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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
This appeal by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-XXVI, Mumbai, [in short CIT(A)] in appeal No. CIT(A)-XXVI/94/2003-04 dated 29.3.2005. The Assessment was framed by the Deputy Commissioner of Income Tax, Circle-6(3), Mumbai (in short DCIT) for the assessment year 2001-02 order dated 18.3.2004 under section 143(3) of the Income Tax Act, 1961(hereinafter ‘the Act’).
2. The first issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in disallowing interest amounting to ₹2,53,07,139/- being estimated interest @ 15% to various parties. For this assessee has raised following Ground No.1 to 6:
“ Interest in respect of advances to companies/other concern:
The learned Commissioner (Appeals) erred in confirming the disallowance of interest amounting to Rs.2,53,07,139 being estimated interest @ 15 percent on the following amounts advanced to the following parties:
Sr. Parties Amount (Rs.) No. (a) Ibiza Industries Ltd 25,50,000 (b) Mafatlal S.A. Intex Ltd. 2,04,20,095 (c) Mafatlal V.K. Intex Ltd. 38,00,000 (d) Repal Apparel P. Ltd. 75,76,557 (e) Silvia Apparel Ltd. 80,00,000 (f) Sushmita Holdings Ltd. 4,75,02,610 (g) Mafatlal Engineering 3,91,15,000 Industries Limited (MEIL) (h) MEIL by Mafatlal Fine Spg. & 2,77,50,000 Mfg.Co. Ltd. Total 15,67,14,262
2. Without prejudice, the learned Commissioner (Appeals) ought to have appreciated that interest on advances to MEIL was to accrue only after all the dues of the financial institutions had been paid and that the question of comparing the interest paid with the interest receivable from MEIL did not arise in the present year.
3. The learned Commissioner (Appeals) ought to have appreciated that the advances to Ibiza Industries Ltd., Mafatlal S.A. Intex Ltd., Mafatlal V.K. Intex Ltd., Repal Apparel P. Ltd., Silvia Apparel Ltd., Sushmita Holdings Ltd., were for the purpose of the business of the appellant.
4. The learned Commissioner (Appeals) ought to have appreciated that the Assessing Officer was not justified in charging to tax notional interest of Rs. 1,63,12,256 which had not at all accrued to the appellant.
5. The learned Commissioner (Appeals) further erred in not considering the fact that as the amount due from MEIL had been written off by the appellant as on March 31, 1991, the said amounts were not outstanding during the relevant previous year 2000- 01, hence no disallowance ought to have been made for the relevant assessment year.
6. The learned Commissioner (Appeals) erred in relying on the decision of the Commissioner (Appeals) in the earlier years.”
3. At the outset, the learned Counsel for the assessee stated that on the very same advances, the Tribunal in assessment years 1993-94 to 1999- 2000 has considered the assessee’s own decision of Tribunal for assessment year 1991-92 and remitted the matter back to the file of the Assessing Officer. The learned Counsel before us filed copy of Tribunal’s order in for assessment year 1999-2000 vide order dated 21.10.2015, wherein Tribunal vide para-7 to 10 has adjudicated the issue as under: “7. The first issue relates to the disallowance of interest in respect of advances to the companies Rs.1,63,12,256/-. During the course of assessment proceedings, the AO noticed that the assessee has not charged interest on the loans given to subsidiary and other companies to the tune of Rs.4,56,71,652/- . The AO called for the explanation from the assessee and on being scrutiny the same, the AO did not accept the explanation given by the assessee and calculated interest on the amount of loan given to the subsidiaries and other companies to the tune of Rs.1,63,12,256/- and added to the total income of the assessee. The Ld. CIT(A) confirmed the addition made by the AO, Aggrieved by this, the assessee is in appeal before us.
At the time of hearing the Id. AR submitted that an identical issue had come up before this Tribunal in the assessee's own case for the assessment years 1991-92 to 1998-99, AY 2003-04 and the. Tribunal has restored this issue to the file of AO for fresh adjudication following the precedent laid down by the Hon'ble Apex Court in S.A.Builders, reported in 288 ITR 1(SC). Therefore, this being identical issue, the same view may be taken as taken earlier by this Tribunal.
The Id. DR did not object to the plea put forth by the Id.AR.
