ACIT, CIRCLE-3, KOLKATA, KOLKATA vs. M/S TATA METALICS LTD., KOLKATA

First we shall take up the cross appeals for A.Y. 2005-06 being ITA No.737/KOL/2012 (assessee’s appeal) and ITA No.956/KOL/2012 (revenue’s appeal), which are directed against the order of the ld. Commissioner of Income Tax (Appeals)-I dated 01.03.2012.

In the first & second ground raised in its appeal, the Revenue has challenged the deletion by the ld. CIT(Appeals) of the addition of Rs.8,52,83,712/- made by the Assessing Officer on account of disallowance of assessee’s claim for deduction under section 80IA.

The assessee in the present case is a Company, which is engaged in the business of manufacturing of Pig Iron. The return of income for the

We have heard the arguments of both the sides and also perused the relevant material available on record. As agreed by the ld. representatives of both the sides, this issue involved in Ground No. 1 & 2 of the Revenue’s appeal is squarely covered in favour of the assesese,

The issue involved in Grounds No. 3 & 4 of Revenue’s appeal for A.Y. 2005-06 relates to the determination of the nature of sales tax remission amount received as subsidy, whether capital or revenue.

During the year under consideration, the assessee-company had received a sum of Rs.11,61,154/- under the sales tax remission arrangement as incentive for expansion/ modernisation carried out by it. The said incentive was granted under West Bengal Incentive Scheme, 1983 in respect of industrial units of large and medium scale, set up in the State of West Bengal. In the return of income, this amount of incentive was claimed to be exempt by the assesese being in the nature of capital receipt. Reliance in support of this claim was placed on the decision of the Hon’ble Calcutta High Court in the case of CIT –vs.- Balrampur Chini Mills Limited reported in 238 ITR 445 as well as the decision of the Special Bench of ITAT in the case of DCIT –vs.- Reliance Industries Limited reported in 84 ITD 273 (Bom.)(SB). It was explained by the assessee before the Assessing Officer that the subsidies in the form of sales tax remission were directly related to expansion of Undertaking, sales, investment of fixed capital and the same, therefore, was a receipt of

We have heard the arguments of both the sides and also perused the relevant material available on record. As agreed by the ld. representatives of both the sides, this issue involved in Grounds No. 3 & 4 of the revenue’s appeal is squarely covered in favour of the assessee, inter alia, by the decision of the Coordinate Bench of this Tribunal in assessee’s own case for A.Ys. 2003-04 and 2004-05 rendered vide its order dated 23.10.2009 (supra), wherein the similar amount of incentive received by the assessee-company under the same scheme of West Bengal Government has been held to be capital in nature not chargeable to tax. Respectfully following the said decision of the Tribunal, we uphold the impugned order of the ld. CIT(Appeals) giving relief to the assessee on this issue and dismiss Grounds No. 3 & 4 of the Revenue’s appeal.

The solitary issue involved in the appeal of the assessee for A.Y. 2005-06 relates to the addition of Rs.21,66,000/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) by way of disallowance of assessee’s claim for deduction on account of leave encashment on provision basis.

In the Profit & Loss A/c. filed along with its return of income for A.Y. 2005-06, the assessee-company had debited a sum of Rs.21,66,000/- on account of provision for leave encashment and the said amount was added back in the computation of total income as per clause (f) of section 43B as the same was not paid before the due date of filing of the return of income for the year under consideration. During the course of appellate proceedings before the ld. CIT(Appeals), the assessee, however, raised an additional ground claiming deduction on account of leave encashment on provision basis. Although the said additional ground was admitted by the ld. CIT(Appals), he disallowed the claim of the assessee for deduction on account of leave encashment on provision basis on the ground that deduction on account of leave encashment could be allowed only on payment basis as per clause (f) of section 43B. He also took note of the interim order passed by the Hon’ble Supreme Court in the case of Exide Industries Limited, wherein the operation of section 43B(f) was allowed to be continued until further orders.

We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. It is observed that the similar issue had come up for consideration before the Coordinate Bench of this Tribunal in the case of Dy. CIT –vs.- BLA Industries Pvt. Ltd. (ITA No. 1434/KOL/2012 dated 16.01.2015) and after taking note of the interim orders passed by the Hon’ble Supreme Court in the case of Exide

Now we take up the cross appeals for A.Y. 2006-07 being ITA No. 738/KOL/2012 (assessee’s appeal) and ITA No. 957/KOL/2012 (revenue’s appeal), which are directed against the order of ld. CIT(Appeals)-I dated 01.03.2012.

