AMBUJA CEMENTS LTD ( FORMERLY KNOWN AS GUJARAT AMBUJA CEMENTS LTD),MUMBAI vs. ADDL CIT 3(1), MUMBAI

6. On thorough consideration we find that the principle of apportionment does not arise in this case as the jurisdictional facts have not been pleaded by the Revenue. In fact Tribunal while affirming the order of the first appellate authority noted that the first appellate authority had deleted the addition made by the assessing officer under section 14-A of the Act by observing that the interest-free fund available with the respondent - assessee was far in excess of the advance given. Tribunal further noted that the Revenue does not dispute the said finding and relying on the decision of this Court in CIT v. Reliance Utilities & Power Ltd. [2009] 178 Taxman 135/313 ITR 340, affirmed the deletion made by the first appellate authority.

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is allowed for statistical purposes. As regards the question of adjustment of book profits under section 15JB for the 14A disallowance, we find that this aspect of the matter stands concluded, in favour of the assessee, by a special bench decision in the case of ACIT Vs Vireet Investments Pvt Ltd [(2017) 82 taxmann.com 415 (Del SB)]. The assessee gets relief on this point as well.

7. Ground nos. 1 is thus allowed for statistical purposes, and ground no. 4 is thus allowed.

8. In ground no. 2, the assessee has raised the following grievance: “That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) was not justified and grossly erred in not allowing exclusion of Education Cess on Income Tax, Dividend Distribution Tax and Fringe Benefit Tax aggregating to Rs. 27,66,52,424/- in computing total income under the normal provisions of the Act.”

9. Learned counsel, however, submits that the assessee does not wish to press this grievance, and this ground of appeal, therefore, may be dismissed as not pressed. The prayer is accepted. The ground of appeal is dismissed as not pressed.

10. Ground no 2 is thus dismissed in the terms indicated above.

11. In ground no. 3, the assessee has raised the following grievance: “That on the facts and circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred in not allowing deduction of leave encashment claimed on provision basis amounting to Rs. 25,00,85,597/ -.”

12. Learned counsel for the assessee fairly submits that the issue now stands covered against the assessee, and deduction on a provision basis is indeed inadmissible. He, however, prays that ITA Nos.2968/Mum/2015 & 1665/Mum/2019 & 2428/Mum/2019 Assessment years: 2008-09 and 2009-10 Page 4 of 51 a direction may be given that the Assessing Officer at least allows it on a payment basis as and when the payments are actually made. Learned Departmental Representative does not oppose this prayer, though he adds that the deduction can only be allowed when it is otherwise admissible, and that aspect of the matter will have to be examined by the Assessing Officer. That is indeed the correct approach. While we dismiss the grievance of the asseseee, we make it clear that the Assessing Officer will take a call, as and when the payment is actually made, on the admissibility of deduction in accordance with the law. Subject to this rider, grievance in grounds nos 3 is rejected.

13. Ground no 3 is dismissed.

14. We have already dealt with the ground no. 4, along with ground no. 1, and no further adjudication is required on this issue.

16. We will now take up the appeal filed by the Assessing Officer.

17. In ground no. 1, the Assessing Officer has raised the following grievance: "On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in excluding sales tax incentive availed by the assessee under various schemes of different states, aggregating to Rs. 3,34,42,10,472/- in computing its total income holding the incentives to be capital in nature”.

18. This is an issue coming up time and again in the appeals in the case of the assessee, and, as learned representatives fairly agree, whatever we decide on the cross-appeals for the assessment years 2005-06, 2006-07 and 2007-08, which were heard along with these cross- appeals, will apply mutatis mutandis here as well. In our order for the assessment year 2006-07, while deciding the issue in favour of the assessee, we have inter-alia observed as follows: 5. This is a legacy issue. The Assessing Officer has simply followed the stand taken by him in the preceding assessment years. In appeal, learned CIT(A), on the same lines as his stand in the immediately preceding assessment year, analysed the schemes in detail and held, except for Rajasthan and Himachal Pradesh Government’s sales tax subsidy scheme, all other schemes categorically state the object and purpose as promotion of industries and allied purposes. So far as Rajasthan and Himachal Pradesh Government Schemes are concerned, learned CIT(A) noted that the scheme does not specifically mention such objects and simply provide for the eligibility. In the absence of a specific mention of the purpose, the CIT(A) held that these subsidies are required to be treated as revenue receipts in nature. None of the parties is satisfied and both the parties are in appeal before us- the assessee is aggrieved of the receipts on account of HP and Rajasthan State Government sales tax subsidy schemes being treated as revenue in nature, and the Assessing Officer is aggrieved of the relief being granted by the CIT(A) in respect of other sales tax exemption and remissions being treated as capital receipts in nature.

6. Learned representatives fairly agree that materially identical issues have come up for our consideration in the assessment year 2005-06, and whatever we decide for the assessment year 2005- 06 will follow mutatis mutandis in this assessment year as well.

ITA Nos.2968/Mum/2015 & 1665/Mum/2019 & 2428/Mum/2019 Assessment years: 2008-09 and 2009-10 Page 5 of 51 Vide our order dated 31st October 2022, accepting the plea of the assessee and rejecting the 7. plea of the revenue, we have held as follows: 5. The relevant material facts, so far as necessary for adjudication of these grievances, are as follows. The assessee before us is a company engaged in the business of manufacturing of cement and generation of electricity. The assessee has set up its plants in different parts of the country, and as the location of some of these plants was in backward areas, the assessee had received certain sales tax concessions from the respective State Governments. These concessions were in the nature of exemptions and remissions etc, and were granted under specific schemes announced, under the industrial policies, from time to time. During the relevant previous year, the assessee received amounts aggregating to Rs 169,93,34,752, but all these receipts were treated as tax exempt on account of being in the nature of capital receipts. When income tax return filed by the assessee was subjected to the scrutiny assessment proceedings, the Assessing Officer noticed that the assessee had a lodged a claim for exclusion of Rs 169.93 crores, being sales tax exemption/incentives received by it, as capital receipt, and hence not liable to tax. The Assessing Officer declined this claim, primarily on the basis of certain observations in the judgments in the cases of Tamilnadu Sugar Corporation Ltd Vs CIT [(2001) 251 ITR 843 (Mad)], CIT Vs Rajaram Maize Products [(2001) 251 ITR 427 (SC)], CIT Vs S Kumars Tyre Manufacturing Co [(2004) 266 ITR 325 (MP)], and CIT Vs Abhishek Industries Ltd [(2006) 286 ITR 1 (P&H)]. The entire amount of Rs 1169.93 crores was added to income of the assessee. Aggrieved, assssee carried the matter in appeal before the CIT(A). Learned CIT(A) took note of the fact that these amounts pertained to five different units under four schemes- namely Maharshtra‟s Dispersal of Industries Package Scheme of Incentives 1993 (Maratha Unit), Punjab‟s Industrial Incentives Code under the Industrial Policy, 1996 (Ropar and Bhatinda Units), Rajasthan‟s Sales Tax New Incentives Scheme for Industries, 1989 (Rabriyawas Unit), and Exemptions/ Concessions to Industries Excise & Taxation Department Notification No EXN C(9)2/9- dated 31-1-2-1994 (Himachal Unit). He discussed these schemes in quite a bit of detail-to the extent wordings of the preamble of the schemes are concerned, and concluded that while the amounts aggregating to Rs 130,57,12,796, in respect of Punjab and Maharashtra Schemes, are indeed capital receipts in nature, and exempt from tax as such, the amounts aggregating to Rs 39,36,21,956 are revenue in nature, and to that extent the Assessing Officer was justified in including the same in taxable income. None of the parties is satisfied. While the assessee is aggrieved of the amount of Rs 39,36,21,956 being included in his taxable income, the Assessing Officer is aggrieved of the learned CIT(A)‟s granting relief of Rs 130,57,12,796. Both parties are in appeal before us.

