ACIT 3(1)(1), MUMBAI vs. BAJAJ HINDUSTAN SUGAR LTD, MUMBAI

4. Before us, ld. Counsel appearing for the assessee submitted that the issue is squarely covered in favour of assessee by various decisions of the Tribunal. In this context, he drew our attention to Tribunal’s orders in A.Ys. 2007-08, 2008-09 and 2009-10. the issue has been decided in favour of the assessee in earlier assessment years, however, he relied upon the observations of the departmental authorities.

The scheme and benefit received were given in the submission made by the assesse during the course of assessment are reproduced as under: “BHL made a capital investment in excess of Rs.500 crores for commissioning various new sugar plants, distilleries and co- generation plants at several location in the state of UP and commenced production before 31' March, 2008. In terms of the Policy and Notifications issued therein, BHL was granted Eligibility Certificate for five years vide letter dater dated 31' October 2005 on investing in excess of Rs.350 crores under first stage The eligibility was extended upto ten years on investing in excess of Rs.500 crores under second sage vide letter dated 31 January, 2001 Accordingly, BHL has been availing various benefits under the policy:

The various benefits under the Policy can be classified into the following- A. Subsidy and exemptions of capital nature, which includes:- i. 10% subsidy on Hexed Capital Investment ii. Exemption from payment of registration charges on land. iii. Exemption from payment of stamp duo on land. B. Exemption from collection and deposit which includes: i. Exemption from payment of UPT7 (now vat) and CST on sale of molasses. ii. Zero rate of Administrative charges on molasses produced by such Units iv. Exemption from payment of entry tax on sale of non levy sugar produced by such units. C. Other reimbursements and exemptions, which includes:- i. Reimbursement of society commission on cane purchase. ii. Reimbursement of freight subsidy on sugar transportation. iii. Reimbursement of freight subsidy on transport of sugar cane. v. Exemption from payment of purchase tax on sugarcane. In the return of income, the aforesaid incentives granted under the polity were not excluded while computing the total income. In this regard, it is submitted by BHL that the various incentives envisaged under the Policy are in the nature of the capital receipts and accordingly. not liable to tax. It is further submitted that the following incentives ought to be allowed as a deduction while computing then total income.

(Assessment Year: 09-10 to 12-13) M/s. Bajaj Hindusthan Sugar Ltd. 1. The receipt of the 10% capital subsidy and exemption of registration charges and stamp duty as mentioned in A' above ought not to be reduced from the cost of assets under section 43(1) of the Act. 2. The following notional amount of incentives referred in 'B' above are in the nature of capital receipts and ought to be reduced while computing the total income.

Incentives Exemption from payment of UP7T9nowvvat) and CST on sale of Rs. 1,901,637 molasses Zero rate of Administrative Charges on molasses produced by such 30,215,867 units Exemption from payment of entry tax on sale of non leg sugar 36,852,585 produced by such Total 68,970,08

Other consumption Sugar Mills Average of 1999-00to 200304 58/96% Consumption of Cane % 48.85% 51.15%

It is this clear that in UP there I savallabilio of sugarcane which can be used as raw material by the sugar mills, however, due to the sickness of the sugar mills belonging to the State Sugar Corporation mid stagnation in the expansion of the production capacity of (Assessment Year: 09-10 to 12-13) M/s. Bajaj Hindusthan Sugar Ltd. the sugar mills belonging to the Co-operative sector and due to the lack of availability of the requisite capacity in the sugar mills belonging to the private sector, gradually the State's sugar industry is lagging behind. The sugarcane farmers have to sell their produce to the Handsari/Gur Industry at quite low prices, as a result of which, on the one hand farmers are not able to get adequate price for their produce, on the other hand, contribution to the programmes for the development of the rural areas and wolfare of the common people is mostly negligible.