As regards the Grounds No. 1 & 2 raised by the Revenue in its appeal for A.Y. 2006-07, it is observed that the issue involved therein relating to the assessee’s claim for deduction under section 80IA in respect of its captive power units is similar to the one involved in Grounds No. 1 & 2 of the revenue’s appeal for A.Y. 2005-06, which has already been decided by us in the foregoing portion of this order. Following our conclusion drawn on the similar issue in A.Y. 2005-06, we uphold the impugned order of the ld. CIT(Appeals) giving relief to the assessee on this issue and dismiss Grounds No. 1 & 2 of the Revenue’s appeal for A.Y. 2006-07.

The issue involved in Ground No. 3 of the revenue’s appeal is whether the loss of one eligible unit is required to be set off against the profit of other eligible unit for the purpose of computing deduction under section 80IA.

During the year under consideration, one of the two captive power plants namely Diesel Generating Power Unit had suffered a loss, whereas the other Captive Power Plant, namely Turbine Generating Power Unit had earned profit. In the return of income, the assessee-company had claimed deduction under section 80IA in respect of profit of Turbine Generating Unit without setting off the loss of Diesel Generating Unit against the said profit. According to the Assessing Officer, his computation of deduction under section 80IA made by the assessee- company was not in accordance with the provision of section 80AB as the loss of Diesel Generating Unit as per the said provision was required to be set off with the profit of the Turbine Generating Unit for the purpose of computing deduction under section 80IA. The ld. CIT(Appeals), however, did not approve this stand of the Assessing Officer by relying on the decision of his predecessor in assessee’s own case for AY 2003-04, wherein a similar issue was decided in favour of the assessee and the said decision was accepted by the Department by not raising this issue in the appeal filed before the Tribunal for A.Y. 2003-04.

We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. As agreed by the ld. representatives of both the sides, this issue involved in Ground No. 3 of the Revenue’s appeal for AY 2006-07 is squarely covered in favour of the assessee, inter alia, by the decision of the Hon’ble Delhi High Court in the case of CIT –vs.- Dewan Kraft System Pvt. Ltd. reported in 297 ITR 305. It is also noted that a similar issue has been decided by the ld. CIT(Appeals) in favour of the assessee in the assessee’s own case for A.Ys. 2005-06, 2007-08 & 2008-09 and the department has accepted the same by not raising this issue in the appeals filed before the Tribunal for the said years. Following the decision of the Hon’ble Delhi High Court in the case of Dewan Kraft System Pvt. Limited and keeping in view the

Ground No. 4 of the revenue’s appeal and ground no. 2 of the assessee’s appeal for A.Y. 2006-07 involve a common issue relating to the disallowance under section 14A.

During the year under consideration, i.e. AY 2006-07, the assesese- company had received dividend income of Rs.34,75,409/- on the investment of Rs.4 crores made in the shares of Rallies India Limited and the same was claimed to be exempt from tax. No disallowance on account of expenses incurred in relation to the earning of said exempt income, however, was made by the assessee as required by the provision of section 14A, on the ground that no expenditure attributable to the earning of dividend income was incurred. This stand of the assessee was not found acceptable by the Assessing Officer. According to him, the common or general expenses, such as rent, rates & taxes, insurance, Directors fees, miscellaneous expenses, etc. were partly attributable to the earning of tax-free dividend income and accordingly a disallowance to the extent of 0.5% of such expenses amounting to Rs.8,76,000/- was made by the Assessing Officer under section 14A. He also made a further disallowance of Rs.8,00,000/- on ad hoc basis on account of interest expenses by holding that the part of investment in shares must have been made by the assessee out of interest-bearing funds. On appeal, the ld. CIT(Appeals) deleted the disallowance made by the Assessing Officer on account of interest after having found that the investment in shares was entirely made by the assessee out of its own funds and the borrowed funds were not utilized for making such investment. As regards the disallowance made under section 14A by the Assessing Officer to the

