JCIT CENT. CIR. - 1(4), MUMBAI vs. GRASIM INDUSTRIES LTD, MUMBAI

There was a search conducted at the office of M/s Aditya Birla Management Corporation Pvt. Ltd. on 16.10.2013 and certain incriminating material belonging to the assessee was found during the course of search. Accordingly, the Assessing Officer (AO) issued a notice u/s. 153C in response to which the assessee filed the return of income declaring total income of Rs. 1339,78,20,805/-. The AO while completing the assessment made various additions and disallowances. The CIT(A) gave partial relief to the assessee on further appeal. Both the assessee and the revenue are in appeal against the order of the CIT(A).

Ground No.1 pertain to the challenging the validity of notice u/s. 153C. During the course of hearing the ld. AR submitted that the said ground is not pressed. Accordingly, the ground is dismissed as not pressed.

Ground No.2 is with regard to the action of the AO in not allowing the deductions for amounts paid / written back during the previous year amounting to Rs. 23,64,85,871/- which had already been disallowed in the earlier year u/s. 43B. M/s Grasim Industries Ltd. The ld. AR fairly submitted that the deduction u/s. 43B that was disallowed by the AO was allowed by the Co-ordinate Bench of the Tribunal in the earlier year. The ld AR submitted that accordingly the claim that the amount earlier disallowed which reversed in the year is not taxable is not correct. The ld AR also submitted that the ground in this regard is to be held against the assessee. We in this regard noticed that the Co-ordinate Bench has been consistently allowing the deduction claimed by the assessee u/s. 43B in earlier years and therefore in our view the amount paid / written back during the year under consideration has to be brought to tax. Accordingly, there is no infirmity in the order of the CIT(A) in confirming the action of the AO in not allowing the exclusion of the amount written back from the taxable income. The ground raised by the assessee in this regard is dismissed.

Ground No.3 pertains to the disallowance of interest paid to Income Tax Department amounting to Rs. 4,62,82,318/-. The ld. AR submitted that the impugned issue is covered by the decision of the Co-ordinate bench in assessee's own case for AY 2007-08 to 2010-11. Our attention in this regard is drawn to the relevant findings of the Co-ordinate Bench for AY 2009-10 (ITA No. 2224 & 3334/Mum/2016 dated 23.05.2025) where it has been held that “5. Having considered rival submissions, we find that while deciding identical issue in assessee’s case in ITA No. 5925/Mum/2010 in A.Y. 2007-08, the Tribunal has held as under:

The dispute in Ground No.8 is with regard to taxability of interest on income tax refund.

Briefly the facts are, in the year under consideration, the assessee had received certain amount towards interest on income tax refund. Whereas, it had also paid interest to the Department under various provisions of the Act. In the computation of income, the assessee had set off the interest paid against the interest received and offered net interest income of Rs.3.94 crores. While verifying assessee’s claim, the Assessing Officer was of the view that interest paid on income tax is not an allowable deduction u/s. 40(a)(ii) of the Act. Accordingly, he added back an amount of Rs.2.35 crores to the income of the assessee. Though, the assessee contested the aforesaid addition before learned First Appellate Authority, however, it was unsuccessful.

Before us, learned counsel appearing for the assessee submitted that the interest paid to the Department and received from the Department is on a single account, as the parties are same. Therefore, the payment and receipt of interest has to be netted off. In support of such contention, learned counsel relied upon the following decisions:

Director of Income Tax vs. Bank of America NT and SA in ITA No. 177 of 2012 (Bom) judgment dated 03.07.2014. 2. ACIT, Mumbai vs. M/s. Tata Sons Ltd., Mumbai in ITA No. 4630/Mum/2016. 3. Arthur Anderson & Co. vs. ACIT [2010] 324 ITR 240 (Bombay). 4. Lupin Ltd. vs. ACIT [2018] 94 taxmann.com 282. 34.1 Whereas, learned DR submitted, netting off of interest received against the interest paid essentially results in allowing deduction of interest paid by the assessee as business expenditure u/s. 37(1) of the Act, which is not permissible. In support of such contention learned counsel relied upon following decisions:

Bharat Commerce & Industries Ltd. vs. CIT [ 1998] 230 ITR 733 (SC) 2. Aruna Mills Ltd. vs. CIT [1957] 31 ITR153 (Bombay).

We have considered rival submissions and perused the materials on record. It M/s Grasim Industries Ltd. of America NT and SA (Supra), the Hon'ble Juri ictional High Court has held as under:

We do not see how this order can be cited as precedent inasmuch as the Assessee before the Tribunal and before us paid interest to the Income Tax Department amounting to Rs.10,26,906/- . The Assessee claimed that this was business expenditure and this should have been allowed. The Assessee has received the interest of Rs.1,07,57,930/-. It was submitted that the amount of interest paid by the Assessee should have been allowed to be set off against the interest deposited with the Department and taxed in the hands of the Assessee. The argument was that the interest paid to and received from is the same party i.e. Government of India and therefore, both transactions should be taken together.