Demand and supply of sugar in the country by 2010-11 It is estimate that in the year 2010-11 the country's total population would be approximately 120.75 crores Due to the increase in the country's per capital average consumption of sugar, till 2010-11, 276.02 lakh tonnes of sugar would be needed for internal consumption. For the target of taking the State's contribution in the country's sugar production from 28.06% in the year 2002-03 to 30% in the year 2010-11, in the State approximately 75 lakh tonne sugar would have to be produced. It is estimated that there would be substantial increase in the country's average per capita consumption of sugar and in order to satisfy this increase demand the country's two big sugar producing States up and Maharashtra would have to come forward Since in Maharashtra the percentage utilization of sugarcane for producing sugar is at the maximum possible, therefore, UP is the only State when' by increasing the drawal percentage of sugarcane, the increased demand for sugar in the country can be met. Keeping in view the State's limited financial resources, the sick condition of the mills belonging to the Corporation, stagnation in the mills of the Co-operative sector and the inability of the mills in the private sector to completely utilize the sugarcane produced, the need is being felt for encouraging the private sector to invest funds for setting up sugar mills which are of global standards, having sugarcane crushing capacity of 5000 TCD or more. In order to meet the domestic consumption of sugar at 6% GDP growth rate, it would be required to set up mills having approximately one lakh tonne per day capacity and thus create additional capacity. The requirement of sugarcane for this increased capacity can be met by increasing the current drawal percentage of sugarcane from 5 to 7% It must also be clarified that at which ever place a new sugar mill is set up the sugarcane area of that place increases as a result of which there is no possibility of difficulty in sugarcane supply for the increased capacity. In view of the above, in order to establish new sugar mills in the State the only option is to attract industrialists in the private sector, since in view of the lack of lands the possibility of setting up mills in the Government or the Co-operative sector is negligible in order to set up new sugar mills in the private sector having capacity of one lakh tonnes per day, investment of approximately Rs 2000 crores would be needed. For creating that additional capacity, in the initial years the State Government would be required to provide special economic promotion to the industrialists in the form or special packages.” On the perusal of the aforesaid policy the purpose/ rational behind disbursement of subsidy/ incentive under the Polig and the primary considerations, intention and the objective sought to be achieved by the Polig are summarized as under-

of the assesse is allowed.

14. We find this recurring issue is squarely covered by the earlier decision of the ITAT in the case of the assessee itself as discussed above therefore following the decision of ITAT this ground of appeal of the assessee is allowed.

Rs.7,18,682/- on account of non-reconciliation of ITS details.

Txn Code Txn Filler Name Amount (Rs.) 2 Rauzagaon chini Mills (A unit of Balrampur Chini 6,04,707 Mills Ltd.), Faizabad 4 Standard Chartered Bank, Fort, Mumbai 28,072 5 Standard Chartered Bank, Fort, Mumbai 65,397 5 American Express Bank Ltd., 21, Old Court House 20,506 Street, Kolkata – 700001 Total 7,18,682

He submitted, insofar as the amount of Rs.6,04,707/- is concerned, the party concerned has uploaded a revised Form No. 26AS, wherein assessee’s name does not appear. Insofar as the rest of the transactions are concerned, he submitted, once the assessee has denied the transactions, the burden is entirely on the A.O. to make proper enquiry to find out whether the transactions actually relate to the assessee. In this context, he relied upon a decision of the co-ordinate bench in case of M/s. Pfizer Limited vs. JCIT (in vide order dated 30.08.2019).

13. The ld. DR relied upon the observations of the departmental authorities.

Undisputedly, in response to the query raised by the A.O., the assessee has completely denied that it was in any way involved in the disputed transactions. Once, the assessee denies its involvement in the transactions, duty is cast upon the A.O. to make thorough enquiry and ascertain the veracity of assessee’s claim. In the facts of the present appeal, the departmental authorities, in our view, have failed to do so. Insofar as the alleged transaction of Rs.6,04,707/- with Rauzagaon Chini Mills (A unit of Balrampur Chini Mills Ltd.), Faizabad is concerned, the assessee has submitted before us that the concerned party has uploaded revised Form 26AS, wherein the particular transaction does not appear in the name of the assessee. The A.O. is directed to factually verify this fact and delete the addition. Insofar as the rest of the transactions alleged to have been entered into with Standard Chartered Bank, Fort, Mumbai and American Express Bank Ltd., it is the duty of the A.O. to make proper enquiry to ascertain whether the transactions actually relate to the assessee or not. In case the transactions do not relate to the assessee, the additions made have to be deleted. This ground is allowed for statistical purpose.

– assessee’s appeal for A.Y. 2010-11

1. On the facts and in the circumstances of the case and in law, the appellant prays that if the incentives received under the New SugarIndustry Promotion Policy are held to be in nature of capital receipt, then, the same ought to be reduced while computing the book profit under section 115JB.

subsidy/incentive received under New Sugar Promotion Policy, 2004 issued by Government of Uttar Pradesh. While dealing with identical issue in in the earlier part of the order, we have deleted similar addition. The decision taken by us therein, will apply mutatis mutandis to this ground also. Hence, this ground stands allowed.

19. Having heard the parties, we find the issue raised in the additional ground is squarely covered by the decision of the Tribunal in assessee’s own case for A.Y. 2009-10 (supra).

While dealing with the identical issue, the co-ordinate bench has held as under:

of the revenue, following the decision of the ITAT Mumbai in the case of the assessee of earlier years as discussed supra in this order. We have adjudicated the ground no. 2 of the assessee holding that incentive received under the New Sugar Industry Promotion Policy, 2004 of Uttar Pradesh Government are of the nature of capital receipt, therefore we direct the assessing officer to reduce the same while computing the book profit u/s 115JB of the Act.