10. After hearing both the parties and on perusal of the record, we find that the similar issue had come up before this Tribunal in assessee's own cases in the assessment years (supra) and the Tribunal has restored this issue to the file of AO for fresh adjudication. Accordingly, we set aside the order of Ld. CIT(A) on this issue and restore the same to the file of AO to decide the issue denovo. Ground No.1 is allowed for statistical purposes.”
The learned D.R. also stated that the issue is exactly identical and 4. matter can be remitted back in terms of the Tribunal’s decision.
We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the Tribunal consistently set aside the issue to follow the precedent laid down by Hon’ble Supreme Court in the case of S.A. Builders 288 ITR 1 (SC). On same reasoning, we set aside this issue to the file of the AO. This issue is allowed for statistical purposes.
The next issue in this appeal of assessee is against the order of 6. CIT(A) confirming the addition of valuation of closing of finished goods. For this assessee has raised the following ground:-
“Valuation of closing stock
7. The learned Commissioner (Appeals) erred in confirming addition of estimated amount of Rs. 25,00,000 on account of valuation of closing stock of finished goods.”
We are of the view that this issue has to be allowed in favour of assessee by giving direction in regard to alternative claim that the addition to closing stock of finished goods made by the AO should be given consequential effect to the opening stock of next year also. We find that the Tribunal in for assessment year 2003-04 vide order dated 29.4.2011 has given some direction vide para Nos.5 & 6 as under: “5. Ground No .2 is on the issue of valuation of closing stock of finished goods. s) confirmed the addition of estimated amount of excise duty of s on account of valuation of closing stocks of finished goods. The. the assessee's own case from the assessment years 1994-95 to 1997-98 has decided the ground against the assessee. Respectfully following the same, we dismiss this ground of the assessee.
The assessee made an alternative claim that the addition should also be made for the opening stock. This alternative claim was allowed by the Tribunal. Consistent with the view taken by the Tribunal, we allow the alternative claim of the assessee for addition to opening stock.”
8. As the issue is squarely covered, we also direct the AO to give effect to the opening stock of the next year. This issue of the assessee is allowed accordingly.
9. The next two issues in this appeal of the assessee is as regards to disallowance of stamp duty payable on amalgamation and disallowance of capital expenditure incurred on scientific research. For this assessee has raised following ground Nos.8 & 9.
“Stamp duty payable on amalgamation
8. The learned Commissioner (Appeals) erred in not directing the Assessing Officer to allow the deduction for stamp duty payable on amalgamation in the year in which the same has been paid.
Capital Expenditure incurred on scientific research
9. The learned Commissioner (Appeals) erred in not directing the Assessing Officer to allow the capital expenditure on scientific research of Rs. 2,27890.”
At the outset, the learned Counsel for the assessee stated that he has instructions from the assessee not to press this issue. The learned D.R. has not objected the same. Accordingly, these two issues are dismissed as not pressed.
11. The next issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in taxing interest on Government securities. For this, assessee has raised following Ground No.10:
“Interest on securities
10. The learned Commissioner (Appeals) erred in confirming the action of the Assessing Officer in bringing to tax a sum of Rs. 15,840 as interest on Government Securities.”
At the outset, the learned Counsel for the assessee stated that this issue is adjudicated in assessee’s own case by Tribunal in earlier years and Tribunal in for assessment year 2009-10 vide order dated 21.10.2015 has adjudicated the issue in para Nos.15 & 16 as under:
“15. The facts with regard to disallowance of interest on securities of Rs.15,840/- are that the AO noticed that the assessee has received interest on securities of Rs.15,840/- and since the assessee did not receive receipt thereof from the State Government, the assessee did not mentioned it in the profit and loss account Therefore, the assessing officer did not allow deduction thereof and added the same to the total income of the assessee. The Id. CIT(A) following the precedent laid down for the AYs 1991- 92 to 1993-94, 1997-98 and 1998-99 confirmed the addition made by the AO.
16. Before the Tribunal, the Id.AR could not bring any material to show that the addition made by AO and confirmed the Ld.CIT(A) is contrary to law, An identical issue had come up before the Tribunal in assessee's own case fir the assessment years 1998-99, 1997-98,1995-96,1994-95,1993-94 'and, 1991-92 and the Tribunal has confirmed the views taken by the tax authorities below. Therefore, respectfully, following the Tribunal orders for the earlier years, we Ground No.13.”