7. We find that the learned CT(A) has, in his elaborate analysis, primarily followed the Special Bench decision in the case of DCIT Vs Reliance Industries Ltd [(2004) 88 ITD SB 273 (Mum)]. Upon analysis of this decision, he has noted that „for deciding the nature of subsidy, whether capital or revenue, what should be seen and examined is the purpose for which the subsidy has been given, and not the timing of the subsidy or the manner in which it has been given to the industry‟, as is also held by Hon‟ble Supreme Court in the case of CIT Vs Ponni Sugar and Chemicals Ltd [(2008) 306 ITR 392 (SC)]. A large number of judicial precedents have been cited in this context. Learned CIT(A) has then held that so far as the object and purpose for which the subsidy is given, only the subsidy schemes of the Maharashtra and Punjab State specifically state that the subsidies in question are for achieving dispersal of industries outside Mumbai, to attract them to the underdeveloped and developing areas of the State, and to promote the growth of the industry in the State, in the preamble to the scheme. It is on this basis that he has held that so far as the subsidies given by the Maharashtra and Punjab States are concerned, these are required to be treated as capital in nature, whereas, the ITA Nos.2968/Mum/2015 & 1665/Mum/2019 & 2428/Mum/2019 Assessment years: 2008-09 and 2009-10 Page 6 of 51 subsidies received from the State Governments of Himachal Pradesh and Rajasthan, in the absence of specific mention to the effect in the preambles of the subsidy schemes that these subsidies are required to be held to be revenue in nature. However, in our considered view, the approach of discerning the purpose of the subsidy, solely from the specific words used in the preamble of the scheme and without examining the overall scheme of the Act- which is admittedly to promote the growth of industry, is incorrect and superficial. The subsidies so received can be said to be revenue in nature unless these subsidies are for augmenting the profits of the assessee, and that is not even the case of the revenue. The CIT(A) is simply swayed by the wording of the preamble of the scheme- something clearly impermissible. These subsidy schemes are materially similar in nature, and there are, by now, a number of decisions of the coordinate benches, as also Hon‟ble Courts above, dealing with these schemes. It is also important to bear in mind the fact that the subsidies received by the assessee are in the nature of sales tax subsidies, and dealing with sales tax subsidies, Hon‟ble Gujarat High Court, in the case of CIT Vs Nirma Ltd [(2017) 397 ITR 49 (Guj)], has observed as follows: 7. So far as second issued as to Whether the Appellate Tribunal was right in law and on facts in upholding the decision of the CIT (A) and in directing the Assessing Officer to consider the Sales-tax exemption benefit of Rs. 5,45,81,171/- as capital receipts is concerned, Mr.Mehta contended that in view of the decision of the Calcutta and Punjab High Court, the Tribunal has committed an error in reversing the view taken by CIT (Appeals) so far as Tax Appeal No.226 of 2010 is concerned, wherein the CIT (A), after discussing the evidence has held in favour of the department. In this regard, he has relied upon the decision of High Court of Bombay in the case of CIT v. Reliance Industries Ltd. [2010] 8 taxmann.com 218/[2011] 339 ITR 632, wherein it is held that object of subsidy being to set up new units in backward area is a capital receipt and another decision of High Court of Calcutta in the case of CIT v. Chhindwara Fuels [2001] 114 Taxman 707/[2000] 245 ITR 9, wherein it is held that subsidy in the form of refund of sales-tax received after commencement of production cannot be treated as capital receipt.

8. On the other hand, Mr. Soparkar, learned counsel appearing for the respondent contended that so far as Tax Appeal No.226 of 2010 is concerned, after discussing the evidence on record, the Tribunal has followed earlier decision and discussed the issue in detail in para 54 and 55 of its decision, which reads as under:— "54. Per contra, the learned D.R. Supported the orders passed by the Assessing Officer and the learned CIT (A). Referring to the judgment in Sahney Steel and Press Works Limited v. CIT 228 ITR 253 (SC), he submitted that the impugned sales tax exemption increased the profits of the assessee by eliminating the expenses which the assessee would have had to incur later and therefore the impugned receipts were in the revenue field. He also referred to Explanation (10) to Section 43 (1) of the Income Tax Act inserted in with effect from 01/04/99 to emphasise that the action of the assessee in not reducing the cost of assets by the amount of subsidy for working out the Written Down Value was indicative of the fact that the impugned receipts were not in the nature of capital receipts.

9. He further contended that in view of decisions of this Court in CIT v. Birla VXL Ltd. [2013] 32 taxmann.com 330/215 Taxman 117 (Guj.) and in Dy. CIT v. Munjal Auto Industries Ltd. [2013] 37 taxmann.com 115/218 taxman 135 (Guj.) the issue is squarely covered and the decisions which are sought to be relied upon by learned advocate for the appellant are not applicable in the facts of the present case. In the case of Birla VXL Ltd. (supra), this Court has observed as under:— '12. It can thus be straightaway seen that the benefit, though computed in terms of the Sales Tax liability in the hands of the recipient, the same was not mean to give any benefit on day-to-day functioning of the business, or for making the industry more profitable. The principle aim of the scheme was to cover the capital outlay already made by the assessee in undertaking special modernization of its existing industry.

ITA Nos.2968/Mum/2015 & 1665/Mum/2019 & 2428/Mum/2019 Assessment years: 2008-09 and 2009-10 Page 8 of 51 14. In the result, we do not find that the Tribunal has committed any error. No question of law, therefore, arises. Tax Appeals are therefore dismissed.' 10. In the case of Munjal Auto Industries Ltd. (supra), this Court has observed as under:— "7. From the provisions of the said scheme, it clearly emerges that the subsidy though computed in terms of sales tax deferment or waiver, in essence it was meant for capital outlay expended by the assessee for set up of the unit in case of a new industrial unit and for expansion and diversification of an existing unit. As noted, such subsidy was available only to a new industrial unit or a unit undertaking expansion or diversification. Fixed capital investment has been defined as to include various investments in land under use, new construction, plant and machinery etc. The entitlement was related to percentage of fixed capital investment.

8. It is undoubtedly true that such subsidy was computed in terms of sales tax deferment and necessarily therefore, would accrue to an industry only once the commercial production commences. However, this by itself would not be either a sole or concluding factor. In case of Sahney Steel and Press Works Ltd. and others v. Commissioner of Income-tax reported in 228 ITR 253, the Apex Court held and observed that the character of the subsidy in the hands of the recipient whether revenue or capital will have to be determined, having regard to the purpose for which the subsidy is given. The source of find is quite immaterial. If the purpose is to help the assessee to set up its business or complete a project the monies must be treated as having been received for capital purposes. Such But if monies are given to the assessee for assisting him in carrying out the business operations and given after the satisfaction of the conditions of commencement of production, such subsidy must be treated as assistance for the purpose of the trade."

11. He also submitted that in view of above decisions, these appeals may not be entertained.

8. In the case of JCIT Vs Grasim Industries Limited ( ITA Nos 2155/Mum/2016 and Ors; order date 29th April 2022), a coordinate bench has dealt with these legal issues in considerable detail and observed as follows: 5.3.5. …………. the dominant purpose for which the incentive scheme per se introduced by the respective State Governments was only for the purpose of setting up of industries in the respective areas for industrial development in State and also to accelerate development and absolutely not for augmenting the profits of the assessee. Effectively, the schemes of various State Governments envisaged the rapid industrialisation, growth and new employment generation in the respective areas which would in turn promote the growth of the State. Hence, it could be safely concluded that subsidy / incentive granted is only for setting up of the units based on the fixed percentage of the capital cost and not for running the business of the assessee. Moreover, even this subsidy which is determined based on sales tax assessment orders ITA Nos.2968/Mum/2015 & 1665/Mum/2019 & 2428/Mum/2019 Assessment years: 2008-09 and 2009-10 Page 9 of 51 for 9 years, 6 years etc., are subject to maximum outer limit already fixed under the respective schemes. Though the quantification of the subsidy has been made post commencement of business, the measurement of subsidy is immaterial. In our considered opinion, none of the schemes contemplated to finance the assessee in the form of subsidy / incentive for meeting the working capital requirements of the assessee company post commencement of business. Hence, by applying the purpose test, apparently, the subsidy / incentive received in the instant case would only have to be construed as capital receipts not chargeable to income tax. In this regard, we find that ld. AR placed reliance on the decision of Hon‟ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd., reported in 306 ITR 392, wherein the incentive conferred under that scheme were two fold. First, in the nature of higher free sale sugar quota and second, in allowing the manufacturer to collect Excise duty on sale price on the free sale sugar in excess of the normal quota, but to pay to the Government only the Excise duty payable on the price of levy sugar. The Hon‟ble Supreme Court in para 14 of its decision had held that “character of receipt of subsidy has to be determined with respect to the purpose for which the subsidy is given. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial.” In fact, the Hon‟ble Supreme Court while rendering this decision had duly considered its earlier decision in the case of Sahney Steel and Press Works Ltd., reported in 228 ITR 253 and had absolutely no quarrel with that judgement. Rather, it concurred with the decision rendered in Sahney Steel and Press Works Ltd., case. In this regard, it would be relevant to reproduce the operative portion of the decision of Hon‟ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd., as under:- 14. The second case is Lincolnshire Sugar Co. Ltd. v. Smart 20 TC 643. In that case it was found that Lincolnshire Sugar Co. Ltd carried on the business of manufacturing sugar from home grown beet. The company was paid various sums under British Sugar Industry (Assistance) Act, 1931, out of monies provided by the Parliament. The question was whether these monies were to be taken into account as trade receipts or not. The object of the grant was that in the year 1981, in view of heavy fall in prices of sugar, sugar industries were in difficulty. The Government decided to give financial assistance to certain industries in respect of sugar manufactured by them from home- grown beet during the relevant period. Lord Macmillan held that— "What to my mind is decisive is that these payments were made to the company in order that the money might be used in their business." He further observed that: "I think that they were supplementary trade receipts bestowed upon the company by the Government and proper to be taken into computation in arriving at the balance of the company's profits and gains for the year in which they were received."