We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. It is observed that the disallowance made by the Assessing Officer under section 14A on account of interest amounting to Rs.8,00,000/- has been deleted by the ld. CIT(Appeals) after having found that the investment in shares was made by the assessee-company out of its own funds and the borrowed funds were not utilized for making such investment. At the time of hearing before us, the ld. D.R. has not been able to rebut or controvert this finding recorded by the ld. CIT(Appeals). We, therefore, find no justifiable reason to interfere with the same. As regards the disallowance under section 14A on account of common and general expenses, it is observed that the Coordinate Bench of this Tribunal has taken a consistent stand on this issue in several cases by holding that a disallowance to the extent of 1% of the exempt income would be fair and reasonable. Since the ld. CIT(Appeals) in his impugned order has followed this stand consistently taken by the Tribunal while restricting the disallowance under section 14A on account of common and general expenses to 1% of the exempt income, we find no infirmity in the same. Accordingly, the impugned order of the ld. CIT(Appeals) restricting the disallowance made by the Assessing Officer under section 14A to Rs.34,750/-is upheld thereby dismissing Ground No. 4 of the revenue’s appeal and Ground No. 2 of the assessee’s appeal.

As regards the Ground No. 1 of the assessee’s appeal for A.Y. 2006- 07, it is observed that the issue involved therein relating to the assessee’s claim for deduction on account of leave encashment of Rs.17,94,000/- on provision basis is similar to the one involved in the appeal of the assessee for AY 2005-06, which has already been decided by us in the foregoing portion of this order. Following our conclusion drawn on the similar issue in A.Y. 2005-06, we restore this issue to the file of the Assessing Officer for deciding the same afresh as per the same direction as given in A.Y. 2005-06. Ground no. 1 of the assessee’s appeal is accordingly treated as allowed for statistical purposes.

Now we take up the cross appeals for AY 2007-08 being ITA No. 739/KOL/2012 (assessee’s appeal) and ITA No. 958/KOL/2012 (Revenue’s appeal), which are directed against the order of the ld. CIT(Appeals) dated 01.03.2012.

As regards Grounds no. 1, 2 & 3 of the Revenue’s appeal for A.Y. 2007-08, it is observed that the issue involved therein relating to the deletion by the ld. CIT(Appeals) of the addition of Rs.16,15,08,683/- made by the Assessing officer on account of disallowance of assessee’s claim for deduction under section 80IA is similar to the one involved in Ground No. 1 & 2 of the revenue’s appeal for AY 2005-06 which has already been decided by us in the foregoing portion of this order. Following our conclusion drawn on the similar issue in A.Y. 2005-06, we dismiss Grounds No. 1, 2 & 3 of the Revenue’s appeal for AY 2007-08.

As regards Grounds No. 4 & 5 of the revenue’s appeal and Ground No. 2 of the assessee’s appeal for AY 2007-08, it is observed that the common issue involved therein relating to the disallowance under section 14A is similar to the one involved in Ground No.2 of Assessee’s appeal

In Ground no. 6 of its appeal for A.Y. 2007-08, the Revenue has challenged the action of the ld. CIT(Appeals) in directing the Assessing officer to delete the addition of Rs.6,43,924/- made to the book profit computed under section 115JB of the Act on account of disallowance of expenses incurred by the assessee in relation to the earning of exempt income under section 14A.

While computing the book profit under section 115JB for the year under consideration, i.e. A.Y. 2007-08, no disallowance on account of expenses incurred for earning of exempt income was made by the assessee. Relying on Explanation (1)(f) to section 115JB, the amount of disallowance as worked out by him under section 14A while computing the income of the assessee under the normal provisions was added by the Assessing Officer while computing the book profit of the assessee under section 115JB. Although the disallowance so made under section 14A amounting to Rs.6,43,924/- while computing the income of the assessee under the normal provisions of the Act was restricted by the ld. CIT(Appeals) to Rs.30,000/-, he held that the amount of disallowance so sustained, however, could not be added while computing the book profit of the assessee-Company under section 115JB as the disallowance so sustained at 1% of the exempt dividend income was on notional basis, which could not be termed as expenses actually incurred by the assessee in relation to the exempt dividend income. Reliance in this regard was placed by the ld. CIT(Appeals) on the decision of Delhi Bench of ITAT in

