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Income Tax Appellate Tribunal, “B”, BENCH KOLKATA
Before: SHRI A.T. VARKEY, JM & DR. A.L.SAINI, AM
आदेश / O R D E R
Per Dr.Arjun Lal Saini, AM:
The captioned appeal filed by the Revenue, pertaining to assessment year 2011-12, is directed against an order passed by the learned Commissioner of Income Tax (Appeals)-1, Kolkata (in short the ld. CIT(A)] in appeal No. 182/CIT(A)-1/Wd-1(4)/2014-15 dated 29.11.2016, which in turn arises out of an assessment order passed by the Assessing Officer under section143(3) of the Income Tax Act, 1961 ( in short the Act) dated 31.03.2014.
The grievance raised by the Revenue are as follows: i) That on the facts and circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition made on account of holding the State
2 M/s AI Champdany Industries Ltd. A.Y.2011-12 Capital Investment Subsidy as capital, on the fact that the assessee failed to decimate and / apportion the amount(s) of subsidy from the cost / block of assets and charge depreciation accordingly. ii) That on the facts and circumstances of the case and in law, the ld. CIT(A) erred in deleting disallowances made in accordance with the provisions of section 14A of IT Act read with Rule 8D of IT Rules, 1962. iii) That the appellant craves leave to add, alter and/or modify, substitute all or any of the grounds of appeal, during the course of hearing.
3. Ground No.1 raised by the Revenue relates to addition made on account of State Capital Investment Subsidy as Revenue in nature.
The facts of the case which can be stated quite shortly are as follows. During the assessment proceedings, the Assessing Officer noted that the assessee in its audited statement of accounts in the year ended on 31.03.2011, had shown fresh receipts received during the year in ‘Capital Reserve’ to the tune of Rs.1,22,54,000/-.The assessee was asked to explain the receipt of Rs.1,22,54,000/-. In response, the assessee submitted before the Assessing Officer that it had been sanctioned State Capital Investment Subsidy under ‘WBIS’-2004 vide ‘WBIDC’s letter dated 27.05.2011 for expansion of its project located at Jagtadal, 24 Pgs. (N) of Rs.1,22,54,000/- and the same was accounted under the head ‘Capital Reserve’ for the year ended on 31.03.2011. The assessee submitted that a subsidy receipt, will be a ‘capital receipt’, only if such receipt is received for setting up of a new unit or expansion of existing unit and the same has been utilized for such purpose. In other words, if the assessee has acquired fresh fixed assets, against the said subsidy, then only the same can be accounted for as a ‘Capital receipt’ otherwise the same is to be treated as a revenue receipt of the assessee. However, the Assessing Officer noted that since the assessee had not acquired any assets and also had not added back any depreciation on such assets, if any, against the subsidy of Rs. 1,22,54,000/- claimed by assessee as capital receipts under WBIS`2004. In response, the assessee again submitted before the Assessing Officer vide submission dated 11.03.2014 and furnished
3 M/s AI Champdany Industries Ltd. A.Y.2011-12 WBIDC letter dated 27.05.2011 explaining the purpose of incentive to carry out of expansion of the project and not for running its business more profitably and hence subsidy of Rs. 1,22,54,000/- should be a capital receipt of the assessee. The assessee also submitted a list of capital items which was acquired by the assessee against this subsidy up to the year ended on 31.03.2008. However, the Assessing Officer rejected the contention of the assessee and treated the said subsidy as ‘revenue receipt’ and added Rs. 1,22,54,000/- to the total income of the assessee.
Aggrieved by the stand so taken by the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has treated the subsidy as capital in nature and deleted the addition.
Aggrieved the order of the ld. CIT(A), the Revenue is in appeal before us. The Ld. DR for the Revenue has primarily reiterated the stand taken by the AO, which we have already noted in our earlier para and is not being repeated for the sake of brevity. On the other hand, the ld. Counsel for the assessee relied on the order passed by the ld. CIT(A).