13. In view of the above, we find that the Tribunal has consistently confirmed the orders of the lower authorities in bringing the interest on Government securities, respectfully following the same, we confirm the order of CIT(A) and this issue of assessee’s appeal is dismissed.
14. The next issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in not directing the AO to exclude the import duty from the income of the assessee. For this, assessee has raised following ground No.11:
“Import duty benefit -
The learned Commissioned Appeals) erred in not directing the Assessing Officer to exclude from the income the estimated import duty benefit of Rs. 422.93 lacs.”
At the outset, the learned Counsel for the assessee stated that this issue is also covered by Tribunal’s decision in assessee’s own case for assessment
ITA Nos.4598/Mum/2015 year 1998-99 in vide order dated 22.8.2014, wherein Tribunal vide para 7 has directed the AO to exclude the import duty entitlement from the total income of the assessee. For this, Tribunal observed in para-7 as under:
7. In Ground No, 18, the assessee has agitated the decision of the Ld.CIT(A) confirming the inclusion in the income of the estimated import duty benefit of ₹394.51 lakhs. It is observed that the Tribunal vide order dated 16,04.2008 for the A.Y. 1997-98 has decided a similar issue in favour of the assessee by following the decision of the Tribunal in the case of Jamshri Ranjitsinghji Spinning and Weaving s v. Inspecting Assistant Commissioner [1992] 41 1TD 142 (Mum), wherein it has held that the import entitlement receivable by the assessee do not constitute -the income of the assessee in the year under appeal as neither the income accrued nor arisen during the year of accounting. Following the said order of the Tribunal dated 16=04.2008 for the A.Y, 1997-98 in the assessee's own case, we direct the AO to exclude the import duty entitlement from the total income of the assessee for the year under appeal. Thus, Ground No.18 is allowed.
As the facts circumstances are exactly identical in this year, respectfully following the Tribunal’s order in earlier years, we direct the AO to exclude the import duty entitlements from the total income of the assessee. This issue of the assessee’s appeal is accordingly allowed.
17. The next issue in this appeal of assessee is against the order of CIT(A) confirming the disallowance on Pooja expenses of ₹2,30,445/-. For this, assessee has raised following ground Nos.12 & 13:
ITA Nos.4598/Mum/2015 “Pooja expenses
12. The learned Commissioner (Appeals) erred in confirming disallowance in respect of pooja expenses of Rs.2,30,445.
The learned Commissioner (Appeals) erred in not considering fact that in the Income-tax Appellate Tribunal order dated June 9, 1998 in the case of erstwhile Mafatlal Fine and Spg. & Mfg. Co. Ltd. for the assessment year 1987-88, such expenses on pooja were allowed as deduction.”
At the outset, the learned Counsel for the assessee stated that the Tribunal in assessee’s own case for assessment year 1998-99 in vide order dated 22.8.2014 has decided the issue in favour of assessee allowing the claim of Pooja expenses. The Tribunal vide para 8 if the order has allowed the claim as under:
8. In Grounds No. 19 and 20, the assessee has agitated the decision of the Ld CIT(A) in confirming the disallowance made by the AO in respect of pooja Rs.2,82,289/-. It is observed that the Tribunal in the assessee's own the A.Y. 1997-98 and 2003- 04 has decided a similar issue in favour of the assessee. Following the said orders of the Tribunal, we direct the AO to allow the claim of the assessee in respect of pooja expenses of Rs.2,82,289/-. Thus Ground Nos.19 and 20 are allowed.
19. As the facts and circumstances are exactly identical, respectfully following Tribunal’s order in assessee’s own case, we decide the issue in favour of the assessee and direct the AO to delete the addition.
20. The next issue in this appeal of assessee is against the order of the CIT(A) disallowing the claim of payment made to relatives of deceased employees. For this, assessee has raised following ground Nos.14, 15 & 16 :
“Payment to relatives of deceased employees
The learned Commissioner (Appeals) erred in not specifically allow the appellant's claim in respect of amount of Rs. 57,684 being payment made to relatives of deceased employees.
15. The learned Commissioner (Appeals) erred in holding that the claim of the appellant of Rs. 57,684 in respect of payment to relatives of deceased employees was allowable if the payments have been made in pursuance of written agreements with the employees.
