EVEREST INDUSTIRES LTD,NEW DELHI vs. JCIT RG 1, MUMBAI

The assessee company is engaged in the business of manufacture and sale of Asbestos Cement Sheets & Accessories and pre-engineered buildings products. The Assessing Officer completed the assessment of the year under consideration by making various additions. The assessee had returned a loss of ` 39.39 crores and it was converted into a total income of ` 91.73 crores by

We shall first take up the appeal filed by the Revenue. The solitary issue urged therein relates to assessment of sales tax incentive of ` 583.36 lakhs earned by the assessee during the year under consideration.

The assessee availed sales tax incentive of ` 583.36 lakhs under “New Package Scheme of Incentive 1992”. The assessee treated the same as capital receipt. The Assessing officer, however, took the view that the sales tax incentive is “revenue receipt” and accordingly assessed the same as income of the assessee. The learned CIT(A) allowed the claim of the assessee by following the decision rendered by the ITAT in assessee’s own case for A.Y. 2003-04 and also by following his own orders passed for A.Ys. 2007-08 & 2008-09. The revenue is aggrieved.

Learned Departmental Representative submitted that the order passed by the learned CIT(A) in A.Ys. 2007-08 & 2008-09 was challenged by the Revenue before the Tribunal and Tribunal, vide its order dated 15.9.2017 passed in ITA No. 1885 & 1886/Mum/2013, has restored the matter to the file of the Assessing Officer with certain directions. Accordingly, learned Departmental Representative submitted that this issue may be restored to the file of the Assessing Officer for examining it afresh as held by the Coordinate Bench in A.Ys. 2007-08 & 2008-09.

On the contrary, learned AR submitted that the Tribunal, while passing the order for A.Ys. 2007-08 & 2008-09, did not consider the order passed by it for A.Y. 2003-04. He submitted that the Tribunal has held in AY 2003-04 that the sales tax incentive received by it is a capital receipt. Further the Tribunal has restored the matter to the file of the Assessing Officer in AY 2007-08 & 2008-09 for comparing the terms and conditions of the scheme under which the assessee had availed sales tax incentive with the scheme considered by

We have heard the rival contentions and perused the record. We noticed that the Coordinate Bench of the Tribunal has restored the issue relating to sales tax incentive to the file of the Assessing Officer in AY 2007-08 & 2008-09 with the following observations:-

We shall now take up the appeal filed by the assessee.

First issue contested by the assessee is whether the learned CIT(A) was justified in directing the Assessing Officer to reduce the amount of sales tax incentive from the Cost of asset as per Explanation 10 to section 43(1) of the I.T. Act for the purpose of computing depreciation.

We have noticed earlier that the learned CIT(A), by following the order passed by the ITAT for A.Y. 2003-04, has held that the Sales Tax incentive availed by the assessee is capital in nature. However, he held that the same has to be reduced from the cost of asset for the purpose of computing depreciation. The assessee is challenging the said decision of the learned CIT(A).

The assessee relied upon various decisions to contend that the sales tax incentive is given for setting up industries in certain areas of Maharashtra and not to meet the “Cost of asset” as contemplated in Explanation 10 to section 43(1) of the Act. We noticed that an identical issue was considered by the Pune Bench of the Tribunal in the case of Rohit Exhaust Systems Pvt. Ltd. (ITA No. 1880/Pn/2003 dated 31.3.2015). For the sake of convenience, we extract below operative portion of the order passed by the Pune Bench of the Tribunal in the above said case:-

Consistent with the view taken in the above said case, we hold that the sales tax incentive is not required to be deducted from the cost of asset, if the same is considered as capital receipt by the AO in the set aside proceedings.

The second issue contested by the assessee relates to deduction respect of “Provision of leave encashment”. The assessee created a provision of ` 120.60 lakhs towards leave encashment and claimed the same as deduction. When the AO sought to disallow the same u/s 43B of the Act, the assessee contended that the Provision for leave encashment is not a statutory liability and hence it is not liable to be disallowed u/s. 43B of the Act. In this regard, the assessee placed its reliance on the decision rendered by Hon’ble Calcutta High Court in the case of Exide Industries Ltd (292 ITR 470). The Assessing Officer, however, disallowed the claim of the assessee on the reasoning that the decision rendered by Hon'ble Calcutta High Court in the case of Exide Industries Ltd. (292 ITR 470) holding that the provisions of section 43B(f) is unconstitutional, has since been stayed by Hon'ble Supreme Court. The learned CIT(A) also confirmed the same.