15. In the case before us, the payments were made to assist the new industries at the commencement of business to carry on their business. The payments were nothing but supplementary trade receipts. It is true that the assessee could not use this money for distribution as dividend to its shareholders. But the assessee was free to use the money in its business entirely as it liked and was not obliged to spend the money for a particular purpose like extension of docks as in the Seaham Harbour Dock Co. 5 case (supra).

20. Finally, it was found that, applying the test of purpose, the Court was satisfied that the payment received by the assessee under the scheme was not in the nature of a helping hand to the trade but was capital in nature.

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8. It is undoubtedly true that such subsidy was computed in terms of sales tax deferment and necessarily therefore, would accrue to an industry only once the commercial production commences. However, this by itself would not be either a sole or concluding factor. In case of Sahney Steel and Press Works Ltd. and others v. Commissioner of Income-tax reported in 228 ITR 253, the Apex Court held and observed that the character of the subsidy in the hands of the recipient whether revenue or capital will have to be determined, having regard to the purpose for which the subsidy is given. The source of find is quite immaterial. If the purpose is to help the assessee to set up its business or complete a project the monies must be treated as having been received for capital purposes. Such But if monies are given to the assessee for assisting him in carrying out the business operations and given after the satisfaction of the conditions of commencement of production, such subsidy must be treated as assistance for the purpose of the trade.

9. Such decision was considered in case of Ponni Sugars and Chemicals Ltd.(supra) and the Apex Court held and observed as under : “13. The main controversy arises in these cases because of the reason that the incentives were given through the mechanism of price differential and the duty differential. According to the Department, price and costs are essential items that are basic to the profit making process and that any price related mechanism would normally be presumed to be revenue in nature. In other words, according to the Department, since incentives were given through price and duty differentials, the character of the impugned incentive in this case was revenue and not capital in nature. On the other hand, according to the assessee, what was relevant to decide the character of the incentive is the purpose test and not the mechanism of payment.

10. In a recent judgement dated 8.1.2013 in case of DCIT-Circle1(2)-Baroda v. Inox Leisure Ltd.,we had an occasion to consider somewhat similar question in the backdrop of entertainment tax waiver scheme of State of Gujarat as well as State of Maharashtra. Even in such a case, the entertainment tax waiver which was granted in terms of sale of tickets was treated as capital in nature when it was found that same was relatable to the capital investment made by the assessee. It was held as under : “10. From the above noted provisions of thescheme it can be clearly seen that the entire purpose of granting tax exemption was for giving the boost to the terrorism sector. This was to be achieved by attracting higher investment in areas with tourism potential. In order to achieve such purpose, exemption from various taxes as may be applicable was granted. It is true that the exemption was to be computed in terms of tax otherwise payable by the industry. However, the purpose of such exemption was to meet with the capital outlay already undertaken by the assessee. This clearly comes out from various provisions of the scheme. For example, the scheme was applicable only to the new project or to a existing project provided investment in fixed capital or capacity was increased atleast by 50%.Thus, the very eligibility for seeking exemption was linked with new investment being made in fixed capital. Further though the scheme envisaged a certain period spanning for 5 to 10 years during which such exemption could be availed depending on the category of the unit, such exemption would cease the moment the total incentives touched 100% of the eligible capital investments. In other words, the upper limit of total incentive which the unit could receive from the State Government in the form of tax waiver would not exist 100% of the eligible capital investment regardless of the residue of the period of its exemption eligibility as per the scheme. From the combined reading of salient features of the scheme, we have no ITA Nos.2968/Mum/2015 & 1665/Mum/2019 & 2428/Mum/2019 Assessment years: 2008-09 and 2009-10 Page 14 of 51 doubt in our mind that the incentive was being offered for recouping or covering a capital investment or outlay already made by the assessee.”

ITA Nos.2968/Mum/2015 & 1665/Mum/2019 & 2428/Mum/2019 Assessment years: 2008-09 and 2009-10 Page 16 of 51 (d) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in entertaining the additional ground without appreciating that the assessee had treated the amount of sales tax exemption benefit of Rs.58 crores as revenue receipt and had included this amount in the returned income and it had been taxed accordingly and the assessee did not raise this issue before the CIT(A) and the issue had attained finality?” 5.4.3. While disposing of the questions Nos. c & d, the Hon‟ble Jurisdictional High Court categorically held that the decision of the Special Bench of Tribunal had not been reversed or stayed by any higher judicial forum and it holds good as on date. The relevant operative portion of the judgement of Hon‟ble Jurisdictional High Court in this regard is reproduced as under:- “3. We will first address the questions no. (c) and (d), which are different elements of the same issue. The respondent assessee had received a subsidy. It is undisputed that up to the level of Income Tax Appellate Tribunal, the assessee did not raise a contention that such subsidy was towards capital account and, therefore, not taxable. However, before the Tribunal such a contention was raised. The Tribunal by the impugned judgment relied upon its earlier judgment for the Assessment Year 1999- 2000 in case of this very assessee and restored the issue back to the Assessing Officer. In the earlier order, the Tribunal had remanded the issue to the file of the Assessing Officer "to decide the issue afresh after considering the decision of Special Bench of the Tribunal in the case of Reliance Industries Ltd. (supra)". Thus, the Tribunal remanded the issue back to the Assessing Officer to be decided in the light of the Special Bench judgment in the case of Reliance Industries Ltd. The Revenue's grievance in this respect is two fold. It was contended that the issue was raised for the first time before the Tribunal and the same should not have been permitted. Secondly, the view of the Tribunal in case of Reliance Industries Ltd. was challenged before the High Court. The High Court in a judgment dated 15.04.2009 in Income Tax Appeal No. 1299 of 2008 had held that no question of law in this respect arises and thereby confirmed the judgment of the Tribunal. It was pointed out that against this judgment of the High Court, the Department had approached the Supreme Court and the Supreme Court had held that a question of law did arise. The Supreme Court framed a question and placed the matter back before the High Court. We are informed that this appeal is still pending.

4. On the other hand, learned Counsel for the assessee firstly contended that the Tribunal had merely remanded the issue back to the Assessing Officer. In earlier orders, the Revenue had approached the Court against the similar orders of the Tribunal. The High Court on two occasions, in the order dated 27.09.2016 and 22.11.2016 passed in Income Tax Appeal Nos. 475 of 2014 and 102 of 2014 respectively had not entertained the challenge of the Revenue. In any case, it was contended that the facts on record are available and the Tribunal has merely asked the Assessing Officer to take a decision on the assessee's contention.

9. In the Special Bench decision in the case of Reliance Industries Ltd (supra), what came up for consideration was specifically the sales tax subsidy, and that decision, as we seen in the elaborate analysis of the coordinate bench- as extracted above still holds good in law. In the case of CIT Vs Chaphalkar Brothers [(2018) 400 ITR 279 (SC)], Hon‟ble Supreme Court has held that where the object of respective subsidy schemes of State Governments was to encourage the development of Multiple Theatre Complexes, incentives would be held to be capital in nature and not revenue receipts, and, following the same logic, the sales tax subsidy schemes, which are admittedly to encourage industrial growth in the specific areas and the overall scheme in all the sales tax subsidy and exemption schemes unambiguously indicate so, are capital receipts in nature.

8. We see no reasons to take any other view of the matter than the view taken by the coordinate bench in the assessee’s own case for the immediately preceding assessment year. Respectfully following the same, we uphold the plea of the assessee and dismiss the grievance of the assessee. The relief granted by the CIT(A) in this regard also stands approved and confirmed…..

19. We see no reasons to take any other view of the matter than the view so taken in assessee’s own cases. Respectfully following the same, we approve and confirm the relief granted by the CIT(A) and decline to interfere in the matter.

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20. Ground no. 1 is thus dismissed 21. In ground no. 2, the Assessing Officer has raised the following grievance: “On the facts and in the circumstances of the case and in law, the Id. CITA) erred in treating the difference of the N. P. V. of the sales tax liability and the liability as not assessable to tax based on the decision of the jurisdictional High Court in CIT vs. Sulzer India Ltd. which decision has not been accepted by the Department”. 22. Heard the parties; perused the records. 23. A plain reading of the above ground of appeal

clearly shows that, even going by the stand of the Assessing Officer, the issue is covered in favour of the assessee, by Hon’ble jurisdictional High Court judgment in the case of CIT Vs Sulzer India Ltd [(2014) 369 ITR 717 (Bom)] but yet the appeal has been filed because the revenue has challenged the correctness of the said judgment. That very approach is simply erroneous because it is only elementary in law that the mere pendency of the appeal, against a binding judicial precedent, in a higher judicial forum does not dilute, curtail or otherwise narrow down its binding nature. As long as the binding judicial precedent holds good in law, as it does unless it is upturned or reversed by a higher judicial forum, it binds the lower judicial forums. That apart, even otherwise, the view taken by the Hon’ble Bombay High Court in Sulzer’s case (supra) now stands approved and confirmed by the Hon’ble Supreme Court in the case of CIT Vs Balakrishna Industries Limited [(2017) 88 taxmann.com 273 (SC)] wherein Their Lordships have, inter-alia, observed as follows: ……..The main judgment is dated 05.12.2014 which was rendered in a batch of appeals with the leading case known as 'The CIT v. Sulzer India Ltd. [2015] 54 taxmann.com 161/229 Taxman 264/[2014] 369 ITR 717 (Bom.). It is this judgment which has been followed in other cases. Therefore, for the sake of convenience, we shall refer to the facts as noted in Sulzer India Ltd.'s case (supra).