16. The learned Commissioner (Appeals) ought to have appreciated that the Commissioner (Appeals) in the assessment years 1987-88, 1988-89, 1991-92 and the Income-tax Appellate Tribunal in the appellant's own case for the assessment years 1985-86 and 1986-87 had in fact deleted the disallowance in respect of payment to relatives of deceased employees.”
As the facts circumstances are exactly identical in this year, respectfully following the Tribunal’s order in earlier years, we direct the AO to allow the claim of payment made to relatives of deceased employees. This issue of the assessee’s appeal is accordingly allowed.
The next issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in disallowing expenses relatable to exempt income. For this, assessee has raised following ground Nos.17 & 18: “Setting Off interest expenses against dividend income:
The learned Commissioner (Appeals) erred confirming the action of the Assessing Officer in estimating & disallowing expenses to the extent of Rs. 53,70,804 and setting off the same against dividend income.
18. The learned Commissioner (Appeals) ought to have appreciated that the learned Assessing Officer had not established any nexus and therefore the expenditure of Rs. 50,70,804 cannot be set off against the dividend income.”
At the outset, the learned Counsel for the assessee stated that the Tribunal in for assessment year 1999-2000 in assessee’s own case vide order dated 21.10.2015 has set aside the issue to the file of the AO to decide a reasonable disallowance by following the decision of Hon’ble Bombay High Court in the case of Godrej & Boyce Manufacturing Company Limited Vs. DCIT (2010) 328 ITR 81 (Bom). The Tribunal observed in para 42 as under:
“42. We have heard both the pasties and perused the record. We find that the assessee earned dividend income and claimed that the interest paid on borrowed funds for making investment is expenditure. We find that as per the provisions of section 14A the assessee cannot claim expenditure of interest for earning exempt income which is not forming part of the total income. Obviously, the assessee borrowed the funds from outside and invested it. The assessee also earned dividend income and claimed expenditure as deductible business expenditure. On perusal of the decision rendered by the Hon'ble Jurisdictional High Court; the Hon'ble High Court observed and held that:
"Even prior to assessment year 2008-09, when rule 8D was not applicable, the Assessing Officer has to enforce the provisions of sub-section (1) of section 14A. For that purpose, the Assessing Officer is duty bound to determine the expenditure which has been incurred in relation to income which does not form part of the total income under the Act. The Assessing Officer must adopt a reasonable basis or method consistent with all the relevant facts and circumstances after furnishing a reasonable opportunity to the assessee to place all germane material on the record;
The proceedings for assessment year 2002- 03 shall stand remanded back to the Assessing Officer, The Assessing Officer snail determine as to whether the assessee has incurred any expenditure (direct or indirect) in relation to dividend income/income from mutual funds which does not form part of the total income as contemplated under section 14A. The Assessing Officer can adopt a reasonable basis for effecting the apportionment. While making that determination, the Assessing Officer shall provide a reasonable opportunity to the assessee of producing its accounts and relevant or germane material having a bearing on the facts and circumstances of the case' In the present case, the assessee neither before the AO nor the Ld.CIT(A) or the Tribunal produced any documents how the assessee is eligible for deduction of the expenditures incurred for earning dividend income. We find that the Id, CIT(A) restricted the claim to 50%, Therefore; we are of the considered opinion, that this facts requires details investigation and verification at the level of AO to determine the exact expenditure incurred by the Assessee, The AO is directed to follow the decision rendered by the Hon'ble High Court in Godrej & Boyce Mfg. Co. Ltd (supra). Resultantly, Grounds No. 25 and 26 are allowed for statistical purposes.
We find that the Tribunal in earlier years also remanded the matter back to the file of the AO with certain directions. Accordingly, we also direct the AO to decide the issue in terms of the directions of Tribunal in 1999-2000. Accordingly, this issue is remanded back to the file of the AO.
