GRASIM INDUSTRIES LTD ( CORPORATE FINANCE DIVISION),MUMBAI V. ADDL CIT RG 6(3), MUMBAI

ITA 3762/MUM/2009

AI Insights

The case involves cross-appeals by Grasim Industries Limited and the Revenue against the order of the Commissioner of Income Tax (Appeals)-VI, Mumbai, concerning the Assessment Year 2006-2007. The appeals addressed various issues including disallowances under Section 43B, depreciation on let out property, and the treatment of subsidies and expenses related to the company's rail system and other infrastructure. The Tribunal examined each issue in light of previous judgments and the specific provisions of the Income Tax Act, 1961, leading to a mix of upheld and remanded decisions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 32743 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Assessment Year: 2006-2007
• Other Referred Cases: Checkmate Services Pvt. Ltd. vs. Commissioner of Income-Tax-1, Suzler India Ltd vs. Assistant Commissioner of Income-tax, Ponni Sugars and Chemicals Ltd. vs. CIT, K Srinivasan vs. CIT, DCIT vs. Grasim Industries Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: FOLLOWING DECISION; WAY OF TAX OR; WAY OF TAX; DUTY; CESS OR FEE WAS; ALLOWING INDEXATION
• Keywords: Set aside; Business income; Capital asset; Revised return; Revenue expenditure; Retrospective amendment; Question of law; Depreciation; Cost of acquisition; Rule of consistency; Capital receipt; Gift; Capital expenditure; Capital Gains; TDS; Double taxation relief; Benefit of exemption; Residential status
• Section: 147; 144; 143(3); 143(2); 250; 154; 263; 48; 32; 139(1); 22; 90; 13; 37; 28; 10; 43B; 80HHC; 244A; 37(1); 40(a)(ia); 264; 80IA; 41(2); 20

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL \"G\" BENCH, MUMBAI SHRI NARENDRA KUMAR BILLAIYA, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER ITA No. 3762/MUM/2009 (Assessment Year: 2006-2007) Grasim Industries Limited, (Corporate Finance Division), A-2, Aditya Birla Centre, S.K. Ahire Marg, Worli, Mumbai – 400030. Maharashtra [PAN: AAACG4464B] …………. Appellant Additional Commissioner of Income Tax, Range 6(3), 5th Floor, Room No.505, Aayakar Bhavan, Mumbai – 400020. Vs …………. Respondent ITA No.4385/MUM/2009 (Assessment Year: 2006-2007) Assistant Commissioner of Income Tax Circle 6(3), Mumbai, Room No. 522, 5th Floor, Aayakar Bhavan, M.K. Road, Mumbai - 400020 …………. Appellant Grasim Industries Limited, Century Bhavan, 3rd Floor, Dr. A.B.Road, Worli, Mumbai – 400025. [PAN: AAACG4464B] Vs …………. Respondent Appearance For the Assessee For the Department : : Shri J. D. Mistry Sr. Advocate Shri Fenil Bhatt Shri Kishor Dhule Date Conclusion of hearing Pronouncement of order : : 28.11.2024 25.02.2025 O R D E R Per Rahul Chaudhary: 1. These are cross-appeals for Assessment Year 2006-2007 preferred against the order, dated 18/05/2009, passed by the Commissioner ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 2 of Income Tax (Appeals)-VI, Mumbai, [hereinafter referred to as ‘the CIT(A)’] under Section 143(3) of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] whereby the Ld. CIT(A) had partly allowed the appeal against the Assessment Order, dated 26/12/2008, passed under Section 143(3) of the Act. 2. The relevant facts in brief are that assessee, a domestic company in which public was substantially interested, was engaged in different manufacturing and trading activities at the relevant time. For Assessment Year 2006-07, the Assessee filed return of income on 27/11/2006 declaring total income of INR.10,62,16,40,458/-. The Assessee filed as revised return on 20/03/2008 declaring total income of INR 10,60,25,15,698/-. The case of the Assessee was selected for regular scrutiny and notice u/s 143(2) of the Act was issued the Assessee on 15/10/2007. The Assessing Officer completed assessment under Section 143(3) of the Act vide Assessment Order, dated 26/12/2008, assessing the total income of the Assessee at INR.11,06,04,76,832/- after making certain additions and disallowances. 3. Being aggrieved, the Assessee preferred appeal before the CIT(A). The CIT(A) partly allowed the appeal preferred by the Assessee vide order, dated 18/05/2009. 4. Not being satisfied with the relief granted by the ld. CIT(A), the Assessee has preferred appeal before this Tribunal. The Revenue has also filed cross-appeal challenging the relief granted by the ld. CIT(A). Appeal by Assessee: ITA No.3762/MUM/2009 5. We would first take up appeal preferred by the Assessee. The Assessee had raised 6 Grounds of appeal and 3 Additional Grounds ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 3 of appeal which require adjudication and are taken up hereinafter in seriatim. 