We have heard both the parties and perused the material available on record. First of all, we are of the view that it is relevant to go through the sanctioned letter of the said subsidy of West Bengal Industrial Development Corporation Ltd (WBIDC), which reads as follows:
“INC-2004/(98)/I/GENCS/694 May 27, 2011 AI Champdany Industries Ltd. 25, Princep Street, Kolkata – 700 072. Sub: i) Sanction of State Capital Investment Subsidy under WBIS, 2004 ii) Fixing up the limit for all subsidies
4 M/s AI Champdany Industries Ltd. A.Y.2011-12 Dear Sirs, With reference to your application for State Capital Investment Subsidy (SCIS) under WBIS–2004 for your expansion project located at Jagatdal PO – Jagatdal, PS: Jagatdal in the district of 24 Pgs (N) covered under Eligibility Certificate No. INC-2004/EC- 185(B) dated 23.07.2007, we would like to inform you that this Corporation has admitted Rs. 122.54 Lakh (Rupees One Crore Twenty Two Lakh & Fifty Four Thousand) only for disbursement towards the said State Capital Investment Subsidy (SCIS) on the following terms & conditions: a. SCIS will be disbursed as and when the funds are made available to WBIDC by the State Government, and also as per Eligibility Certificate No. INC-2004/EC- 185(B) dated 23.07.2007. The maximum limit of all subsidies will be Rs.1633.86 Lakh Entitlements of benefits will be as per clause 20(e) of the Scheme; b. The company has to submit relevant certificates from concerned authorities viz. Commissioner, Commercial Taxes, Commissioner, and the Director of Electricity Duty, West Bengal certifying that the unit has not defaulted in the matter of payment of dues under the acts stated in the Eligibility Certificate before release of incentives; c. The company shall not in any way dispose of any or part of the asset already created; d. The company shall insure the plant & machinery against any loss or damage and regularly pay premium thereof; e. The company shall not change location and also shall not transfer any of the assets to other units; f. If WBIDC decides that the company is entitled to a lesser amount, then the admitted amount shall be reduced or the excess amount, if disbursed, shall be refunded within 15 days from the date of WBIDC’s intimation; g. The company shall pay the processing fee on the sanctioned amount and other incidental expenses expenses as the case may at the time of disbursement of the subsidy; h. At the time of disbursement of the subside, overdue amount to WBIDC, if any, will be adjusted; Your acceptance of the above terms and conditions should be communicated to us within 15days from the date of receipt of this letter. Yours faithfully R. Mutsuddi. Executive Director
5 M/s AI Champdany Industries Ltd. A.Y.2011-12 We note that sanctioned letter of the said subsidy of West Bengal Industrial Development Corporation Ltd (WBIDC), clearly speaks that the WBIDC Corporation has admitted Rs.122.54 Lakh (Rupees One Crore Twenty Two Lakh & Fifty Four Thousand) only for disbursement towards the said State Capital Investment Subsidy (SCIS). Therefore, from the scheme of the subsidy, it is abundantly clear that the said subsidy is towards state capital investment, hence this subsidy is capital in the nature.
We note that the accounting treatment of a subsidy, whether it is a capital subsidy or revenue subsidy is to be decided based on the sanctioned letter of the subsidy. The above mentionedsanctioned letter dictates about the treatment of the subsidy under consideration. After going through the above sanctioned letter of the WBIDC, we note that point No. c) and d), (which is given below for ready reference), talk about the fixed assets:
c.The company shall not in any way dispose of any or part of the asset already created; d.The company shall insure the plant & machinery against any loss or damage and regularly pay premium thereof; As per the direction given by the West Bengal Government through above sanctioned letter, the company shall insure the plant & machinery against any loss or damage and regularly pay premium thereof and the subsidy is towards expansion of the assessee’s project. We note that during the assessment proceedings, the assessee submitted the list of assets acquired / purchased against the scheme of WBIDC which were acquired up to 31.03.2008.The assessee has furnished before AO the schedule of the fixed asset valued at aggregateat Rs.11.61 crores including hacking/drawing machine finisher, bleaching plant etc. The nature of the subsidy receipt is to be determined with respect to the purpose for which the subsidy was granted. It is noted that the subsidy was granted for the purpose of acquisition of capital assets hence it is a capital subsidy.For that we rely on the judgment of Hon’ble Supreme Court in the case of CIT vs. Ponni
6 M/s AI Champdany Industries Ltd. A.Y.2011-12 Sugar & Chemicals Ltd. 306 ITR 392 (SC). Therefore, ld. CIT(A) has rightly treated the said subsidy as capital in nature anddeleted the addition to the tune of Rs. 1,22,54,000/-. That being so, we declined to interfere in the order passed by the ld. CIT(A), his order on the issue is hereby upheld the grounds raised by the revenue is dismissed.
