Reserves = 1114.37 cr. 1034.26 cr. Dep.Reserves = 1074.27 cr. 930.75 cr. 2246.41 cr. 2022.78 cr.

9. The Ld.Counsel for the assessee thereafter drew our attention to the fact that the exempt dividend income had been earned on the following investments:

VMT Spinning Company = Rs.1,36,62,054/- IDBI Limited = Rs. 2,53,680/- Total: = Rs.1,39,15,734/- 10. The Ld.Counsel for the assessee contended that almost the entire dividend income had been earned from VMT Spinning Company Limited which was subsidiary/associate concern of the assessee and investment in which had been made in preceding years only. He, therefore, contended that the assessee company was not required to make any expenditure for the purpose of earning the exempt income since it was investment in a subsidiary company only for which no administrative efforts was required for monetary either for making the investment or earning the dividend income. He, therefore, pleaded that the disallowance be restricted to Rs.2 lacs.

11. The Ld. DR, on the other hand, contended that the Ld.CIT(A) was just and fair having given all possible relief to the assessee as allowable under law by excluding interest netting of interest and further directing that only those investments which have earned exempt income be considered for the purpose of disallowance. The Ld. DR vehemently supported the order of the Ld.CIT(A).

“8. We have considered the rival submissions. The issue relating to the presumption theory in the light of the decision of the Hon'ble Supreme Court in ‘Maxopp Investment Ltd Vs. CIT.’, 402 ITR 640 (SC) (supra) has been discussed by the Tribunal in the latest decision of the Tribunal in the case of ‘ACIT Vs. Janak Global Resources Pvt Ltd’ (supra), wherein, the Tribunal after considering the ratio laid down by the Hon'ble Supreme Court in the case of ‘Hero Cycles Pvt. Ltd. Vs. CIT’, 379 ITR 347(SC), and other decisions as well as in the case of ‘Avon Cycles Ltd. Vs. CIT’ of the Hon'ble High Court (supra) has decided the issue in favour 10 to 486/Chd/2019 & ITA Nos.611 to 613/Chd/2019 A.Ys. 2008-09, 2009-10 & 2013-14 of the assessee. At this stage, Ld. Counsel for the assessee has submitted that now the issue is squarely covered by the latest decision of the Hon'ble Supreme Court in the case of in the case of ‘CIT (LTU) Vs. Reliance Industries Ltd.’ [2010] 410 ITR 466 (SC), wherein, the Hon'ble Supreme Court has reiterated the proposition that if there are interest funds available with the assessee, which are sufficient to meet the investment, it can be presumed that the investments are made from the interest free funds available with the assessee. In view of this, this question is now settled by the decision of the Hon'ble Supreme Court and the issue accordingly is decided in favour of the assessee so far as the issue of disallowance of interest expenditure is concerned.

9. However, so far as the issue of disallowance of administrative expenditure is concerned, the Ld. Counsel for the assessee has invited our attention to the earlier order of the Tribunal to state that in the appeal for the assessment year 2006-07, the assessee has earned dividend income of Rs. 1.59 crores and the Tribunal restricted the disallowance of administrative expenditure to Rs. 2 lacs and further in the assessment year 2007- 08, the assessee had earned dividend income of Rs. 219 crores and the Tribunal restricted the disallowance to Rs. 2.5 lacs. In the year under consideration, the Ld. Counsel for the assessee has submitted that out of the total divided of Rs. 12.59 crores, the assessee has earned a divided of Rs. 7.91 cores from its subsidiaries. He, in this respect has submitted that for making investments in own subsidiaries, not much of administrative resources are used, hence, the disallowance on administrative expenditure cannot be disallowed solely in the ratio of the quantum of the investments shown. He, however, has fairly admitted that the assessee has also received dividend of Rs. 4.6 cores from the investment in other companies. The Ld. counsel has further submitted that the assessee has suo motto disallowed a sum of Rs. 2 lacs for the year under consideration on account of administrative expenses u/s 14A of the I.T.Act.

11 to 486/Chd/2019 & ITA Nos.611 to 613/Chd/2019 A.Ys. 2008-09, 2009-10 & 2013-14 10. Considering the over all facts and circumstances of the case and submissions of both the parties and also considering the quantum of investment made, the amount of divided earned by the assessee from its own subsidiary as well from outside / other companies, in our view, a total disallowance of Rs. 5 lacs will be justified in this case on account of administrative expenses. However, since the assessee itself has suo motu made disallowance of Rs. 2 lacs, the assessee will be given the benefit of the same.”