20. Facts being identical, respectfully following the decision of the co-ordinate bench, we delete the addition. Hence, grounds are allowed.

24. After considering the submissions of the assessee in the context of facts and materials on record, learned first appellate authority observed that while rejecting the suo motu disallowance made by the assessee, the A.O. has not recorded a valid satisfaction in terms of section 14A(2) of the Act, as to why the disallowance made by the assessee is incorrect having regard to its accounts. The learned first appellate authority further held that when the assessee had mixed kitty of interest bearing and interest free fund, no disallowance of interest expenses under Rule 8D(2)(ii) could have been made. In the aforesaid premises, he deleted the disallowance made by the A.O.

25. We have considered rival submissions, and perused the materials on record. Factual matrix reveals that the suo motu disallowance of expenses u/s. 14A of the Act was made disallowance, the assessee has taken into account proportionate salary cost of persons engaged in investment activity, office administration, electricity, office equipment and depreciation and miscellaneous expenses. A reading of the assessment order clearly reveals that before rejecting assessee’s computation of suo motu disallowance and applying Rule 8D, the A.O. has not recorded any positive satisfaction to establish that the suo motu disallowance made by the assessee is incorrect, having regard to its accounts. Further, the fact that the assessee has surplus interest free fund, could not be controverted by the Revenue.

31. Consistent with the view taken by the co-ordinate benches in respect of identical issue, in earlier assessment years, we deem it appropriate to restore the issue to A.O. to maintain consistency. This ground is allowed for statistical purpose.

32. In ground no. 4, the Revenue has raised the issue of deletion of addition of Rs.33,71,53,327/- on account of discount on buy back of Foreign Currency Convertible Bonds (FCCB).

– Revenue’s appeal for A.Y. 2011-12

– Assessee’s appeal for A.Y.2012-13

– Revenue’s appeal for A.Y. 2012-13

5.5.2 It is not disputed that the appellant held shares in Brazilian subsidiary, which was sold and amount repatriated. There is no dispute, therefore, that the value in foreign currency held in Brazil represented capital asset of the appellant and the shares were sold. Whatever is realised through such transfer of capital asset has to be treated as capital receipt. This conclusion is apparent from plain reading of S. 45 r.w. section 2 (14)/(29A)/298) & (47). In the instant case, the gain on account of foreign exchange fluctuation was in intrinsic part of the receipt. The remittance would not be effected without this component of receipts. 5.5.3 In reaching a conclusion on this issue, I find guidance from judgment of the Apex Court is Sutlej Cotton Mils Ltd. v. CIT 116 ITR 1. The Hon'ble Supreme Court, after referring to various judgments observed that the law may now be taken to be well settled that where profit or loss arises to an assessee on account of appreciation or depreciation in the value of foreign currency held by it, on conversion into another currency, such profit or loss would ordinarily be trading profit or loss if the foreign currency is held by the assessee on revenue account or as a trading aspect or as part of circulating capital embarked in the business. But, if on the other hand, the foreign currency is held as a capital asset or as fixed capital, such profit or loss would be of capital nature. The ratio of this judgment is also followed by Hon'ble ITAT Mumbai in Dai-ichi Karkaria Ltd. Vs. Dcit, (2007)106ITD453(Mum.). Similar view has been held by Hon'ble High Court at Calcutta in of 2009, CIT vs SDB Infrastructure Pvt. Ltd. in respect of transfer of capital asset resulting in gains due to foreign exchange fluctuation. The gain has to be treated as capital receipt.

(Assessment Year: 09-10 to 12-13) M/s. Bajaj Hindusthan Sugar Ltd. 5.5.4 In view of the discussion above and in adherence of ratios of judgements relied upon, this ground of appeal is allowed.

Therefore, when the shares were sold, the amount realized through transfer of such capital asset, has to be treated as ‘capital receipt’, as the transaction is on capital account. That being the factual position emerging on record, the receipts have to be treated as ‘capital in receipt’ and not ‘income from other sources’, as held by A.O. Learned first appellate authority having decided the issue in accordance with settled legal principles, we uphold the same. Grounds are dismissed.

Order pronounced in the open court on 17.12.2024 Sd/- Sd/- (N K Billaiya) (Saktijit Dey) Accountant Member Vice President Mumbai; Dated : 17.12.2024 Roshani, Sr. PS (Assessment Year: 09-10 to 12-13) M/s. Bajaj Hindusthan Sugar Ltd. Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT - concerned 5. DR, ITAT, Mumbai 6. Guard File BY ORDER,