The next ground raised by the Revenue relates to disallowance u/s 14A of the Act read with Rule 8D of IT Rules, 1962.
The brief facts qua the issue are that during the assessment proceedings, the Assessing Officer noted that the assessee had made the investment in shares and securities and received the dividend. The assesseesuo moto disallowed 1% of the dividend receipt,to the tune of Rs.1,801/-. However, the Assessing Officer noted that assessee has not computed the disallowance as per provisions of 14A of the Act, read with Rule 8D of the Rules.Therefore, the AO did the computation of disallowance by applying Rule 8D(2) (ii)to the tune of 19,83,203/- and also did computation under Rule 8D(2)(iii) to the tune of Rs. 4,60,108/-. Thus, the total disallowance computed by the Assessing Officer was to the tune of Rs. 24,43,311/- (Rs. 19,83,203/- + Rs. 4,60,108/-). Since the assessee has suo moto disallowed the amount of Rs. 1,801/- therefore the net disallowance computed by the Assessing Officer was to the tune of Rs. 24,41,510/- (Rs. 24,43,311 - Rs. 1,801).
Aggrieved by the additionmade by the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has deleted the addition made by the Assessing Officer partly. Aggrieved by the order of the ld. CIT(A), the Revenue is in appeal before us.
7 M/s AI Champdany Industries Ltd. A.Y.2011-12 12. We have head both the parties and perused the material available on record. We note that the ld. Counsel for the assessee drew our attention to the Balance Sheet of the assessee company as on 31.03.2011( paper book page no. 3), wherin we find the share capital and reserve and surplus is to the tune of Rs. 109 crores whereas investment made by the assessee is to the tune of Rs. 8.9 crore therefore we note that the free reserve and capital of the assessee company is more than the investment made by the assessee company, therefore the general presumption is that the assessee has made investment out of the interest free funds, hence relying on the judgment of Hon’ble Bombay High Court in the case of HDFC Bank Ltd. vs. DCIT 366 ITR 505, no disallowance should be made u/s 14A on account of interest paid on borrowings. Since the assessee has own funds which exceed the investment made in shares and securities.
So far the disallowance under Rule 8D(2)(iii) is concerned, we note that there is no infirmity in the order of the ld. CIT(A). The ld. CIT(A) has directed the Assessing Officer to compute the disallowance only taking into account those investments which yielded the dividend income. However, the ld. DR for the revenue submitted before us that the assessee has not established that the investments were made out of the own capital and free reserves therefore, the disallowance made by the Assessing Officer should be sustained. We note that the ld. Counsel for the assessee explained the Bench that the investments were purchased by the assessee company prior to taking long term loan therefore the investment made by the assessee company is only out of the share capital and free reserve available with the assessee company. We note that the Co-ordinate Bench of ITAT, Kolkata in order dated 19.06.2013 in the case of REI Agro Ltd, held that in order to make the disallowance u/s 14A read with Rule 8D(2)(iii), only dividend bearing securities should be included. The ld. CIT(A) had already directed the Assessing Officer considering the judgment of the Coordinate Bench in the case of REI Agro Ltd (supra), therefore we do not find any infirmity in the order of ld. CIT(A). That being so, we decline to 8 M/s AI Champdany Industries Ltd. A.Y.2011-12 interfere in the order passed by the ld. CIT(A), his order on the issue is hereby upheld and the grounds of appeal raised by the revenue is dismissed.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on this 01/ 03/2019.