13. Considering the above and further noting the fact that in the impugned year also the assessee has demonstrated the availability of sufficient own funds for the purpose of making investment as being Rs.2246.41 crores of own funds available as against total investment of Rs.97.51 crores, we hold that the said facts and circumstances of the assessee warrant no disallowance of interest in the present case, following the decision of the ITAT in the case of the assessee for assessment year 2011-12 as reproduced above. Similarly in the case of administrative expenses we have noted that almost entire amount of dividend income has been earned from subsidiary company of the assessee in which investment was made in the preceding years only. As noted by the ITAT in the case of the assessee for assessment year 2011-12 since the investment in subsidiaries do not require much administrative indulgence, the disallowance cannot be calculated as prescribed by Rule 8D in the ratio of investments made and considering the past history of the crores and Rs.2.19 crores in assessment years 2006-07 and 2007-08, disallowance of Rs.2 lacs and Rs.2 lacs respectively has been upheld by the ITAT. We direct the disallowance of Rs.2.25 lacs in the present case wherein the facts indicate that the assessee has earned dividend income of Rs.1.39 crores. We, therefore, direct the AO to restrict the disallowance in all u/s 14A in the present case to Rs.2.25 lacs. This ground of appeal raised by the assessee is, therefore, allowed in above terms.

14. Ground No.3 raised by the assessee relates to the issue of treatment of interest earned by the assessee amounting to Rs.9,89,04,000/- as income from other sources instead of income from business and profession. The Ld.Counsel for the assessee pointed out that the interest earned by the assessee from bank and others amounted in all of Rs.9,89,04,000/- was treated by the AO as taxable under the head ‘income from other sources’ as against the claim of the assessee of the said interest as ‘income from business and profession’. No netting of interest expenses was also allowed against the same.

“4. Ground No.1: Vide ground No.1, the assessee has agitated the action of the CIT(A) in treating the interest income amounting to Rs. 1,65,17,422/-as ‘income from other sources’ instead of ‘income from business or profession’ as was claimed by the assessee.

5. The facts relating to the above issue are that the Assessing officer had treated interest from customers and suppliers amounting to Rs. 355.28lacs and further interest from bank &others amounting to Rs. 165.17 lacs as ‘income from other sources’ as against the claim of the business income. The Ld. CIT(A) held that since income on the delayed payment from customers and suppliers was intrinsically linked with the business activity of the assessee, hence, the same was to be treated as business income of the assessee, whereas, theinterest received from bank &others was directed tobe treated as ‘income from other sources’.

Rental Income = Rs.45,75,267/-

15 to 486/Chd/2019 & ITA Nos.611 to 613/Chd/2019 A.Ys. 2008-09, 2009-10 & 2013-14 Interest from other = Rs.42,40,928/- Miscellaneous Receipt = Rs.32,18,153/- The said disallowance was made for the reason that the impugned incomes were found to be not derived from industrial undertakings, which is a necessary prerequisite for the purpose of claiming deduction u/s 80IB/80IC of the Act.

Ground No.2 : Vide ground No.2, the assessee “7. has agitated the action of the CIT(A) indirecting the Assessing officer to reduce the eligible profits of theundertaking for the purpose of deduction u/s 10B, 80IB and 80IC of the Income-tax Act, 1961 (in short 'the Act') in respect of other income received.

17 to 486/Chd/2019 & ITA Nos.611 to 613/Chd/2019 A.Ys. 2008-09, 2009-10 & 2013-14 Counsel for the assessee has fairly agreed that except the brokerage from ocean freight, the other items do not constitute income derived from undertaking. So far as the brokerage of ocean freight is concerned, the Ld. Counsel for the assessee has submitted that the same is nothing but refund / rebate out of the freight expenditure incurred by the assessee which has resulted in increase in income of the assessee.

As for the disallowance of deduction u/s 80IB/80IC of the Act on interest from others amounting to Rs.42,40,928/-, the Ld.Counsel for the assessee contended that major amount of interest included in the above, amounting to Rs.26,84,428/- ,had been received from Electricity Board on security deposit and being purely of business nature, the same was eligible for deduction u/s 80IB/80IC of the Act.

26. Briefly stated the AO had allocated head office expenses on the basis of turn over for the purpose of calculating the profits of the units eligible for deduction u/s 80IB/80IC of the Act. The Ld.CIT(A) directed the AO to allocate head office expenses net of head office income for the said purpose following the decision of the ITAT in 2007-08 in and ITA No.270/Chd/2011.

27. Before us the Ld.Counsel for the assessee was unable to give any reason for not following the decision of the ITAT in the preceding year as done by the CIT(A). He was unable to point out any distinguishing facts in the present case. In view of the same, since the Ld.CIT(A) has followed the order of the ITAT in the case of the assessee for assessment years 2006-07 and 2007-08 on identical issue and no distinguishing facts have been brought to our notice by the Ld.Counsel for the assessee, we see no reason to interfere in the order of the Ld.CIT(A). Ground of appeal No.6 raised by the assessee is dismissed.

