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

order : 31/10/2022 O R D E R Per Pramod Kumar VP These cross appeals are directed against the order dated 31st July 2012 passed by the 1. learned CIT(A) in the matter of assessment under section 143(3) of the Income Tax Act, 1961, for the assessment year 2005-06.

4. In a connected ground of appeal

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. and 5927/Mum/2012 Assessment year: 2005-06 Page 3 of 31

6. 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.

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 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 and 5927/Mum/2012 Assessment year: 2005-06 Page 4 of 31 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.

55. We have heard both the parties and considered their rival submissions. Perusal of the scheme extending the aforesaid incentives to "prestigious" units announced by Government of Gujarat on 26/07/91 makes it amply clear that the scheme was announced to attract investment in core sector industry having potential, to spur industrial growth in ancillary, tertiary and secondary sector of the economy. The other scheme announced by the Government of Gujarat as Capital Investment Incentive Scheme on 11th September 1995 was intended to attract investments to generate greater employment in less industrially developed areas of Gujarat and also to secure balanced development of industries in Gujarat through dispersal of industries in the most backward area and backward areas. It is thus clear that the object of both the scheme was to ensure development of backward areas or for development of core sector industries in the State or for generating the employment. Perusal of both the schemes shows that the incentives extended to the eligible units were, inter alia, through exemption from payment of Sales Tax. Thus, the object of both the schemes was to attract capital investment to ensure development of backward areas and the modality or mechanism chosen to attract such investment was, inter alia, through exemption from payment of sales tax."

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.

13. In a recent decision dated 28th January 2013 in Tax Appeal No. 450 of 2012 and connected appeals, we had an occasion to examine the nature of incentives received by the assessee from the State Government in the form of entertaining tax waiver for setting up multiplexes. In such context, we had in wake of the revenues contention that the receipt was revenue in nature, held and observed as under : "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 and 5927/Mum/2012 Assessment year: 2005-06 Page 5 of 31 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. 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 fund 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. 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."

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.

12. We have heard both the learned counsel and perused the record. We have also gone through the decisions cited before us. After considering the material on record, we are of ITA Nos. 5883 and 5927/Mum/2012 Assessment year: 2005-06 Page 6 of 31 the view that the issues involved in these appeals are squarely covered by the decisions of this Court in Birla VXL Ltd. (supra) and in Munjal Auto Industries Ltd. (supra). Therefore, the questions of law posed for our consideration in these appeals are answered in favour of the assessee and against the department. Accordingly, all these appeals are dismissed.

8. In the case of JCIT Vs Grasim Industries Limited ( 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 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— and 5927/Mum/2012 Assessment year: 2005-06 Page 7 of 31 "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."

19. Sahney Steel was distinguished, in para 16 by then stating that this Court found that the assessee was free to use the money in its business entirely as it liked.

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 and 5927/Mum/2012 Assessment year: 2005-06 Page 10 of 31 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.

