DCIT, CENTRAL CIRCLE-2(1), AAYKAR BHAVAN vs. CHIRIPAL INDUSTRIES LIMITED, AHMEDABAD

5.. Ld. Sr. D.R. appearing for the Revenue supported the order passed by the assessing officer and pleaded to confirm the disallowances.

7. We have given our thoughtful consideration and perused the materials available on record and the case laws relied by the assessee. The facts of the case is that the assessee was carrying on the business of manufacturing and trading of yarn, fabrics and garments. The AO noted that the assessee has claimed deduction of Rs.4,82,07,712/- u/s 80IA of the Act. The assessee had shown activity of power generation and has shown plant and machinery used for such activity at Rs.7,66,75,468/-. The A.O. noted that the power plant was originally installed by the erstwhile concern M/s Shanti Processor Ltd and belonged to period prior to 01.04.2005.

The old machinery used was of Rs. 7,11,23,416/-as against the total value of Rs.7,66,75,468/-. Therefore the A.O. held that the power plant was set up by transfer of old and previously used machinery, the value of which was more than 90% of the total value of the plant and he therefore invoked the provision of Explantion-2 of Sec. 80IA(3) of the Act and disallowed the claim of deduction after rejecting the explanation offered by the assessee.

7.1. Before the CIT(A), the assessee submitted that M/s Shanti Processor Ltd was merged with the assessee company with effect from 01.04.2005 and the assessee company fulfilled all the conditions necessary for claiming deduction u/s 80IA of the Act. It had also brought to his notice that the CIT(A) had allowed the claim in the previous assessment years, wherein similar disallowance on same reasoning was made by the AO. It is also seen that the AO had rejected the contention of the assessee by following precedence in earlier years.

“25. We have heard both the sides and perused the material on record carefully. It was undisputed fact that that entire plant was new one and machinery were purchased by Shanti Processor Ltd which was amalgamating company and since the same were not used prior to 01/04/2005 and in the assessment order u/s. 143(3) for A.Y.2009-10 & A.Y.2010-11 the assessing officer had allowed the deduction on identical issue and similar facts. The assessee has started the generation of energy in the previous year relevant to A.Y. 2006-07 and started claiming deduction u/s. 80IA(4) of the Act from assessment year 2009-10, which was first year of its claimed and the same was allowed meaning thereby the A.O. was satisfied that the assessee had fulfilled all the conditions. It is also noticed that the assessee has explained its entitlement for the impugned claim of deduction under section 80IA(12) as under:- "The power plant, in question, was transferred to assessee company under the scheme of Amalgamation of two companies viz Shanti Processors Ltd & Chiripal Petro chemicals Ltd. M/s Shanti Processors Ltd. was amalgamating company & Chiripal Petro Chemicals Ltd. was amalgamated Company under the provisions of the Companies Act, 1956. The scheme of Amalgamation was approved by Hon'ble High Court of Gujarat, vide its order dated 31/03/2006 w.e.f. 01/04/2005. It is also added that name of the company Chiripal Petro Chemicals Ltd. was changed to Chiripal Industries Ltd. as per approval of Registrar of Companies of Gujarat (A copy of both the orders are enclosed herewith for your honour's kind perusal and record purpose.) At this point, the assessee company would like to submit the definition of amalgamation , tax concessions available to amalgamated company and other provisions, for your honours kind perusal as under: A. Definition of amalgamation : According to section 2(1B) of the Income-tax Act, 1961 (hereinafter referred to as the Act), amalgamation in relation to companies means the merger of one or more companies with another company or the merger of two or more companies to form one company (the company or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of the merger, as the amalgamated company) in such a manner that:- a. All the property of the amalgamating company or companies immediately before the amalgamation becomes the property of the amalgamated company by virtue of amalgamation. b. All the liabilities of the amalgamating company or companies immediately before the amalgamation become the liabilities of the amalgamated company by virtue of amalgamation. Shareholders holding not less than 3/4th in value of the shares in amalgamating company or companies (other than shares held there is immediately before the amalgamation or by a nominee for the amalgamated company or its subsidiary) become shareholders of the amalgamated company by virtue of the amalgamation, otherwise than as a result of the acquisition of the property one company by another company pursuant to the purchase of such property by the other company as a result of distribution of such property to the other company after the winding up of first mentioned company.