29. Briefly stated, the facts relating to the issue are that the assessee had paid line/bay charges in its unit Anant Spinning Mills and Vardhman Yarns, both located in Madhya Pradesh Electricity Board amounting to Rs.4,00,72,000/-.

The assessee had claimed the said expenditure as revenue incurred for augmenting the business activities of the assessee company and the ownership of the assets so created vested with the State Electricity Board and the amount was not refundable at any stage. The explanation of the assessee did not find favour with the AO who treated the same as capital expenditure and allowed department on the same.

“33. Ground No.14 : Vide ground No.14, the assessee has agitated the action the CIT(A) in treating the line/bay charges as capital receipt instead of Revenue receipt. 34. The Ld. Counsel for the assessee has invited our attention to the decision of the Tribunal in the own case of the assessee for assessment year 2007-08 in order dated 31.3.2010, wherein, the Tribunal after discussing the details upheld the order of the CIT(A) in that year treating the aforesaid expenditure as 23 to 486/Chd/2019 & ITA Nos.611 to 613/Chd/2019 A.Ys. 2008-09, 2009-10 & 2013-14 Revenue expenditure. No contrary decision has been cited before us. In view of this, the issue is accordingly decided in favour of the assessee and the Assessing officer is direct to treat the aforesaid expenditure as Revenue expenditure.”

The Ld.Counsel for the assessee, therefore, contended that the issue stood covered in favour of the assessee

We now shall take up the departmental appeal in ITA No.611/Chd/2019. (A.Y.2008-09-Revenue’s Appeal):

24 to 486/Chd/2019 & ITA Nos.611 to 613/Chd/2019 A.Ys. 2008-09, 2009-10 & 2013-14 Q.I. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in allowing interest from customers & suppliers amounting to Rs.3,19,43,971/- to be treated as business income as against A.O. treating the same as income from other sources?" 36. The issue raised in the above ground relates to the treatment of interest received from customers and suppliers and business income of the assessee.

Before us at the outset itself it was pointed out by the Ld.Counsel for the assessee that the issues stood covered by the order of the ITAT in the own case of the assessee for assessment years 2006-07 and 2007-08 in and ITA No.270/Chd/2011 dated 18.12.2018 wherein the ITAT had found no infirmity in the order of the CIT(A) treating the interest received on account of delayed payments from customers and suppliers as business income. No distinguishing facts have been brought to our notice by the Ld. DR. the ITAT in the preceding years in favour of the assessee and the order of the Ld.CIT(A) on this issue is, therefore, upheld. Ground of appeal No.1 raised by the Revenue is accordingly dismissed.

Q.2. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in allowing deduction u/s 80IB and 80IC on interest from customers & employee, misc. receipts comprising Brokerage from ocean freights, forex gains, insurance claim & rebate discount ?"

39. The Revenue in the above ground has agitated the action of the Ld.CIT(A) in allowing deduction u/s 80IB and 80IC on the interest from customers and employees, miscellaneous receipts comprising brokerage from ocean freight, foreign exchange gains, insurance claim and rebate discount.

At the outset itself, the Ld.Counsel for the assessee drew our attention to the details of insurance claim received at Paper Book page No.1 as under:

Arisht Spinning Mills Detail of Insurance Claim received

Date Description of Claim Loss Suffered Claim Received 7/25/2007 Loss due to fire in Carding 134,107 49,265 10/16/2007 Loss due to fire in H. Plant 586,706 285,612 10/16/2007 Claim for mobile set 1,800 1,800 12/27/2007 Marine Claim due to loss of yarn 105,920 105,920 828,533 442,597

Date Description of Claim Loss Suffered Claim Received 9/25/2007 Claim for Mobile Set 3,200 900

3,200 900

Auro Spinn in g Mills Date Description of Claim Loss Claim Received Suffered 8/27/2007 FIRE CLAIM OF BLOW ROOM MPM 8 IN HALL 5 163,715 136,281 8/27/2007 FIRE CLAIM OF BLOW ROOM (UNIMIX) IN HALL 4 372,770 362,432 10/26/2007 LOSS OF MOBILE BILL NOKIA 5,600 5,572 11/14/2007 TRANSIT CLAIM OF RIETER CARD COVER SHEET 8,192 7,447 3/31/2008 TRANSIT CLAIM OF AMSLER ATTACHMENTS (CSY) 4,966,956 4,966,956