14. In our view, the controversy in hand can be resolved if we apply the test laid down in the judgment of this Court in the case of Sahney Steel and Press Works Ltd. (supra). In that case, on behalf of the assessee, it was contended that the subsidy given was up to 10% of the capital investment calculated on the basis of the quantum of investment in capital and, therefore, receipt of such subsidy was on capital account and not on revenue account. It was also urged in that case that subsidy granted on the basis of refund of sales tax on raw materials, machinery and finished goods were also of capital nature as the object of granting refund of sales tax was that the assessee could set up new business or expand his existing business. The contention of the assessee in that case was dismissed by the Tribunal and, therefore, the assessee had come to this Court by way of a special leave petition. It was held by this Court on the facts of that case and on the basis of the analyses of the Scheme therein that the subsidy given was on revenue account because it was given by way of assistancein carry ing on of trade or business. On the facts of that case, it was held that the subsidy given was to meet recurring expenses. It was not for acquiring the capital asset. It was not to meet part of the cost. It was not granted for production of or bringing into existence any new asset. The subsidies in that case were granted year after year only after setting up of the new industry and only after commencement of production and, therefore, such a subsidy could only be treated as assistance given for the purpose of carrying on the business of the assessee. Consequently, the contentions raised on behalf of the assessee on the facts of that case stood rejected and it was held that the subsidy received by Sahney Steel could not be regarded as anything but a revenue receipt. Accordingly the matter was decided against the assessee. The importance of the judgment of this Court in Sahney Steel case lies in the fact that it has discussed and analysed the entire case law and it has laid down the basic test to be applied in judging the character of a subsidy. That test is that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. The main eligibility condition in the scheme with which we are concerned in this case is that the incentive must be utilized for repayment of loans taken by the assessee to set up new units or for substantial expansion of existing units. On this aspect there is no dispute. If the object of the subsidy scheme was to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account. Therefore, it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form of the mechanism through which the subsidy is given is irrelevant.”

ITA Nos. 5883 and 5927/Mum/2012 Assessment year: 2005-06 Page 13 of 31 Accordingly, he argued that the decision of Special Bench was never reversed by the Hon’ble Supreme Court as stated by the ld. Special Counsel for the Revenue and accordingly still is a good law and therefore a binding precedent on this Division Bench. In fact, in assessee’s own case for A.Y.2001-02 in of 2015 dated 18/12/2018 before the Hon’ble Jurisdictional High Court, wherein the question Nos. c & d was exactly on this point. For the sake of convenience, the question Nos. c & d raised by the Revenue before the Hon’ble Jurisdictional High Court is reproduced hereunder:- “(c) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in restoring the issue of taxability of the sale tax exemption benefit of Rs.58 crores availed by the assessee to the file of the Assessing Officer for deciding afresh after considering the decision of the Special Bench of the ITAT in the case of DCIT V. Reliance Industries Ltd., 88 ITD 273, which has not been accepted by the Revenue? (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.

10. In view of these discussions, as also bearing in mind the entirety of the case, we uphold the plea of the assessee that the amount of Rs 39,36,21,956 added to the income of the assessee must stand deleted, and reject the grievance of the Assessing Officer against the grant of relief of Rs 130,57,12,796 by the CIT(A).

11. Ground no. 1 of the assessee is thus allowed and ground no. 1 of the revenue is thus dismissed.

15. Ground no. 2 is thus allowed.

16. In ground no. 3, the assessee has raised the following grievance: and 5927/Mum/2012 Assessment year: 2005-06 Page 17 of 31 That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) erred in not giving directions to exclude gain on account of foreign exchange rate fluctuation from the computation of total income irrespective of the stand taken by the A.O. in earlier years that the loss on foreign exchange rate fluctuation is notional and hence not allowable.

17. Learned counsel for the assessee fairly submits that the above issue is covered against the assessee by decisions of the coordinate benches in assessee’s own cases for the two immediately preceding assessment years. He, however, submits that the assessee would like to keep the issue alive.

4. That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred in enhancing the assessment. 5(a) That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred in computing disallowance u/s 14A at Rs. 7,49,68,089/-without appreciating the fact that no expenditure has been incurred by the appellant for earning exempt income. 5(b). That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred in computing disallowance u/s 14A at Rs. 7,49,68,089/- by applying a method akin to the method prescribed under Rule 8D without appreciating the fact that the same is not applicable to instant Assessment Year. 21. So far as this ground of appeal

is concerned, it is sufficient to take note of the fact that while the Assessing Officer had made an adhock disallowance, under section 14A, @ 2% in respect of expenses incurred on earning of the tax-exempt dividend by the assessee. Aggrieved, assessee carried the matter in appeal before the CIT(A). The CIT(A) made the enhancement of income and invoked rule 8D. The amount thus computed resulted in an enhancement of income by Rs 7,49,68,089. The assessee is aggrieved and is in appeal before us.