B. Tax concessions to the amalgamated company: The amalgamated company shall be eligible for tax concessions only if the following two conditions are satisfied: I. The amalgamation satisfies all the three conditions laid down in section2(lB) and II The amalgamated company is an Indian company. If the above conditions are satisfied the amalgamated company shall be eligible for following tax concessions: (a) Expenditure on Scientific Research Section 35(5): (b) Expenditure on acquisition of patent rights or copy rights Section 35A(6): (c) Expenditure of know-how Section 35AB(3): (d) Treatment of preliminary expenses Section 35D(5): (e) Amortization of expenditure in case of amalgamation Section 35DD (f) Treatment of capital expenditure on family planning Section 36(1)(ix): (g) Treatment of Bad debts section 36(1)(vii): (h) Deduction available u/s 80IA & 80IB: (i) Carry forward and set off Business Losses & unabsorbed depreciation of the amalgamating company."

We observe the assessing officer has not disproved these material facts and disallowed the claim of deduction on presumption basis without considering the relevant legal provision as elaborated in the findings of the Ld.CIT(A). The relevant legal provision has already been elaborated by the Ld. CIT(A) in his findings that as per the provisions of section 80IA(12) when any undertaking of an Indian Company which is entitled to deduction under this section is transferred before the expiry of the period specified in this section to another Indian Company then as per clause (b) the provision of this section shall apply to the amalgamated Company as they would have applied to the amalgamating Company if the amalgamation had not taken place and the provisions of subsection (12) would only apply if the amalgamating Company was eligible for claiming deduction u/s 80IA. It is demonstrated from the above facts and circumstances that the assessing officer has disallowed the claim of the assessee on presumption basis that addition of Rs. 71,12,34,167- was old plant and machinery without bringing on record evidence to substantiate that specified machinery was purchased by Shanti processor Ltd and the assessing officer has also failed to disproved the material fact that similar claim was allowed to the assessee in the assessment year 2009-10 on fulfilling of all the conditions. In the light of the above facts, legal findings and elaborated findings of the Ld. CIT(A) as supra in this order we do not find any error in the decision of the Ld.CIT(A), therefore, the appeal of the revenue is dismissed.”

8.1. Similarly for the Asst. Year 2016-17, Co-ordinate Bench of this Tribunal in dated 15-07-2022 held as follows:

10.1. In the appeal proceedings, the assessee claimed that it has received exempt income in the form of dividend Rs. 670/- only. The assessee also stated that the investments made were out of its own funds and therefore the disallowance made by the A.O. was not tenable as no borrowed funds were used for making investment in shares and mutual funds. Further there were sufficient share capital and reserves and surplus available to invest in the said shares and mutual funds. The assessee further stated that Rs. 30.57 crores in the form of strategic investment in Nandan Denim Ltd. Thus the disallowance u/s. 14A cannot exceed the exempted income namely Rs. 670/-. Considering the above submission, the Ld. CIT(A) restricted the disallowance to the dividend income earned by the assessee by observing as follows:

“……7.4 The appellant cited several case laws, including the jurisdictional HC orders, in favour of its argument that disallowance u/s 14A cannot exceed the exempt income earned during the year. It is added that the amendment made in this regard by the Finance Act 2022 by way of insertion of explanation has been held to be prospective in nature by the Delhi HC in the case Era Infrastructure (India) Ltd (2022) 141 taxmann.com 289 (Delhi) which has been followed by the ITAT Ahmedabad in several orders. Following the judicial precedent, I direct the AO to limit the disallowance u/s 14A of the Act to Rs 670/- i.e. actual amount of dividend. Balance amount of Rs 60,46,042/- is directed to be deleted. Ground of appeal 2 is partly allowed.”

11. We do not find any infirmity in the order passed by the Ld. CIT(A) who has restricted the disallowance to the extent of dividend income received by the assessee namely Rs. 670/- which is confirmed by Jurisdictional High Court in the case of Corrtech Energy Pvt. Ltd. reported in 372 ITR 97. Thus the Ground No. 2 raised by the Revenue is devoid of merits and the same is liable to be dismissed.

C.O. No. 4/Ahd/2024

13. The Grounds of Cross Objection raised by the Assessee are as follows:

1. 1. In law and in the facts of the appellant's case, Hon'ble ITAT may direct the Ld. Assessing Officer to reduce the assessed income of the assessee by Rs. 9,25,83,096/-as such receipt is capital receipt in form of interest subsidy received under Technology Upgradation Fund Scheme (TUFS) which was inadvertently offered in Income while filing Return of Income by assessee instead of reducing from plant and machinery.