5,517,233 5,478,688

As for the claim of deduction u/s 80IB/80IC on interest from customers and Misc.receipts comprising of brokerage,ocean freight ,forex gain,Ld.Counsel for the assessee pointed out that these issues also stood ecided by the ITAT in favour of the assessee in assesses own case for A.Y 2006-07 & 2007-08 in & 286/2011 dated 18-12-18. our attention was drawn and have noted that the ITAT had allowed the assessee’s claim of deduction u/s 80IB/ 80IC in case of foreign exchange gain, commission brokerage from ocean freight and interest received from customers and suppliers and that relating to insurance claim in preceding years holding at para 27 of the order in ITA No. 35/2011 as under:

In the second part of ground No.2, the Revenue has agitated the action of the CIT(A) in directing the Assessing officer to allow deduction u/s 80IB and 80IC and exemption u/s 10B on profit after excluding loses debited in the accounts in respect of which insurance claims were received. The Ld. Counsel for the assessee in this respect has invited our attention to the paper book page 2 wherein the details of the items has been given on which insurance claim was received. However, after perusal of the same, it is not clear as to which of the items constituted capital assets and which of the items constituted trading asset of the assessee. We therefore, restore this issue to the file of the assessee to bifurcate the items between capital assets and trading assets and to allow the claim in respect of insurance claim received on trading assets only.

28. The third part of ground No.2 is against the action of the CIT(A) in directing the Assessing officer not to reduce foreign exchange fluctuation gain from eligible profits of units eligible for deduction u/s 80IB and 80IC and exemption u/s 10B of the Act.

28 to 486/Chd/2019 & ITA Nos.611 to 613/Chd/2019 A.Ys. 2008-09, 2009-10 & 2013-14 contention. We do not find any infirmity in the order of the CIT(A) in this respect also. We have also gone through the order of the ITAT in ITA No.787/2015 at para 23 as under:

“23. Ground No.9. Vide this ground the assessee has agitated the action of the lower authorities in treating the income from the profits of the units eligible for deduction u/s 80IB / 80IC of the Act. So far as the claim of deduction in respect of the insurance claim, which admittedly was on account of loss of trading assets is concerned, it has been held time and again that if the loss therein is indemnified by way of compensation received from insurance company that can be said to be not a separate income, rather, the same will have effect for reducing loss / expenditure. Hence, if the assessee has booked the aforesaid loss, in relation to which insurance claim has been received, as expenditure, then the amount received by the assessee from insurance company will be eligible for deduction u/s 80IB/80IC of the Act. This issue is accordingly restored to the file of the Assessing officer for verification of the facts.

So far as the issue relating to the gains on the foreign exchange rate fluctuation is concerned, the Ld. Counsel for the assessee has submitted that gain on foreign exchange rate fluctuation has been received on account of proceeds of exports receivable and that the same was a part of the sale consideration. The Ld. counsel has further submitted that this issue is squarely covered in favour of the assessee in the own case of the assessee for assessment years 2006-07 and 2007-08 vide common order of the Tribunal dated 18.12.2018 (supra).” Considering the above we agree with the Ld.Counsel for the assessee that the issue of claim of deduction u/s 80IB/80IC of the Act on interest income received from customers and misc. receipts in the nature of ocean freight,forex gain already stand decided in favour of the assessee by the ITAT therefore see no reason to interfere in the order of the LD.CIT(A) with respect to allowance of the aforesaid claims.

As for claim of deduction u/s 80IB/80IC of the Act on insurance claim received , the issue is restored back to the AO with the direction to adjudicate it in accordance with the direction of the ITAT in the case of the assessee on the identical issue in A.Y 2011-12 dealt with in ITA no.787/chd/2015.

This ground of appeal is partly allowed for statistical purposes.

42. Ground No.3 raised by the Revenue reads as under:

“3. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in treating the reimbursement of interest under TUF scheme of the Ministry of Textiles, Government of India, as capital receipt instead of revenue receipt without giving an opportunity to assessing officer to examine the claim of assessee?" 43. The issue raised in the above ground relates to the treatment of the reimbursement of interest received by the assessee under the TUF Scheme of the Ministry of Textilels, Government of India, which the assessee had claimed to be capital in nature as opposed to the AO treating the same as revenue in nature and subjecting it to tax and which claim of the assessee was upheld by the Ld.CIT(A). paras 23 to 25 of the order pointing out therefrom that the Ld.CIT(A) after examining the objects of the TUF Scheme from the resolution of the Ministry of Textiles (No.28/1/99CIT dated 31.3.1999) had found that the purpose of this subsidy was upgradation of plant and machinery and thus the capital apparatus of the assessee company. Thereafter referring to the decision of the Hon'ble Jurisdictional High Court in the case of CIT Vs. Sham Lal Bansal wherein identical issue of treatment of subsidy was examined by the Hon'ble High Court and found to be capital in nature and further relying on the decision of the Hon'ble High Court of Calcutta in the case of CIT Vs. Gloster Jute Mills Ltd. (2018) 96 Taxmann.com 303 wherein also the subsidy was treated to be a capital receipt, the Ld.CIT(A), it was pointed out, held that the interest received under TUF Scheme was a capital receipt. The Ld.Counsel for the assessee futher pointed out that this issue had been settled by the ITAT also in favour of the assessee in its own case for assessment years 2002-03 to 2005-06 in to 1482/Chd/2018 dated 29.5.2019 treating the interest received as capital in nature. Our attention was drawn to paras 10 to 13 of the order containing the findings of the ITAT in this regard as under:

31 to 486/Chd/2019 & ITA Nos.611 to 613/Chd/2019 A.Ys. 2008-09, 2009-10 & 2013-14 “10. We have heard both the parties and have also gone through the order of the Ld.CIT(A). The issue before us relates to the nature of interest subsidy received under the TUF Scheme of the Government of India. The factual findings of the CIT(A) that the purpose of the interest subsidy was upgradation of plant & machinery and thus the capital apparatus of the assessee company, has not been controverted by the Revenue. The Ld.CIT(A), we find, has relied upon the decision of the Hon'ble Jurisdictional High Court in the case of CIT Vs. Sham Lal Bansal, ITA No.472/2010 (P&H) and the decision of the Hon'ble High Court of Calcutta in the case of CIT Vs. Gloster Jute Mills Ltd.(2018) 96 Taxman.com 303 for holding the interest subsidy to be capital in nature.We have gone through the decision of the Hon'ble Jurisdictional High Court in the case of CIT Vs. Sham Lal Bansal(supra),copy of which order was placed before us, and we agree with the Ld.CIT(A) that in the said case also, the issue related to nature of subsidy received under TUF Scheme of the Ministry of Textiles. The Hon'ble High Court , held that for the purpose of determining the nature of the subsidy ,the purpose for which the subsidy was given was to be determined and relied upon the decision of the Hon'ble Supreme Court in the case of Sahni Steel & Press Works Ltd. Vs. CIT (1997) 94 Taxman 368 and CIT Vs. Ponni Sugars & Chemicals Ltd. (2008) 174 Taxman 87 for the aforesaid proposition. Thereafter the Hon’ble High court noted that the purpose of the TUF Scheme was to induce the entrepreneur to undertake investment in modernizing the plant and machinery and was definitely not for the purpose of day to day business of the assessee. Accordingly the Hon’ble High Court held that the nature of the subsidy was capital.

32 to 486/Chd/2019 & ITA Nos.611 to 613/Chd/2019 A.Ys. 2008-09, 2009-10 & 2013-14 12. The aforesaid two decisions relied upon by the CIT(A), we find therefore, have already dealt with the nature of the subsidy received under TUFS Scheme and after analyzing the terms of the scheme and finding that the purpose of the scheme was to induce modernization of plant and machniery used in textile industry ,held the same to be capital in nature following the proposition laid down by the apex court for determining the nature of subsidy in the case of Sawhney steels(supra) and Ponni Sugars(supra). The Ld. DR has been unable to bring to our notice any contrary decision either of the Hon'ble Jurisdictional High Court or the Hon'ble Apex Court on this issue nor was the decisions relied upon by the Ld.CIT(A) distinguished before us.

raised by the Revenue are, therefore, dismissed.”

44. The Ld. DR fairly conceded that the issue stood decided in earlier years in favour of the assessee as pointed out by the Ld.Counsel for the assessee though he vehemently relied upon the order of the AO.

4. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in treating the sale tax subsidy of Rs. 9,60,79,071/- as capital receipts without comparing the scheme of Gujrat Government with that of Punjab Government scheme made by Hon'ble Punjab 85 Haryana High Court in the case of M/s Abhishek Industries Ltd., 286 ITR1?" 47. The issue raised in the above ground relates to the treatment of sales tax subsidy received by the assessee mounting to Rs.9,60,79,071/- which the Department claims to be revenue in nature, while the Ld.CIT(A) has on the other hand, upheld the claim of the assessee treating it as capital in nature.