4. The Assessee M/s. Sulzer India Ltd. filed return of income for the assessment year 2003-04 on 27th November, 2013, declaring total income at Rs. 10,59,76,986/-, claiming deduction under section 80HHC of the I.T. Act in the sum of Rs. 82,48,864/-.

5. During the assessment proceedings, the Assessing Officer observed that the Assessee had credited amount of Rs. 4,14,87,985/- to the capital reserve contending that the said amount was a remission of loan liability. The Assessee stated that under the Industrial Backward Area Scheme of the Government of Maharashtra, it was entitled to defer the Sales Tax liability for a period of 7 years under the Deferral Scheme of 1983 and for a period of 6 years under the Deferral Scheme of 1988. In response to a Notification issued by the Government of Maharashtra regarding premature repayment of deferral Sales Tax at Net Present Value (NPV), the Assessee made a repayment of Rs. 3,37,13,393/- against the total liability of Rs.

ITA Nos.2968/Mum/2015 & 1665/Mum/2019 & 2428/Mum/2019 Assessment years: 2008-09 and 2009-10 Page 20 of 51 7,52,01,378/-. The Assessee remitted the balance amount of Rs. 4,14,87,985/- and credited the said amount to its capital reserve account. The Assessing Officer asked the Assessee to show cause as to why the said amount should not be taxed in the hands of the Assessee as a revenue receipt. Relying on Circulars of the Central Board of Direct Taxes being Nos. 496 and 674, the Assessee claimed that the deferral Sales Tax under the Deferral Scheme was required to be treated as actually paid for the purposes of section 43B of the I.T. Act. Further, the conversion of Sales Tax liability into loans would be taken as discharge of the liability of Sales Tax and, therefore, the deferral amount was in the form of a loan and not a trading receipt. On this basis, the Assessee contended that the remission of a loan cannot be treated as a revenue receipt and taxed as its income. The Assessing Officer rejected this claim and by holding that the Board's Circular is in the context of section 43B of the Income Tax Act and therefore not relevant for the present issue.

6. Against the aforesaid Assessment Order passed by the Assessing Officer, M/s. Sulzer India Ltd. (hereinafter referred to as 'assessee') preferred the appeal before the Commissioner of Income Tax (Appeals) who dismissed the same by sustaining the assessment. This was challenged by the assessee before the Tribunal. In view of the difference of opinion of the two coordinate Benches on this issue, a special Bench was constituted. The special Bench decided the case in favour of the assessee and allowed the appeal. As mentioned above, it is this judgment, which has been upheld by the High Court as well and in these circumstances, the Revenue is in appeal before us.

7. A glimpse of the facts taken note of, shows that the assessee herein had collected the sales tax in the sum of Rs. 7,52,01,378/-. As per the Scheme floated by the Government of Maharashtra, for those assessees who set up their industries in the backward area, the sales tax liability was deferred for a period of 7 years and, thereafter, it can be paid over a period of 7 years under the Deferral Scheme of 1983 and over a period of 6 years under the Deferral Scheme of 1988. However, under the Scheme of 1988, the Government of Maharashtra promoted premature or payment of deferral sales tax at Net Present Value (NPV).

8. In the meantime, section 38 of the Sales Tax Act was amended which provides that where the NPV of deferred tax as may be prescribed was paid, the deferred tax was deemed to have been paid. Taking advantage of this Scheme, the assessee made repayment of Rs. 3,37,13,393/- against the total liability of Rs. 7,52,01,378/-. In this manner, the assessee could save a sum of Rs. 4,14,87,985/-. The issue is as to whether this amount, which the assessee could save, is to be treated as 'income' by applying the provisions of Section 41 of the Act. The Assessing Officer treated it as the revenue receipt and thereby income. Contention of the assessee is that it is a capital receipt, which is accepted by the High Court.

9. In a very detailed and exhaustive judgment rendered by the High Court, it has discussed the view taken by the Assessing Officer, which was confirmed by the ITA Nos.2968/Mum/2015 & 1665/Mum/2019 & 2428/Mum/2019 Assessment years: 2008-09 and 2009-10 Page 21 of 51 Commissioner of Income Tax (Appeals). Thereafter, the High Court noted in detail the manner in which the Tribunal has dealt with the issue. A perusal of the judgment would show that the High Court took into consideration the provisions of Section 41 of the Act and the conditions which are required to be satisfied for bringing a particular receipt as "income" within the ambit thereof and found that those conditions are not satisfied in the present case. The High Court also repelled the contention of the Revenue that the assessee obtained the benefit of reduction of sales tax liability under Section 43B of the Act as per the CBDT Circular No. 496 dated 25th September, 1987. The relevant portion of the discussion in this behalf reads as under: "It is not possible to agree with Mr. Gupta. Because, premature payment of Sales Tax already collected but its remittance to the Government, as Mr. Gupta envisages, is not covered by this provision else the subsections and particularly section 43B(1) would have been worded accordingly. Therefore Section 43B has no application. Insofar as applicability of section 41(1)(a), there also the applicability is to be considered in the light of the liability. It is a loss, expenditure or trading liability. In this case, the scheme under which the Sales Tax liability was deferred enables the Assessee to remit the Sales Tax collected from the customers or consumers to the Government not immediately but as agreed after 7 to 12 years. If the amount is not to be immediately paid to the Government upon collection but can be remitted later on in terms of the Scheme, then, we are of the opinion that the exercise undertaken by the Government of Maharashtra in terms of the amendment made to the Bombay Sales Tax Act and noted above, may relieve the Assessee of his obligation, but that is not by way of obtaining remission. The worth of the amount which has to be remitted after 7 to 12 years has been determined prematurely. That has been done by find out its NPV. If that is the value of the money that the State Government would be entitled to receive after the end of 7 to 12 years, then, we do not see how ingredients of sub section (1) of section 41 can be said to be fulfilled. The obligation to remit to the Government the Sales Tax amount already recovered and collected from the customers is in no way wiped out or diluted. The obligation remains. All that has happened is an option is given to the Assessee to approach the SICOM and request it to consider the application of the Assessee of premature payment and discharge of the liability by finding out its NPV. If that was a permissible exercise and in terms of the settled law, then, we do not see how the Assessee can be said to have been benefited and as claimed by the Revenue. The argument of Mr. Gupta is not that the Assessee having paid Rs. 3.37 crores has obtained for himself anything in terms of section 41(1), but the Assessee is deemed to have received the sum of Rs. 4.14 crores, which is the difference between the original amount to be remitted with the payment made. Mr. Gupta terms this as deemed payment and by the State to the Assessee. We are unable to agree with him. The Tribunal has found that the first requirement of section 41(1) is that the allowance or deduction is made in respect of the loss, expenditure or a trading liability incurred by the Assessee and the other requirement is the Assessee has subsequently obtained any amount in respect of such loss and expenditure or ITA Nos.2968/Mum/2015 & 1665/Mum/2019 & 2428/Mum/2019 Assessment years: 2008-09 and 2009-10 Page 22 of 51 obtained a benefit in respect of such trading liability by way of a remission or cessation thereof. As rightly noted by the Tribunal, the Sales Tax collected by the Assessee during the relevant year amounting to Rs. 7,52,01,378/- was treated by the State Government as loan liability payable after 12 years in 6 annual/equal installments. Subsequently and pursuant to the amendment made to the 4th proviso to section 38 of the Bombay Sales Tax Act, 1959, the Assessee accepted the offer of SICOM, the implementing agency of the State Government, paid an amount of Rs. 3,37,13,393/- to SICOM, which, according to the Assessee, represented the NPV of the future sum as determined and prescribed by the SICOM. In other words, what the Assessee was required to pay after 12 years in 6 equal installments was paid by the Assessee prematurely in terms of the NPV of the same. That the State may have received a higher sum after the period of 12 years and in installments. However, the statutory arrangement and vide section 38, 4th proviso does not amount to remission or cessation of the Assessee's liability assuming the same to be a trading one. Rather that obtains a payment to the State prematurely and in terms of the correct value of the debt due to it. There is no evidence to show that there has been any remission or cessation of the liability by the State Government. We agree with the Tribunal that one of the requirement of section 41(1)(a) has not been fulfilled in the facts of the present case."