The Learned AR submitted that Hon'ble Cochin Bench of the ITAT has considered an identical issue in the case of Muthoot Vehicles and Asset Finance Ltd. (ITA No. 623/Coch/2013 dated 6.12.2013), and the Tribunal has restored the matter to the file of the Assessing Officer with the direction to consider the issue afresh as per the decision that may be rendered by Hon'ble Apex Court in the case of Exide Industries Ltd.

We have heard learned Departmental Representative and perused the record. We noticed that the Cochin Bench of the Tribunal has considered an identical issue and restored the matter to the file of the Assessing Officer with following observations :-

It can be noticed that the Hon’ble Supreme Court has held that the assessee shall pay tax on the disallowance of “Provision for leave encashment” as if sec. 43B(f) is on Statute book. Hence the addition made by the AO is required to be sustained. If the decision of Hon’ble Supreme Court comes in favour of the assessee in future, then the assessee is free to seek amendment of assessment order.

Next ground of appeal urged by the assessee relates to additional depreciation claimed u/s. 32(1)(iia) of the Act. The Assessing Officer noticed that the assessee, during the year under consideration, has claimed additional depreciation u/s 32(1)(iia) @ 20% of the original cost of plant and machineries that were acquired and installed during the financial years 2005-06 to 2007- 08 relevant to assessment years 2006-07 to 2008-09. The Assessing Officer, however, took the view that the additional depreciation prescribed u/s. 32(1)(iia) of the Act is an one time allowance which is allowed on the cost of new Plant and Machinery acquired and installed during the year of acquisition and installation. Accordingly he took the view that the Plant & Machineries acquired and installed in the earlier years no longer remain “New assets”, since they have already been put to use and depreciation has been allowed. Accordingly he held that the additional depreciation claimed u/s 32(1)(iia) of

The assessee, however, contended that provisions of section 32(1)(iia) does not provide that the additional depreciation shall be allowed only in the year in which the new plant and machinery has been acquired and installed, i.e., the assessee took the view that the plant and machinery purchased after 31.3.2005 shall be eligible for additional depreciation @ 20% of the actual cost every year. However, the said contention of the assessee was rejected by the Assessing Officer for the reasons discussed above and accordingly the additional depreciation of 1621.45 lakhs claimed by the assessee in respect of assets purchased and installed during the Financial Year 2005-06 to 2007-08 relevant to A.Ys. 2006-07 to 2008-09 was disallowed by the AO. The learned CIT(A) also confirmed the same and hence the assessee has filed this appeal before us.

The Learned AR submitted that an identical issue was considered by the Coordinate Bench in assessee’s own case in ITA No. 1971/Mum/2013 and the Tribunal has decided the issue in favour of the assessee by following the decision rendered by Hon'ble Kolkata Bench of the Tribunal in the case of Gloster Jute Mills Ltd. (ITA No. 95/Kol/2011 dated 1.3.2017). The Learned AR submitted that provisions of section 32(1)(iia) of the Act was substituted by the Finance Act, 2005 w.e.f. 1.4.2006. In the substituted section, there is no restriction that the additional depreciation prescribed in that section is allowable only in the year of acquisition and installation.

He submitted that the provisions of section 32(1)(iia) of the Act was originally introduced w.e.f. 1.4.1981 and the same omitted from 1.4.1988. The provision so introduced in 1981 specifically provided that additional depreciation shall be allowed in the year in which the Plant and machinery was installed and if it is put to use in the succeeding year, then it shall be allowed in the year in which it was first put to use. He submitted that the

He submitted that Hon'ble Kolkata Bench of the Tribunal, in the case of Gloster Jute Mills Ltd. (supra) has analyzed the history of the provisions of section 32(1)(iia) of the Act and has come to a conclusion that present provisions of section 32(2)(iia) of the Act, as amended by the Finance Act, 2005, does not provide any restriction that additional depreciation will be allowed only in one year. Accordingly Kolkata Bench of the Tribunal held that additional depreciation is allowable on the cost of the assets every year. He further submitted that the above said decision of Hon'ble Kolkata Bench has been followed by the Coordinate Bench in assessee’s own case. Accordingly, he submitted that, under the principles of consistency, decision of the Coordinate Bench in A.Y. 2007-08 should be followed.

