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Income Tax Appellate Tribunal, DIVISION BENCH, ‘A’ CHANDIGARH
Per Sanjay Garg, Judicial Member:
The captioned appeals have been preferred by the respective
assessees against the separate orders of the Commissioner of Income
Tax(A), Shimla [hereinafter referred to as ‘CIT(A)’] dated
25.07.2017.
ITA Nos. 1417 & 1416/Chd/2016- M/s Braza Types Pvt Ltd & Chiq Mircron Chem (P) Ltd., Paonta Sahib 2
Since the facts and issue involved in both the appeals are
identical, hence, these were clubbed together vide order dated
23.5.2018 of Hon'ble Vice President, ITAT and heard in ‘A’ Beach
of ITAT Chandigarh and are being disposed of by this common
order.
For the sake of convenience, the ITA No. 1417/Chd/2017 is
taken as a lead case for discussion.
ITA No. 1417/Chd/2017
The assessee in this appeal has taken the following revised
grounds:- 1. That the order of the Learned Commissioner of Income Tax (Appeals), Shimla is defective both in. law and facts of the case.
That the Learned Commissioner of Income Tax (Appeals), Shimla is unjustified in upholding the order of the Ld. Assessing Officer regarding disallowance of deduction u/s 80IC on account of Sales Tax Incentive of Rs. 17,92,165/- as per General Sales Tax (Deferred Payment of Tax) Scheme 2005 by the Himachal Pradesh Government which is part of the profit and gains of business derived from the Industrial Undertaking eligible for deduction u/s 80IC of the I.T. Act, 1961 as per Circular No. 39/2016 dated 29-11-2016 and CIT Vs Meghalya Steels Ltd. (383 ITR 217) (SC). This addition is uncalled for and deserves to be deleted.
That the Learned Commissioner of Income Tax (Appeals), Shimla is unjustified in upholding the order of the Ld. Assessing Officer regarding addition of Rs.l,19,533/- u/s 14A of the I.T. Act, 1961 on the ground of investment of Rs.51,00,000/- in share application money of other company as the appellant has not earned any exempt income during the year and provisions of section 14A are not applicable to the appellant. This addition is uncalled for and deserves to be deleted.
ITA Nos. 1417 & 1416/Chd/2016- M/s Braza Types Pvt Ltd & Chiq Mircron Chem (P) Ltd., Paonta Sahib 3
That the Learned Commissioner of Income Tax (Appeals). Shimla is unjustified in upholding the order of the Ld. Assessing Officer regarding addition of Rs.5,52,000/- u/s 36(l)(iii) of the I.T. Act, 1961 by treating the investment of Rs.51,00,000/- in share application money as loans to other company leading to double addition as disallowance has already been done u/s 14A of the I.T. Act, 1961. This addition is uncalled, for and deserves to be deleted without proving any direct nexus with borrowed funds. 5. That any other ground may kindly be allowed to be taken at the time of appeal with due permission.
Apart from that, an additional ground has also been taken by
the assessee, which reads as under:-
That the amount of Sales Tax Incentive of Rs.17,92,165/- received by the appellant under the General Sales Tax (Deferral Payment of Tax) Scheme 2005 notified by the Excise and Taxation Department vide Notification No, EXN-F(1)2/2004 dated 30-03- 2005 in the state of Himachal Pradesh is a Capital Receipt and not liable to tax under the provisions of the Income Tax Act, 1961. Similarly, held by the Hon 'ble Supreme Court in the cases of CIT Vs. Shree Balaji Alloys & Ors. (138 DTR 36) and CIT Vs. Chaphalkar Brothers (400 1TR 279).
Ground No.1 : Ground No.1 is general in nature and does not
require any specific adjudication.
Ground No. 2 & Additional ground of appeal : The
additional ground taken by the assessee is an alternative to ground
No.2 of the appeal. The issue involved is relating to taxability of the
sales tax incentive of Rs. 17,92,165/- received by the assessee under
the Himachal Pradesh Government General Sales Tax (Deferred
payment of tax) Scheme 2005.
ITA Nos. 1417 & 1416/Chd/2016- M/s Braza Types Pvt Ltd & Chiq Mircron Chem (P) Ltd., Paonta Sahib 4
Though originally the assessee had claimed that the aforesaid
incentive received by the assessee was liable to be taken as exempt
u/s 80IC of the Income-tax Act, 1961 (in short 'the Act') as the same
was part of the profits of the business derived from the Industrial
undertaking eligible for deduction u/s 80IC of the Act, however, in
the additional ground of appeal the assessee relying upon the latest
decisions of the Hon'ble Supreme Court in the case of ‘CIT Vs.