6. Ground No. 1. “1. Disallowance under Section 43B “1.1. On the facts and circumstances of the case and in law, the CIT(A) erred in not allowing the amounts paid or written back during the previous year amounting to Rs.1,19,11,368/- , which had already been disallowed in the past under clauses (b) to (e) of section 43B, consistent with the Department's stand. 1.2. The CIT (A) ought to have held that in the event the Department's stand is accepted by the ITAT in earlier years, then deduction of amounts paid or written back during the year amounting to Rs. 1,19,11,368/- should be allowed in the previous year.” 6.1. The learned Senior Counsel appearing for the Assessee submitted that since the disallowance made by the Assessing Officer in the preceding assessment years under Clauses (b) to (e) of Section 43B of the Act has been allowed, Ground No. 1 raised by the Assessee has been rendered infructuous. In view of the aforesaid submission, Ground No. 1 to 1.2 raised by the Assessee is dismissed as infructuous. 7. Ground No. 2 “2. Depreciation on let out property 2.1. On the facts and circumstances of the case and in law, the CIT (A) erred in upholding the action of the AO in disallowing depreciation of Rs. 5,88,509/-. 2.2. The CIT (A) ought to have held that once an asset forms part of block of assets, it loses its identity and depreciation on a particular asset cannot be worked out separately and disallowed.” 7.1. The relevant facts in brief are that the Assessee had claimed depreciation in respect of the respect of property at Sakhar Bhavan, Nariman Point, Mumbai and Ahura Centre, Andheri, Mumbai ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 4 [hereinafter referred to as ‘Let-Out Assets’] 7.2. During the assessment proceedings, the Assessing Officer noted that the income arising from the Let-Out Assets was offered to tax under the head ‘Income from House Property’ and that the Assessee had claimed deduction of 30% of annual rental value under Section 24 of the Act. Therefore, the Assessing Officer concluded that the Assessee could not be allowed to claim depreciation is respect of the Let-Out Assets. Therefore, the Assessing Officer made disallowed an amount of INR.5,88,509/- out of the depreciation claimed by the Assessee. 7.3. Being aggrieved, the Assessee challenged the disallowance of deprecation of INR.5,88,509/- before the CIT(A). It was reiterated before the CIT(A) that the assets under consideration formed were originally used for the purpose of business of the Assessee and formed part of Block of Assets. As per Section 32 of the Act depreciation was to be allowed on the Written Down Value (WDV) of the Block of Asset as computed as per Section 43(6) of the Act. Under the block concept once an asset is added to the Block of Assets it loses its identity and the depreciation on a particular asset cannot be worked out separately. Rejecting the aforesaid submission, the CIT(A) confirmed the disallowance of depreciation of INR.5,88,509/- made by the Assessing Officer. 7.4. Being aggrieved, the Assessee in appeal before the Tribunal on this issue. 7.5. We have heard both the sides and have perused the material on record. 7.6. It is admitted position that during the relevant previous year, the income from Let-Out Assets was offered to tax by the Assessee under the head ‘Income from House Property’. Section 22 of the Act ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 5 dealing with ‘Income from House Property’ provides as under: “Income from house property. 22. The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head \"Income from house property\". (Emphasis Supplied) 7.7. On perusal of above, it can be seen that Section 22 provides that annual value of property, other than such portions of property as may be occupied by the Assessee for the purpose of business or profession, is chargeable to tax under the head Income from House Property. Therefore, once the Assessee has offered the income to tax under the head ‘Income from House Property’, in our view it cannot be said that the Let-Out Assets was occupied for the purposes of any business or profession. It is a fact that the Let-Out Assets were also not at the disposal of the Assessee as the same were let out. Therefore, in our view, it cannot be said that the Let- Out Assets were available for the purpose of business of the Assessee. As per Section 32 of the Act deduction is allowed for deprecation in respect of assets which are used for the business/profession and/or