On the contrary, the learned Departmental Representative submitted that the legislative intention was to allow additional depreciation u/s. 32(1)(iia) of the Act only in the year in which new plant and machinery is acquired and

We have heard rival contentions on this issue and perused the record. We notice that the co-ordinate bench of Tribunal has followed the decision rendered by the Kolkatta bench of ITAT in the case of Gloster Jute Mills (supra) and has taken the view in the assessee’s own case that the additional depreciation allowed u/s 32(1)(iia) is available to the assessee every year. On

We notice that the Kolkatta bench of Tribunal has taken the view in favour of the assessee, on plain reading of the provisions of sec. 32(1)(iia) vis-à- vis old provisions, by holding that the additional depreciation prescribed u/s 32(1)(iia) of the Act is allowable every year. At this juncture, we feel it necessary to refer to the provisions of sec. 32(1) of the Act which prescribes the conditions for allowing normal depreciation, viz.,

The above said decisions bring out the proposition that the individual asset would loose its identity, once it enters into a block. In our view, we may apply this proposition to the issue under consideration. The additional depreciation prescribed u/s 32(1)(iia) of the Act is allowed on the cost of asset when its identity is known. When the asset enters into a block, it looses its identity, meaning thereby, the question of allowing additional depreciation on

The various decisions relied upon by the Ld D.R, in our view, bring out the intention of the legislature that the additional depreciation prescribed u/s 32(1)(iia) is allowed only once, i.e., in the year in which machinery or plant is acquired and installed. Since the provisions of sec. 32(1)(iia) allowed a right to the assessee to claim additional depreciation, it was held in those decisions that the restriction placed under second proviso in allowing only 50% of the depreciation amount should not take away the right accrued to the assessee and accordingly it was held that the assessee is entitled to claim balance amount of additional depreciation in the succeeding year.

We notice that the amendment brought into sec. 32 by the Finance Act 2015 by inserting third proviso w.e.f. 1.4.2016 also supports our view. The newly inserted proviso reads as under:- Provided also that where an asset referred to in clause (iia) or the first proviso to clause (iia), as the case may be, is acquired by the assessee during the previous year and is put to use for the purposes of business for a period of less than one hundred and eighty days in that previous year, and the deduction under this sub-section in respect of such asset is restricted to fifty per cent of the amount calculated at the percentage

By insertion of the above said proviso in sec. 32 though Finance Act 2015 w.e.f. 1.4.2016, the parliament has approved the view taken by the Tribunal/Courts in respect of additional depreciation allowable u/s 32(1)(iia) of the Act. This provision also makes it very clear that the additional depreciation is allowed only once.

We notice that the Kolkatta bench of Tribunal did not consider the third proviso inserted by Finance Act, 2015. Since the legislative intent in inserting sec.32(1)(iia) has been made clear by the third proviso inserted in sec. 32(1) by Finance Act 2015, we are unable to follow the view expressed by the Kolkatta

The next issue contested by the assessee relates to disallowance of foreign exchange fluctuation loss arising on currency swap/derivative transactions. The Assessing Officer noticed that the assessee has swapped the foreign currency and valued the same as on the balance sheet date, which has resulted in a loss. The AO held that the loss so claimed by the assessee is “mark to market loss” and not actual loss. Accordingly, he disallowed the loss treating the same as notional in nature. The learned CIT(A) also confirmed the same.

The Learned AR submitted that the assessee had entered into currency swap transactions with two authorized dealers and swapped US$ against Japanese yen in order to safeguard against risk of foreign exchange fluctuation. The Learned AR further submitted that the assessee has entered into these transactions for the purpose of reducing cost of borrowings and hence it is a commercial decision taken in the course of carrying on business. He further submitted that the identical issue has been considered by the Tribunal in assessee’s own case in A.Y. 2008-09 in ITA No. 1886/Mum/2013 and the Tribunal has decided the same in favour of the assessee.

On the contrary, learned Departmental Representative placed reliance on the decision rendered by Delhi Bench of the ITAT in the case of M/s. Bechtel India Pvt. Ltd. (ITA No. 1224/Del/2017 dated 29.5.2017) and submitted that the notional loss cannot be allowed as deduction.