2. In law and in the facts of the appellant's case, Hon'ble ITAT may direct the Ld. Assessing Officer to reduce the assessed income of the assessee by Rs. 1,21,00,216/-as such receipt is capital receipt in form of power subsidy received under Technology Upgradation Fund Scheme (TUFS) which was inadvertently offered in Income while filing Return of Income by assessee instead of reducing from plant and machinery.

3. The appellant craves leave to add to amend or to raise any further grounds of appeal as case may arise.

14. Ld. Sr. Counsel submitted that the assessee received interest subsidy of Rs.9,25,83,096/- and power subsidy of Rs.1,21,00,216/- under TUFS that is (Technology Upgradation Fund Scheme) being capital receipt not chargeable to tax. However inadvertently the assessee offered the same as income in the Return of Income. Similar issue was considered in assessee’s own case in for the Asst. Year 2014-15 thereby Co-ordinate Bench set aside this issue for fresh adjudication and allowed the appeal. Similar directions be issued for the present assessment year.

15. Ld. Sr. D.R. appearing for the Revenue could not dispute the above submission of the assessee counsel.

is that the total income and the book profit of the assessee should be reduced by the sum of ₹ 3,96,42,334.00 representing the interest subsidy received under Technology Upgradation Fund Scheme being capital receipt not chargeable to tax.

12. At the outset, the learned counsel for the assessee before us submitted that this Tribunal in the case of DCIT versus M/s Jindal worldwide limited in involving identical issue has admitted additional ground of appeal and set aside the issue to the file of the AO for fresh adjudication as per the provisions of law. Accordingly, the ld. AR before us contended that such finding of the ITAT in the case cited above is also applicable in the instant set of facts. Therefore, the ld. AR submitted that similar direction can also be issued by the ITAT in the case on hand.

13. On the other hand, the ld. DR before us opposed to admit the additional ground of appeal raised by the assessee in the light of the ratio of the judgment of Hon’ble Supreme Court in the case of CIT v. Sun Engineering Works (P.) Ltd. [1992] 198 ITR 297 (SC)

14. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we note that the issue raised by the assessee in the additional ground of appeal is identical to the issue in the case of M/s Jindal worldwide limited cited above where in the ITAT has observed as under:

11. We shall now turn to the additional ground raised by the assessee in its cross objection which reads as under: “On the facts and the circumstances of the case and in law, the interest subsidy of Rs.2,16,45,161 received by the assessee under Technology Upgradation Fund Scheme (TUFS) for Textile and Jute industries during the above assessment year should be treated as capital receipt.” 11.1 The additional ground has been admitted to adjudicate the legal issue in the light of the available view taken by the co-ordinate bench in DCIT vs. M/s. Adani Gas Ltd.

& Ors. order dated 17.10.2018. The relevant operative para of the order of the co-ordinate bench is reproduced hereunder: “21.4 A legal issue also cropped up in the course of hearing as to whether additional ground could be raised in a cross objection filed by the assessee under s.253(4) of the Act. On being enquired on this aspect of the matter, it was submitted on behalf of the assessee that there is no perceptible distinction between the position of law qua cross objection in the matter of filing additional ground. It was submitted that a cross objection has all the trappings of a regular appeal more so in the light of language employed under s.253(4) of the Act. 21.5 We find ourselves in agreement with the propositions made on behalf of the assessee that in a cross objection, there is no bar to raise legal issues for the first time before ITAT. A cross objection is like an appeal. It has all the trappings of an appeal. It is filed in the form of memorandum and it is required to be disposed in same manner as an appeal. Even where the appeal is withdrawn or dismissed for default, cross objection may nevertheless be heard and determined. Cross objection is nothing but an appeal, a cross appeal at that. This apart, raising of additional ground would only enable the authority concern to correctly assess the tax liability of the assessee. Similar view has been expressed by the co-ordinate bench in the case of ITO vs. Jasjit Singh (Del) in cross objection Nos. 138 to 142/Del/2014 interim order dated 23.09.2014. We thus do not see any impediment in entertaining the additional grounds. The relevant facts are available on record. 21.6 In so far as the merits of the claim made in additional ground is concerned, we observe that where the AO has readjusted the quantum of depreciation in the subsequent assessment year, the assessee is within its legitimate rights to be granted depreciation in AY 2009-10 as per the figures worked by the AO himself. We do not see any perceptible reason for not admitting such claim of the assessee. We also find bonafides in the plea of the assessee for raising new claim on account of depreciation by way of additional ground at this belated stage. The order for the AY 2012-13 was passed on 29.03.2015. By virtue of this order, the assessee came to know about the revision in the claim of depreciation concerning AY 2012-13. By that time, the order of the CIT(A) dated 13.12.2013 was already passed. Therefore, the assessee was incapacitated to put forward such new claim towards depreciation on goodwill amounting to Rs.5,57,63,315/- for which relevant facts are duly available on record in the light of the decision of Hon’ble Supreme court in the case of Goetze (India) Ltd. vs. CIT [2006] 284 ITR 323 (SC) & NTPC vs. CIT 229 ITR 383 (SC).

