DCIT, SANGRUR vs. M/S H.M. STEEL LTD., SANGRUR

Per Sanjay Garg, Judicial Member:

The captioned bunch of appeals have been preferred by the

assessee & Revenue against the separate orders of the Commissioner of

Income Tax(A), Patiala [hereinafter referred to as ‘CIT(A)’] dated

31/3/2013 (ITA Nos. 366/Chd/2013), dated 28.3.2014 (ITA Nos. 583,

584, 589 & 590/Chd/2014), dated 21/3/2013 (ITA No. 585/Chd/2013) and

dated 30.8.2016 (ITA No. 1101/Chd/2016).

ITA Nos..366/Chd/2013, 583 to 584 & 589 to 590/Chd/2014,585/Chd/2013 587/Chd/2014 & 1101/Chd/2016- H.M. Steels & Padmawati Steel Ltd., Sangrur 3

appeals, they were heard together and are being disposed of by this

common and consolidated order. For the sake of convenience, the facts are

taken from the appeal of the assessee in ITA No. 366/Chd/2013 (for

assessment year 2008-09).

following grounds:-

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sale tax deferment amount and Bank interest should be determined under proper head of income after deduction of expenses incurred directly or indirectly for receipt of such amount

It is therefore prayed that the appeal may kindly be accepted and the addition may kindly be deleted wholly inter- alia allowing the deduction U/s 80 IC or any other relief to which the appellant may found entitled may kindly be granted.

adjudication.

the assessee has agitated the disallowance of deduction claimed u/s 80IC of

the Income-tax Act, 1961 (in short 'the Act') on account of the amount

received as Transport subsidy and sales tax rebate given under sales tax

deferment rebate scheme.

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the issues have been decided in favour of the assessee by the decision of

the Hon'ble Supreme Court in the own case of the assessee for assessment

year 2007-08 bearing SLP (C )No.8110 – 8111/2006 decided along with

other appeals with the lead case being ‘Commissioner of Income Tax Vs.

Vijay Steel Industries in Civil Appeal No. 5107/2015 dated 21.09.2017.

The Ld. Counsel has submitted that so far as the issue relating to the

transport subsidy is concerned, the Hon’ble Supreme Court has dismissed

the Civil Appeal No. 15557 filled by Department against the P&H High

Court judgement in ITA No. 352/2013 decided on 4.8.2015 for assessment

year 2007-08, issue being covered by Meghalaya Steel Ltd.) (Page No.1-23

of Compilation of Judgments), whereas, so far as the issue of sales tax

rebate under sales tax deferment scheme is concerned, the Hon'ble Supreme

Court has allowed Civil Appeal No. 15563 & 15564 filed by Appellant

against the P&H High Court judgment in case No. ITA 352/2013 decided

on 4.8.2015 for assessment year 2007-08. The relevant part of the order of

the Hon'ble Supreme Court in group of cases with the lead case being

Commissioner of Income Tax vs M/s Vijay Steel Industries in Civil Appeal

No.5107/2015 Dt.21-09-2017 is as under:-

“After hearing the learned counsel for the parties we find that the issue raised in these appeals is covered against the Revenue by the decision of this Court in " Commissioner of Income Tax, Madras Vs. Ponni Sugars and Chemicals Ltd." reported in (2008) 9 SCC 337, or in the alternate, in "Commissioner of Income Tax Vs. M/s. Meghalaya Steels Ltd. ", reported in (2016) 3 SCALE 192.

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Therefore, the appeals of the Revenue are dismissed and the appeal (s) of the assessee(s) is allowed. However, in a particular case, if it is found that the facts or issue is different, liberty is granted to the Revenue to make an appropriate application.”

the Hon'ble Supreme Court in the case of ‘CIT Vs. Meghalya Steels Ltd.,’

Civil Appeal No. 7622 of 2014, wherein, the issue of transport subsidy has

been discussed and the Hon'ble Supreme Court while relying upon

another decision of the Supreme Court in the case of ‘Jai Bhagawan Oil &

Flour Mills Vs. Union of India and Others’ (2009) 14 SSC) 63 and

‘Sahney Steel and Press Works Ltd Vs. CIT A.P.-1 Hyderabad’ (1997) 7

SCC 764 has allowed the claim of deduction u/s 80IB / 80IC of the Act on

account of transport subsidy.

However, the assessee before us has made the claim that the subsidy

received by the assessee was capital in nature otherwise. He, in this

respect has relied upon the decision of the Hon’ble Supreme Court in the

case of ‘CIT-I Vs. M/s Chaphalkar Brothers, Pune’ and Others in Civil

Appeal Nos. 6513-6514 of 2012 vide order dated 7.12.2017 reported in

(2017) 88 taxman.com 278 (SC.)