We have heard rival contentions on this issue and perused the record. We have gone through the order passed by Delhi bench of Tribunal in the case of M/s Bechtel India P Ltd (supra). The Tribunal, in the above said case, dealt

In the instant case, we notice that the tax authorities have taken the view that the “mark to market loss” booked by the assessee is a notional loss. Other than these observations, they have not brought any other facts on record. Hence, in the absence of relevant facts, we are unable to decide as to whether the decision rendered in the case Bechtel India P Ltd (supra) is applicable to the present case or not. In any case, we notice that an identical issue has been decided in favour of the assessee by the co-ordinate bench in AY 2008-09 in ITA No.1972/Mum/2013, vide its order dated 15-09-2017. The relevant observations made by the co-ordinate bench are extracted below, for the sake of convenience:-

Accordingly, following the decision rendered by the co-ordinate bench in the assessee’s own case, we reverse the order passed by Ld CIT(A) on this issue and direct the AO to allow the claim of the assessee.

The next issue contested by the assessee relates to taxability of excise duty exemption of ` 1452.06 lakhs claimed by the assessee. The assessee- company has set up manufacturing units at Village Lakesari, Roorkee, Uttaranchal, which falls in a specified backward area. As per notification No. 50 of 2003, the assessee-company is entitled to exemption from payment of excise duty. The assessee submitted that the excise incentive was granted for setting up of undertaking in a notified backward area, i.e., for promotion of industries in backward areas. Accordingly the assessee claimed that the said incentive is capital in nature. The assessee in this regard placed reliance on the decision rendered by Hon'ble Supreme Court in the case of CIT Vs. Ponni Sugars & Chemicals Ltd. (2008) 306 ITR 392. The AO, however, did not accept with the contentions of the assessee. He took the view that excise incentive claimed by the assessee is similar to sales tax incentive and accordingly held that the same is revenue receipt. Accordingly, the AO assessed the above said amount of ` 1452.06 lakhs as income of the assessee.

The learned CIT(A) noticed that the assessee did not collect excise duty separately in the sales bills, but it was embedded in the value of total sales consideration. Since the excise duty incentive has been received after commencement of commercial production, the learned CIT(A) held that the nature of receipt is revenue in nature and liable for taxation. He also held that source of subsidy is excise duty which is collected from the customers against sales of goods and on this count also, it is revenue in nature. The learned CIT(A) placed reliance on the decision rendered by Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. (228 ITR 253), wherein Hon'ble Supreme Court held that nature of receipt, whether capital or revenue, will have to be determined having regard to the purpose for which subsidy is given. If the purpose is to help the assessee to set up its business or to complete a

The learned CIT(A) further held that the assessee could not take support of the decision rendered by Hon'ble Supreme Court in the case of Ponni Sugars & Chemicals Ltd. (supra). The learned CIT(A) observed that in the case of Ponni Sugars & Chemicals Ltd. (supra), incentive/subsidy was provided under a scheme framed exclusively for enabling repayment of loan borrowed from the public financial institution for acquiring fixed assets, whereas in the instant case no such purpose was shown. Accordingly, the learned CIT(A) upheld the view taken by the Assessing Officer that excise incentive received by the assessee is revenue in nature.

The learned CIT(A) further held that if the contention of the assessee that excise duty incentive is “capital receipt”, is accepted then, said amount is liable to be deducted from the actual cost of asset as per Explanation 10 to section 43 of the Act for the purpose of computing depreciation. The assessee is aggrieved by the decision so rendered by the learned CIT(A).

The Learned AR submitted that excise duty incentive was granted to the assessee in order to promote industrialization of backward area of Uttaranchal and also for the purpose of generation of employment and utilisation of local resources. Accordingly, learned AR contended that the incentive received by the assessee is capital in nature. He further submitted that Hon'ble J&K High Court has considered an identical issue in the case of Shree Balaji Alloys Vs. CIT (2011) (198 Taxman 122), wherein the Hon'ble High Court considered the decision rendered by Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. (supra) and Ponni Sugars & Chemicals Ltd. (supra) and also analysed Office Memorandum behind granting of excise incentive. The Hon'ble

On the contrary, the learned Departmental Representative submitted that the tax authorities have not analyzed the terms and conditions of the scheme of reimbursement of excise duty and hence the matter may be restored to the file of the Assessing Officer.