At the outset itself, the Ld.Counsel for the assessee pointed out that identical issue had arisen in the case of the assessee for assessment years 2011-12 and 2012-13 wherein the matter had travelled up to the ITAT, which had decided the issue in favour of the assessee treating the sales tax subsidy as capital receipt in their order passed in & 894/Chd/2015 for assessment year 2011-12 and in ITA Nos.483 & 518/Chd/2016 for assessment year 2012- before us. Our attention was drawn to the relevant findings of the ITAT at para 32 of the order and at paras 35 and 36 of the order as under:

“32. Ground Nos.12 & 13: Vide ground Nos.12 & 13, the assessee has agitated the action of the CIT(A) in treating the sales tax subsidy as Revenue receipt instead of capital receipt as claimed by the assessee. This issue is now well settled by the decision of the Hon'ble Supreme Court in ‘CIT-I Vs. M/s Chaphalkar Brothers, Pune and Others’ in Civil Appeal Nos. 6513-6514 of 2012 order dated 7.12.2017, wherein, it has been held that the sales tax subsidy is a government incentive to set up new industrial units in specified areas and to be is treated as capital receipt. Further, the Ld. counsel for the assessee has also invited our attention to the decision of the Tribunal dated 18.12.2018, (supra) wherein after considering the relevant decisions it has been so held that the sales tax subsidy is a capital receipt. This issue is accordingly decided in favour of the assessee.” “35. The assessee apart from above ground has also raised additional ground which reads as under:- “That the authorities below have erred in treating Sales Tax Subsidy of Rs. 1,67,984/- under Madhya Pradesh Industrial Promotional Assistance Scheme – 2004 as Revenue receipt instead of capital receipt.”

ITAT had held the sales tax subsidy in respect of the scheme of the Madhya Pradesh Government as being capital in nature following the decision of the Hon'ble Apex Court in the case of CIT Vs. M/s Chaphalker Brothers Pune & Others in Civil Appeal Nos.6513 & 6514 of 2012 dated 7.12.2017 wherein it had been held that the sales tax subsidy is a Government incentive to set up new industrial unit in specified area and it is to be treated as capital receipt.

The Ld. DR fairly conceded to the above though he contended that the Ld.CIT(A) ought to have examined the scheme of the Gujarat Government under which subsidy have been received in the present case and thereafter adjudicated the issue.

5. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in allowing relief to the assessee by holding that MAT credit to be carried forward to subsequent years should be calculated after including of Surcharge and Cess?" 51. The issue raised in the above ground relates to the inclusion of surcharge and cess for the purpose of determining the quantum of MAT credit to be carried forward for set off in subsequent years. The AO had excluded surcharge and cess from the quantum of Mat credit to be carried forward for set off in subsequent years which the Ld.CIT(A) held was incorrect since he noted that the ITAT had held in the case of VMT Spinning Company Ltd. for 8.12.2016 that the surcharge and cess were to be included in MAT credit. He accordingly directed the AO to calculate and carry forward MAT credit in terms of the aforesaid order of the ITAT.

We now shall take up the cross appeals assessee’s appeal in & ITA No.612/Chd/2019 relating to assessment year 2009-10. (A.Y.2009-10-Assessee’s Appeal):

No.485/2019 reads as under:

“2. That the Ld.CIT(A) erred in law and on facts in upholding the applicability of section 14A of the Income Tax Act, 1961 read with Rule 8D and making disallowance thereunder ignoring the contentions/submissions of the assessee. 55. It was common ground between the parties that the above ground was identical to ground No.2 raised by the assessee in its appeal for A.Y 2008-09 in ,dealt with us above.Our decision rendered therein at para 12-13 above will apply mutatis mutandis to this ground No.2 raised by the assessee.

Accordingly disallowance of interest made as per Rule 8D(2)(ii) of the Income Tax Rules ,1962,is directed to be deleted. Further the disallowance of administrative expenses as per Rule 8D(2)(iii) of the Rules, is directed to be restricted to Rs. 5lacs in all considering the past history of the identical disallowance upheld by the ITAT and applying it to the facts of the present case wherein the assessee has earned exempt income to the tune of Rs.11.18 crs. Ground of appeal No.2 raised by the assessee is allowed in the above terms.

56. Ground No. 3 raised by the assessee in reads as under:

39 to 486/Chd/2019 & ITA Nos.611 to 613/Chd/2019 A.Ys. 2008-09, 2009-10 & 2013-14 “3. That the Ld.CIT(A) has erred in law and on facts in upholding the action of AO for treating interest received amounting to Rs.21,26,96,516/- as 'Income from Other Sources' instead of 'Income from Business and Profession'.” 57. It was common issue between the parties that the above ground is identical to ground No.3 raised by the assessee in its appeal for A.Y 2008-09 in ,dealt with by us above.Our decision rendered therein at para 16 of our order above will apply mutatis mutandis to this ground No.3 raised by the assessee. Accordingly the plea of the assessee of treating the impugned interest income as assessable under the head Business Income is rejected but at the same time its plea of netting the said income is accepted and the AO is directed to allow netting subject to there being direct nexus between the interest income and expenditure incurred .Ground of appeal No.3 raised by the assessee is allowed in the above terms.