22. Having heard the rival contentions and having perused the material on record, we are of the considered view that disallowance @ 1% of tax-exempt income will meet the ends of justice for the reason that the period pertains to the pre-amendment law and rule 8D does not, therefore, has any application in the matter, and that, in accordance with a series of coordinate bench decisions, it has been consistently held so far as the pre-amendment period is concerned, a disallowance of 1% is reasonable- particularly when the assessee has made investments entirety and 5927/Mum/2012 Assessment year: 2005-06 Page 18 of 31 out of his own funds and when there are no borrowings costs involved. It is an undisputed position, on the facts of this case, that the assessee has made the investments entirely out of his own funds. The disallowance is thus restricted to 1% of the tax-exempt income. The assessee gets the relief accordingly.

23. Ground nos. 4 and 5 are thus allowed in the terms indicated above.

24. In ground no 6, the assessee has raised the following grievance: 6(a). That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified in confirming the decision of the A.O. in assessing Interest Income of Rs. 12,07,82,717/- and Truck Hire Charges of Rs. 2,19,000/- (Net) as income under the head "Income from Other Sources" 6(b). That on the facts and in the circumstances of the case and without prejudice to ground no. 6(a) taken here-in-above, necessary direction may please be given to the A.O. to allow deduction of expenditure incurred for earning the aforesaid income for the purpose of computing "income from other sources". 6(c). That on the facts and in the circumstances of the case, and without prejudice to ground no. 6(a) taken here-in-above, having held that Truck Hire Charges were to be assessed under the head "income from other sources", the Ld. CIT(Appeals) ought to have allowed depreciation on trucks.

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

26. Ground no. 6 is thus dismissed.

of the assessee, we also consider it appropriate to take up a connected ground of appeal of the Assessing Officer (i.e. ground no. 11) which is as follows: "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the TPO/AO to apply LIBOR Plus 350 point as a benchmark for determining the ALP regarding payment of interest for purchase of ships under BBCD arrangement without appreciating the fact that LIBOR Plus 350 basis point is upper limit provided by the RBI circular for the purpose of ECB and assessee for the relevant year was having AA+ to AAA as credit rating."

42. So far as this grievance of the assessee is concerned, the relevant material facts are as follows. During the course of proceedings before the Transfer Pricing Officer, to whom the ascertainment of arm’s length price of the international transactions entered into by the assessee with its AEs was referred, it was noticed that the assessee made payment of US$ 1,93,800 towards instalment payments for two ships under BBCD (Bare Boat cum Charter Demise) arrangements for two vessels, namely MV Ambuja Bhawani and MV Ambuja Lakshmi, from its AE- namely Cement Ambuja International Limited, Mauritius (CAIL). These two vessels were self loading bulk cement carriers, and the entire arrangement was routed through, and duly approved by, the RBI. It was noted that under the terms of arrangement, the assessee company was to pay to CAIL ten half-yearly instalments of US$ 7,69,500 for both of these vessels, and the implicit interest rate, under the arrangement, was 7.5% p.a. The TPO also noted that the CAIL had obtained loan of US $ 7 million from the Bank of America, Taipei office, to part finance the vessels, and that interest rate on this financing by the CAIL was LIBOR plus 1.5% for first three years, and +1.55% for the rest of the two years. The TPO was of the view that the interest differential between the interest charged to the assessee and interest paid by the CAIL to Bank of America was mutually beneficial to the assessee as also the CAIL and should have been equally shared between the two. The total interest paid by the assessee, during the relevant previous year, was US $ 1,93,800, whereas CAIL paid interest of US $ 1,06,980 to the Bank of America. The difference of US $ 86,820 was equally shared between the assessee and the CAIL, and, accordingly, an arm’s length price adjustment of US $ 43,40, which was computed as equal to Rs 18,93,544 was made. Aggrieved, assessee carried the matter in appeal before the CIT(A) but without complete success. Learned CIT(A) held that the interest transaction between the assessee and the CAIL needs to be benchmarked, and based on an average interest rate of LIBOR (six months average) plus 3.5% for borrowings of more than 5 years- as per RBI statistics, the and 5927/Mum/2012 Assessment year: 2005-06 Page 23 of 31 CIT(A) adopted the ALP at six months LIBOR plus 3.5%. None of the parties is satisfied and both the parties are in appeal before us.