We have heard the rival contentions and perused the record. We find merit in the submissions made by learned Departmental Representative. From the orders passed by the tax authorities, we noticed that they have not analysed the terms and conditions of Excise incentive scheme. Before us, the assessee has furnished a chart comparing various Clauses of excise incentive scheme floated for J&K Government and Uttaranchal Government. We feel that the same requires examination at the end of the AO. Accordingly, we are of the view that this issue requires fresh consideration at the end of the Assessing Officer by duly considering term and conditions of Excise incentive scheme. Accordingly, we set aside the order passed by the learned CIT(A) and restore the same to the file of the Assessing Officer with the direction to

The learned CIT(A) has further observed that if Excise incentive received by the assessee is considered as capital in nature, the same would go to reduce the Cost of assets as per Explanation 10 to section 43 of the Act for the purpose of allowing depreciation. We have earlier noticed that the learned CIT(A) has made similar observations in respect of sales tax incentive scheme and we have dealt with the same in earlier paragraphs of this order. Since, the issue relating to determining the nature of receipt of Excise incentive has been restored to the file of the Assessing Officer, we restore this issue also to the file of the Assessing Officer with the direction to decide the same in the light of discussions made by us in earlier paragraph in respect of sales tax incentive.

Next issue urged by the assessee relates to disallowance of foreign exchange fluctuation loss arising on account of restatement of loan taken for the business purposes. In the preceding year the assessee had availed loan of US$ 12 million for the purpose of business. As at the end of the year under consideration, the assessee restated the loan on the basis of exchange rate prevailing on the balance sheet date, which has resulted in a loss of ` 1341.01 lakhs. It is pertinent to note that, in the books of account, the assessee capitalized loss to the extent of ` 1235.43 lakhs and balance loss of ` 105.57 lakhs was transferred to the account titled as FCMITDA (Foreign Currency Monetary Item Translation Difference Account). In this connection, we notice that the assessee has followed the Notification issued by Ministry of Corporate Affairs (Notification F.No.17/33/2008/CL-V - GSR 225(E) dated 31.3.2009) by inserting Paragraph 46 to Accounting Standard -11 relating to “The effects of changes in foreign exchange rates”. The said paragraph 46 reads as under:- “46. In respect of accounting periods commencing on or after 7th December, 2006 and ending on or before 31st March 2011, at the option of the enterprise (such option to be irrevocable and to be exercised retrospectively for such accounting period, from the date this

However, for the purpose of income tax, the assessee claimed entire loss of ` 1341.01 lakhs as deduction treating the same as business loss. The Assessing Officer did not accept the claim of the assessee, since the assessee itself has capitalized major part of the loss in the books of accounts. Accordingly the Assessing Officer disallowed the claim of loss, but allowed depreciation thereon. The Assessing Officer also allowed a sum of ` 34.13 lakhs written off by the assessee in the books of account. The learned CIT(A) confirmed the addition so made by the Assessing Officer on the reasoning that the foreign exchange loss determined by the assessee is notional in nature and cannot be considered as actual business loss.

The Learned AR submitted that the Ministry of Company Affairs has issued the above said Notification, as per which option was given to the assessee to capitalize foreign exchange gain/loss, if foreign currency loans have been utilised for acquisition of depreciable assets and in other cases to transfer the same to FCMITDA account in the Balance sheet, which can be amortized over a certain period. Accordingly, the assessee by following the

Learned AR further submitted that the assessee has recognized loss arising on account of foreign exchange fluctuation as per Accounting Standard 11, as per which said loss is an accrued and subsisting liability and not a contingent or hypothetical liability. Accordingly he submitted that the Ld CIT(A) was not correct in law in holding that it is a notional loss. The Learned AR also placed reliance on the decision rendered by Pune Bench of the ITAT in the case of Cooper Corporation P. Ltd. (159 ITR 165), wherein it was held that the foreign exchange fluctuation loss arising on account of reinstatement of loan is allowable as deduction.