We do not find that the Tribunal has, in permitting this exercise, in any way violated any of the provisions of the Income Tax Act, 1961. It was a peculiar situation between the Assessee and the Department. The Tribunal has followed the similar exercise in the case of very Assessee on the prior occasion as well. In such circumstances we are of the opinion that the second question also does not raise any substantial question of law.”

Identical issue was also considered by the Hon'ble Juri ictional High Court in case of CIT vs. M/s Credit Agricole Corporate and Investment Bank in ITA No. 27 of 2016. While deciding the issue, the Hon'ble Juri ictional High Court M/s Grasim Industries Ltd. issue in favour of the assessee. Even the other decisions cited by learned counsel for the assessee are in line with the ratio laid down by the Hon'ble Juri ictional High Court in case of Bank of America (Supra). In so far as the decision relied upon by learned DR are concerned, on careful examination, we are of the view that they are factually distinguishable as the issue of netting off of interest paid with interest received was not involved. Thus, respectfully following the decision of Hon'ble Juri ictional High Court referred to above, we allow the ground in favour of the assessee.”

Respectfully following the decision of the Tribunal, we decide the issue in favour of the assessee. This ground is allowed.”

Before us the ld. DR argued that allowing the setoff of interest received and paid to the income tax department would indirectly amount allowing the interest on income tax as a deduction which is against the ratio laid down by the Hon'ble Supreme Court in the case of Bharat Commerce & Industries Ltd (supra). We heard the parties and perused the materials on record. Since the facts in the decision of the Hon'ble Bombay High Court, are identical to the facts in assessee's case, we are bound to follow the judicial precedence laid down by the juri iction High Court. for the year under consideration being identical. Therefore respectfully following the same we are deciding the issue in favour of the assessee and the ground raised in this regard is allowed.

Ground No.4 pertains to disallowance of depreciation on let out property. The AO disallowed the depreciation claimed by the assessee stating that the assessee has already claimed deduction equal to 30% of the annual value while computing the income from house property. We in this regard notice that this is a recurring issue in assessee's case and the Co-ordinate Bench in AY 2009-10 (supra) has decided the same as under: M/s Grasim Industries Ltd. “8. We have considered rival submission, we find this is a recurring issue between the parties for past assessment year. While deciding the issue, in the latest order passed in A.Y. 2007-08 (Supra), the Coordinate Bench has held as under:-

Briefly the facts are, the assessee is a resident corporate entity engaged in manufacturing and trading activities. For the assessment year under dispute, assessee had filed its return of income on 30.10.2007, declaring income of Rs.1920,40,47,165/-. Subsequently, assessee filed its revised return of income on 17.03.2009, declaring income of Rs.1923,71,32,402/-. In course of assessment proceeding, the Assessing Officer (AO) noticed that the assessee had claimed depreciation on let out office premises. He further observed that the rent received from such let out office premises was offered to tax under the head ‘income from house property’. He further noticed that, though, the assessee had reduced the Written Down Value (WDV) of the let-out premises from the value of block of assets, however, in course of assessment proceeding, the assessee claimed that it is entitled to depreciation on the entire block of assets without reducing WDV of the let out premises. In support of such contention, assessee furnished a detailed note supported by judicial precedents. The Assessing Officer, however, did not accept assessee’s claim. He observed that while computing ‘income from house property’, the assessee has claimed 30% deduction towards maintenance charges out of the annual rental value. Hence, assessee cannot be allowed further deduction by way of depreciation. Accordingly, he disallowed assessee’s claim.

Though, assessee contested the disallowance in appeal preferred to learned First Appellate Authority, however, the disallowance was sustained.

Before us, learned counsel appearing for the assessee submitted that the issue is squarely covered in favour of the assessee by the decision of the Tribunal in its own case in A.Y. 2005-06. Further, he relied upon the following decisions:

G.R. Shipping Ltd. vs. DCIT in ITA No. 822/Mum/2005. 2. Bhavani Gems Pvt. Ltd. vs. Pr. CIT in ITA No. 766/Mum/2021. 3. Bodal Chemical Ltd. [2019] 112 taxmann.com 217. He also referred to CBDT Circular No. 469 dated 23.09.1986. M/s Grasim Industries Ltd. 7. Per contra, learned Departmental Representative (DR) strongly relied upon the observations of the Departmental Authorities. He submitted, for claiming depreciation, two conditions have to be fulfilled. Firstly, the assessee must be owner of the assets and secondly the assets must be used for business. He submitted, since the property was let out and not used for the purpose of business, the assessee would not be entitled to claim depreciation. In support, he relied upon the decision of the Coordinate Bench in case of Emco Dyestuff (P.) Ltd. vs. DCIT, Mumbai [2019] 108 taxmann.com 206 (Mumbai-Trib).