58. Ground No. 5 raised by the assessee in reads as under:

“5. That the Ld. CIT(A) has erred in law and on facts in confirming the action of the AO in reducing Rental income of Rs.58,87,394/-, Interest from Others of Rs.1192962/- and Miscellaneous receipts of Rs.1,26,569/- from the profits of the units eligible for deduction u/s 80IC of the Income Tax Act, 1961.” issue raised in the above ground is identical to ground No.5 raised by the assessee in its appeal for A.Y 2008-09 in with us above.Our decision rendered therein at para 23-24 of our order above will apply mutatis mutandis to ground No.5 raised by the assessee.

Ground of appeal No.5 raised by the assessee is partly allowed in the above terms.

60. Ground No. 6 raised by the assessee in reads as under:

“6. That the Ld. CIT(A) has erred in law and on facts in upholding the action of the AO in allocating head office expenses to units claiming deduction u/s 80IB/80IC of the Act.” 61. It was common ground between the parties that the issue raised in the above ground is identical to ground No.6 raised by the assessee in its appeal for A.Y 2008-09 in with us above.Our decision rendered therein at para 27 will apply mutatis mutandis to ground No.6 raised by the assessee in ITA No.485/Chd/2019. Ground of appeal No.6 raised by the assessee is accordingly dismissed

62. Ground No.7 raised by the assessee in reads as under:

41 to 486/Chd/2019 & ITA Nos.611 to 613/Chd/2019 A.Ys. 2008-09, 2009-10 & 2013-14 “7. That the Ld.CIT(A) has erred in law and on facts in upholding the action of AO for treating line/bay charges amounting to Rs. 66,61,050/- as capital expenditure instead of revenue expenditure.” 63. It was common ground between the parties that the above ground is identical to ground No.7 raised by the assessee in its appeal for A.Y 2008-09 in with us above.Our decision rendered therein at para 33 will apply mutatis mutandis to ground No.6 raised by the assessee in ITA No.485/Chd/2019. Ground of appeal No.7 raised by the assessee is allowed in the above terms.

ITA No.612/Chd/2019(A.Y.2009-10-Revenue’s Appeal): 65. Ground No.1 raised by the Revenue in reads as under:

67. Ground No. 2 raised by the Revenue in reads as under:

2. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in allowing deduction u/s 80IB and 80IC on interest from customers & employee, misc. receipts comprising Brokerage from ocean freights and insurance claim?" 68. It was common ground between the parties that the above ground is identical to ground No.2 raised by the Revenue in with by us above.Our decision rendered therein at para 41 will apply mutatis mutandis to ground No.2 raised by the Revenue in ITA No.612/Chd/2019. Ground of appeal No.2 raised by the Revenue is accordingly partly allowed for statistical purposes.

69. Ground No.3 raised by the Revenue in reads as under:

3. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in treating the reimbursement of interest under TUF scheme of the Ministry of Textiles, Government of India, as capital receipt instead

43 to 486/Chd/2019 & ITA Nos.611 to 613/Chd/2019 A.Ys. 2008-09, 2009-10 & 2013-14 of revenue receipt without giving an opportunity to assessing officer to examine the claim of assessee?" 70. It was common ground between the parties that the issue raised in the above ground is identical to ground No.3 raised by the Revenue in with by us above.Our decision rendered therein at para 45 will apply mutatis mutandis to ground No.3 raised by the Revenue in ITA No.612/Chd/2019. Ground of appeal No.3 raised by the Revenue is accordingly dismissed.

71. Ground No.4 raised by the Revenue in reads as under:

ITA No.486/Chd/2019(A.Y.2013-14-Assessee’s Appeal): 76. Ground No.2 raised by the assessee in reads as under:

“2. That the Ld.CIT(A) erred in law and on facts in upholding the applicability of section 14A of the Income Tax Act, 1961 read with Rule 8D and making disallowance there under ignoring the contentions/submissions of the assessee.” 77. It was common ground between the parties that the above ground was identical to ground No.2 raised by the No.484/Chd/2019 ,dealt with us above.

Our decision rendered therein at para 12-13 above will apply mutatis mutandis to this ground No.2 raised by the assessee. Accordingly disallowance of interest made as per Rule 8D(2)(ii) of the Income Tax Rules ,1962,is directed to be deleted. Further the disallowance of administrative expenses as per Rule 8D(2)(iii) of the Rules, is directed to be restricted to Rs. 5 .50 lacs in all considering the past history of the identical disallowance upheld by the ITAT and applying it to the facts of the present case wherein the assessee has earned exempt income to the tune of Rs.13.15 crs. Ground of appeal No.2 raised by the assessee is allowed in the above terms.