are ready for use in the business/profession. Therefore, we find some merit in the contention raised by the Revenue depreciation cannot be allowed for an asset that has been let out during the relevant previous year and income thereof has been offered to tax under the head as ‘Income for House Property’. However, we note that while computing the annual rental value under Section 22 read with Section 23 of the Act, the annual value of the house property excluding the portions occupied by the Assessee for the purpose of business or profession can be computed. However, the Revenue has failed to point out corresponding provision providing for ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 6 computation of depreciation and WDV of Block of Assets excluding the WDV of the asset let out during the relevant previous year. 7.8. We note that Section 43(6) of the Act defines ‘Written Down Value’/WDV and Section 43(6)(c) of the Act deals with the computation of WDV of a ‘block of assets’. We note that only Explanation 2A, 2B and 5 to Section 43(6) of the Act deal with a case of transfer of asset forming part of Block of Assets. However, the same are not applicable to the facts of the present case. Explanation 2A and 2B to Section 43(6) of the Act are applicable in a case of demerger, while Explanation 5 to Section 43(6) of the Act is applicable in a case of transfer by a stock exchange under a scheme of corporatisation. Further, in the present case there is no transfer of asset and the Assessee continues to be the owner of the Act. We note that while deleting the disallowance of depreciation made by the Assessing Officer in identical facts and circumstances in the case of the Assessee for the Assessment Year 2005-2006 [ITA No.3517/MUM/2006, Common Order, dated 04/07/2023] the Tribunal had held as under: “27. It is the plea of the assessee that since the property was acquired in the assessment year 1987-88 and forms part of the block of assets, therefore, the lower authorities have erred in carving out the depreciation for this property and disallowing the same. ………………………………... In this regard, it is pertinent to note that the property in question forms part of the block of assets since the assessment year 1987-88 and the depreciation on the entire block was also allowed. The Revenue has also not disputed this fact. It is settled that once any asset forms part of the block of assets, it loses its individual identity, and thus for the purpose of depreciation, only the block of assets has to be considered. This aspect is sufficiently evident from Circular No.469 issued on 23/09/1986, which reads as under:- ― “6.3 As mentioned by the Economic Administration Reforms Commission (Report No. 12, para 20), the existing system in this regard requires the calculation of depreciation in respect of each capital asset separately and not in respect of block of assets. This requires ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 7 elaborate book-keeping and the process of checking by the Assessing Officer is time consuming. The greater differentiation in rates, according to the date of purchase, the type of asset, the intensity of use, etc., the more disaggregated has to be the record-keeping. Moreover, the practice of granting the terminal allowance as per section 32(1)(iii) or taxing the balancing charge as per section 41(2) of the Income-tax Act necessitate the keeping of records of depreciation already availed of by each asset eligible for depreciation. In order to simplify the existing cumbersome provisions, the Amending Act has introduced a system of allowing depreciation on block of assets. This will mean the calculation of lump sum amount of depreciation for the entire block of depreciable assets in each of the four classes of assets, namely, buildings, machinery, plant and furniture.” 28. Further, as per section 43(6)(c)(i)(B) of the Act, the written down value in the case of any block of assets is reduced by the money payable when the asset is sold or discarded or demolished or destroyed. However, in the present case, the assessee continued to own this property, and the same was only let out during the year. In any case, this section also does not provide for carving out depreciation for disallowance, as is done by the AO in the present case. We find that the Hon‟ble Delhi High Court in CIT v/s Oswal Agro Mills Ltd. [2012] 341 ITR 467 (Delhi), observed as under: “32. Another significant and contemporaneous development, which needs to be noticed is that the Legislature has also deleted the provision for allowing terminal depreciation