The next issue in this appeal of assessee is against the order of the CIT(A) confirming the action of the AO in not excluding the CFC grant received in pursuant to the Montreal Protocol for phasing out production of refrigerant gases. For this assessee has raised following ground No.19:
“CFC Grant
The learned Commissioner (Appeals) erred in confirming the action of the Assessing Officer in not excluding the CFC grant of Rs. 17,48,87,557 received pursuant to the Montreal Protocol for phasing out production of Refrigerant gases.” Briefly stated facts are that the assessee company is engaged in the 26. business of manufacture and trading of fabrics, dies and chemicals. The AO during the course of assessment proceedings noticed from the accounts of the assessee that it has received grant of ₹1,748.89 lakhs pursuant to Montreal Protocol for phasing out production of refrigerant gases. According to AO, the assessee has transferred this grant to the capital account i.e. capital reserve account No.3 vide note No.40 of the statement of total income. The AO required the assessee to explain as to why this is not taxable. The assessee explained before the AO that the grant is in the nature of capital receipt and therefore, the assessee company excluded from the taxable income. The assessee also claimed that the Finance Act, 2002 has inserted clause (va) of section 28 with effect from 1.4.2003 i.e. for assessment year 2003-04 and subsequent assessment years. According to the assessee, this kind of receipt was not taxable prior to assessment year 2003-04. The AO considered these submissions but observed that the grant of ₹1,748.89 lakhs granted to the assessee company pursuant to Montreal protocol for phasing out production of refrigerant gases was for the purpose of making saving in the cost of production and once the grant is given with the intention to reduce the revenue expenses, the same cannot be held to be capital receipt. Accordingly, this is taxable and he taxed accordingly.
Aggrieved assessee preferred appeal before CIT(A) who just summarily decided the issue only observing as under:
“This is against the AO’s action of not excluding from the total income, the CFC grant of ₹17,48,87,557/- received pursuant to the Montreal Protocol for phasing out production of refrigerant gases.
The A.O. observed “I have considered the submissions made by the assessee. I am not in agreement with the submissions made. It may be observed that the grant of ₹1748.89 lacs was granted to phase out production of Refrigerant gases. Hence, in future, the company would be able to make saving in its production cost. As the grant is given with the intention to reduce the revenue expenses of the company, it cannot be said to capital receipt. It is in the revenue in the nature. Therefore, it has to be offered to tax in the return of income.
It may also be further noted that the Finance Act 2002 has excluded from the purview of taxation this kind of grant only with effect from the assessment year 2003-04 and subsequent assessment years. Hence, earlier this type of grant was always taxable.
As the assessee has already offered for tax CFC grant of ₹1748.89 lacs in the return of income, no further addition is required to be made on this account.
On the other hand, the appellant submitted that later on since such grant were to be considered as capital receipt, on the same principle similar effect should be given this year also.
The appellant’s ground is not tenable as the amendment has come by the Finance Act 2002 i.e. with effect from A.Y. 2003-04. Therefore, the AO’s action is upheld.”
Aggrieved, now assessee is in second appeal before Tribunal.
Before us, the learned Counsel for the assessee Shri Girish Dave along with Ms Kadambari Dave argued that this grant received by assessee pursuant to Montreal Protocol for phasing out production of refrigerant gases was transferred to the capital reserve account No.3 and the assessee while computing total income included the same in the total income. But the assessee by Note No.14 to the statement of total income claimed the same in the nature of capital receipt and therefore, excluded from the total income, while computing taxable income. It was now claimed before us that the Finance Act, 2002 has inserted clause (va) to section 28 of the Act with effect from 1.4.2003 i.e. for and from assessment year 2003-04 and hence this kind of receipt was not taxable during the previous years, relevant to assessment year 2003-04. It was explained that this grant was given for phasing out of production of refrigerant gases and assessee has phased out the production of refrigerant gases pursuant to the receipt of the above grant. This grant was not given for reducing the production cost but was given for phasing out the production of refrigerant gases and this was in the nature of compensation to the company for depletion of profit making apparatus of the assessee company viz. production of refrigerant gases. Therefore, it was contended by the learned Counsel that CFC grant of ₹1,748.89 lakhs is a capital receipt and not chargeable to tax. He further clarified that the provisions of clause (va) to section 28 of the Act was introduced by the Finance Act, 2002 with effect from 1.4.2003 for the assessment year 2003-04 and subsequent assessment years and this kind of receipt cannot be taxed prior to assessment year 2003-04. According to the learned Counsel, the relevant assessment year in assessee’s case is 2001-02. The learned Counsel for the assessee also submitted following documents:
“1. Note 14 of Statement of total income.
2. Ozone Project Trust Fund Sub-Grant Agreement (CFC Production Sector Gradual Phase out Project) dated 18 July 2000 entered into by Mafatlal Industries Limited and the Industrial Development Bank of India.
Performance Agreement between Mafatlal Industries Limited and the President of India acting through the Director (Ozone Cell), Ministry of Environments and Forests, Government of India.