We have considered rival submissions and perused the materials on record. We have also applied our mind to the decisions relied upon. It is observed, identical issue came up for consideration before Coordinate Bench in A.Y. 2005- 06. While dealing with the issue, the coordinate Bench in ITA No.3517/Mum/2006, dated 04.07.2023 has held as under:

Before proceeding further, it is pertinent to note certain provisions of the Act that are relevant to the issue at hand. The term “block of assets” is defined in section 2(11) of the Act, as under:-

(1) In respect of depreciation of— (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed—

It is the plea of the assessee that since the property was acquired in the assessment year 1987-88 and forms part of the block of assets, therefore, the lower authorities have erred in carving out the depreciation for this property and disallowing the same. Since the assessee is the owner of the property from the assessment year 1987-88 and the same was also used as one of its office premises in preceding years, therefore, we are of the view that the conditions laid down in section 32 of ownership of the asset and usage for the purpose of business are satisfied in the present case. We find that the only basis on which the AO/learned CIT(A) disallowed the depreciation is that the assessee has rented out the property during the year and offered the income under the head “Income from House Property”, after claiming deduction under section 24 of the Act. In this regard, it is pertinent to note that the property in question forms part of the block of assets since the assessment year 1987-88 and the depreciation on the entire block was also allowed. The Revenue has also not disputed this fact. It is settled that once any asset forms part of the block of assets, it losses its individual identity, and thus for the purpose of depreciation, only the block of assets has to be considered. This M/s Grasim Industries Ltd. aspect is sufficiently evident from Circular No.469 issued on 23/09/1986, which reads as under:-

3 As mentioned by the Economic Administration Reforms Commission (Report No. 12, para 20), the existing system in this regard requires the calculation of depreciation in respect of each capital asset separately and not in respect of block of assets. This requires elaborate book-keeping and the process of checking by the Assessing Officer is time consuming. The greater differentiation in rates, according to the date of purchase, the type of asset, the intensity of use, etc., the more disaggregated has to be the recordkeeping. Moreover, the practice of granting the terminal allowance as per section 32(1)(iii) or taxing the balancing charge as per section 41(2) of the Income-tax Act necessitate the keeping of records of depreciation already availed of by each asset eligible for depreciation. In order to simplify the existing cumbersome provisions, the Amending Act has introduced a system of allowing depreciation on block of assets. This will mean the calculation of lump sum amount of depreciation for the entire block of depreciable assets in each of the four classes of assets, namely, buildings, machinery, plant and furniture.

Further, as per section 43(6)(c)(i)(B) of the Act, the written down value in the case of any block of assets is reduced by the money payable when the asset is sold or discarded or demolished or destroyed. However, in the present case, the assessee continued to own this property, and the same was only let out during the year. In any case, this section also does not provide for carving out depreciation for disallowance, as is done by the AO in the present case. We find that the Hon‟ble Delhi High Court in CIT v/s Oswal Agro Mills Ltd. [2012] 341 ITR 467 (Delhi), observed as under:-

Having regard to this legislative intent contained in the aforesaid amendment, it is difficult to accept the submission of the learned counsel for the Revenue that for allowing the depreciation, user of each and every asset is essential even when a particular asset forms part of 'block of assets'. Acceptance of this contention would mean that the assessee is to be directed to maintain the details of each asset separately and that would frustrate the very purpose for which the amendment was brought about. It is also essential to point out that the revenue is not put to any loss by adopting such method and allowing depreciation on a particular asset, forming part of the 'block of assets' even when that particular asset is not used in the relevant assessment year. Whenever such an asset is sold, it would result in short- term capital gain, which would be exigible to tax and for this reason, we say that there is no loss to revenue either.”

Thus, in view of the above, once the property forms part of the block of assets, carving out the depreciation for the said property and disallowing the same goes against the spirit of allowing depreciation on the entire block of depreciable assets. Before concluding, we may note that in this appeal the Revenue has not disputed the claim of deduction under section 24 of the Act in respect of the property which forms part of the block of assets. Thus, merely because the Revenue has accepted the claim of deduction under section 24 of the Act doesn’t mean that the property which forms part of the block of assets will cease to be so. Therefore, the disallowance of depreciation of Rs. 45,681 made by the AO is deleted. As a result, ground No. 4 raised in assessee’s appeal is allowed.”

Keeping in view the parity in factual position and also the fact that the issue has been decided in assessee’s own case, we respectfully follow the decision of the Coordinate Bench, as referred to above, and direct the Assessing Officer to allow the claim of depreciation. This ground is allowed.”

Facts being identical, respectfully following the decisions of the Coordinate Benches, we allow assessee’s claim. The Assessing Officer is directed to delete the addition. This ground is allowed.”