12. We find that the issue is squarely covered in favour of the asseessee by the decision of the Hon’ble Supreme Court in CIT vs. Chaphalkar Brothers Pune [2017] 88 taxmann.com 178 (SC); CIT vs. Meghalaya Steels Ltd. [2016] 67 taxmann.com 158 (SC) and CIT vs. Sham Lal Bansal [2011] 11 taxmann.com 369 (P&H). In the light of aforesaid judgments, we find merit in the plea of the assessee that having regard to the object and purposes of the scheme, the interest subsidy is required to be treated as capital receipt of non-taxable nature having regard to the propositions laid down in the judicial proceedings noted above.

14.1 As the issue raised before us is identical to issue discussed above, therefore respectfully following the order of the coordinate bench discussed above, we admit the additional ground of appeal of the assessee and set aside the issue to the file of the AO for fresh adjudication as per the provisions of law and in the light of the order of the tribunal in the case of M/s Jindal worldwide limited discussed above. Hence the ground of appeal of the assessee is allowed for the statistical purposes. 14.2 Before parting, it is important to note that the appeal before us emanates from the order passed under section 143(3) read with section 147 of the Act. Therefore, a question strikes to our mind whether the assessee can seek relief by way of additional claimed raised in the additional ground of appeal in the income escaping proceedings. In this regard, we note that there was identical issue before the Hon’ble Karnataka High Court raised in the case of Karnataka State Co-operative Apex Bank Limited Vs. DCIT reported in 130 taxmann.com 114 wherein it was held as under:

11. In the instant case, admittedly, there is no original assessment order in the case of the assessee and it was only an intimation under section 143(l) of the Act, which cannot be treated to be an order in view of decision of the Supreme Court in Rajesh Jhaveri (supra). Therefore, the question of reassessment of the income of the assessee by the Assessing Officer does not arise. In the proceeding under section 148 of the Act, it was the first assessment and the same could have been done considering all the claims of the assessee. Therefore, the decision rendered by the Supreme Court in Sun Engineering Works (P.) Ltd. had no application to the fact situation of the case. Even assuming for the sake of argument that if an intimation under section 143(1) of the Act is considered to be an order of assessment, in the subsequent reassessment proceeding, the original assessment proceeding get effaced and the Assessing Officer was required to consider the proceeding de novo and to consider the claim of the assessee.

14.3 The above judgment was rendered by the Hon’ble Karnataka High Court after considering the decisions of the Hon’ble Supreme Court in the case of CIT v. Sun Engineering Works (P.) Ltd. [1992] 198 ITR 297 (SC), V. Jaganmohan Rao v. CIT and Excess Profit Tax, [1970] 75 ITR 373 (SC), ITO v. Mewalal Dwarka Prasad, [1989] 176 ITR 529/43 Taxman 40 (SC), 'ITO v. K.L. Srihari (HUF) [2001] 118 Taxman 890/250 ITR 193 (SC), and 'Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd.' [2007] 291 ITR 500/161 Taxman 316 (SC) and reached a conclusion that even assuming for the sake of argument that if an intimation under section 143(1) of the Act is considered to be an order of assessment, in the subsequent reassessment proceedings, the original assessment proceedings gets effaced and the Assessing Officer was required to consider the proceedings de novo and to consider the claim of the assessee. 14.4 It is also to be noted that the above judgment was challenged before the Hon’ble Supreme Court which has been admitted by the Hon’ble Supreme Court reported in 138 taxmann.com 23. However, we note that no stay on the operation of Hon’ble Karnataka High Court has been granted. Thus, respectfully following the judgment of Hon’ble Karnataka High Court, we set aside the issue raised by the assessee in the additional ground of appeal for fresh adjudication as per the provisions of law. Hence, the additional ground of appeal of the assessee is allowed for the statistical purposes.

16.1. Respectfully following the above decision of Co-ordinate Bench of this Tribunal, we hereby set aside the issue of TUFS subsidy received by the assessee to the file of Jurisdictional Assessing Officer for fresh consideration by giving proper opportunity of hearing to the assessee and allow the claim as per the provisions of law. Thus the Ground raised by the Assessee are allowed for statistical purpose.