10. After hearing the counsel for the parties at length, we are of the view that the aforesaid approach of the High Court is without any blemish, inasmuch as all the requirements of Section 41(1) of the Act could not be fulfilled in this case.

25. Ground no. 2 is thus dismissed.

27. Learned representatives fairly agree that whatever we decide in the assessee’s cross- appeals for the assessment year 2006-07, which was heard along with these appeals, will mutatis mutandis in this assessment year as well. Vide our order dated 31st October 2022, and dealing with the same issue on the admittedly same set of facts, we have decided this issue in favour of the assessee, and observed, inter alia, as follows: 17. So far as this grievance of the assessee is concerned, the relevant material facts are like this. During the course of assessment proceedings, the Assessing Officer noticed that the assessee has availed excise duty exemption, amounting to Rs 46,83,11,376, in respect of their Darlaghat Unit, HP, and it was claimed as a capital ITA Nos.2968/Mum/2015 & 1665/Mum/2019 & 2428/Mum/2019 Assessment years: 2008-09 and 2009-10 Page 23 of 51 receipt in nature. It was also noted that in terms of general Exemption No, 51 (Notification No. 50/2003 dated 10th June 2003) the assessee is entitled to 100% excise duty exemption for a period of ten years in respect of its cement manufacturing plant at Darlaaghat. The assessee’s submission was that this exemption was in response to the announcement made by the Hon’ble Prime Minister to the effect that tax and central excise concession are made to attract investments in the industrial sector for special category states, including Uttarakhand. The Assessing Officer noted that “though it is apparent from the excise notification that exemption is granted for only those units which are located in the backward areas and which have undertaken substantial expansion, however incentives are available only post production” and therefore he “finds no difference in sales tax and excise exemption claimed”. Following the stand taken for sales tax exemption etc, he held that the excise exemption receipts are also revenue in nature. Aggrieved, assessee carried the matter in appeal before the CIT(A). Learned CIT(A) also confirmed the stand of the Assessing Officer on the short ground that the exemption notification does not specifically state the object and purpose of the concession to be promotion of industry in the specified areas etc. The assessee is aggrieved, and is in appeal before us.

19. We have noted that the Assessing Officer himself states that he “finds no difference in sales tax and excise exemption claimed”, and in the immediately preceding paragraphs in this order, we have held that sales tax exemption receipt is a capital receipt in nature. There cannot be any good reasons to take a different view of the matter in respect to excise exemptions. For this short reason alone, the impugned additions must stand deleted as the related receipts are required to be treated as capital receipts in nature. The observations in the context of the first ground of appeal will apply mutatis mutandis here as well. That apart, once the Assessing Officer himself also accepts that the object and purpose of the excise exemption scheme are to promote the industry is set up, or being subjected to substantial expansion, in the backward areas, it cannot be open to the revenue even to suggest that the object and purpose of the scheme are to promote industries in backward areas. The Assessing Officer had declined the relief on a technical ground about at what stage the receipts materialize, whether post-production or pre- production. That test, as is the settled legal position now, is no longer a relevant test. What is material is as to what is the purpose of the scheme in question, and a call about the object and purpose of the scheme is to be taken in a holistic manner and on the basis of the scheme on an overall basis. The approach adopted by the learned CIT(A) was not only legally incorrect but wholly superficial. The following observations by Hon’ble jurisdictional High Court, in the case of PCIT Vs Welspun Steel Limited [(2019) 103 taxmann.com 436 (Bom)] are relevant in this regard:

ITA Nos.2968/Mum/2015 & 1665/Mum/2019 & 2428/Mum/2019 Assessment years: 2008-09 and 2009-10 Page 24 of 51 6. Having heard the learned Counsel for the parties on this question, we notice that, the Government of Gujarat Sales Tax Incentive Scheme was envisaged to promote large scale investments in the Kutch District since on account of devastating earth-quake, development of the district had suffered. The Scheme envisaged that, the same was confined only with the Kutch District. Similar, being the purpose and philosophy of the Government of India, while granting excise duty exemption, we may not separately take note of the back-ground thereof. In view of these facts, the question arises is - whether the Tribunal was justified in holding that Sales Tax and Excise duty exemption enjoyed by the assessee under the said subsidy scheme, was not taxable as revenue receipt. Such and similar issue has came up before different High Courts and Supreme Court on the numerous occasions. Reference to all those judgments would be un-necessary. However, the principle that has evolved is that, not the nomenclature of the subsidy or the fact that, the computation of the subsidy benefit is in terms of tax payable, would not be conclusive. What is to be examined in each case is the purpose for granting such subsidy. We may refer to the decision of the Supreme Court in case of CIT v. Chaphalkar Bro. [2017] 88 taxmann.com 178/[2018] 252 Taxman 360/400 ITR 279. It was a case arising out of judgment of this Court in which, the dispute between assessee and the Revenue was with respect to subsidy granted to the multiplex cinema operators in the form of entertainment tax waiver. The subsidy was granted in view of the fact that, industry was highly capital intensive. The Revenue argued that, the subsidy was revenue in nature. This Court after referring to several decisions of the Supreme Court including the case of CIT v. Ponni Sugars and Chemicals Ltd. [2008] 306 ITR 392/174 Taxman 87 and Sahney Steel and Press Works Ltd. v. CIT [1997] 94 Taxman 368/228 ITR 253 (SC) held that, subsidy had not been granted for construction but only after setting up of a new industry which was in the nature of assistance given for the purpose of carrying on business.

7. On further appeal by the Revenue, Supreme Court confirmed the decision of this Court. It was noted that, Maharashtra Government's subsidy was not in form of an exemption from payment of entertainment duty to multiplex theater complex. The scheme was introduced to start new cinema houses in the State. The Supreme Court observed that, in such circumstance, the purpose tests for grant of subsidy should be applied. It was concluded as under:— "Applying the aforesaid test contained in both Sahney Steel as well as Ponni Sugars, we are of the view that the object, as stated in the statement of objects and reasons, of the amendment ordinance was that since the average occupancy in cinema theatres has fallen considerably and hardly any new theatres have been started in the recent past, the concept of a complete family entertainment centre, more popularly known as multiplex theatre ITA Nos.2968/Mum/2015 & 1665/Mum/2019 & 2428/Mum/2019 Assessment years: 2008-09 and 2009-10 Page 25 of 51 complex, has emerged. Those complexes offer various entertainment facilitate for the entire family as a whole. It was noticed that these complexes are highly capital intensive and their gestation period is quite long and therefore, they need Government support in the form of incentives qua entertainment duty. It was also added that Government with a view to commemorate the birth centenary of late Shri V. Shantaram decided to grant concession in entertainment duty to multiplex theatre complexes to promote construction of new cinema houses in the State. The aforesaid object is clear and unequivocal. The object of the grant of the subsidy was in order that persons come forward to construct multiplex theatre complexes, the idea being that exemption from entertainment duty for a period of three years and partial remission for a period of two years should go towards helping the industry to set up such highly capital intensive entertainment centres. This being the case, it is difficult to accept Mr. Narasimha's argument that it is only the immediate object and not the larger object which must be kept in mind in that the subsidy scheme kicks in only post construction, that is when cinema tickets are actually sold. We hasten to add that the object of the scheme is only one - there is no larger or immediate object. That the object is carried out in a particular manner is irrelevant, as has been held in both Ponni Sugars and Sahney Steel."

10. It is undoubted that, the subsidy had no relation to the assessee's acquisition of plant or machinery. It was to be granted to an industry which had set up the new industrial unit in the District of Kutch. In such back- ground, question - arises whether such subsidy would be adjustable towards assessee's costs of acquisition of capital assets. We may notice that, a similar question was considered by Division Bench of Gujarat High Court in case of CIT v. Grace Paper Industries (P.) Ltd. [1990] 183 ITR 591/52 Taxman 18.