During the course of hearing the revenue did not bring any new contentions or material on record for us to take a different view. Accordingly, respectfully M/s Grasim Industries Ltd. following the above decision, we allow the claim of the assessee. The ground raised in this regard is allowed.

Ground No.5 pertains to the disallowance of expenditure incurred on administration of Employees Retirement Benefit Fund. The CIT(A) followed his own decision for AY 2010-11 to uphold the disallowance. The ld. AR in this regard submitted that the issue has been decided in favour of the assessee from AY 2008-09 to 2010-11 in assessee's own case and accordingly argued that the issue stands covered by the decision of the Co-ordinate Bench. We in this regard notice that the identical issue considered by the Co-ordinate Bench in AY 2009-10 (supra) where it has been held that “11. Having considered rival submission, we find identical issue came up for consideration before the Coordinate bench in assessee’s appeal relating to A.Y. 2008- 09. While deciding the issue vide order dated 21.05.2025 in ITA No. 5982/Mum/2011 and 6758/Mum/2011, the Coordinate Bench has held as under:-

According of approval for recognized provident fund and gratuity fund are provided under Part-A and Part-B of the 4th Schedule to the Income Tax Act. While Rule-4 under Part-A to the 4th Schedule prescribes the condition for M/s Grasim Industries Ltd. approval of recognized provident fund, Rule-2 and 3 prescribes the conditions for approval of gratuity fund.

On going through these provisions, we were unable to locate any condition prescribing that the expenses incurred by the company in managing the fund/trust shall not be allowed as deduction in computing the profit and gains from business/profession. There is no dispute regarding either the incurring of the expenditure or its genuineness. Thus, when the assessee has incurred certain expenses in course of its business it has to be allowed as deduction. The provisions contained in the statute empower the approving authority to grant approval strictly in terms with the prescribed rules. The rules nowhere suggest that approval has to be granted by putting a limitation on the allowability of administrative expenses. That being the factual and legal position, in our view, the approving authority cannot impose conditions in addition to the condition prescribed under the Rules. In this context, we refer to the following observations of the Hon’ble Supreme Court in case of Continental Construction Ltd. vs. CIT(Supra):-

Applying the ratio laid down by the Hon’ble Supreme Court referred to above, we hold that the disallowance made by the AO is unsustainable. Accordingly, we direct the AO to delete the disallowance. This ground is allowed.”

Facts being identical, respectfully following the decision of the Coordinate Bench, we direct the AO to allow assessee’s claim. This ground is allowed.” M/s Grasim Industries Ltd. 10. Respectfully following the above decision we direct the AO to allow the claim considering that the facts in the year under consideration are identical.

Ground No. 6 to 8 pertains to the disallowance of expenses incurred for acquisition of M/s Domsjo Fabriker AB, Sweden. The assessee claimed the expenses as deduction by way of notes to the return of income. The assessee submitted before the AO that M/s Domsjo is manufacturer of DG Wood Pulp which is the raw-material of manufacturing of Viscose Staple Fibre (VSF) by the assessee. The assessee further submitted that these expenses are incurred to acquire the source for continuous long term supply of raw-material and therefore should be considered as incurred for the purpose of business to be allowed u/s. 37. The AO rejected the claim of the assessee on the ground that the claim made through a note cannot be entertained and that the expense is capital in nature. On further appeal, the CIT(A) confirmed the disallowance stating that the assessee has made the claim by way of a note and that the assessee has reversed provision made towards the said expenses in the succeeding AY i.e. AY 2012-13. 12. The ld. AR submitted that the impugned expenses are incurred by the assessee prior to the acquisition towards due diligence. The ld. AR further submitted that the company acquired is the supplier of raw-material to the assessee and the acquisition would ensure the smooth supply of raw-material. The ld. AR also submitted that accordingly the expenses incurred by the assessee to explore the possibility of acquisition is very much for the purpose of the business of the assessee and therefore should be allowed as a deduction. The ld. AR in this regard relied on the decision of the Hon'ble Karnataka High Court in the case of CIT vs. On Mobile Global Ltd. [2021] 129 taxmann.com 254 (Kar.). Without prejudice the ld. AR submitted that if the amount is disallowed then the subsequent reversal in M/s Grasim Industries Ltd. AY 2012-13 which is offered to tax by the assessee should also be deleted. The ld. AR made one more alternate plea that the amount incurred by the assessee if cannot be treated as revenue then the same should be added to the cost of acquisition.