in respect of each asset, which was previously allowable under section 32(1) (iii) and also taxing of balancing charge under section 41(2) in the year of sale. Instead of these two provisions, now whatever is the sale-proceed of sale of any depreciable asset, it has to be reduced from the block of assets. This amendment was made because now the assessees are not required to maintain particulars of each asset separately and in the absence of such particular, it cannot be ascertained whether on sale of any asset, there was any profit liable to be taxed under section 41(2) or terminal loss allowable under section 32(1)(iii).This amendment also strengthen the claim that now only detail for \"block of assets\" has to be maintained and not separately for each asset “ 33. Having regard to this legislative intent contained in the aforesaid amendment, it is difficult to accept the submission of the learned counsel for the Revenue that ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 8 for allowing the depreciation, user of each and every asset is essential even when a particular asset forms part of 'block of assets'. Acceptance of this contention would mean that the assessee is to be directed to maintain the details of each asset separately and that would frustrate the very purpose for which the amendment was brought about. It is also essential to point out that the revenue is not put to any loss by adopting such method and allowing depreciation on a particular asset, forming part of the 'block of assets' even when that particular asset is not used in the relevant assessment year. Whenever such an asset is sold, it would result in short-term capital gain, which would be exigible to tax and for this reason, we say that there is no loss to revenue either. 29. Thus, in view of the above, once the property forms part of the block of assets, carving out the depreciation for the said property and disallowing the same goes against the spirit of allowing depreciation on the entire block of depreciable assets. Before concluding, we may note that in this appeal the Revenue has not disputed the claim of deduction under section 24 of the Act in respect of the property which forms part of the block of assets. Thus, merely because the Revenue has accepted the claim of deduction under section 24 of the Act doesn’t mean that the property which forms part of the block of assets will cease to be so. Therefore, the disallowance of depreciation of Rs. 45,681 made by the AO is deleted. As a result, ground No. 4 raised in assessee‟s appeal is allowed.” (Emphasis Supplied) 7.9. In view of the above, and consistent with the view taken by the Tribunal in the immediately preceding year of deleting the disallowance of depreciation is respect of asset forming part of block of assets let out, we delete the disallowance of depreciation of INR.5,88,509/-. Ground No. 2 to 2.2 raised the Assessee are allowed. 8. Ground No. 3. “3. Disallowance u/s.40(a)(ia) 3.1. On the facts and circumstances of the case and in law, the CIT (A) erred in upholding the action of AO in disallowing the liability of Rs. 1,74,35,896/- towards year-end expenses applying provision of section 40(a)(ia). ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 9 3.2. The CIT (A) ought to have deleted the disallowance and held that the provision of section 40(a)(ia) are not applicable in the case.” 8.1. During the course of hearing the Learned Senior Counsel, on instructions, stated that the Assessee does not wish to pursue this ground since relief has been granted to the assessee in relation to this ground in appellate proceedings pertaining to the preceding assessment years. Accordingly, Ground No.3, raised by the Assessee is dismissed as not pressed. 9. Ground No. 4. “4. Income derived from the Undertaking 4.1. On the facts and circumstance of case and in law, the CIT (A) erred in upholding the action of AO that receipts of Rs. 48,448/- is not income derived from undertaking eligible for deduction u/s. 80IA. 4.2. The CIT(A) ought to have held that receipt of Rs. 48,448/- is derived from business of undertaking eligible for deduction u/s. 80IA. 9.1. We have heard both the sides and have perused the material on record in relation to this issue. Both the sides agreed that identical issue had come up for consideration before the Tribunal in appeal for the Assessment Year 2005-06 and the issue was remanded back to the file of the Assessing Officer. On perusal of the Common Order, dated 04/07/2023 passed by the Tribunal in ITA No.3517/MUM/2006 pertaining to Assessment Year 2005-2006, we find that