The Ld. counsel in this respect has submitted that as per the scheme

of the government subsidy, VAT deferment scheme and transport subsidy

was granted as incentives with the object to develop particularly the

remote area in the State of Himachal Pradesh for the infrastructure and

economic development of the area and also to generate employment with a

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view to promote the growth of industries in the areas which are

geographically placed at disadvantageous position as compared to

industries in the plain areas.

decision of the Hon'ble Supreme Court in the case of ‘CIT-I Vs. M/s

Chaphalkar Brothers, Pune’ and Others in Civil Appeal Nos. 6513-

6514 of 2012 vide order dated 7.12.2017 [2017] 88 taxman.com 278

(SC). The Hon'ble Supreme Court while deliberating on the other

decisions of the Supreme Court in the cases of ‘Sahney Steel & Press

Works Ltd. Hyderabad Vs. CIT, A.P.-1, Hyderabad’ : 1997 (7) SCC

765, ‘CIT, Madras Vs. Pooni Sugars and Chemicals Limited’ 2009 (9)

SCC 337 and further of the Hon'ble J&K High Court in the case of ‘Shri

Balaji Alloys Vs. CIT’ (2011) 333 ITR 335, has held that to hold

whether any of such receipts are capital or Revenue in nature, ‘purpose

test’ is to be applied. If the purpose is for the setting up of new

industry, then the receipts are to be considered as capital in nature.

However, if the receipts are in the nature of facilitation / helping hand

to the trade, the same are to be construed as Revenue in nature. What

is important is the object for which the subsidy / incentive is granted.

That the object is carried out in a particular manner is irrelevant. Once

the object of the subsidy was to industrialize the State and to generate

employment in the State, the fact that a subsidy took a particular form

and that it was granted only after commencement of production, would

not make any difference. The Hon'ble Supreme Court made reference to

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the decision of the Hon'ble J&K High Court in the case of ‘Shri Balaji

Alloys v CIT’ (supra), wherein, the Hon'ble High Court while

considering the scheme of refund of excise duty and interest subsidy,

has held that the receipts were capital in nature despite the fact that the

incentives were not available until and unless the commercial

production has started and despite the fact that these incentives were

not given to the assessee expressly for the purpose of capital assets.

The relevant part of the decision of the Hon'ble Supreme Court in the

case of ‘CIT Vs. M/s Chaphalkar Brothers, Pune’ is reproduced as

under:-

“Finally, it was found that, applying the test of purpose, the Court was satisfied that the payment received by the assessee under the scheme was not in the nature of a helping hand to the trade but was capital in nature.

What is important from the ratio of this judgment is the fact that Sahney Steel was followed and the test laid down was the “purpose test”. It was specifically held that the point of time at which the subsidy is paid is not relevant; the source of the subsidy is immaterial; the form of subsidy is equally immaterial.

Applying the aforesaid test contained in both Sahney Steel as well as Ponni Sugar, we are of the view that the object, as stated in the statement of objects and reasons, of the amendment ordinance was that since the average occupancy in cinema theatres has fallen considerably and hardly any new theatres have been started in the recent past, the concept of a Complete Family Entertainment Centre, more popularly known as Multiplex Theatre Complex, has emerged. These complexes offer various entertainment facilities for the entire family as a whole. It was noticed that these complexes are highly capital intensive and their gestation period is quite long and therefore, they need Government support in the form of incentives qua entertainment duty. It was also added that

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government with a view to commemorate the birth centenary of late Shri V. Shantaram decided to grant concession in entertainment duty to Multiplex Theatre Complexes to promote construction of new cinema houses in the State. The aforesaid object is clear and unequivocal. The object of the grant of the subsidy was in order that persons come forward to construct Multiplex Theatre Complexes, the idea being that exemption from entertainment duty for a period of three years and partial remission for a period of two years should go towards helping the industry to set up such highly capital intensive entertainment centers. This being the case, it is difficult to accept Mr. Narasimha's argument that it is only the immediate object and not the larger object which must be kept in mind in that the subsidy scheme kicks in only post construction, that is when cinema tickets are actually sold. We hasten to add that the object of the scheme is only one -there is no larger or immediate object. That the object is carried out in a particular manner is irrelevant, as has been held in both Ponni Sugar and Sahney Steel.

Mr. Ganesh, learned Senior Counsel, also sought to rely upon a judgment of the Jammu and Kashmir High Court in Shri Balaji Alloys vs. C.I.T. (2011) 333 I.T.R. 335. While considering the scheme of refund of excise duty and interest subsidy in that case, it was held that the scheme was capital in nature, despite the fact that the incentives were not available unless and until commercial production has started, and that the incentives in the form of excise duty or interest subsidy were not given to the assessee expressly for the purpose of purchasing capital assets or for the purpose of purchasing machinery. After setting out both the Supreme Court judgments referred to hereinabove, the High Court found that the concessions were issued in order to achieve the twin objects of acceleration of industrial development in the State of Jammu and Kashmir and generation of employment in the said State. Thus considered, it was obvious that the incentives would have to be held capital and not revenue. Mr. Ganesh, learned Senior Counsel, pointed out that by an order dated 19.04.2016, this Court stated that the issue raised in those appeals was covered, inter alia, by the judgment in Ponni Sugars, and the appeals were, therefore, dismissed.