Copy of resolution of Board of Directors dated 7 June 2000.
5. Deed of Indemnity dated 25 August 2000 executed by Mafatlal Industries Limited in favour of the President of India acting through the Director (Ozone Cell), Ministry of Environments and Forests, Government of India with annexures.”
On the other hand, the learned Sr. D.R. relied on assessment order and the order of CIT(A).
We have heard the rival contentions and gone through the facts and circumstances of the case. To adjudicate this issue, first of all we have to go through the copy of resolution of Board of Directors dated 7.6.2000 (which is enclosed in assessee’s paper book at page No.166), whereby resolution is passed to execute Performance Agreement with the Government of India and the assessee in view of Government order No.11/7/99-OC dated 2.3.2000 issued by Government of India, Ministry of Environment & Forests, Ozone cell for implementation and adherence to quota system for CFC production and CFC phasing out obligations in India. In consequence to this, a Performance Agreement between assessee and the Government of India through Director (Ozone Cell), Ministry of Environment and Forests, Government of India was entered into on 25.8.2000, whereby obligation casted upon the beneficiaries by Government of India reads vide clause 2 as under:
The Beneficiary agrees to abide by the obligations casted upon it in Government Order No.11/7/99-OC dated 2.3.2000 and its annexures as mentioned below:-
i) Implement the CFC Production Sector gradual phase out Project in accordance with the Annual Program for each Program year from 1999 to 2010 as stated in Annexure I of the Government Order No.11/7/99-OC dated 2.3.2000. ii) Comply with all laws and regulations relating to CFC phase out including the Govt. Order (Appendix A) and the Ozone Depleting Substance (ODS) (Regulation), Rules, 2000. iii) Prepare quarterly progress reports on their monthly CFC, production and semi-annual progress reports reflecting the overall project implementation status to be submitted to the Project Management Unit. Ministry shall verify the information provided through periodic plant inspections and any other methods it deems necessary, as part of its ongoing monitoring responsibilities. iv) Prior to the closure of CFC production plants following the cessation of both CFC and HCFC production, prepare an environmental management plan (EMP) to be submitted to Ministry for approval, and subsequent inclusion in the Annual Programme. v) Accept supervision by Ministry and any other relevant government agencies and vi) Prepare a Project completion report not later than six months after CFC production ceases.”
Further this agreement was in consequence to the agreement entered into between assessee and IDBI (Ozone Project Trust Fund Sub Grant Agreement) for CFC production sector gradual phase out and in consequence to the same, the assessee became entitled for its grant vide section 3.02 of this sub grant agreement which reads as under:
Section 302 The Beneficiary shall become entitled to any disbursement under this Agreement only if this Agreement has not been suspended under section 4.01 of Article IV of this Agreement and IDBI has received from the Trustee confirmation in writing as required under Paragraph 3(a) and (e) of the Schedule 3 to the OTF Grant Agreement. IDBI will make the necessary disbursement within 7 business days from the receipt of the aforesaid confirmation and receipt of funds from the Trustee or the requisite request for disbursement from the Beneficiary, whichever is later.
Even the deed of indemnity dated 25.8.2000 was executed by assessee in favour of the President of India through the Director (Ozone Cell), Ministry of Environment and Forests, Government of India. In this case, the assessee acquired necessary equipment on lease in consequence to a agreement between assessee and British Gas Asia Pacific Holding Limited and assessee applied through Ministry of Environment and Forests for grant from Montreal Protocol Multilateral fund to meet the capital cost incurred in changeover from CCFC for phasing out of production of refrigerant gases. Before us revenue has relied on the decision of Hon’ble Madras High Court in the case of CIT Vs. Ramaniyam Homes Private Limited (2016) 68 Taxmann.com 289 (Madras) and according to revenue, the grant received by assessee is business receipt and for this the learned Sr. D.R. relied on para 39 of the judgement, which reads as under:
39. Therefore, it is not the actual receipt of money, but the receipt of a benefit or perquisite, which has a monetary value, whether such benefit or perquisite is convertible into money or not, which is what is covered by Section 28(iv). Say for instance, a gift voucher is issued, enabling the holder of the voucher to have dinner in a restaurant, it is a benefit of perquisite, which has a monetary value. If the holder of the voucher is entitled to transfer it to someone else for a monetary consideration, it becomes a perquisite convertible into money. But, irrespective of whether it is convertible into money or not, it should have a monetary value so as to attract Section 28(iv). A monetary transaction, in the true sense of the term, can also have a value. Any number of instances where a monetary transaction confers a benefit or perquisite that would have a value, can be conceived of. There may be cases where an incentive is granted by the supplier, waiving a portion of the sale price or granting a rebate or discount of a portion of the price to be paid, when the payments scheduled over a period of time, are made promptly. It is needless to point out that in such cases, the prompt payment of money itself brings forth a benefit in the form of an incentive or a rebate or a discount in the price of the product. We do not know why it should not happen in the case of waiver of a part of the loan. Therefore, the finding recorded in paragraph 27.1 of the decision in Iskraemeco Regent Limited that Section 28(iv) has no application to any transaction, which involves money, is a sweeping statement and may not stand in the light of the express language of Section 28(iv). In our considered view, the waiver of a portion of the loan would certainly tantamount to the value of a benefit. This benefit may not arise from “the business of the assessee. But, it certainly arises from “business”. The absence of the prefix “the” to the word “business” makes a world of difference.”