On the contrary, learned Departmental Representative submitted that the assessee has availed loan for purchasing asset and hence loan should be considered as availed for capital account purpose. Hence, foreign exchange fluctuation, if any, will go to increase/reduce the cost of asset as per

We have heard rival contentions and perused the record. We notice that the Ld CIT(A) has confirmed the disallowance by taking the view that the foreign exchange valuation loss is a notional loss and not actual business loss. The view so taken by Ld CIT(A) is apparently not in accordance with the decision rendered by Hon’ble Supreme Court in the case of Woodward Governor India P Ltd (2009)(312 ITR 254)(SC), wherein the Hon’ble Supreme Court has expressed the view that the valuation is a part of accounting system and that the loss suffered by the assessee on account of exchange difference (on revenue account) as on the date of balance sheet is an item of expenditure u/s 37(1) of the Act.

It is also pertinent to extract below the observations made by the Hon’ble Supreme Court in this regard in the above cited case:-

The Hon’ble Bombay High Court had an occasion to examine an identical issue in the case of CIT Vs. V.S. Dempo and Co. P Ltd (206 ITR 291) and the Hon’ble Bombay High Court has laid down following principles:-

The Hon’ble Supreme Court has also observed in the case of Woodward Governor India P Ltd (supra) that the profits and gains of the previous year are required to be computed in accordance with the relevant accounting standard (paragraph 16). Hence the Hon’ble Supreme Court analysed various clauses of AS-11 and finally upheld the view taken by the assessee, in the case before Hon’ble Supreme Court, that the foreign exchange fluctuation arising on valuation as on the date of balance sheet is required to be adjusted to the value of assets u/s 43A of the Act.

The Ld D.R took the support of sec. 43A of the Act and accordingly supported the action of the AO in adjusting the foreign exchange loss to the value of assets. However, a perusal of the provisions of sec. 43A would show that the said section shall have application only in a case where any asset is acquired in any previous year from a country outside India for the purposes of

In the instant case, it is not clear as to whether the foreign currency loan availed by the assessee was used to acquire any asset from a country outside India. Hence to decide about the applicability or otherwise of provisions of sec. 43A, the details of purchase of assets are required. However, we notice that the assessee has taken a plea before Ld CIT(A) that it has not used the foreign currency loan for acquiring assets from a country outside India. However this submission of the assessee has not been examined by the tax authorities. Upon verification, if it is found to be correct, then the provisions of sec. 43A shall not be applicable to the assessee.

We have noticed earlier that the Hon’ble Supreme Court has held that the profits and gains are required to be computed in accordance with the relevant accounting standard. We have also noticed that the loss arising on valuation of foreign exchange can either be on revenue account or on capital account, depending upon the fact of the case, i.e., whether the loan has been used as circulating capital or as fixed capital. The Hon’ble Bombay High Court has held in the case of V.S.Dempo & Co. P Ltd (supra) that for determining whether devaluation loss is revenue loss or capital loss what is relevant is the utilisation of the amount at the time of devaluation and not the object for which the loan had been obtained, i.e., if the foreign currency loan was obtained to hold it a fixed capital and later on it was converted into circulating capital, then the valuation loss shall be considered as on revenue account. These principles, in our view, would govern the nature of treatment to be accorded to the loss arising on account of restatement of foreign currency loans.

In the instant case, the nature of foreign currency loan availed by the assessee; whether it was held as fixed capital or circulating capital etc., have not been examined or brought on record. The assessee has simply taken the

Further we notice that the assessee has capitalised a sum of Rs.1235.43 lakhs by following paragraph 46 of the Accounting Standard-11 inserted by the Ministry of Corporate Affairs under the Companies (Accounting Standards) Rules, 2006. The accounting standards, as we have seen earlier, are relevant to determine the profits and gains of business. Hence, this aspect would also require consideration.

The Ld A.R took support from the decision rendered by Hon’ble Pune bench in the case of Cooper Corporation (P) Ltd (2016)(69 taxmann.com 244) to support the claim of loss. However, following observations made by the Pune bench of Tribunal would show that the facts prevailing there is different:-

Thus, we notice that the facts relating to the foreign currency loan of USD 12 million availed by the assessee have to be examined in the light of principles discussed in the preceding paragraphs in order to arrive at a fair and just conclusion of the matter. We notice that neither the assessee nor the tax authorities have brought relevant facts on record. In the absence of the same, it will not be possible for us to apply the legal principles discussed above. Under these set of facts, we are of the view that this issue requires fresh examination at the end of the assessing officer. Accordingly we restore this issue to the file of the assessing officer with the direction to examine the same afresh by duly analysing the nature of loan, manner of its utilisation, the present position of loan etc., in the light of legal principles discussed above. After affording adequate opportunity of being heard to the assessee, the AO may take appropriate decision in accordance with the law.