78. Ground No. 3 raised by the assessee in reads as under:

“3. That the Ld.CIT(A) has erred in law and on facts in upholding the action of AO for treating interest received amounting to Rs. 19,40,80,702/- as 'Income from Other Sources' instead of 'Income from Business and Profession'.” 79. It was common issue between the parties that the above ground is identical to ground No.3 raised by the No.484/Chd/2019 ,dealt with by us above.Our decision rendered therein at para 16 of our order above will apply mutatis mutandis to this ground No.3 raised by the assessee. Accordingly the plea of the assessee of treating the impugned interest income as assessable under the head Business Income is rejected but at the same time its plea of netting the said income is accepted and the AO is directed to allow netting subject to there being direct nexus between the interest income and expenditure incurred .Ground of appeal No.3 raised by the assessee is allowed in the above terms.

80. Ground No.4 raised by the assessee in reads as under:

“4. That the Ld. CIT(A) has erred in law and on facts in confirming the action of the AO in reducing Rental income of Rs.1,56,47,787/- and Miscellaneous receipts of Rs.61,52,573/- from the profits of the units eligible for deduction u/s 80IC/80IA of the Income Tax Act, 1961.” 81. It was common ground between the parties that the issue raised in the above ground is identical to ground No.5 raised by the assessee in its appeal for A.Y 2008-09 in with us above.Our decision rendered therein at para 23-24 of our order above will apply mutatis mutandis to ground No.4 raised by the assessee. allowed accordingly.

“5. That the Ld.CIT(A) has erred in law and on facts in upholding the action of AO for treating line/bay charges amounting to Rs.2,89,25,454/- as capital expenditure instead of revenue expenditure.” 83. It was common ground between the parties that the above ground is identical to ground No.7 raised by the assessee in its appeal for A.Y 2008-09 in with us above.Our decision rendered therein at para 33 will apply mutatis mutandis to ground No.5 raised by the assessee. Ground of appeal No.5 raised by the assessee is allowed in the above terms.

84.Ground Nos.6 raised by the assessee in read as under:

“6. That the authorities below here erred in treating interest reimbursement of Rs.1,76,12,549/- related to TUFS under Madhya Pradesh Scheme - 2012 as revenue receipt instead of capital receipt. 85. At the outset it was pointed out by the Ld.DR that there is no grievance of the assessee on the impugned issue since the Ld.CIT(A) has treated the interest received under TUFS Scheme as capital receipt at para 38-43 of his order. the above.

In view of the same the ground of appeal No.6 is dismissed as infructuous.

Ground of appeal No.7 reads as under:

7. That the authorities below here erred in treating sales tax subsidy of Rs.2,82,71,552/- under Madhya Pradesh Industrial Promotion Assistance Scheme - 2004 as revenue receipt instead of capital receipt.”

It was common ground between the parties that the above ground was covered by the decision in the departmental appeal in being identical to ground Nos 4 raised by the Revenue in ITA No.611/Chd/2019,dealt with by us above.Our decision rendered therein at para 49 of our order above, will apply mutatis mutandis to additional ground Nos. 7 raised by the assessee in ITA No.486/Chd/2019. Ground of appeal Nos. 7 raised by the assessee is accordingly allowed.

“1. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in allowing interest from customers & suppliers amounting to Rs.5,23,34,571/- and interest earned from employee against housing loan granted to them to be treated as business income as against A.O. treating the same as income from other sources?" 88. It was common ground between the parties that the issue raised in the above ground is identical to ground No.1 raised by the Revenue in its appeal for A.Y 2008-09 in ,dealt with by us above.Our decision rendered therein at para 37 will apply mutatis mutandis to ground No.1 raised by the Revenue in ITA No.612/Chd/2019. Ground of appeal No.1 raised by the Revenue is accordingly dismissed.

89. Ground No.2 raised by the Revenue in reads as under:

“2. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in allowing deduction u/s 80IA and 80IC on interest from customers & employee, misc. receipts comprising Brokerage from ocean freights, forex gains and insurance claim?" 90. It was common ground between the parties that the above ground is identical to ground No.2 raised by the Revenue in with by us mutatis mutandis to ground No.2 raised by the Revenue in ITA No.612/Chd/2019. Ground of appeal No.2 raised by the Revenue is partly allowed for statistical purposes.

91. Ground No.3 raised by the Revenue in reads as under:

“3. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in treating the reimbursement of interest under TUF scheme of the Ministry of Textiles, Government of India, as capital receipt instead of revenue receipt without giving an opportunity to assessing officer to examine the claim of assessee?" 92. It was common ground between the parties that the issue raised in the above ground is identical to ground No.3 raised by the Revenue in with by us above.Our decision rendered therein at para 45 will apply mutatis mutandis to ground No.3 raised by the Revenue in ITA No.612/Chd/2019. Ground of appeal No.3 raised by the Revenue is accordingly dismissed.

In effect the appeal of the Revenue is partly allowed for statistical puroses.