the Tribunal had issued following directions (after taking into consideration the order, dated 23/06/2023, pertaining to Assessment Year 2004-2005): “41. Since in the year under consideration also, various receipts under the broad category of “miscellaneous receipts‟, except excess provision written back, were not examined by the lower authorities, therefore, we deem it appropriate to restore this issue to the file of the AO for de novo adjudication as per law, after examining each ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 10 and every receipt under the category of “miscellaneous receipts”, which were excluded from the business profits by the learned CIT(A) for computing the deduction under section 80IA of the Act. Thus, to this extent, the impugned order on this issue is set aside. Accordingly, ground no.9, raised in assessee‟s appeal is allowed for statistical purposes.” (Emphasis) 9.2. There being no change in the facts and circumstances of the case, we remand the issue raised in Ground No. 4 back to the file of Assessing Officer with the directions to examine each item forming part of Miscellaneous Receipts of INR.48,448/- before including/excluding the same for the purpose of computing deduction under Section 80IA of the Act. It is clarified that the Assessee shall be granted a reasonable opportunity of being head. In terms of the aforesaid, Ground No. 4 raised by the Assessee is allowed for statistical purposes. 10. Ground No. 5. “5. Interest from Income Tax Department 5.1. On the fact and circumstances of the case and in law, the CIT(A) erred in upholding the action of AO in taxing the interest received from Income Tax Department during the previous year. 5.2. The CIT(A) ought to have held that since the aforesaid amount of interest has not yet reached the stage of finality, it is not taxable in this assessment year.” 10.1. We have heard both the sides and have perused the material on record in relation to this issue. 10.2. This is a recurring issue. In the chart of issues submitted by the Assessee reliance was placed on behalf of the Assessee on decision of Tribunal in the case of the Assessee passed in appeals for preceding assessment years and the decision of the Special Bench of the Tribunal in the case of Avada Trading Co. Pvt. Ltd. Vs. Assistant Commissioner of Income-tax, Spl. Circle 18(1): [2006] ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 11 100 ITD 131 (MUM.) (SB) on which reliance was placed on behalf of the Assessee 10.3. In the case of Avada Trading Co. Pvt. Ltd. (supra) while examining the issue of taxability of interest under Section 244A of the Act the Special Bench of the Tribunal held as under: “7. Rival contentions have been considered carefully. The question for consideration is whether interest under section 244A granted to assessee in the proceedings under section 143(1)(a) of the Act is taxable in the year of its receipt or in the year in which proceedings under section 143(1)(a) attains finality. According to the charging provisions of sections 4 and 5 of the Act, the income is chargeable in the year in which it is either accrued or received as the case may be. The issue regarding accrual of income is concluded by the judgment of the Hon’ble Supreme Court in the case of E.D. Sassoon & Co. Ltd. v. CIT [1954] 26 ITR 27, wherein it has been held that income accrues when right to receive is acquired and such right can be said to have been acquired when an enforceable debt is created in favour of the assessee. This legal position has been applied by the Courts including the Apex Court in various cases. 8. Let us now look at the relevant provisions of section 244A of the Act which for the benefit of this order are stated below : \"244A. (1) Where refund of any amount becomes due to the assessee under this Act, he shall, subject to the provisions of his section, be entitled to receive, in addition to the said amount, simple interest thereon calculated in the following manner, namely : (a) Where the refund is out of any tax paid under section 115WJ or collected at source under section 206C or paid by way of advance tax or treated as paid under section 199, during the financial year immediately preceding the assessment year, such interest shall be calculated at the rate of one-half per cent for every month or part of a month comprised in the period from the 1st day of April of the assessment year to the date on which the refund is granted: Provided that no interest shall be payable if the amount of refund is less than ten per cent of the tax as determined under sub-section (1) of