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

44. As learned CIT(A) has rightly noted, what needs to be benchmarked is the transaction between the assessee and its AE, and that transaction, in our considered view, is to be considered in a broader context- rather than as a simplistic borrowing transaction, which it is not. The assessee has taken the vessels under a BBCD arrangement and, while entering into this arrangement, the AE essentially has to factor in the financing arrangement. The consideration for the BBCD instalments is based on the cost of finance, as also the cost of vessels, to the AE, and, as such, there is no occasion for sharing the difference between the interest rate implicit in the BBCD arrangement and the cost of borrowing to the AE. While examining the rate of interest under the BBCD also, one has to bear in mind the fact that it cannot be compared with a borrowing arrangement simpliciter as are the transactions on which LIBOR plus rates apply. Learned Departmental Representative has not been able to show any justification for LIBOR plus 300 bps either, and his challenge primarily is even to this approach of benchmarking. There is thus no material before us to support the findings of the CIT(A) in any case, and the findings of the AO, as noted above and in our considered view, are unsustainable in law anyway. In any event, interest is only one part of the working in the computation of instalments, and one cannot consider the same on a standalone basis in the transaction. The benchmarking is to be done for the entire transaction and not a small and isolated transaction segment. The interest rate of 7.5% implicit in the BBCD arrangement is a part of the pricing and cannot be considered separately In the case of Essar Shipping Limited Vs DCIT [(2009) 27 SOT 409 (Mum)], a coordinate bench of this Tribunal has taken note of the working showing interest rate @ 8%, which has remained unchallenged by the revenue. We have also noted that the payments under the BBCD arrangements were made with specific regulatory approval prescribed by the RBI, and there are coordinate bench decisions, such as in the case of ACIT Vs Dow Agrosciences India (P.) Ltd. [(2016) 76 taxmann.124 (Mum)], holding that when such regulatory approvals are duly obtained, that approval can also be viewed in support of the transaction price as an arm’s length price. In any event, the total ALP adjustment is less than Rs 20 lakhs, and the relevant financial period is almost 20 years ago, it may not even be appropriate to even remit the matter for fresh consideration at the TPO stage. Keeping in all these factors, as also the entirety of the case, in mind, we deem it fit and proper to delete the impugned ALP adjustment of Rs 18,93,544. The assessee gets the relief accordingly.

45. Ground no. 10 of the assessee is thus allowed, and ground no. 11 of the revenue is thus dismissed.

46. In ground no. 11, 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 accepting the stand of the appellant that business loss brought forward from amalgamating company erstwhile Ambuja Cements Rajasthan Limited, being current year's business loss from a different source, and 5927/Mum/2012 Assessment year: 2005-06 Page 24 of 31 should not be set off against business income as well as income from other sources for the current year since the appellant had opted for not setting off of the same.

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

48. Ground no. 11 is thus dismissed.

49. In grounds nos. 12 and 13, the asessee has raised the following grievances:

12. 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 Sales Tax Incentive availed of Rs. 1,69,93,34,752/-, being capital in nature, in computing Book Profit u/s 115JB of the Act.

13. That on the facts and in the circumstances of the case, necessary directions may please be given to the A.O. to exclude of Sales Tax Incentive availed by the appellant amounting to Rs. 1,69,93,34,752/-, being capital in nature, in computing Book Profit u/s 115JB of the Act.