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We have no hesitation in holding that the finding of the Jammu and Kashmir High Court on the facts of the incentive subsidy contained in that case is absolutely correct. In that once the object of the subsidy was to industrialize the State and to generate employment in the State, the fact that the subsidy took a particular form and the fact that it was granted only after commencement of production would make no difference.”

We may further add here that the decision of the Hon'ble Jammu &

Kashmir High Court in the case of ‘CIT Vs. Shri Balaji Alloys & Ors’

(supra) has been upheld by the Hon'ble Supreme Court vide its

decision dated 19.12.2016 reported in (2016) 95 CCH 0249 SCC /

(2016) 138 DTR 0036 (SC).

Supreme Court, the aforesaid receipts of the assessee on account of

sales tax / VAT deferment subsidy and Transport subsidy are held to be

capital in nature and not taxable. Since the receipts have been held to

be capital in nature, hence, no addition is attracted on account of these

receipts into the income of the assessee.

agitated the action of the Assessing officer in denying deduction u/s 80IC

of the Act in respect of interest income of Rs. 23,00,560/- on FDRs

obtained from ILC/ FLC for purchase of raw material.

to the order of the Tribunal passed in the own case of the assessee in ITA

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No. 643/Chd/2011 dated 17.6.2013, wherein, this issue has been remanded

back by the Tribunal to the file of the Assessing officer with a direction to

decide the same afresh keeping in view the decision of the Hon'ble

Jurisdictional High Court in the case of ‘Vishal Tools & Forging Pvt Ltd.

v CIT’ order dated 20.5.2011 passed in ITA No. 121 of 2011. The relevant

part of the order of the Tribunal in the earlier assessment year is

reproduced as under:-

“4. In the above order, it was recorded that Ld. Counsel for the assessee had conceded that question No. (i) to (iii) stood concluded against the assessee and in favour of the Revenue in view of judgement of this Court dated 20.5.2011 in ITA No. 121 of 2011 ( Vishal Tools & Forgings Private Limited v. Commissioner of Income Tax, Jalandhar (Punjab). Today, argument have been addressed by learned counsel for the assessee on Question No.(iv) only. He submitted that netting of interest for purposes of calculation required to be done and relying upon judgement of the Apex Court in ACG Associated Capsules Private Limited vs. Commissioner of Income Tax, Central –FV, Mumbai, (2012) 3 (SC) 321 and judgement of Delhi High Court in Commissioner of Income Tax Vs. Shashi Export House, (2010) 46 DTK (Del.) 34, submitted that the matter requires to be remanded to the Assessing officer to re-compute deduction under section 80HHC of the Act in terms of the aforesaid judgement of the Apex court. 5. Ld. Counsel for the Revenue did not dispute the aforesaid submission.

In view of the above, the Question No. (iv) stands answered in terms of judgement of the Apex Court in ACG Associated Capsules Private Limited’s case (supra) and the matter is remanded to the Assessing officer for passing fresh order in terms of the said judgement with regard to the claim of the assessee u/s 80HHC of the Act.

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Jurisdictional High Court in the case of the assessee passed in ITA No.

352 of 2013 vide order dated 4.8.2015, wherein, the Hon'ble High Court

has refused to interfere in the above order of the Tribunal observing as

under:- “Now re: Question No. (v)

In view of this, the issue raised vide ground No.4 in similar terms is

restored to the file of the Assessing officer to decide it afresh as per the

directions given in earlier assessment year, as observed above.

ground No. 6, hence, this ground is dismissed as ‘not pressed’.

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require any adjudication.

specific adjudication.

of appeal :-

That the amount VAT Deferment of Rs. 16,96,924/- may be excluded while computing book profits u/s 115JB as being the capital receipt and not liable to tax in view of the proposition laid down in the case of Shree Balaji Alloys & Ors.

ground at this stage, however, considering the facts and circumstances

of the case and also considering the subsequent decisions of the

Hon'ble Supreme Court in respect of nature and character of the

subsidy received on VAT deferment as ‘capital receipt’, we deem it fit

to admit this additional ground.

subsidy on account of VAT deferment is as capital receipt, the same is

not liable to be taxed taking into considering while computing the book

profit u/s 115JB of the Act. He in this respect has relied upon the

decision of the Lucknow Bench of the Tribunal in the case of ‘ACIT

Vs. L.H. Sugar Factory Ltd and Anr” in ITA Nos. 339, 417 &

418/LKW/2013, 518 & 53/LKW/569 & CO No. 26 & 27/LKW/2013

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order dated l9.2.2016. The relevant issue has been discussed in para

50 of the said order, which is reproduced for the sake of convenience.