The ld. DR furnished a detailed written submission by which he supported the order of the lower authorities is taken on record

We heard the parties and perused the material on record. The assessee has claimed a sum of Rs. 4,39,99,631/- as expenditure incurred towards acquisition of the supplier company who supplies raw-materials to the assessee. The contention of the assessee is that the expenditure is incurred to ensure smooth supply of raw- material by acquiring the supplier company and accordingly the expenditure should be allowed as incurred for the purpose of business. In this regard we notice that the Hon'ble Karnata High Court in the case of On Mobile Global Ltd. (supra) has considered a similar issue where it has been held that “12. The assessee has claimed an amount of Rs. 6,68,98,726/- as expenditure incurred as legal and professional charges in its profit and loss account. Out of the aforesaid amount, the Assessing Officer has disallowed an amount of Rs. 2,20,40,131/- that is the amount incurred on account of legal and professional charges incurred in connection with acquisition of the Company in France and legal and professional charges to file patent application for a sum of Rs. 24,08,000/-, The Assessing Officer has held the same to be in the nature of capital expenditure. The Tribunal, by following the decision of its co-ordinate Benches, has held that expenditure incurred by the assessee for conducting due diligence in report of a company which was to be acquired by the assessee is revenue in nature and has treated the same to be deductible expenditure under section 37(1) of the Act. The aforesaid finding of the Tribunal is based on meticulous appreciation of material on record and does not call for any interference. In the result, the fourth substantial question of law is also answered against the revenue and in favour of the assessee.” M/s Grasim Industries Ltd. 15. The ratio laid down by the Hon'ble High Court is that expenditure incurred by the assessee for conducting due diligence report of a company which was to be acquired by the assessee is revenue in nature. From the perusal of the orders of the lower authorities, we notice that the reason for denying the claim of the assessee is that the claim is made by way of a note and that the expenses is incurred for acquiring the shares of M/s Domsjo. Further the lower authorities while doing so has not examined the nature of expenditure incurred by the assessee and whether it is incurred in connection the proposed acquisition towards due diligence etc. as claimed by the assessee. In our considered view the assessee having made the claim by way of a note cannot be a reason for not considering the claim on merits (refer our findings while adjudicating Ground No.9 in this regard) and the expenditure needs to be factually examined to decide the allowability. Therefore, we are remitting the issue back to the AO for the limited purpose of examining the nature of expenditure and allow the claim keeping in mind the ratio laid down by the Hon'ble Karnatak High Court in the case of On Mobile Global Ltd. (supra). Accordingly the alternate contentions of the assessee which are consequential do not warrant a separate adjudication.

Ground No.9 is with regard to the reduction in deduction u/s. 80IA with respect to Water Treatment System Act, Kharach. The AO did not allow the claim stating that the assessee has not claimed the deduction in the computation of total income but has made the claim by way of note in the return of income. It is relevant to mention here that the AO has recorded a finding that the assessee has submitted Form No. 10CCB of the Unit towards the claim u/s. 80IA. The AO denied the deduction by following his own decision for AY 2010-11. M/s Grasim Industries Ltd. 17. We heard the parties and perused the material on record. The only reason for the AO to make the disallowance is that the assessee has made the claim through notes to the computation. In this regard we notice that the Hon'ble Bombay High Court in assessee's own case (ITA No. 2325 of 2013 dated 02.02.2016) has held that the notes to computation forms an integral part of the return of income while allowing the claim of the assessee towards Fringe Benefit Tax. The relevant question of law and the observations of the Hon'ble High Court are extracted as under:

A combined perusal of the above judicial precedence leads to the conclusion that a claim made through notes to accounts is not a new claim and cannot be denied more so when the assessee has filed Form 10CCB with regard to the claim. Since no new facts have been brought on record by the revenue, we are of the view that the impugned issue is covered by the above judicial precedence and accordingly, we allow the claim of the assessee towards deduction u/s. 80IA.

Ground No.10 is with regard to rejection in claim of deduction u/s. 80JJAA. The assessee during the year under consideration claimed deduction u/s. 80JJAA to the tune of Rs. 15,35,994/-. The assessee has made the claim by way of note as extracted hereunder:

1 The assessee company has claimed deduction u/s 80 JJAA and stated as under.

Shri Suryanarayana pointed out that Section 80AAJJ of the Act has come into effect from 1998 and has been substituted with effect from 1-4-2017. Adverting to the proviso as it stood relevant for the assessment years in question in these appeals, he pointed out that the word 'new' makes a distinction between the employees already on the role of assessee and the new workmen who were employed from time to time. He urged that such of those employees who had worked for already 300 days would fall within the definition of 'regular workmen'. Parliament has subsequently amended the period of 300 days to 240 days in case of other industries and 150 days in the case of apparel industries, by inserting a proviso with effect from 1-4-2017. In substance, he contended that Revenue's stand that employee must have worked for 300 days in the year preceding the assessment year under consideration is unsustainable in law.