We also find that the learned Counsel for the assessee Shri Dave relied on a coordinate bench decision exactly on identical facts in the case of Bharat Seats Ltd. Vs. JCIT (2002) 120 Taxman 210 (Delhi)(MAG.), wherein same nature of grant received from multilateral fund i.e. set up on the basis of Montreal Protocol signed by various countries all over the world to protect environment, a multilateral fund was set up to meet the incremental cost of project to phase out ozone depleting substance. The assessee implemented the scheme for phasing out of CCF-II, an ODS, which was consumed in the production of seat cushions by converting the operations based on water which is considered as environmental friendly. The Coordinate bench of this Tribunal in the case of Bharat Seats Limited (supra) has considered this issue and considered the grant as Capital receipt. But Tribunal considered the same as capital cost of equipment and consequently capital receipt by observing that there no material on record to indicate that the grant sanctioning and disbursing authority had anywhere stated that the grant was to recoup any revenue expenditure. The purpose of the grant, without any debate or controversy, was to phase out ODS under the Montreal Protocol. The Government of India Office Memorandum stated that the assessee’s project was examined and recommended by the Ministry of Environment and Forests, for approval of the Executive Committee. The Executive Committee approved the project to be implemented by the World Bank at cost of US $ 5,30,000. It was stated that the release of grant would be subject to terms and conditions as decided by the Government of India and in terms of the Montreal Protocol. The accounting or tax treatment of the capital cost of the equipment had nothing to do with the sanction of the grant to the appellant- assessee. The grant was only of a sum of ₹ 1.84 crores a appraised by the technical reviewer of the World Bank, as against ₹ 3.2 crores cost of the plant. There was no correlation whatsoever between lease rentals paid by the assessee and the grant. The grant was made in public interest to protect the environment from ODS. The grant had nothing to do with the setting up of the industry or its economics or profitability. Accordingly, the grant received by the assessee was capital receipt and not liable to tax.
In view of the above facts, legal position and the decision of co-ordinate Bench of this Tribunal in the case Bharat Seats Ltd., we are of the view the grant received by the assessee from Multilateral Fund set up under Montreal Protocol signed by various countries to protect environment is in public interest to protect environment from Ozone Depleting Substance (ODS) and this grant has nothing to do with setting up of industry or its economics or profitability and hence this is capital receipt not liable to tax in India. Accordingly, we allow this issue of assessee’s appeal.
The last issue in this appeal of the assessee is as regards to quantification and carry forward of unabsorbed business losses and depreciation of the assessment year 2001-02 and the earlier assessment years. For this assessee has raised following ground Nos.20:
“Carry forward of losses
The learned Commissioner of (Appeals) erred in not specifically directing the Assessing Officer to quantify and carry forward unabsorbed 24 business losses and depreciation of the assessment year 2001-02 and the earlier assessment years.”
At the outset, the learned Counsel for the assessee stated that he has instructions from the assessee not to press this issue. The learned D.R. has not objected the same. Accordingly, this issue is dismissed as not pressed.
In the result, the appeal of the assessee is party allowed. Order pronounced in the open court on 29-06-2018. AadoSa kI GaaoYaNaa Kulao mao idnaMk 29-06-2018.kao kI ga[- .