“50. From the above paras, we find that the Tribunal has duly considered the judgment of the Hon’ble Apex Court rendered in the case of Apollo Tyres Ltd. ((Supra) and thereafter, it was noted by the Tribunal in this case that as per the decision of Special Bench of the Tribunal rendered in the case of Rain Commodities Ltd. Vs. DCIT, 41 DTR 449, if profit and loss account is not in accordance with Part II & Part III of Schedule VI to the Companies Act, 1956 because it is prerequisite for Section 115JB of the Act. The Tribunal in this case also considered two another Tribunal’s orders rendered in the case of DCIT Vs. Bombay Diamond Company Ltd. 33 DTR 59 and Syndicate Bank Vs. ACIT, 7 SOT 51 Bangalore where it was held by the Tribunal after considering the decision of Hon’ble Apex Court rendered in the case of Apollo Tyres Ltd. (Supra), and after 28 explaining the same that adjustment to profit and loss account is possible to make it compliant with Schedule VI Part II and Part III of the Companies Act, 1956 which is prerequisite of Section 115JB of the Act. On this basis, the Tribunal in the case of Shree Cement Ltd. (Supra) decided this issue in favour of the assessee and it was held that capital receipt in the form of sales tax subsidy needs to be excluded from profit as per P&L account for the purpose of computing book profit u/s 115JB of the Act. By respectfully following these Tribunal’s orders, we hold that in the present case also, the receipt on account of transfer of carbon credit which is held to be a capital receipt needs to be excluded from profit as per P&L account for the present year while computing the book profit u/s 115JB of the Act. This issue is decided in favour of the assessee and accordingly Ground Nos.1 to 5 are allowed. The assessee gets relief of Rs.27,70,880/- and consequent interest being 10% of amount received by the assessee on sale of carbon credit of Rs.277,08,800/-.

Court it has already been held that the subsidy on account of VAT

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deferment is a capital receipt, hence, in the light of the above decision

of the Tribunal, the same need to be excluded from the profits as per

the profit and loss account of the present year while computing the

book profit u/s 115JB of the Act. This additional ground of the

assessee, is therefore, allowed.

In the result, this appeal of the assessee is partly allowed.

ITA No.583/Chd/2014 (A.Y. 2009-10)-Revenue’s appeal :

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erred in not appreciating the judgment of Hon'ble Himachal Pradesh High Court in its decision in the case of CIT vs. Kiran Enterprises reported in 327 ITR 520 and M/s Mehar Packaging Pvt. Ltd. Vs. CIT reported in 24 Taxman 204 which are applicable in this case wherein it has already been held that the amount of transport/freight subsidy received from the Govt. by the assessee is not a profit derived from business since it is not an operational profit. The source of subsidy is not the business of assessee but scheme of Central Govt. and cannot be included in the profits eligible for deduction u/s 80IC. The ITAT was also not right in law in not appreciating the ratio of Hon'ble Supreme Court in the cases of M/s Liberty India Vs. CIT 225 CTR 233(SC), CIT vs. Sterling Foods 153 CTR 439, 237 ITR 589, Vellore Electric Corporation Ltd. Vs. CIT 227 ITR 557 (SC). 4. In the facts and circumstances of the case, Ld. CIT(A) has erred in holding that the income from Deferred VAT Rebate received by the assessee is allowed to be included as profits derived from industrial undertaking and eligible for deduction u/s 80IC of the Income Tax Act, 1961, when the assessee received it from the Himachal Govt. for the benefit of any incentive of Sales Tax leviable on the sale of manufactured goods under Himachal Pradesh General Sales Tax Act. 1968 and the income derived from such rebate is not an income derived from industrial undertaking. However, the immediate source of this rebate was the scheme of Govt. to give such rebate and not the conduct of the business of the industrial undertaking.

5 In the facts and circumstances of the case, Ld. CIT(A) has erred in allowing the relief on account of disallowance of Bank Interest of Rs.21,49,556/- under section 80IC of the Income Tax Act, 1961, without appreciating the fact that the Department has not accepted the decision of Hon'ble ITAT in ITA No.643/Chd/2011 dated 17.06.2013 on the issue of deduction under section 80IC and the department has preferred an appeal before the Hon'ble Punjab and Haryana High Court, Chandigarh.

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in view of our findings given above while deciding ITA No. 366/Chd/2013

vide grounds No.2, 3 & 5 of the appeal of the assessee, these issues are

accordingly decided in favour of the assessee.

action of the CIT(A) in allowing on deduction u/s 80IC of the Act in

respect of bank interest on FDRs. This issue has been dealt with by us

while deciding ground No.4 of the appeal of the assessee in ITA No.

366/Chd/2013.

In view of our above observation, this issue is accordingly restored

to the file of the Assessing officer to decide it afresh, as per directions,

given above.

Ground Nos. 6 & 7 are general in nature and do not require any

adjudication

This appeal of the Revenue stands partly allowed.

ITA No.589/Chd/2014 (A.Y. 2009-10)-Assessee’s appeal

assessment year 2009-10. The assessee in this appeal has taken the

following grounds of appeal:-

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It is therefore prayed that the appeal may kindly be accepted and the addition may kindly be deleted wholly inter-alia allowing the deduction U/s 80IC or any other relief to which the appellant may found entitled may kindly be granted

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action of the CIT(A) in not allowing certain part of the interest income

for netting for the purpose of deduction of claim u/s 80IC of the Act.