Shree Balaji Alloys & Ors’ 138 DTR 36 (SC) and ‘CIT Vs.
Chaphalkar Brothers (400 ITR 279) has claimed that the said receipt
was capital receipt not liable to tax under the provisions of Income
Tax Act.
The Ld. DR has opposed the taking of this additional ground at
this stage.
We have considered the rival submissions. We find that the
assessee from the very beginning has been contesting the liability to
pay tax on the aforesaid sales tax incentives received by the assessee
from the State Government under the General Sales Tax (Deferred
payment of Tax) Scheme 2005. The issue regarding the nature of the
said receipts as well as the question of allowability of the same as
deduction u/s 80IC of the Act had been raised by several assessees
in various cases and the matter in other cases travelled up to the
Hon'ble Supreme Court. The Hon'ble Supreme Court in the case of
‘CIT Vs. Chaphalkar Brothers (supra) while deliberating on the
other decisions of the Supreme Court held that to hold whether
ITA Nos. 1417 & 1416/Chd/2016- M/s Braza Types Pvt Ltd & Chiq Mircron Chem (P) Ltd., Paonta Sahib 5
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 commencing of production, would not make any
difference. The Hon'ble Supreme Court made reference to the
decision of the Hon'ble J&K High Court in the case of ‘Shri
Balaji Alloys v CIT’ (2011) 333 ITR 0335, 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. Even the said decision of the
Hon'ble J & K High Court (supra) has been upheld by the Hon'ble
Supreme Court vide order dated 19.4.2016 reported in 138 DTR
36 (SC).
Since the issue settled by the Hon’ble Supreme Court is
directly applicable to the facts and issues involved in the case of
ITA Nos. 1417 & 1416/Chd/2016- M/s Braza Types Pvt Ltd & Chiq Mircron Chem (P) Ltd., Paonta Sahib 6
the assessee, in our view, in the light of the latest decision of the
Hon'ble Supreme Court (supra), the assessee is well within its
right to take this legal plea even at the appellate stage before us.
The question as to whether the assessee can take an additional ground
at appellate stage even when the same has not been raised before the
lower authorities has been thoroughly discussed by Co-ordinate
Mumbai Bench of the Tribunal in the case of “Pandoo P. Naig” in
ITA No.7089/Mum/2011 decided on 24.06.2016 [2016 (9) TMI
1062]. The Tribunal, while relying upon the decision of the Hon’ble
Supreme Court in the case of “National Thermal Power Company
Ltd. vs. CIT” 229 ITR 383, Full Bench of the Hon’ble High Court in
the case of “Ahmedabad Electricity Co. Ltd. vs. CIT” (1993) 199 ITR
351, another decision of the Hon’ble Bombay High Court in the case
of “CIT vs. “CIT vs. Pruthvi Brokers and Shareholders Pvt. Ltd.”
(2012) 349 ITR 336 (Bom.) has held that the appellate authorities
have jurisdiction to deal not merely with additional ground which
became available on account of change of circumstances or law, but
with additional grounds which were available when the return was
filed.
The Ld. Counsel for the assessee has invited our attention to
the various clauses of the scheme to demonstrate that the
aforesaid scheme of General Sales Tax (Deferred payment of Tax)
is applicable on setting up of new industrial unit in the State and
also on substantial expansion in respect to industrial units
existing before 7.1.2003. It has been provided that to avail benefit
ITA Nos. 1417 & 1416/Chd/2016- M/s Braza Types Pvt Ltd & Chiq Mircron Chem (P) Ltd., Paonta Sahib 7
under the scheme, either a new unit should be established or the
existing unit be expanded by increasing in installed capacity by
not less 25% of the capacity by way of installation of additional
plant and machinery and further it should commence production
with the stipulate date. Further such expansion are resulting in
additional employment of at least 25% of the existing manpower
on regular basis excluding the employment on contractual or sub-
contractual basis and further that 70% of its total manpower
should be from amongst the bonafide Himachalis. The unit had
to be established in specific rural areas of the Himachal Pradesh.
The Ld. counsel has demonstrated that the aforesaid incentive had
been given by the government for the purpose of encouraging the
setting up of new units / expansion of units with the object of
infrastructure development in backward and rural area of
Himachal Pradesh and also for employment generation for the
citizen of India in general and for bonafide resident of Himachal
Pradesh in particular.
In view of the above, this issue in this appeal is squarely
covered by the decision of the Hon'ble Supreme Court in the case
of ‘CIT Vs. Chaphalkar Brothers (supra) and is squarely applicable
to the facts of the case. Hence, it is held that the above incentive
received by the assessee was capital receipt and not liable to
taxation. This issue is accordingly decided in favour of the assessee.