ITA Nos.2968/Mum/2015 & 1665/Mum/2019 & 2428/Mum/2019 Assessment years: 2008-09 and 2009-10 Page 26 of 51 The Court noted that, the subsidy was granted by the Government for development of industries in back-ward areas. It was not part of the actual cost of plant or machinery. The Court, therefore, held that it could not have been deducted towards costs of acquisition. The Court held as under:— "We have carefully considered the provisions relating to the grant of cash subsidy under the schemes framed by the Central Government and the State Government. The Central Government as well as the State Government noticed that areas specified as backward areas and tribal areas were undeveloped or under-developed. Entrepreneurs were not willing to set up industries in such undeveloped or under-developed areas. The industries were concentrating only in urban areas. In other words, rapid urbanization was taking place. So far as the State of Gujarat is concerned, there was rapid industrial growth in cities like Baroda, Ahmedabad and Surat resulting in strain on municipal services. Urbanization created several problems such as pollution, growth of slums etc . It was also necessary to have balanced growth of industry in different regions. However, as pointed out above, entrepreneurs were reluctant to set up industries in backward areas. These areas were identified as backward because there was un-development or underdevelopment of industries in these areas. It was, therefore, that the Government decided to give financial incentives to encourage and induce entrepreneurs to move to backward areas and establish industries there so that the region may develop and promote the welfare of the people living in that region. One of the incentives which the Government decided to grant was cash subsidy so that entrepreneurs could utilize such cash subsidy for any purpose connected with the establishment of industries in the backward areas. Once the decision to give cash subsidy was taken, the Government had to work out some method to determine the quantum of such subsidy. In other words, the question as to how the amount of cash subsidy should be determined had to be considered by the Government. The Government, in order to determine the amount of cash subsidy, decided to follow one of the recognized methods of working it out on the basis of the amount invested by an entrepreneurs in acquiring capital assets as cash subsidy. The scheme does not say as to in what manner the subsidy was granted is to be utilized. In other words, the entrepreneur to whom the subsidy was granted was free to utilize it in any manner he liked. It would, therefore, appear that quantification of subsidy on the basis of investment was a measure adopted by the Government for convenience to work out the subsidy. If subsidy could be utilized by the entrepreneur in any manner he liked, could it be said that it was granted for meeting the cost of the capital assets? In our opinion, taking an overall view of the various provisions of the scheme, it is difficult to hold that cash subsidy was granted to entrepreneur to meet the cost of the fixed assets or part thereof The cost of the fixed assets was merely adopted as a measure for working out subsidy. In fact, a careful examination of the scheme reveals that it is the value of the fixed assets and not its cost which is ITA Nos.2968/Mum/2015 & 1665/Mum/2019 & 2428/Mum/2019 Assessment years: 2008-09 and 2009-10 Page 27 of 51 adopted as the basis for computing the amount of the subsidy. Emphasis on value and not the cost is evident from the fact that land and building already owned by an industrial unit, cost of tools, jigs, dies and moulds, transport charges, insurance premium, erection cost, value of second-hand machinery purchased by an industrial unit etc. were to be taken into account while computing the value of fixed assets for the purposes of subsidy. In other words, it was the value of the fixed assets which formed the basis for computation of subsidy to be granted under the scheme. Subsidy, in our opinion, did not meet the cost of the fixed assets directly or indirectly. Under the scheme of the Central Government or the scheme of the State Government, cash subsidy was quantified by determining the same at a specified percentage of the value/ cost of the fixed assets. Therefore, as observed above, the basis adopted for determining the cash subsidy with reference to the cost or value of fixed assets was only a measure for quantifying the subsidy and it could not be said that the subsidy was given for the specific purpose of meeting any portion of the cost of the fixed assets. The subsidy was granted to compensate the entrepreneur for the hardship and inconvenience which he might encounter while setting up industries in backward areas."’ 11. Similar issue came up for consideration again before the Gujarat High Court in CIT v. Swastik Sanitary Works Ltd. [2006] 286 ITR 544. It was a case in which, the Government subsidy was intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries. In such a case, specified percentage of the fixed capital cost, which was the basis for determining the subsidy, would be granted. The Court held that, such basis for determining the subsidy was only a measure adopted under the scheme to quantify the financial aid and it was not a payment, directly or indirectly to meet any portion of the actual cost of acquisition of capital asset. It was held and observed as under:— 'In so far as question No.2 is concerned, this court finds that the same is squarely covered by the decision of the Supreme Court in CIT v. P. J. Chemicals Ltd., [1994] 210 ITR 830. In the said case, after review of the law on the point, the Supreme Court has held as under (head note): "Where Government subsidy is intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, the specified percentage of the fixed capital cost, which is the basis for determining the subsidy, being only a measure adopted under the scheme to quantify the financial aid, is not a payment, directly or indirectly, to meet any portion of the 'actual cost The expression 'actual cost' in section 43(1) of the Income Tax Act,1961, needs to be interpreted liberally. Such a subsidy does not partake of the incidents which attract the conditions for its deductibility from 'actual cost'. The amount of subsidy is not to be deducted ITA Nos.2968/Mum/2015 & 1665/Mum/2019 & 2428/Mum/2019 Assessment years: 2008-09 and 2009-10 Page 28 of 51 from the 'actual cost' under section 43(1) for the purpose of calculation of depreciation etc."

28. In view of the above discussions, as also bearing in mind the entirety of the case, we see no legally sustainable merits in the grievance of the Assessing Officer. The views expressed by the learned CIT(A), being in conformity with our decisions for the preceding assessment years, meet our approval. We, therefore, confirm and approve the relief granted by the CIT(A) and decline to interfere in the matter.

30. In ground no.4, the Assessing Officer has raised the following grievance: “On the facts and in the circumstances of the case and in law, the Id. CITIA) erred in allowing of Community Welfare Expenses to the tune of Rs. 2,24,00,224/-".

31. This is a legacy issue and pertains to the expenditure incurred for community welfare as the factories of the assessee are concerned in backward areas and the expenditure is incurred for the smooth functioning of the business. Right from the assessment years 1988-89 to 1994-95, the coordinate benches have allowed appeal of the assessee on this point, and from the assessment years 1995-96 to 2004-05, in which the first appellate authority has deleted similar disallowance, the coordinate benches have rejected the grievances of the Assessing Officer, against the reliefs so granted by the CIT(A). Learned Departmental Representative does not dispute this position but relies upon the stand of the Assessing Officer nevertheless.

32. We see no reasons to take any other view of the matter than the view so taken by the coordinate benches all along. The same is the stand of the coordinate benches for the three immediately preceding assessment years as well. Respectfully following the decisions of the coordinate benches, we uphold the relief granted by the learned CIT(A) and decline to interfere in the matter.

38. In ground no.6, the Assessing Officer has raised the following grievance: "On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in allowing Pooja expenses at Rs. 70,80,509/-."

ITA Nos.2968/Mum/2015 & 1665/Mum/2019 & 2428/Mum/2019 Assessment years: 2008-09 and 2009-10 Page 31 of 51 26. According to the AO, the deduction u/s.32(1)(iia) of the Act is granted only to "new" plant and machinery and once depreciation is granted in the 1st year in which the machinery is installed or put to use, the machinery ceases to be a new machinery and therefore additional depreciation cannot be allowed. The plea of the Assessee however was that Section 32(1)(iia) of the Act merely provides that further to the normal depreciation at the prescribed rates, an additional depreciation shall be allowed to the assessee at the rate of 20% on new plant and machinery acquired and installed after 31-03-2005. However, the period the period during which such additional depreciation shall be allowed is not specified in the Act. Thus, one may conclude that the allowance of additional depreciation shall not only be restricted to the initial year but continue to second and subsequent years.

Section 32(1)(iia) of the Act was originally introduced by the finance (no.2) Act, 1980 w.e.f. 1-4-1981 reads thus (the sub-section existed upto 31-3-1988 and was deleted thereafter): "(iia) in the case of any new machinery or plant (other than ships and aircraft) which has been installed after the 31st day of March, 1980 but before the 1st day of April, 1985, a further sum equal to one-half of the amount admissible under clause (ii) (exclusive of extra allowance for double or multiple shift working of the machinery or plant and the extra allowance in respect of machinery or plant installed in any premises used as a hotel) in respect of the previous year in which such machinery or plant is installed or, if the machinery or plant is first put to use in the immediately succeeding previous year, then in respect of that previous year :" Sec.32(1)(iia) of the Act as reinserted by finance (No.2) Act, 2002 w.e.f. 1-4-2003, reads thus: '(iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2002, by an assessee engaged in the business of manufacture or production of any article or thing, a further sum equal to fifteen per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii): Provided that such further deduction of fifteen per cent shall be allowed to— (A) a new industrial undertaking during any previous year in which such undertaking begins to manufacture or produce any article or thing on or after the 1st day of April, 2002; or (B) any industrial undertaking existing before the 1st day of April, 2002, during any previous year in which it achieves the substantial expansion by way of increase in installed capacity by not less than *[ten per cent ]:

"Subs. for "twenty-five per cent" by Finance (No. 2) Act, 2004, (w.e.f. 1-4-2005)." Sec.32(1)(iia) as substituted by Finance Act, 2005, (w.e.f. 1-4-2006) reads as follows: "(iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2005, by an assessee engaged in the business of manufacture or production of any article or thing, a further sum equal to twenty per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii):"' 29. It can be seen from the provisions of Sec.32(1)(iia) as it existed from 1-4-1981 to 31-3-1988 and reinserted subsequently from 1-4-2003 that the benefit for claiming additional depreciation was restricted only to the initial assessment year. However the provisions of Sec.32(1)(iia) as substituted by the finance Act, 2005 w.e.f. 1-4- ITA Nos.2968/Mum/2015 & 1665/Mum/2019 & 2428/Mum/2019 Assessment years: 2008-09 and 2009-10 Page 33 of 51 2006, the benefit for claiming additional depreciation was not so restricted to only to the intital assessment year. From AY 1981-82 to 87-88, the claim for additional depreciation was restricted to previous year in which such machinery or plant is installed or, if the machinery or plant is first put to use in the immediately succeeding previous year. From AY 2003-04 till 2005-06, the claim for additional depreciation was restricted to previous year in which such undertaking begins to manufacture or produce any article or thing on or after the 1st day of April, 2002; or if any industrial undertaking existed before the 1st day of April, 2002, during any previous year in which it achieves the substantial expansion by way of increase in installed capacity by not less than ten per cent. From AY 2006-07, there is no restriction with regard to the year in which such additional depreciation should be allowed and also there is no restriction with regard to the additional depreciation being allowed only on the written down value and therefore the additional depreciation even in the second and subsequent years have to be allowed on the original cost of the Asset. These are evident from a plain reading and literal construction of the relevant statutory provisions.