The claim of the assessee is that the CIT(A) allowed the netting in

respect of one part of the interest income and disallowed another part

of the interest income. Since, while deciding ground No.4 of the

Revenue appeal, this issue has been restored to the file of the Assessing

officer, accordingly this ground of the appeal of the assessee is also

restored to the file of the Assessing officer for adjudication afresh as

per the directions given above while deciding the relevant issue in

Revenue appeal.

Ground Nos. 3 & 4: No arguments have been addressed in 26.

respect of ground Nos. 3 & 4 of the appeal, hence, the same are

dismissed as ‘not pressed’.

adjudication.

adjudication.

of appeal :-

That the amount VAT Deferment of Rs. 89,41,810/- may be excluded while computing book profits u/s 115JB as being the capital receipt and not liable to tax in view of the proposition laid down in the case of Shree Balaji Alloys & Ors.

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with and adjudicated by us in favour of the assessee while deciding the

additional ground of appeal raised in ITA No. 366/Chd/2013. This

ground is accordingly decided in favour of the assessee.

In the result, this appeal of the assessee is partly allowed.

ITA No.584/Chd/2014 (A.Y. 2010-11)-Revenue’s appeal

grounds:- 1. In the facts and circumstances of the case, Ld. CIT(A) has erred in holding that the Transport Subsidy received from the Himachal Govt. by the assessee is allowed to be included as profit derived from Industrial Undertaking and eligible as deduction u/s 80IC of the Income Tax Act, 1961, when it has been clearly laid down by Supreme Court in its decision in the cases of Cambay Electric Supply Industrial Co. Ltd. Vs. CIT 1978 (TR/SC) 50:1978) 1/3 ITR 84/SC) that the words derived from referred to in the section 80IC has narrower meaning than attributable to and the freight subsidy cannot be treated as profit derived from Industrial Undertaking through it may be attributable to Industrial Undertaking? 2. In the facts and circumstances of the case, Ld. CIT(A) has erred in holding that the Transport Subsidy was rightly taken into consideration by the assessee in working out the profits and gains of the business undertaking relying on the decision of Calcutta High Court in the case of Merino Ply and Chemicals Ltd. Vs. CIT (1004) 122 CTR (Cal) 262 :(1994) 209 ITR 508 (Cal.) where the point in issue was whether a receipt on account of transport/freight subsidy was of a revenue nature and was inseparably connected with the business and not whether it was income derived from the business of the industrial undertaking and eligible for deduction u/s 80HH/80IA/80IB of the

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Income Tax Act. 1961? 3. In the facts and circumstances of the case, Ld. CIT(A) has erred in not appreciating the judgment of Hon'ble Himachal Pradesh High Court in its decision in the case of CIT vs. Kiran Enterprises reported in 327 ITR 520 and M/s Mehar Packaging Pvt. Ltd. Vs. CIT reported in 24 Taxman 204 which are applicable in this case wherein it has already been held that the amount of transport/freight subsidy received from the Govt. by the assessee is not a profit derived from business since it is not an operational profit. The source of subsidy is not the business of assessee but scheme of Central Govt. and cannot be included in the profits eligible for deduction u/s 80IC. The ITAT was also not right in law in not appreciating the ratio of Hon'ble Supreme Court in the cases of M/s Liberty India Vs. CIT 225 CTR 233(SC), CIT vs. Sterling Foods 153 CTR 439, 237 ITR 589, Vellore Electric Corporation Ltd. Vs. CIT 227 ITR 557 (SC). 4. In the facts and circumstances of the case, Ld. CIT(A) has erred in holding that the income from Deferred VAT Rebate received by the assessee is allowed to be included as profits derived from industrial undertaking and eligible for deduction u/s 80IC of the Income Tax Act, 1961, when the assessee received it from the Himachal Govt. for the benefit of any incentive of Sales Tax leviable on the sale of manufactured goods under Himachal Pradesh General Sales Tax Act. 1968 and the income derived from such rebate is not an income derived from industrial undertaking. However, the immediate source of this rebate was the scheme of Govt. to give such rebate and not the conduct of the business of the industrial undertaking.

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squarely covered by our findings given above while deciding grounds Nos.

2, 3 & 5 of the appeal of the assessee in ITA No. 366/Chd/2013. Thus,

these issues are accordingly decided in favour of the assessee and against

the Revenue.

action of the CIT(A) in deleting the addition of Rs. 2,19,320/- made on

account of Misc. receipts. The Assessing officer disallowed the deduction

u/s 80IC of the Act in respect of the aforesaid receipts observing that said

receipts have not been derived by the assessee from the business activity

of the industrial undertaking.

aforesaid receipts were on account of reimbursement of CST paid and

power expenses paid which are out of the expenditure claimed earlier and,

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hence, the same being reimbursement of the expenditure would amount to

income earned from the business activity of the assessee. He, therefore,

held that the same income was from the business activity of the assessee

and the assessee was entitled to claim deduction in respect of the same u/s

80IC of the Act.