We have heard the arguments of both the sides and also perused the relevant material available on record. As agreed by the ld. representatives of both the sides, this issue involved in Ground No. 6 of Revenue’s appeal for AY 2007-08 is squarely covered, inter alia, by the decision of the Coordinate Bench of this Tribunal in the case of Goetze India Limited (supra), wherein the similar addition made to the book profit of the assessee-company computed under section 115JB on account of disallowance of expenses made under section 14A was held to be unsustainable by the Tribunal holding that the provisions of section 14A could not be imported into Clause (f) of Explanation (1) to section 115JA. Respectfully following the said decision of the Coordinate Bench of this Tribunal in the case of Goetze India Limited, we uphold the impugned order of the ld. CIT(Appeals) giving relief to the assessee on this issue and dismiss Ground No. 6 of the Revenue’s appeal.

In Grounds No. 7 & 8 of its appeal for AY 2007-08, the revenue has challenged the action of the ld. CIT(Appeals) in deleting the addition of Rs.3,15,00,000/- made by the Assessing Officer by way of disallowance of expenditure incurred on railway sidings.

During the year under consideration, the assessee-company, as per the understanding entered into with the Konkan Railway Corporation Limited, had paid a sum of Rs.3,50,00,000/- towards the cost of development of loading and unloading line at Sawantwadi Road Station in Maharashtra. Against the said payment, the Konkan Railway Corporation

We have heard the arguments of both the sides and also perused the relevant material available on record. As agreed by the ld. representatives of both the sides, this issue involved in Grounds No. 7 & 8 of the Revenue’s appeal is squarely covered in favour of the assessee, inter alia, by the decision of the Hon’ble Gauhati High Court in the case of

As regards Ground No. 1 raised in the appeal of the assessee for AY 2007-08, it is observed that the issue involved therein relating to the claim of the assessee for deduction on account of leave encashment amounting to Rs.24,87,000/- on provision basis is similar to the one in Ground No. 1 of the assessee’s appeal for AY 2005-06, which has already been decided by us in the foregoing portion of this order. Following our conclusion drawn on the similar issue in A.Y. 2005-06, we restore this issue to the file of the Assessing Officer with the similar direction. Ground No. 1 of the asseessee’s appeal is accordingly treated as allowed for statistical purposes.

Now we shall take up the cross appeals for AY 2008-09 being ITA No. 740/KOL/2012 (assessee’s appeal) and ITA No. 959/KOL/2012(revenue’s appeal), which are directed against the order of the ld. CIT(Appeals)-1 dated 01.03.2012.

As regards Grounds No. 1, 2 & 3 raised by the Revenue in its appeal for AY 2008-09, it is observed that the issue involved therein relating to the assessee’s claim for deduction u/s. 80IA is relation of captive power units is similar to the issue involved in Ground No. 1 of Revenue’s appeal for AY 2005-06, which has already been decided by us in the foregoing portion of this order allowed by the Tribunal relying on the various judicial pronouncements as well as following our conclusion drawn the said decision on a similar issue in AY 2005-06, we uphold the impugned order of the ld. CIT(Appeals) allowing the claim of the assessee for deduction under section 80IA in respect of Captive Power Units and dismiss Grounds No. 1, 2 & 3 of the Revenue’s appeal.

Grounds No. 4 & 5 of the Revenue’s appeal and Ground No. 2 of the assessee’s appeal involved a common issue relating to the disallowance of Rs.6,26,987/- made by the Assessing Officer u/s 14A which is sustained by the ld. CIT(Appeals) to the extent of Rs.2,91,260/-.

We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. It is observed that this issue relating to the disallowance under section 14A to the extent interest is similar to the one involved in the appeals for the earlier years, i.e. AY 2006-07 and 2007-08, wherein the orders of the ld. CIT(Appeals) deleting the disallowance made by the Assessing Officer on account of interest under section 14A has been upheld by us after having found that the assessee was having sufficient own funds to make investment in shares and the interest bearing borrowed funds had not been utilized for making such investment. Following our conclusions drawn in A.Ys 2006- 07 and 2007-08, we uphold the impugned order of the ld. CIT(Appeals) deleting the disallowance made by the Assessing Officer on account of interest under section 14A.