section 115WE or sub-section (1) of section 143 or on regular ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 12 assessment; (b) in any other case, such interest shall be calculated at the rate of one-half per cent for every month or part of a month comprised in the period or periods from the date or, as the case may be, dates of payment of the tax or penalty to the date on which the refund is granted. (3) Where, as a result of an order under sub-section (3) of section 115WE or section 115WF or section 115WG or sub- section (3) of section 143 or section 144 or section 147 or section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or an order of the Settlement Commission under sub-section (4) of section 245D, the amount on which interest was payable under sub-section (1) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and in a case where the interest is reduced, the Assessing Officer shall serve on the assessee a notice of demand in the prescribed form specifying the amount of the demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply accordingly.\" A bare look at the provisions of sub-section (1) reveals that as soon as any refund becomes due under any provisions of the Act, the assessee becomes entitled to receive the interest in respect of such refund calculated in the manner provided in clauses (a) and (b) of such provisions. Therefore, the moment the refund is granted, as enforceable debt is created in favour of assessee in respect of interest due on such refund. Consequently, income can be said to accrue on the date of refund itself. Therefore, when such interest is actually granted along with the refund then, in our opinion, the requirement of sections 4 and 5 of the Act are fully satisfied and the same can be taxed in the year of receipt. 9. The main contention of the assessee’s counsel is that such right is contingent as the interest so received can be varied or withdrawn after the assessment under section 143(3). We are unable to accept such contention of assessee for the reasons given hereafter. According to the dictionary meaning, a right or an obligation can be said to be contingent when such right or obligation is dependent on something not yet certain. According to section 244A, the only condition for grant of interest is that there must be a refund due to assessee under any provision of the Act. There is no other condition in the said provision affecting such right. Therefore, the moment a refund becomes due to assessee, an enforceable debt is created in favour of ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 13 assessee and assessee acquires a right to receive the interest. Sub-section (3) of section 244A only affects its quantification under certain circumstances and not the right of interest. The Hon’ble Supreme Court in the case of CIT v. Shri Goverdhan Ltd. [1968] 69 ITR 675, has observed at page 681 that once a debt is created, then the liability cannot be said to be contingent merely because it is to be quantified at later date. Under section 244A, even the interest is quantified immediately whenever a refund is issued. In our view, the right to grant interest is absolute since existence of such right is not dependent on any event. For example, assessee is granted interest of Rs. 1,000 on the date of granting refund. Subsequently, under section 244A(3), it is reduced to Rs. 600 by virtue of assessment under section 143(3). Can it be said that right to interest did not accrue on the date of refund? In our opinion, the right of interest came into existence on the date of refund by virtue of section 244A(1) though its quantification may or may not vary depending upon the outcome of assessment. 10. xx xx 11. xx xx 12. The ratio of the above judgment is clearly applicable to the present case. According to the above judgment, if an enforceable debt is created under a statute then any subsequent event would not affect the existence of such right/obligation despite the fact that such debt is subject-matter of appeal. The right to interest under section 244A is not dependent upon any assessment inasmuch as there is no compulsion or obligation upon the Assessing Officer to make an assessment under section 143(3). The moment the return is processed under section 143(1)(a) and refund is issued on the basis of intimation under section 143(1)(a), an enforceable legal right is created in favour of assessee under section 244A and simultaneously the Assessing Officer is under legal obligation to grant the interest. Merely because quantum of such interest may vary on assessment made under section 143(3), it cannot be said that legal right was not acquired on the date of refund. The effect of assessment under section 143(3) would be that interest on refund under section 244A would get substituted in terms of sub-section (3) of section 244A without affecting right already accrued. 