The next issue contested by the assessee relates to the claim for deduction of “Education cess” of Rs.4,31,480/- as part of income tax, dividend distribution tax and fringe benefit tax. The AO disallowed the claim by holding that education cess is part of income tax and is covered by the provisions of sec. 40(a)(ii), 40(a)(ic) and sec. 115O(5) of the Income tax Act. The Ld CIT(A) also confirmed the same.

The Ld A.R submitted that the “education cess” is always not treated as part of income tax and hence the same is not required to be disallowed in terms of se. 40(a)(ii), 40(a)(ic) and sec. 115O(5) of the Act. He submitted that the CBDT has issued instructions from time to time fixing monetary limits for preferring appeal before ITAT, HC & SC. He submitted that the definition of “tax effect” mentioned in those instructions, nowhere mentions that tax shall include surcharge or cess. He submitted that the Mumbai bench of ITAT has held in the case of ITO Vs. Ushma ketan Morakhia (ITA No.3357/Mum/2016 dated 02-08-2017) and also in other cases has clarified this legal position. He submitted that the term “tax” has been defined in sec.2(43) of the Act and it has been defined to include only income tax, super tax and fringe benefit tax.

On the contrary, the Ld D.R submitted that the “Education cess” is an additional surcharge collected by increasing the amount of income tax and hence it is part of income tax only. In support of the same, the Ld D.R placed reliance on the decision rendered by Hon’ble Calcutta High Court in the case of Srei Infrastructure Finance Ltd Cs.DCIT (2016)(72 taxmann.com 239), wherein it was observed by Hon’ble Calcutta High Court that the provisions of Finance Act speak that the income tax is being increased by the amount of surcharge and cess. Accordingly it was held that the surcharge/cess is not anything other than income tax. He submitted that the Kolkatta bench of ITAT has also held in the case of DIC Asia Pacific Pte Ltd Vs. Asst. DIT (2012)(22 taxmann.com 310) and also in the case of DDIT Vs. BOC Group Ltd (2015)(64 taxmann.com 386) has held that the Education cess is nothing but additional surcharge levied to increase the amount of income tax. Accordingly the Ld D.R submitted that the “Education cess” cannot take an independent form distinct from income tax, as contended by Ld A.R.

We heard the rival contentions on this issue and perused the record. We notice that the education cess was introduced in India by the Finance Act, 2004 and sec. 2(11) of the Finance Act described it as under:- “(11) The amount of income tax as specified in sub sections (4) to (10) and as increased by a surcharge for purposes of the Union calculated in the manner provided therein, shall be further increased by an additional surcharge for purposes of the Union, to be called the “Education Cess on income-tax”, so as to fulfill the commitment of the Government to provide and finance universalized quality basic

The CBDT circular, relied upon by the assessee, only explains the difference between the provisions of Income tax Act, 1922 and 1961. It does not clarify the nature of “Education cess” levied under Finance Act. The nature of “Cess” mentioned in 1922 Act is also not explained. Since the education cess has been levied under Finance Act as an item to increase income tax and since it has been held to be part of “income tax” by Hon’ble Calcutta High Court, we are of the view that there is no merit in the contentions of the assessee. Accordingly we reject this ground of the assessee.

The next issue urged by the assessee relates to the disallowance of various expenses u/s 69C of the Act. During the course of assessment proceedings, the AO asked the assessee to furnish party wise details of all major expenses and also party wise details of sundry debtors and sundry creditors. On submission of details, the AO issued notices u/s 133(6) of the Act to more than 500 parties seeking details of transactions entered by them with the assessee. Out of the above, some of the parties did not respond to the notices, some notices were returned un-served. Further in some cases, there were positive/negative differences. Hence the AO disallowed a sum of Rs.99,96,84,722/- as detailed below:-

The Ld A.R submitted that the assessee has also obtained confirmation letters from parties for an aggregating to Rs.169.95 lakhs, but the addition of Rs.169.95 lakhs was confirmed only for the reason that there was positive/negative differences in the confirmation. He submitted that the differences, if any, is a matter of reconciliation and hence, on that count, the Ld CIT(A) should not have confirmed the addition. With regard to the remaining amounts, the Ld A.R submitted that the assessee has furnished primary evidences, but could not obtain confirmation letters from them for reasons beyond the control of the assessee.