We may record that Section 80JJ-AA is an incentive extended to the industries. In Texas Instruments, this court has held that if an employer were to have the workmen M/s Grasim Industries Ltd. on or after 5th June, he would not be entitled for claiming the benefit. It is also noted that in another similar case, Bosch Ltd. v. Asstt. CIT, LTU [2016] 74 taxmann.com 161 (Bang. - Trib.) the ITAT has held that the assessee therein was entitled to the benefit of the said provision so long as employee had worked for 300 days, even if the said period was split into two blocks namely, assessment year or financial year. It was contended by Shri Suryanarayana that this view taken by the ITAT has been accepted by the Revenue and this submission was not controverted by Shri Sanmathi.

After considering the aspect of working for 300 days in the previous year, this Court in Texas Instruments has held that period of 300 days could be taken into consideration both in the previous and succeeding years for the purpose of availing the benefit under section 80JJAA of the Act and it is not required that workmen works for 300 days in the previous year relevant to assessment year.

We may further record that Parliament itself has reduced the period of employment to 240 days in the case of other industries and 150 days in the case of apparel industries.

In view of above discussion, the order passed by the A.O. and confirmed by the appellate authorities is unsustainable in law.

We heard the parties and perused the material on record. On perusal of the above decision it is observed that the Hon'ble High Court has laid down the ratio that the period of 300 days could be taken into consideration both in the previous and succeeding years for the purpose of availing the benefit under section 80JJAA of the Act and that it is not required that workmen works for 300 days in the previous year relevant to assessment year. Therefore in our considered view, the ground on decision which the CIT(A) has disallowed the claim cannot be accepted. With regard to the other reason for denying the claim we have already held that the claim through a note cannot be a reason. Having held so, the fact remains that the lower authorities have not examined the merits of the claim of the assessee that all the conditions for claiming deduction u/s.80JJAA are fulfilled. Accordingly, we remit the issue back to the AO with a direction to examine whether the assessee M/s Grasim Industries Ltd. has fulfilled the conditions u/s.80JJAA based on merits and allow the claim keeping in mind the legal principle laid down by the Hon'ble Karnataka High Court. The ground is allowed for statistical purposes.

Ground No.11 is with regard to adopting lower written down value of block of assets. The ld. AR submitted that spill over depreciation to the tune of Rs. 182.34 crores was disallowed by the AO in AY 2008-09 to 2010-11 and the CIT(A) gave relief to the assessee in the said AYs. The ld.AR brought to our attention that the Co-ordinate Bench while deciding the grounds filed in this regard by both the assessee and the revenue for AY 2010-11 has allowed the main ground in favour of the assessee. The ld. AR further brought to our attention that for AY 2008-09 and AY 2009-10 the Co-ordinate Bench has remitted the issue back to the file of CIT(A). The ld. AR accordingly prayed for a similar direction in this regard.

We heard the parties and perused the material on record. The claim of the assessee pertains to the written down value to be considered based on the disallowance to depreciation made in the earlier AYs. Considering that the issue is consequential in nature, we are remitting the same back to the CIT(A) to be considered based on the decisions for earlier AYs with regard to the allowbility of depreciation. The CIT(A) is directed to adjust the written down value of the block of assets based on the depreciation allowed. Needless to say that the assessee be given an opportunity of being heard. It is ordered accordingly. The ground raised is allowed for statistical purposes.

The assessee vide letter dated 22.02.2018 raised the additional ground with regard to claim of Education & High Education Cess as allowable expenditure. Since the adjudication of the additional ground does not warrant examination of any new fact by placing reliance on the judgment of the Hon’ble Apex Court in the M/s Grasim Industries Ltd. case of National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC), the same is admitted. Considering the decision of the Hon'ble Supreme Court and the amendment to the relevant provisions of the Act, the ground raised by the assessee is rejected.

Ground No.1 of the revenue is with regard to CIT(A) confirming the treatment of the Sales Tax Exemption received as capital receipt not chargeable to tax. The AO treated the Sales Tax Exemption benefit amounting to Rs. 27,51,60,730/- as revenue receipt and brought to tax the same as business income of the assessee. The CIT(A) deleted the addition made by the AO by holding that “31.0 I have carefully examined the order of the AO and the submissions made by the Appellant Company, on this issue. The main argument of the Appellant is that the character of the receipt of subsidy in the hands of the assessee is to be determined with reference to the purpose for which the subsidy had been granted. In other words, one has to apply the purpose test.

1 It has been noted that the amendment made in section 2(24)(xviii) of the Act is effective from A.Y. 2016-17 and this indicates that the legislature has decided that the subsidy is taxable income from A.Y. 2016-17 and onwards. As this appeal is for assessment year prior to A.Y. 2016-17, the nature of the subsidy is to be determined, as per purpose test laid down by the Hon'ble Supreme Court.