50. Learned representatives fairly agree that the above issues are now covered, in favour of the assessee, by Hon’ble Calcutta High Court’s judgment in the case of PCIT Vs Ankit metal & Power Ltd [(2019) 416 ITR 591 (Cal)], by Hon’ble jurisdictional High Court’s judgment in the case of CIT Vs Harinagar Sugar Mills Ltd [ITA No 1132 of 2014, dated 4th January 2017] and by a coordinate bench decision in the case of ACIT Vs JSW Steel Limited [(2019) 112 taxmann.com 55 (Mum)]. Learned Departmental Representative, however, relied upon the stand of the authorities below.

51. We find that a coordinate bench of this Tribunal, in JSW Ltd’s case (supra), has inter alia, observed as follows:

47. We further noted that Hon'ble Kolkata High Court, in the case of Pr. CIT v. Ankit Metal & Power Ltd. [2019] 109 taxmann.com 93/266 Taxman 237 Ltd. had considered an identical issue and after considering the decision of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (supra) held that when a receipt is not in the character of income as defined under section 2(24) of the I.T. Act, 1961, then it cannot form part of the book profit u/s 115JB of the I.T. Act, 1961. The Hon'ble High court, further observed that sales tax subsidy received by the assessee is capital receipt and does not come within definition of income under section 2(24) of the I.T. Act, 1961 and when, a receipt is not a in the nature of income, it cannot form part of book profit u/s 115JB of the I.T. Act, 1961. The Court, further observed that the facts of case before the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (supra) were altogether difference, where the income in question was taxable, but was exempt under a specific provision of the Act, and as such it was to be included as a part of book profit, but where the receipt is not in the nature of and 5927/Mum/2012 Assessment year: 2005-06 Page 25 of 31 income at all, it cannot be included in book profit for the purpose of computation u/s 115JB of the I.T. Act, 1961.

48. We further noted that the ITAT special bench of Kolkata Tribunal, in the case of Sutlej Cotton mills Ltd. v. Asstt. CIT [1993] 45 ITD 22 (Cal.) (SB), held that a particular receipt, which is admittedly not an income cannot be brought to tax under the deeming provisions of section 115J of the Act, as it defies the basic intention behind introduction of provisions of section 115JB of the Act. The ITAT Jaipur bench, in case of Shree Cement Ltd. (supra) had considered an identical issue and held that incentives granted to the assessee is capital receipt and hence, cannot be part of book profit computed u/s 115JB of the Act. Similarly, the ITAT Kolkata Bench, in the case of Sipca India (P.) Ltd. v. Dy. CIT [2017] 80 taxmann.com 87 (Trib.) had considered an identical issue and held that when, subsidy in question is not in the nature of income, it cannot be regarded as income even for the purpose of book profit u/s 115JB of the Act, though credited in the profit and loss account and have to be excluded for arriving at the book profit u/s 115JB of the Act.

49. Insofar as, case laws relied upon by the department , we find that all those case laws have been either considered by the Tribunal or High Court and came to conclusion that in those cases the capital receipt is in the nature of income, but by a specific provision, the same has been exempted and hence, the came to the conclusion that, once particular receipt is routed through profit and loss account, then it should be part of book profit and cannot be excluded, while arriving at book profit u/s 115JB of the Act 1961.

50. In this view of the matter and considering the ratio of case laws discussed hereinabove, we are of the considered view that when a particular receipt is exempt from tax under the Income tax law, then the same cannot be considered for the purpose of computation of book profit u/s 115JB of the I.T.Act 1961. Hence, we direct the Ld. AO to exclude sales tax subsidy received by the assessee amounting to Rs. 36,15,49,828/- from book profits computed u/s 115JB of the I.T. Act, 1961.

52. We see no reasons to take any other view of the matter than the view so taken by the coordinate bench. Respectfully following the same, we uphold the plea of the assessee and direct the Assessing Officer to exclude the sales tax incentive subsidy for computing book profit under section 115 JB of the Act. The assessee gets the relief accordingly.