Ground No.3: Vide ground No. 3, the assessee has agitated the
disallowance made by the lower authorities in relation to the
ITA Nos. 1417 & 1416/Chd/2016- M/s Braza Types Pvt Ltd & Chiq Mircron Chem (P) Ltd., Paonta Sahib 8
expenditure incurred for earning of tax exempt income under the
provisions of section 14A of the income Tax Act.
At the outset, Ld. Counsel for the assessee has submitted that
for the year under consideration the assessee did not earn any tax
exempt income from the investments made. He, therefore, has
submitted that in the light of the decision of the Hon'ble
Jurisdictional High Court in the case of ‘CIT Faridabad Vs. Lakhani
Marketing Inc. Ltd’, ITA No. 970 of 2008 (O&M), no disallowance
was attracted u/s 14A of the Act.
The Ld. DR, on the other hand, has relied on the findings of the
Assessing officer.
We find that the issue is now squarely covered by the following
decisions of the different High Courts in favour of the assessee.
CIT, Faridabad Vs. Lakhani Marketing Inc.’ 226 Taxman 45 (P&H)
CIT Vs. Winsome Textiles’ (2009) 319 ITR 204 (P&H)
Cheminvest Ltd Vs. ITO’ (2015) 378 ITR 33 (Delhi)
Corrtech Energy P. Ltd. (2014) 45 Taxman.com 116 (Gujarat High Court)
CIT Vs. M/s Shivam Motors (P) Ltd’ (2014) 272 CTR (All) 277
In all the above referred to case laws, the Hon'ble High Courts have
been unanimous to hold that no disallowance is attracted u/s 14A of
ITA Nos. 1417 & 1416/Chd/2016- M/s Braza Types Pvt Ltd & Chiq Mircron Chem (P) Ltd., Paonta Sahib 9
the Act in case the assessee has not earned any income not forming
part of the total income.
In view of the above, we do not find any infirmity in the order
of the CIT(A) on this issue and the same is upheld. This issue is
accordingly decided in favour of the assessee.
Ground No.4 : The assessee vide this ground has agitated the
action of the lower authorities in making the addition u/s 36(1)(iii) of
the Act on account of disallowance of interest expenditure
attributable to the investment made by the assessee for non-business
purposes.
The Ld. Counsel for the assessee at the outset has submitted
that the assessee had own sufficient funds to meet the investments
and further that the investments were made for business purpose of
the assessee. He has further submitted that the lower authorities have
not given proper opportunity to the assessee to demonstrate that the
assessee had availability of own / interest free funds with it to meet
the investments in question. He, in this respect has submitted that the
assessee may be given opportunity to demonstrate in this respect
before the Assessing officer.
The Ld. DR though has relied upon the findings of the lower
authorities, however, could not convince us as to why the assessee be
not given an opportunity to demonstrate the availability of own /
interest free funds with it and investment thereof.
ITA Nos. 1417 & 1416/Chd/2016- M/s Braza Types Pvt Ltd & Chiq Mircron Chem (P) Ltd., Paonta Sahib 10
We accordingly restore this issue to the file of the Assessing
officer to examine the contention raised by the assessee and to
decide the issue afresh in accordance with law.
Ground No. 5 is general in nature and does not require any
specific adjudication
In view of the above observations, this appeal of the assessee is
treated as allowed for statistical purposes.
ITA No. 1416/Chd/2017 23. Ground No.1 : Ground No.1 is general in nature and does not
require any specific adjudication.
Ground No.2 & Additional ground of appeal: The issue 24.
raised by the assessee in this ground is identical to that has been
taken and adjudicated upon by us in ITA No. 1417/Chd/2017 above.
Our findings in this respect will mutatis-mutandis apply and
this issue is accordingly decided in favour of the assessee.
Ground No.3 :The issue taken by the assessee in Ground No.3
is regarding disallowance u/s 14A of the Act and an identical plea
has been taken by the assessee that no tax exempt income had been
earned by the assessee during the year under consideration.
In view of our findings given above, while deciding the ground
No.3 of the appeal in ITA No.1417/Chd/2017, this issue is
accordingly decided in favour of the assessee.
ITA Nos. 1417 & 1416/Chd/2016- M/s Braza Types Pvt Ltd & Chiq Mircron Chem (P) Ltd., Paonta Sahib 11
Ground No.4 : Ground No.4 is general in nature and does not require any specific adjudication. In view of the findings given above, both the appeals of the assessees are treated as allowed for statistical purposes. Order pronounced in the Open Court on 21.08.2018.
Sd/- Sd/- (ANNAPURNA GUPTA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated : 21. 08.2018 Rkk Copy to: • The Appellant • The Respondent • The CIT • The CIT(A) • The DR