We do not find any infirmity in the order of the CIT(A) on this issue

and the same is upheld.

on account of bank interest. This issue is restored to the file of the

Assessing officer in the light of the directions given above while deciding

ground No.4 in ITA No. 366/Chd/2013 for assessment year 2007-08.

adjudication.

In the result, appeal of the Revenue is partly allowed.

ITA No.590/Chd/2014 (A.Y. 2010-11)- Assessee’s appeal

appeal:-

ITA Nos..366/Chd/2013, 583 to 584 & 589 to 590/Chd/2014,585/Chd/2013 587/Chd/2014 & 1101/Chd/2016- H.M. Steels & Padmawati Steel Ltd., Sangrur 24

interest of Rs. 1684582/- ignoring the pleadings, evidence and material on record alternatively the total interest income of Rs. 3834078/- should be properly computed after deducting the expenses incurred.

ITA Nos..366/Chd/2013, 583 to 584 & 589 to 590/Chd/2014,585/Chd/2013 587/Chd/2014 & 1101/Chd/2016- H.M. Steels & Padmawati Steel Ltd., Sangrur 25

It is therefore, prayed that the appeal may kindly be accepted and the addition may kindly be deleted wholly inter-alia allowing the deduction u/s 80-IC or any other relief to which the appellant may found entitled may kindly be granted.

require any specific adjudication.

assessee regarding interest income whether to be included while

computing the deduction u/s 80IC of the Act. In the light of our

observation made above, this ground is restored to the file of the

Assessing officer for adjudication afresh as per findings given above

while deciding ground No. 4 in ITA No.366/Chd/2013.

action of the lower authorities in making / confirming the disallowance

of Rs. 49,69,652/- being the difference in fluctuation of exchange rate.

income of Rs. 49,69,652/- under head ‘gain on foreign exchange

fluctuation'. During the assessment proceedings, the appellant submitted

that "During the year assessee has imported raw material for use in the

manufacturing in the industrial undertaking situated in Kale-Aam. For

import of raw material, assessee's company has opened letter of credit in

favour of the supplier of the raw material. The payment against FLC is

made after some period after the receipt of material i.e. the suppliers

ITA Nos..366/Chd/2013, 583 to 584 & 589 to 590/Chd/2014,585/Chd/2013 587/Chd/2014 & 1101/Chd/2016- H.M. Steels & Padmawati Steel Ltd., Sangrur 26

extend the credits against the FLC. The appellant passes the entry in his

book of purchase of material in Indian currency on the date of receipt of

the material and conversion rate of Indian Rupees and US$ is considered.

The payment of FLC was made by the assessee to the Bank at a later date i.

e. on expiry on FLC. Bank charges at the conversion rate applicable on

that date. Copy of the statement showing the value of Indian rupees on the

date of receipt of material when a relevant entry passed in the books of

account although no payment was made and in column-6 amount actually

paid in Indian rupees on due date, is enclosed. Appellants real and actual

liability of the payment is when the payment is made to the bank and not

when the goods are received in the premises. The first entry was contra-

general entries and due to rate fluctuation, the plus or minus difference

are taken to foreign currency exchange fluctuation account. Any plus or

minus, directly effects the costs of the raw material to the assessee

company. The difference is not the real income or loss arising to the

assessee. The payment is made at a predetermined time which is mentioned

in the FLC documents. We, therefore, submit that the sum of Rs.

49,69,652/- though shown separately infact should be reduced from the

costs of the raw material. It is, therefore, submitted that the amount of

Rs.49,69,652/- is intrinsically and directly connected with the activities of

the industries undertaking and mainly related to the expenses incurred and

it is not a independent income nor it is a real income and, therefore, it

should not be excluded from the profit and gains of the industrial under

taking."

ITA Nos..366/Chd/2013, 583 to 584 & 589 to 590/Chd/2014,585/Chd/2013 587/Chd/2014 & 1101/Chd/2016- H.M. Steels & Padmawati Steel Ltd., Sangrur 27

However, the A.O. didn't accept the submission of the appellant observing that the contention of the appellant is not convincing.

observing as under:-

“7.3 I have considered the submissions made. The appellant has booked the expense on the date of purchase. The income of Rs. 49,69,652/- is earned on account of foreign exchange fluctuation and it is basically a premium earned on exchange fluctuation against the FLC opened. Therefore, in my opinion, this amount can't be held to be directly attributable or derived from the business of the appellant. Thus, this ground of appeal is dismissed.”

through the record. In this case, the assessee imported raw material

and the payment was required to be made on a fixed date in foreign

currency. However, the assessee passed on the entry in the books of

account in Indian currency on the date of receipt of material. Since the

payment to the bank was made on stipulated date, hence the gain, if

any, and due to the fluctuation in the foreign exchange, in our view, is

nothing but it goes on to reduce the cost of raw material.