53. Ground nos. 12 and 13 are thus allowed in the terms indicated above.

in the Assessing Officer’s appeal, it has already been, earlier in this common order, adjudicated upon along with a connected ground of appeal of the assessee, and dismissed as such.

61. Ground no 1 is thus dismissed.

62. 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 Ld. CIT(A) erred in allowing various expenditure grouped under the nomenclature "Community Welfare Expenses" amounting to Rs. 43,13,013/-as a business expenditure."

63. 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.

64. We see no reasons to take any other view of the matter than the view so taken by the coordinate benches all along. Respectfully following the same, we uphold the relief granted by the learned CIT(A) and decline to interfere in the matter. Ground no. 2 is thus dismissed.

65. In ground no. 3, 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 temple expenses amounting to Rs. 8,56,283/- as a business expenditure."

66. Learned representative fairly agree that this issue also covered in favour of the assessee by decisions of co-ordinate bench an assessee own cases from assessment years 1995-96 to 2000-05, copies of these orders are placed before us in the paper book. It is also pointed out that and 5927/Mum/2012 Assessment year: 2005-06 Page 27 of 31 the appeal filed by the department against the order of the co-ordinate bench and before the Hon’ble High Court was not admitted for the assessment year 1989-90 and that no appeals were files for the assessment years 1991-92, 1992-93 & 1993-94. Learned Departmental Representative however, relied upon the stand of the Assessing Officer.

67. We see no reasons to take any other view of the matter than the view so taken by the coordinate benches in assessee own cases for the preceding assessment years. Respectfully following the same, we uphold the relief granted by the learned CIT(A) and decline to interfere in the matter.

68. Ground no. 3 is thus dismissed.

69. 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.CIT(A) erred in allowing Pooja/Function expenses amounting to Rs. 39,81,919/- as a business expenditure"

70. Learned representative fairly agree that this issue is also a legacy issue and is covered by decisions of the co-ordinate benches an assessee own cases for the assessment years 1988-89 to 1989-90 & 1997-98 to 2000-05. Copies of the orders passed by the co-ordinate benches were also placed before us. Learned Departmental Representative, however, relied upon the stand of the Assessing Officer.

71. We see no reasons to take any other view of the matter than the view so taken by the coordinate benches in assessee own cases for the preceding assessment years. Respectfully following the same, we uphold the relief granted by the learned CIT(A) and decline to interfere in the matter.

74. Ground no. 4 is thus dismissed.

75. In ground no. 5, 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 consultancy charges amounting to Rs.38,42,400/-as a revenue expenditure.

76. Learned representatives fairly agree that this issue is also a legacy issue and is covered by decisions of the co-ordinate benches an assessee own cases for the assessment years 1995-96 to 2000-05, copies of the orders passed by the co-ordinate benches were also placed before us. Learned Departmental Representative however relied upon the stand of the Assessing Officer.

77. We see no reasons to take any other view of the matter than the view so taken by the coordinate benches in assessee own cases for the preceding assessment years. Respectfully following the same, we uphold the relief granted by the learned CIT(A) and decline to interfere in the matter. and 5927/Mum/2012 Assessment year: 2005-06 Page 28 of 31

78. Ground no. 5 is thus dismissed.

79. 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 service charges amounting to Rs. 1,93,960/- as revenue expenditure."