2 The AO has stated in the assessment order that the subsidy was granted by the state government for setting up of a new undertaking. In the background of this fact, the subsidy would be held to be capital in nature. My Ld. Predecessor CIT(A) has also examined this matter, while adjudicating the Appellant's appeal for A.Y. 2006- 07 to Α.Υ. 2010-11 and held that the subsidy was capital in nature. The Special Bench of the Hon'ble Tribunal in its decision in the case of DCIT Vs Reliance Industries Limited has distinguished the decision in the case of Bajaj Auto, relied upon by the AO. M/s Grasim Industries Ltd. 31.3 Agreeing with the decisions of my predecessor for the AY 2006-07 to 2010-11 and respectfully following the various judicial pronouncements cited by the Appellant, I decide this ground of appeal in favour of the Appellant. The subsidy being granted for setting up of a new undertaking is held to be capital in nature. The AO is directed to exclude the amount of Rs. 27,51,60,730/- from taxable income of the Appellant.

We heard the parties and perused the material on record. We notice that the identical issue has been considered by the Co-ordinate Bench in AY 2010- 11(supra), where it has been held that “20. We have heard the rival submissions and perused the documents placed on record. The eligibility of the assessee for exemption under the Scheme was extended by the Govt. Of Gujarat till 14/01/2012. Therefore, the allegation of the Ld. AO has no legs to stand. It is the prerogative of the State Government whether the Assessee is eligible for the Scheme or not, and once the incentive under the Scheme has been extended to the assessee for a further period of time, the Ld. AO cannot dispute the same. In any case, the assessee submits that it has been settled by various judicial pronouncements, including the decision of the Hon’ble Supreme Court in Sahney Sugars & Chemicals Ltd. (306 ITR 392) (SC), the form of mechanism through which subsidy is given is irrelevant; the crucial determining factor is the purpose for which the subsidy is given. The purpose of the subsidy under which the assessee has been granted an incentive is accepted to be for rapid industrialisation and to encourage a balanced growth of industries in the State of Gujarat. The decision relied by the Ld. AO in the case of Bajaj Auto (supra) has been recently reversed by the Hon’ble vide its order dated July 3, 2025, wherein the Hon’ble Court after considering the decision of Sahney Steel (supra) and PJ Chemicals (supra) held that since the purpose of the subsidy was setting up of new unit and not assisting in making the business more profitable, the subsidy was capital in nature. The Ld. AR has submitted that the issue under consideration has consistently been decided in its favour by the coordinate benches of the ITAT, Mumbai. In particular, reliance has been placed on the decision of the Tribunal in the assessee’s own case for the AY 2008-09, ITA No. 5982 & 6758/Mum/2011 date of pronouncement 21/05/2025. Respectfully following the principle of judicial consistency and discipline, we hold M/s Grasim Industries Ltd. that the issue is squarely covered in favour of the assessee. Accordingly, the ground raised by the revenue is dismissed.

The facts for the year under consideration being identical, we see no reason to interfere with the decision of the CIT(A). The ground raised by the revenue is accordingly dismissed.

Ground No. 2 & 3 pertain to treating TUF Subsidy amounting to Rs. 17,71,01,030/- as capital receipt not chargeable to tax by the CIT(A). During the course of hearing the ld. AR submitted that the issue is recurring in nature and the Co-ordinate Bench has been consistently holding from AY 2007-08 to AY 2010- 11 in favour of the assessee. We in this regard notice that the Co-ordinate Bench while considering the identical issue for AY 2010-11(supra) has held that “44. We have heard the rival submissions and perused the record. The assessee received subsidy under the Technology Upgradation Fund (TUF) Scheme in the form of reimbursement of interest on loans taken for acquiring capital assets for technology upgradation. Though originally offered as revenue receipt, the assessee raised an additional ground before the Ld. CIT(A) relying on the decision of ITAT, Kolkata in Gloster Jute Ltd. (supra), wherein it was held that such subsidy is capital in nature. The Ld. CIT(A), after obtaining remand report from the Ld. AO, admitted the additional ground and directed the Ld. AO to treat the receipt as capital in nature. We note that in assessee’s own case for earlier years (AYs 2005-06 to 2008- 09, AY 2009-10), this ITAT-Mumbai bench has consistently held that interest subsidy received under TUF Scheme is capital receipt. The principle of consistency requires us to follow the same view. Reliance placed by the revenue on non-admissibility of additional ground is misplaced, since the juri ictional High Court in assessee’s own case (ITA 778/2015, order dated 18.12.2018) has declined to admit such question. Further, the Ld. DR has not disputed the merits of the subsidy being capital in nature, but only raised a procedural objection. Such objection, in our considered view, does not survive. Accordingly, following the consistent view taken in assessee’s own case and relying on the decision of Gloster Jute Ltd, we hold that the interest subsidy received under TUF Scheme is a capital receipt not chargeable to tax. M/s Grasim Industries Ltd. Ground No. 12 raised by the revenue is dismissed.”

Respectfully the above decision of the Co-ordinate Bench, we dismissed the grounds raised by the revenue in this regard considering that no new material or facts to controvert the above finding is brought on record by the revenue.