basically a premium earned on exchange fluctuation against the FLC

opened. Mere passing of entry on the date of receipt of material, in our

view, does not affect the nature of the gain earned by the assessee due

to fluctuation in foreign exchange as the same is directly linked

towards the reduction in the cost of raw material. This cannot be said to

ITA Nos..366/Chd/2013, 583 to 584 & 589 to 590/Chd/2014,585/Chd/2013 587/Chd/2014 & 1101/Chd/2016- H.M. Steels & Padmawati Steel Ltd., Sangrur 28

be an income earned by the assessee. Rather, it is the effect of

reduction of cost of expenditure in the raw material and the resultant

benefit is nothing but the business income of the assessee liable for

deduction u/s 80IC of the Act. This issue is accordingly decided in

favour of the assessee.

disallowance of Rs. 1,63,064/- being profit on sale of bus, while

computing the profit and gains for deduction u/s 80IC of the Act. The

Ld. Counsel of the assessee has submitted that the profit earned on sale

of bus is a capital receipt, hence, not liable for deduction u/s 80IC of

the Act. However, he has further submitted that since the sale price is

adjustable in block of asset as per section 32, hence, this income needs

to be excluded even from the total assessed income.

assessee that the said amount being capital receipt is required to be

adjusted in the value of the block of asset, however, the same is not

liable to be taken into consideration while computing taxable income of

the assessee. This issue in the above terms is allowed in favour of the

assessee.

action of the lower authorities in disallowing the claim of standard

deduction @ 30% on account of rental income. In our view, the lower

ITA Nos..366/Chd/2013, 583 to 584 & 589 to 590/Chd/2014,585/Chd/2013 587/Chd/2014 & 1101/Chd/2016- H.M. Steels & Padmawati Steel Ltd., Sangrur 29

authorities have rightly denied the claim of rental income to be

eligible for deduction u/s 80IC of the Act. However, we find force in

the contention of the Ld. AR that the standard deduction of 30% out

of rental income is allowable to the assessee as per the statutory

provisions of section 24 of the Income tax Act.

This ground is accordingly allowed and the Assessing officer is

directed to allow the standard deduction as per the provisions of the

Act out of the rental income while computing the total income of the

assessee.

interest expenditure u/s 36(i) (iii) of the I.T. Act. The Assessing

officer as well as the CIT(A) disallowed the aforesaid amount u/s

36(i)(iii) observing that the assessee had used interest bearing funds for

non-business purposes. However, the Ld. Counsel for the assessee,

before us, has submitted that the amount in question was given to the

concerned authorities on account of business exigencies. Further, that

the assessee had own surplus funds more than the interest free advances

given. The assessee has its own funds of more than Rs. 49 crores. The

secured loans taken by the assessee company were taken for specific

business purposes and that the same were not used of non-business

purposes. The Advances were made by the assessee out of its own

funds. The lower authorities have not doubted the above claim of the

assessee but have disallowed the claim of the assessee that the funds

were mixed funds. However, as per the law laid down by the Hon'ble

ITA Nos..366/Chd/2013, 583 to 584 & 589 to 590/Chd/2014,585/Chd/2013 587/Chd/2014 & 1101/Chd/2016- H.M. Steels & Padmawati Steel Ltd., Sangrur 30

Jurisdictional High Court of Punjab & Haryana in the case of ‘CIT

Vs. Kaspsons Associates’, 381 ITR 204 (P&H) and further of the Hon'ble

Supreme Court in the case of ‘Hero Cycles Ltd., 379 ITR 347 (SC), since

the assessee’s own funds were sufficient to meet the aforesaid interest

free advances and also taking into consideration the claim of the

assessee that the funds were given out of business expediency, we do

not find any justification on the part of the lower authorities in

disallowing the aforesaid claim of the assessee.

This issue is accordingly decided in favour of the assessee and the

disallowance made by the lower authorities is hereby ordered to be

deleted.

not require any adjudication.

require any specific adjudication.

of appeal :-

That the amount VAT Deferment of Rs. 25,53,547/- may be excluded while computing book profits u/s 115JB as being the capital receipt and not liable to tax in view of the proposition laid down in the case of Shree Balaji Alloys & Ors.

52 The issue raised in this additional ground has already been dealt

with and adjudicated by us in favour of the assessee while deciding the

ITA Nos..366/Chd/2013, 583 to 584 & 589 to 590/Chd/2014,585/Chd/2013 587/Chd/2014 & 1101/Chd/2016- H.M. Steels & Padmawati Steel Ltd., Sangrur 31

additional ground of appeal raised in ITA No. 366/Chd/2013. This

ground is accordingly decided in favour of the assessee.

In the result, this appeal of the assessee is partly allowed

ITA No.1101/Chd/2016 (A.Y. 2011-12 -Revenue’s appeal)

appeal: 1. In the facts and circumstances of the case, the Ld. C1T(A) has erred in deleting the addition of Rs.64,29,094/- made by the AO on account of interest free advances without appreciating the judgment given by Hon'ble Punjab & Haryana High Court in the case of M/s. Abhishek Industries Ltd. (2006) 286 ITR.