80. Learned representative fairly agree that this issue is also a legacy issue and is covered by decisions of the co-ordinate benches an assessee own cases for the assessment years 1995-96 to 2000-05, copies of the orders passed by the co-ordinate benches were also placed before us. Learned Departmental Representative however relied upon the stand of the Assessing Officer. 81. We see no reasons to take any other view of the matter than the view so taken by the coordinate benches in assessee own cases for the preceding assessment years. Respectfully following the same, we uphold the relief granted by the learned CIT(A) and decline to interfere in the matter. 82. Ground no. 6 is thus dismissed. 83. In ground no. 7, 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 mines prospecting expenses amounting to Rs. 10,66,291/- as a revenue expenditure." 84. To adjudicate on this grievance, it is sufficient to take note of the fact that the expenditure in question is incurred on identifying the nature of deposits of limestone at various sites to plan mining operations, that the AO has made the addition even as he took note of the Tribunal decisions on the said issue, in favour of the assessee in its own cases, but added that the views of the Tribunal has not attained finality, and that the CIT(A) gave relief on the ground that as the Assessing Officer has not challenged the relief granted by the Tribunal, the matter has attained finality. No material has been brought before us to dislodge the findings of the learned CIT(A). In any event, even going by the observations of the Assessing Officer, the matter is squarely covered, in favour of the assessee, by decisions of the coordinate benches in assessee’s own case. We, therefore, uphold the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter. 85. Ground no. 7 is thus dismissed. 86. In ground no. 8, 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 expenditure incurred on roads amounting to Rs. 82,95,819/-." and 5927/Mum/2012 Assessment year: 2005-06 Page 29 of 31 87. Learned representatives fairly agree that this issue is also a legacy issue and is covered by decisions of the co-ordinate benches an assessee's own cases for the assessment years 2001-02 & 2004-05; copies of the orders passed by the co-ordinate benches were also placed before us. Learned Departmental Representative, however relied upon the stand of the Assessing Officer. 88. We see no reasons to take any other view of the matter than the view so taken by the coordinate benches in assessee's own cases for the preceding assessment years. Respectfully following the same, we uphold the relief granted by the learned CIT(A) and decline to interfere in the matter. 89. Ground no. 8 is thus dismissed. 90. 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 deduction U/s. 35 D of Income tax Act of Rs. 4,06,31,549/- being 1/5th of the expenditure incurred in A.Y. 2001-02 and 2002-03 on issue of FCCB.” 91. Learned representatives fairly agree that this issue is also a legacy issue and is covered by decisions of the co-ordinate benches an assessee own cases for the assessment years 2002-03 & 2004-05; copies of the orders passed by the co-ordinate benches were also placed before us. Learned Departmental Representative however relied upon the stand of the Assessing Officer. 92. We see no reasons to take any other view of the matter than the view so taken by the coordinate benches in assessee own cases for the preceding assessment years. Respectfully following the same, we uphold the relief granted by the learned CIT(A) and decline to interfere in the matter. 93. Ground no. 9 is thus dismissed. 94. In ground no. 10, 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 entrance fees paid to club of Rs. 32,00,000/- as a revenue expenditure." 95. Learned representatives fairly agree that this issue is also a legacy issue and is covered by decisions of the co-ordinate benches an assessee own cases for the assessment years 1990-91 & 1995-96, copies of the orders passed by the co-ordinate benches were also placed before us. Learned Departmental Representative, however, relied upon the stand of the Assessing Officer.

96. We see no reasons to take any other view of the matter than the view so taken by the coordinate benches in assessee own cases for the preceding assessment years. Respectfully following the same, we uphold the relief granted by the learned CIT(A) and decline to interfere in the matter. and 5927/Mum/2012 Assessment year: 2005-06 Page 30 of 31

97. Ground no. 10 is thus dismissed.

98. So far as ground no. 11 of revenue’s appeal is concerned, it has already been dealt with, and disposed of, while dealing with ground no. 10 in the asseee’s appeal. We need not, therefore, take it up again.

99. Ground no. 11 is thus dismissed. 100. In ground no. 12, 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 expenses of Rs. 6,28,579/- incurred towards earning dividend income U/s. 14A and reduced from the amount of income exempt U/s.14A and reduced from the amount of income exempt u/s. 10(34)/10 (35) of Income tax Act in computing book profit U/s. 115JB of the Act.