Ground Nos. 4 & 5 pertain to the allowance of ESOP Expenditure. The ld. DR fairly conceded that the issue is covered by the decision of the Hon'ble Karnataka High Court in the case of CIT Vs. Biocon Ltd. [2021] 430 ITR 151 (Kar.HC). We in this regard notice that the Co-ordinate Bench has been consistently holding the issue in favour of the assessee and the relevant findings for AY 2009-10 (supra) is extracted as under:

Aditya Birla Novo Ltd. in ITA No.5848/Mum/2017 2. Grasim Industries Ltd. vs. Addl. CIT in ITA No. 1065/Mum/2017 3. Aditya Birla Nuvo Ltd. vs. Addl. CIT in ITA No.4220/Mum/2015 4. DCIT LTU vs. Aditya Birla Nuvo Ltd. in ITA No. 3178/Mum/2012. 5. Aditya Birla Nuvo Ltd. vs. DCIT in ITA No.563/Mum/2018 6. Bicon Ltd. vs. DCIT [2013] 35 taxmann.co, 335 (Bang.Trib) (SB) 7. DCIT vs. CBRE South Asia (P.) Ltd. [2024] 163 taxmann.co, 256 (Del.Trib) 8. Bhartiya International Ltd. [2024] 158 taxmann.com 239 (Del. Trib) 9. Lemon Tree Hotels Ltd. vs. Addl. CIT in ITA No.4588/Del/2013 (Del.Trib). 10 CIT vs. PVP Ventures 23 taxmann.co. 286 (Mad. HC).

Learned DR relied upon the observations of the AO and learned First Appellate Authority.

We have considered rival submissions and perused the materials on record. We have also applied our mind to the Judicial precedents cited before us. It is observed, in case of Aditya Birla Nuvo Ltd. (Supra) which amalgamated to the assessee company, the Tribunal has consistently taken a view that these expenses had to be allowed as Revenue expenditure. In the latest order passed in ITA No.1885/Mum/2018 dated 25.07.2024, the Tribunal has also followed its earlier decision in assessee’s case and upheld order of learned First Appellate Authority allowing deduction. Facts being identical, respectfully following the consistent view of the Coordinate Bench, we direct the Assessing Officer to allow assessee’s claim. This ground is allowed.

Facts being identical, respectfully following the decision of the Coordinate Bench, we uphold the decision of learned First Appellate Authority by dismissing the ground.”

Respectfully following the ratio laid down by the Hon'ble Karnataka High Court and the decision of the Co-ordinate Bench we dismiss the grounds raised by the revenue in this regard. M/s Grasim Industries Ltd. 33. Ground No. 6 & 7 of the revenue is with regard to considering the dividend of Rs. 11,39,37,188/- from Alexandria Carbon Black Co. UAR (Egypt) as not chargeable to tax in India. The ld. AR fairly conceded that the issue has been consistently held against the assessee by the Co-ordinate Bench and in this regard drew our attention to the relevant findings for AY 2009-10 (supra) where it is held that “47. Having considered rival submissions, we find while deciding identical issue in assessee’s case in A.Y. 2007-08 (supra), Tribunal has held as under:

Be that as it may, on perusal of the record, we find that in assessee’s own case in A.Ys 2004-05 and 2005-06, the Tribunal has held that the dividend received from the Egyptian company is taxable in India.

Respectfully following such consistent view of the coordinate Bench, we decide the issue against the assessee. This ground is dismissed.” M/s Grasim Industries Ltd. 48. Facts being identical, respectfully following the decision of Coordinate Bench, we reverse the decision of learned First Appellate Authority and uphold the addition made by the Assessing Officer. This ground is allowed.”

Considering that the facts being identical we uphold the addition made by the AO by following the above decision of the Co-ordinate Bench.

Ground Nos. 8 & 9 pertain to the disallowance of employee contribution towards ESI and Labour Welfare Fund.

We heard the parties and perused the material on record. The issue is settled by the decision of the Hon'ble Supreme Court in the case of Checkmate Services Pvt. Ltd. vs. CIT [2022] 448 ITR 518 (SC). Accordingly, we dismiss the contention of the assessee regarding the allowability of the claim and uphold the disallowance made in this regard. The grounds raised by the revenue are thus allowed.

Ground No.10 & 11 pertain to the allowance of additional depreciation u/s. 32(1)(iia) in the succeeding AY where the assets were put to use for less than 180 days in the relevant previous year. The ld. AR submitted that the issue is covered by the decision of the Co-ordinate Bench in the case of Aditya Birla Nuvo Ltd. (which is succeeded by the assessee) for AY 2013-14 (ITA No. 563/Mum/2018 dated 25.07.2024).

Considering the ratio laid down by the Co-ordinate Bench, we reject the ground raised in the revenue in this regard.

In result, the appeal of assessee and the revenue are partly allowed.