ITA Nos..366/Chd/2013, 583 to 584 & 589 to 590/Chd/2014,585/Chd/2013 587/Chd/2014 & 1101/Chd/2016- H.M. Steels & Padmawati Steel Ltd., Sangrur 32

deleting the addition of Rs. 64,29,094/- made by the Assessing officer

u/s 36(i) (iii) of the Act on account of interest free advances given by

the assessee. This issue has been discussed by the Ld. CIT(A) in para

7.2 of the impugned order, wherein, he has given a finding that the

assessee was possessed of own surplus funds more than the interest free

advances given. He has observed that the assessee had share capital of

Rs. 10.10 crores and free reserves of Rs. 43.06 crores, whereas, the

interest free advances given to the assessee were to the tune of Rs.

12.28 crores. He, therefore, relied on the decision of the Hon'ble

Jurisdictional High Court in the case of ‘CIT Vs. Kaspsons Associates’,

(2015) 381 ITR 204 (P&H) and further of the Hon'ble Supreme Court in

the case of ‘Hero Cycles Ltd., (2011) 379 ITR 347 (SC), and deleted the

disallowance made by the Assessing officer on this issue.

any reason to interfere in the well justified order of the CIT(A) on this

issue and, therefore, this issue is accordingly decided in favour of the

assessee.

action of the CIT(A) in deleting the addition of Rs. 54,75,479/- made by

the Assessing officer on account of disallowance of proportionate interest

on investments made. This issue raised vide this ground is identical of the

issue raised in ground No.1. The Ld. CIT(A) has discussed this issue in

para 8 of the impugned order, wherein, he has observed that the assessee

ITA Nos..366/Chd/2013, 583 to 584 & 589 to 590/Chd/2014,585/Chd/2013 587/Chd/2014 & 1101/Chd/2016- H.M. Steels & Padmawati Steel Ltd., Sangrur 33

was possessed of sufficient own funds to make the aforesaid investments.

We do not find any infirmity in the order of the CIT(A) on this issue also.

action of the CIT(A) in deleting the addition of Rs. 1,64,980/- made on

account of disallowance of deduction claimed u/s 80IC of the Act in

respects of Misc. receipts. This issue has been discussed by the Ld.

CIT(A) in para 9 of the order. The Assessing officer held that the Misc.

receipts of Rs. 1,64,980/- was not income earned from the business

activity of the assessee and, hence, was not eligible for deduction u/s

80IC of the Act. The Ld. CIT(A), however, has given a finding that

these receipts were in fact re-imbursement of the expenditure claimed

by the assessee in earlier years and, hence, these were relating to the

business activity of the assessee and thus the reimbursement of the

same goes into increase the income of the assessee which otherwise

was eligible for deduction u/s 80IC of the Act.

In view of this, we do not find any infirmity in the order of the

CIT(A). This appeal of the Revenue is therefore, dismissed.

specific adjudication.

In the result, this appeal of the Revenue is dismissed

ITA No. 585/Chd/2013 (A.Y. 2008-09) - Revenue’s appeal:-

appeal:

ITA Nos..366/Chd/2013, 583 to 584 & 589 to 590/Chd/2014,585/Chd/2013 587/Chd/2014 & 1101/Chd/2016- H.M. Steels & Padmawati Steel Ltd., Sangrur 34

the CIT(A) in deleting the penalty of Rs. 71,63,840/- made u/s

271(1)(c) of the Act in respect of the addition of Rs. 2,10,76,322/-

made on account of disallowance of deduction u/s 80IC of the Act on

Transport Subsidy, Deferred VAT Liability and interest income.

Transport subsidy and Deferred VAT liability is concerned, the same

has been dealt with by us while deciding the appeal of the assessee in

ITA No. 366/Chd/2013. We have already held the same as capital

receipt and in the alternative eligible for claiming of deduction u/s

80IC of the Act, hence, the levy of penalty on this issue does not

survive. So far as the claim regarding interest income is concerned, the

issue has already been restored by us to the file of the Assessing officer

ITA Nos..366/Chd/2013, 583 to 584 & 589 to 590/Chd/2014,585/Chd/2013 587/Chd/2014 & 1101/Chd/2016- H.M. Steels & Padmawati Steel Ltd., Sangrur 35

of adjudication afresh, hence, at this stage; penalty is not sustainable on this issue also.

62 Ground Nos.2 & 3 : These grounds are general in nature and do not require any specific adjudication. In the result, this appeal of the Revenue is partly allowed.

Order pronounced in the Open Court on 05.11.2018

Sd/- Sd/- बी.आर.आर, कुमार संजय गग� ( B.R.R. KUMAR) (SANJAY GARG ) लेखा सद�य/ Accountant Member �या�यक सद�य/ Judicial Member

�दनांक/Date: 05.11. 2018 “आर.के.” आदेश क� ��त�ल�प अ�े�षत/ Copy of the order forwarded to :

आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar

ITA Nos..366/Chd/2013, 583 to 584 & 589 to 590/Chd/2014,585/Chd/2013 587/Chd/2014 & 1101/Chd/2016- H.M. Steels & Padmawati Steel Ltd., Sangrur