On the contrary, the Ld D.R submitted that this addition is based on facts and accordingly contended that the findings given by Ld CIT(A) does not call for any interference.

We have heard rival contentions on this issue and perused the record. We noticed that the AO had made disallowance of Rs.9996.84 lakhs for want of confirmation letters and differences in the balances. However, in the remand proceedings, the AO has accepted that the disallowance to the extent of

There should not be any doubt that the primary responsibility to prove the genuineness of expenditure claim is placed upon the assessee. In the instant case, it is the contention of the assessee that it has proved the genuineness of expenditure by furnishing the primary details available with it. However, the AO has further probed the claim by sending notices u/s 133(6) of the Act to various parties and it so happened that certain notices were returned unserved; certain parties did not respond and in some cases, there were differences in the transactions. Though the AO has made an addition of Rs.9996.84 lakhs, the assessee could convince the AO during remand proceedings by furnishing evidences in the form of confirmations to the extent of Rs.9626.91 lakhs. Hence the Ld CIT(A) has deleted the addition to the extent of Rs.9626.91 lakhs. These facts would show that the assessee has furnished the details relating to various expenses to the satisfaction of the assessing officer in majority of the cases.

With regard to the addition of Rs.369.93 lakhs sustained by the Ld CIT(A), the assessee could furnish confirmation letters to the extent of Rs.169.95 lakhs and could not furnish the confirmation letters for the remaining amount. The addition of Rs.169.95 lakhs was sustained by the Ld

The last issue contested by the assessee relates to the claim of the assessee to exclude Sales tax incentive of Rs.583.36 lakhs and Excise incentive of Rs.1452.06 lakhs from book profit computed u/s 115JB of the Act. While computing book profit u/s 115JB of the Act, the assessee excluded both the above items from Net Profit on the reasoning that they are capital receipts. The AO did not make any adjustment in the assessment order, meaning thereby, he accepted the plea of the assessee. However, the Ld CIT(A) issued notice of enhancement and added both the items to book profit with the reasoning that both the items as revenue in nature. The Ld CIT(A) further held that these items have to be included in Book Profits, even if they are treated as capital receipts, since they have not been specifically excluded in Explanation 1 to sec. 115JB of the Act.

The Ld A.R submitted that both the receipts are capital receipts and hence they shall not be included in book profits as held by Jaipur bench of ITAT in the case of ACIT Vs. Shree Cement Ltd (ITA No.614, 615 & 635/Jp/2010 dated 09-09-2011). He submitted that the Hon’ble Bombay High Court has also held in the case of CIT Vs. Harinagar Sugar Mills Ltd (ITA

On the contrary, the Ld D.R submitted that the provisions of sec. 115JB are a complete code by itself and it does not provide for exclusion of the items credited to Profit and Loss account. Accordingly he submitted that no adjustment other than the ones mentioned in sec. 115JB is permissible. In this regard, the Ld D.R placed reliance on the decision rendered by Hon’ble Supreme Court in the case of Apollo Tyres Ltd (255 ITR 273).

We have heard rival contentions on this issue and perused the record. In the earlier paragraphs, we have restored the issue relating to both Sales tax incentive and Excise incentive to the file of the AO with the direction to examine the relevant Schemes and then decide about their nature, i.e., whether they are capital in nature or revenue in nature. Hence we are of the view that these issues relating to 115JB also required to be set aside to the file of the assessing officer, since the decision taken by the AO in the set aside proceedings on the original issues will have bearing on these issues. Accordingly we set aside the orders passed by Ld CIT(A) on these two issues and restore them to the file of the assessing officer for examining them afresh in the light of decisions taken by him on the original issues. While adjudicating these issues, the AO should also consider various case laws relied upon by the assessee. After affording adequate opportunity of being heard, the AO may take appropriate decision in accordance with the law.

In the result, the appeal of the revenue is treated as allowed and the appeal of the assessee is treated as partly allowed.