ITA Nos.2968/Mum/2015 & 1665/Mum/2019 & 2428/Mum/2019 Assessment years: 2008-09 and 2009-10 Page 35 of 51 Apart from the above, it was also pointed out that DTC Bill 2013 has proposed expressly that additional depreciation would be allowed in the FY in which the P&M is used for the first time and those provisions are not made with retrospective effect. It was argued that the legislature has consciously not restricted the allowance of additional depreciation on the original cost for AY 2006-07 till AY 2013-14 to one year only and therefore the additional depreciation should be allowed on the original cost of the asset for the second and subsequent years as well. It was submitted that the condition imposed by the relevant provisions was that Plant and Machinery must be new at the time of installation to be eligible for additional depreciation u/ s 32(1)(iia) and not new in subsequent years.

48. Ground no. 8 is thus dismissed.

49. In ground no.9, the Assessing Officer has raised the following grievance: "On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in allowing the addition made by AO at Rs.9,07,21,098/- in respect of unutilized ITA Nos.2968/Mum/2015 & 1665/Mum/2019 & 2428/Mum/2019 Assessment years: 2008-09 and 2009-10 Page 36 of 51 CENVAT credit on last day of accounting year to the closing stock by invoking provisions of section 145A.”

50. Learned representatives fairly agree that this issue is covered, in favour of the assessee, by decisions of the coordinate benches in assessee’s own cases for the assessment years 1999- 2000 to 2004-05, even though the learned departmental representative rather dutifully relied upon the stand of the Assessing Officer. We see no reasons to take any other view of the matter than so taken by the coordinate benches, and, respectfully following the same, we approve the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter.

55. We will first take up the appeal filed by the assessee.

ITA Nos.2968/Mum/2015 & 1665/Mum/2019 & 2428/Mum/2019 Assessment years: 2008-09 and 2009-10 Page 37 of 51 6. On thorough consideration we find that the principle of apportionment does not arise in this case as the jurisdictional facts have not been pleaded by the Revenue. In fact Tribunal while affirming the order of the first appellate authority noted that the first appellate authority had deleted the addition made by the assessing officer under section 14-A of the Act by observing that the interest-free fund available with the respondent - assessee was far in excess of the advance given. Tribunal further noted that the Revenue does not dispute the said finding and relying on the decision of this Court in CIT v. Reliance Utilities & Power Ltd. [2009] 178 Taxman 135/313 ITR 340, affirmed the deletion made by the first appellate authority 7. We have perused the decision of this Court in Reliance Utilities & Power Ltd. (supra) wherein it has been held that if there are funds available with the assessee, both, interest-free and overdraft and/ or loans taken, then a presumption would arise that investments would be out of the interest-free funds generated or available with the assessee if the interest-free funds were sufficient to meet the investments. In the facts of that case, it was noted that the said presumption was established considering the finding of fact returned by the first appellate authority as affirmed by the Tribunal which is identical in the present case. 7.1 We also note that the said decision of this Court has been affirmed by the Supreme Court in CIT v. Reliance Industries Ltd. [2019] 102 taxmann.com 52/261 Taxman 165/410 ITR 466.

is allowed for statistical purposes.

59. Ground no. 1 is thus allowed for statistical purposes

60. In ground no. 2, the assessee has raised the following grievance: On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was not justified and grossly erred in confirming the action of AO in not allowing deduction for Education Cess levied on Income Tax, Dividend Distribution Tax and Fringe Benefit Tax aggregating to Rs. 17,50,71,281/- as allowable expenditure in computing the total income under the normal provisions of the Act.”

61. Learned counsel, however, submits that the assessee does not wish to press these grievances, and this ground of appeal, therefore, may be dismissed as not pressed. The prayer is accepted. The ground of appeal is dismissed as not pressed.

62. Ground no 2 is thus dismissed in the terms indicated above.

63. In ground no. 3, the assessee has raised the following grievance:

ITA Nos.2968/Mum/2015 & 1665/Mum/2019 & 2428/Mum/2019 Assessment years: 2008-09 and 2009-10 Page 38 of 51 “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was not justified and grossly erred in confirming the action of AO in not allowing the claim of leave encashment amounting to Rs. 8,09,63,884/-on provision basis based on actuarial valuation in computing the total income. . The Ld CIT(A) failed to record any cogent reason and concluded against the appellant merely because of stay on operation of judgment in case of Bharat Earth Movers Vs CIT (2000) 245 IT 428(SC).”

is concerned, the Assessing Officer has disallowed this claim by observing that “In the tax audit report, the auditor has held that the expenses of Rs 5,06,92,076 debited to P&L account in nature. These expenses were claimed as capital expenditure in the original return filed by the assessee. However, in the revised return, these expenses of Rs 5,04,10,349 have been claimed as revenue expenses. The asssessee has not offered any explanation for the same. Hence these expenses are held to be capital in nature and hereby added back to the total income of the assessee”. Aggrieved, the assessee took the matter in appeal before the CIT(A) and gave a detailed explanation but without success. Learned CIT(A) dismissed the plea of the assessee and observed that “I have considered the assessment order and the written submissions made by the appellant. Having considered the same, I find that the expenditure claimed by the assessee is purely capital in n attire and therefore the same cannot be debited to P&L account. No material has been submitted by the assessee before the AO or during the appellate proceedings to prove that these expenses are on account of accidental business loss. Therefore, I do not see any reasons to interfere with the order of the AO” The assessee is aggrieved and is in further appeal before us.

68. We have heard the rival contentions, perused the material on record and duly considered the facts of the case in the light of the applicable legal position.

69. While we have taken note of the plea of the authorities below that the assessee did not produce any details before any of the authorities below, para 14.2 of the order of the CIT(A)

ITA Nos.2968/Mum/2015 & 1665/Mum/2019 & 2428/Mum/2019 Assessment years: 2008-09 and 2009-10 Page 39 of 51 shows otherwise. A plain look at this paragraph, which is reproduced below for ready reference, does show that while the Assessing Officer did not ask for any clarification before making the disallowance, all the necessary details were submitted before the CIT(A). These extracts from the CIT(A)’s order are as follows: 14.2 Appellant’s submissions made during the course of the appellate proceedings During the course of the appellate proceedings, the appellant, vide its aforesaid submissions, has made the submissions in this regard, as under:

"Claim for expenditure incurred on capital jobs abandoned & written off (Rs.5,04,10,349/-) A. Brief Facts of the case 1.0 During the year under consideration, the appellant in the profit & loss account, has written off expenditure incurred on capital projects abandoned aggregating to Rs. 5,04,10,349/-. The aforesaid expenditure has been incurred for setting up of new project at Barh in Bihar and Marwa Mundwa in Rajasthan. Since the project has been abandoned, the expenditure incurred for setting up of the aforesaid projects has been written off in the profit & loss account under the head 'Capital Projects written off. In clause 17(a) [Details of Capital Expenditure debited to the Profit & Loss Account] of the revised tax audit report, it has been stated that expenditure incurred on capital projects at Barh and Marwa Mundwa amounting to Rs. 1,29,98,121/ and Rs 3,74,12,228 respectively which has been written off in the books of accounts is an incidental business loss and hence an allowable deduction. Details of expenditure written off in books is enclosed as Annexure - 114 (Refer Page Nos. 2150 of the W/S). 2.0 In the revised return of income, the appellant has claimed the said expenses as allowable deduction on the premise that the expenses incurred on the said projects /assets written off in the accounts is an incidental business loss in view of the decision of CIT -vs.- Graphite India Ltd (1996) 221 ITR 420 (Cal), Hindustan Aluminum Corporation Ltd -vs.- CIT (1986) 159 ITR 673 (Cal) and Asiatic Oxygen Limited -vs.- CIT (1991) 190 ITR 328 (Cal.) B. Contention of the A.O 1.0 The AO in the order u/s 143(3) disallowed the claim of the appellant without raising any query on the contention that the same is capital in nature. C. Submission ITA Nos.2968/Mum/2015 & 1665/Mum/2019 & 2428/Mum/2019 Assessment years: 2008-09 and 2009-10 Page 40 of 51 1.0 In this regard, reference can be drawn to provisions of section 37(1) which reads as under: "37. General. (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession.” 1.1 On bare perusal of the aforesaid provision it is clear for claiming deduction under the above provision the expenditure must satisfy the following test: a. It should not be in the nature of expenditure described in section 30 to 36 b. b. It should not be in the nature of capital or personal expenditure. c. It must be expended wholly and exclusively for the purpose of the business. 1.2 In the present case, as the expenditure incurred by the appellant do not fall in any of the negative conditions laid down for not allowing the claim, therefore the expenditure incurred by the assessee is an allowable expenditure u/s 37(1) of the Act. 1.3 Reliance in this regard is placed on the decision in the case of Excel Industries Limited -vs.- DCIT (2004) 86 TTI 840 (Mum). In the said case, the assessee had claimed certain expenses incurred on two new projects. These expenses were capitalized in the books of accounts in the earlier years and shown as capital work-in-progress. During the year under appeal, these projects were abandoned and the project expenses were written off in the books of accounts as the projects were found to be commercially unviable. The question before the Hon'ble Tribunal was whether the amount written off is allowable as business loss in the year in which the same is written off in the books of accounts. It was held that since the concerned projects were undertaken in the course of existing business and was not a different or new business; the expenses written off as the project was abandoned represents revenue loss. 1.4 Reliance is further placed on the decision in the case of Binani Cement Ltd. - vs.- CIT (2015) 380 IT 0116 (Cal)wherein the Hon'ble Calcutta High Court held that expenditure incurred for construction/acquisition of new facility subsequently abandoned at the work-in progress stage was allowable ITA Nos.2968/Mum/2015 & 1665/Mum/2019 & 2428/Mum/2019 Assessment years: 2008-09 and 2009-10 Page 41 of 51 deduction as the same has been incurred wholly or exclusively for the purpose of assessee's business. 1.5 Reliance is further placed in case of Indo Rama Synthetics (1) Ltd. -VS.-CIT (2011) 333 IT 18 (Del). In the said case, the assessee is in the business of manufacture of yarn and polyester. The assessee incurred expenditure for expansion of existing business of the assessee. The project was abandoned and expenditure in nature of salary, wages, repairs, maintenance, design and engineering fee, etc. incurred on the proposed unit was allowed as revenue expenditure. Copy of decision is enclosed as Annexure -30(Refer Page Nos. 705-745 of the W/S). Further the Departmental SLP against the said order of High Court has been dismissed by the Hon'ble Apex Court which is reported in CIT -vs.- Indo Rama Synthetics (1) Ltd (2010) 328 ITR 9 (SC). 1.6 Similarly in the case of CIT -vs.- Graphite India Ltd. (1996) 221 ITR 420 (Cal) it has been held that expenditure incurred for payment of fee for a project report which project did not materialize is allowable as revenue expenditure. 1.7 Reference is also drawn to the case of ITO -vs.- Excel Productions (1992) 44 TTI 201 (Coch). The assessee is in the business of production and exhibition of cinematographic films. The assessee incurred expenditure in relation to production of a film. The production of the film was abandoned and expenditure incurred not only during the current year but also in respect of cost incurred in earlier years was allowed as a trading loss. 1.8 Reliance is placed in the case of CIT -vs.- Priya Village Roadshows Ltd. (2011) 332 ITR 594 (Del) wherein the High Court held as under "The expenditure was incurred in respect of same business which is already carried on by the assessee. Two projects which were undertaken were for the expansion of same business, namely, one for taking over Savitri Cinema for conversion into multiplex and operation and management thereof and other for conversion of Priya Cinema into four-screen multiplex. Payments were made to the consultants for preparing feasibility reports in respect of both the projects. However, ultimately projects were not found to be financially and technically viable and were shelved. Thus, we find that no new asset came into existence, which was the basis adopted by the AO for treating the expenditure as capital expenditure but wrongly. 1.9 Reliance is also placed in case of Lawkim Ltd -vs.- ICIT (2004) 23 CCH 0749 (Mumbai)(ITAT)wherein the assessee was a producer of electric motor for various electronic appliances. Assessee made payment for development of new type of bypass motors to be used in wet and dry vacuum cleaners. Later on the project was abandoned. The expenditure incurred did not bring any ITA Nos.2968/Mum/2015 & 1665/Mum/2019 & 2428/Mum/2019 Assessment years: 2008-09 and 2009-10 Page 42 of 51 ensuring advantage to the assessee. Therefore, there was no basis of coming to the conclusion to the effect that the expenditure was in the nature of capital expenditure. The Hon'ble ITAT held that expenditure incurred for development of new motor was in nature of expansion of existing business which was later on abandoned so, the expenditure could not be said to be capital in nature. 1.10 In the case of Gujarat Green Revolution Co. Ltd. -vs.- ACIT (2013) 37 CCH 0095 (Ahd)(ITAT) the assessee proposed to set up Aqua Agro Project which was admittedly expansion of existing project. The assessee incurred expenses for preliminary survey and other technical matters. The assessee did not proceed with the proposed project and claimed the entire expenditure as revenue expenditure. The A.O. contended that the expenditure that was incurred on abandoned project was of capital in nature and hence disallowed the claim of the assessee. The Hon'ble ITAT held that the proposed new project had inextricable linkage with the existing business of the assessee and it was also the fact that no new asset has come to be created by incurring of said expenditure. Therefore, the expenditure cannot be considered to be of capital nature and hence the claim of assessee is allowed as revenue expenditure. 1.12 Reliance is placed on the decision in the case of Excel Industries Ltd -vs.- DCIT (2002) 21 CCH 315 (Mum-Tri) wherein the tribunal held loss incurred on account of project abandoned which was actually extension of existing business is a revenue loss and thus an allowable deduction. D. Prayer 1.0 In view of the aforesaid submissions, the appellant humbly prays before your good self to kindly give necessary direction to the A.O. to allow expenditure incurred or capital jobs abandoned & written off being revenue in nature.

ITA Nos.2968/Mum/2015 & 1665/Mum/2019 & 2428/Mum/2019 Assessment years: 2008-09 and 2009-10 Page 44 of 51 5. In Swadeshi Cotton & Flour Mills (P.) Ltd. (supra ) on a similar question the said Court held : "The system of reopening of accounts does not fit in with the scheme of the IT Act. As far as receipts are concerned there can be no reopening of accounts, and the position is the same in respect of expenses".

6. Mr. R.N. Bandopadhyay, learned advocate appearing on behalf of the Revenue relying upon the decision in Delhi Tourism & TDC Ltd. v. CIT [2006] 285 ITR 114/155 Taxman 10 (Delhi) submitted that the expenditure was rightly disallowed by the learned Tribunal as it was made and related to earlier years.

7. We accept Mr. Bajoria's submission regarding the expenditure made for construction/acquisition of new facility subsequently abandoned at the work-in-progress stage was allowable as incurred wholly or exclusively for the purpose of assessee's business as covered by the decision in Graphite India Ltd. (supra ). The issue whether such expenditure could be allowed in the relevant assessment year is however yet to be resolved.

8. The CIT(A) in his order had found as follows : "The company claimed as allowable the expenditure on this abandoned project. While it was found to be unviable, the expenditure on it was for the purpose of business. It was not claimed or allowed earlier as business expenditure because it was of capital nature entitled to depreciation after completion and on commencement of its use for business. But since that stage is not reached-no asset having come into existence-the capital-work-in-progress had to be written off as such."

9. There was no challenge to such finding on facts before the learned Tribunal or even before us.

11. Following the judgment in the case of A. Gajapathi Naidu (supra ) the question to be asked is when did the expenditure claimed by way of deduction arise? There would have been no occasion to claim the deduction if the work-in-progress had completed its course. Because the project was abandoned the work-in-progress did not proceed any further. The decision to abandon the project was the cause for claiming the deduction. The decision was taken in the relevant year. It can therefore be safely concluded that the expenditure arose in the relevant year.

ITA Nos.2968/Mum/2015 & 1665/Mum/2019 & 2428/Mum/2019 Assessment years: 2008-09 and 2009-10 Page 45 of 51 What an auditor holds is his accounting perspective, and it has no effect on the legal position. Similarly, just because a claim is made in the revised return, the admissibility of the claim cannot be declined for that reason alone. Nothing turns on these factors, and the Assessing Officer was thus clearly in error, as was the CIT(A).

ITA Nos.2968/Mum/2015 & 1665/Mum/2019 & 2428/Mum/2019 Assessment years: 2008-09 and 2009-10 Page 46 of 51 81. We will now take up the appeal filed by the Assessing Officer.

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