As regards the disallowance made by the Assessing Officer under section 14A on account of common and general expenses, the ld. CIT(Appeals) held that Rule 8D of Income Tax Rules being made applicable to AY 2008-09, such disallowance is required to be made to the extent of 0.5% of average value of investment as per the said Rule Accordingly, the disallowance made by the Assessing Officer under section 14A on account of common and general expenses to the extent of Rs.2,91,260/- by applying Rule 8D was confirmed by the ld. CIT(Appeals). At the time of hearing before us, the ld. counsel for the assessee has not disputed that Rule 8D is applicable to the year under consideration, i.e. AY 2008-09 and accordingly the disallowance under section 14A on account of common and general expenses is required to be made to the extent of 0.5% of average value of investment as provided in the said Rule. The limited contention raised by her is that while computing such disallowance, investment which yielded dividend income during the year under consideration only should be considered. Since this contention of the ld. counsel for the assessee is duly supported by the decision of the Coordinate Bench of this Tribunal in the case of REI Agro Limited –vs.- DCIT reported in 144 ITD 141, we modify the impugned order of the ld. CIT(Appeals) on this issue and direct the Assessing officer to compute the disallowance to be made under Rule 8D(2)(iii) by taking into consideration the average value of that investment appearing in the balance-sheet as on first and last day of the previous year, from which the exempt income was earned. Grounds No. 4 & 5 of the Revenue’s appeal are accordingly dismissed, while Ground No. 2 of the assessee’s appeal is partly allowed.

As regards the Grounds No. 6 & 7 of the Revenue’s appeal for AY 2008-09, it is observed that the issue involved relating to the sales tax incentive subsidy is similar to the one involved in Grounds No. 3 & 4 in the appeal of the Revenue for the A.Y. 2005-06, which has already been decided by us in the foregoing portion of this order. Following our conclusion drawn on AY 2005-06, we uphold the impugned order of the ld. CIT(Appeals) giving relief to the assessee on this issue and dismiss Grounds No. 6 & 7 of the Revenue’s appeal.

The issue involved in Ground No. 8 of the Revenue’s appeal for AY 2008-09 relates to the deletion by the ld. CIT(Appeals) of the disallowance of Rs.3,55,395/- made by the Assessing Officer out of foreign travel expenses.

On examination of the foreign travel expenses incurred by the assessee, the Assessing Officer found that a sum of Rs.3,55,395/- was incurred on the foreign tour of its employees by the assessee-company to Pattaya. In this regard, the explanation offered by the assessee that the said visit was for attending Tata Quality Management Convention held at Pattaya was not found acceptable by the Assessing Officer as, according to him, Pattaya was a world famous tourist spot, where no business related activities could take place. The ld. CIT(Appeals), however, did not agree with this stand of the Assessing Officer and deleted the disallowance made by the Assessing Officer out of foreign travel expenses after having found that the Tata Quality Management Meet is an annual Tata Business Excellence Convention in which hundreds of officials from various Tata Group Companies meet in pursuit of business excellence. He also noted that the main agenda of such meet was to make the employees of the Tata Group of Companies aware with the latest developments in the

We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. It is observed that after taking into consideration the nature and purpose of Tata Business Excellence Convention organized at Pattaya, a finding has been recorded by the ld. CIT(Appeals) that the foreign tour undertaken by the employees of the assessee-company to participate in the said Convention was for the purpose of its business and the expenditure incurred on such travel was an allowable expenditure. At the time of hearing before us, the ld. D.R. has not been able to rebut or controvert the finding recorded by the ld. CIT(Appeals) in this regard and this being so as well as keeping in view the reasons given by the ld. CIT(Appeals) in his impugned order, we find no justifiable reason to interfere with the impugned order of the ld. CIT(Appeals) allowing relief to the assessee on this issue. The same is accordingly upheld dismissing Ground No. 8 of the Revenue’s appeal.

As regards Ground No. 1 raised in the appeal of the assessee for AY 2008-09, it is observed that the issue involved therein relating to the assessee’s claim for deduction of Rs.41,85,000/- on account of leave encashment on provision basis is similar to the one involved in Ground No. 1 of the assessee’s appeal for AY 2005-06, which has already been decided by us in the foregoing portion of this order. Following our conclusion drawn in AY 2005-06, we restore this issue to the file of the Assessing Officer with the similar direction. Ground No. 1 of the

In the result, all the four appeals of the Revenue are dismissed, while all the four appeals of the assessee are treated as partly allowed as indicated above.