13. xx xx 14. It has been apprehended by assessee’s counsel that assessee ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 14 would be without remedy if the interest is reduced by virtue of assessment under section 143(3). This apprehension, in our opinion, is unfounded. If interest is reduced by virtue of sub- section (3) of section 244A on account of assessment under section 143(3), the interest granted in earlier year gets substituted and it is the reduced amount of interest that would form part of income of that year. Thus, it would amount to mistake rectifiable under section 154 of the Act. In our opinion, if the basis, on which income was assessed is varied or ceases to exist, then such assessment would become erroneous and can be rectified. This can be explained with an example. For instance, land in a village belonging to various persons is acquired by Government for some development works and the compensation is awarded by the Collector with interest, if any. But one of the land holders challenges the acquisition proceedings in the High Court and later on succeeds as the acquisition is declared illegal. By virtue of such High Court order, such compensation has to be returned and Government will have to restore the land to the villagers. Therefore, if capital gain has been assessed in the hands of some of the persons where lands were acquired, such assessment would become patently erroneous, as the basis itself has ceased to exist. Such assessment would, therefore, amount to mistake, which, in our opinion, can be rectified. Similarly, any income assessed may become non-taxable by virtue of retrospective amendment and consequently, erroneous assessment can be rectified. Therefore, in our humble opinion, if the interest granted under section 244A(1) is varied under sub-section (3) of such section, then the interest originally granted would be substituted by the reduced/increased amount as the case may be. Thus, income on account of interest if assessed can be rectified under section 154. 15. In view of the above discussion, we are of the view that interest on refund under section 244A(1) would be assessable in the year in which it is granted and not in the year in which proceedings under section 143(1)(a) attain finality. 16. The matter will now go to the regular Bench for decision on merits.” (Emphasis Supplied) 10.4. We note that the CIT(A) has decided the issue in the following manner: “16. Ground No. 15 is against taxability of interest received on IT Refund. 16.1. The appellant submitted that since receipt of interest on refund has not reached the stage of finality, as the ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 15 department has not accepted the decision of the CIT(A) and preferred a second appeal before the ITAT, at this point of time the interest on refund should not be taxed 16.2. This ground taken up is baseless as the interest on Income tax refund is clearly taxable as on now date, a fact, which is not even disputed by any party. 16.3. There is nothing in the IT Act to wait for such taxation till the matter reaches to the stage of finality in every case. Hence, this ground of appeal is dismissed. 17. However, the appellant has taken an alternate ground that if any interest granted on a refund is withdrawn subsequently in view of subsequent appellate orders, such corresponding interest already taxed should be allowed to be excluded from the income. 17.1. The ITAT \"A\" Bench Mumbai in the appellant's own case for AY 1993-94 directed the AO to follow accordingly the submission made above. The CIT(A)s in AYs 1996-97 to 2005-06 also directed the AO to exclude interest, if subsequently withdrawn from taxable income of the appellant for the previous year. 17.2. The AO is directed this year also to follow the same direction as given to him in the earlier AYs by the CIT (A)s and therefore the alternate ground is allowed.” (Emphasis Supplied) 10.5. Thus, the CIT(A) has concluded that the income is to be taxed during the relevant previous year. However, following the decision of the Tribunal in the case of the Assessee for the Assessment Year 1993-94, the CIT(A) has directed the Assessing Officer to exclude interest, if subsequently withdrawn from taxable income of the Assessee for the relevant previous year. We find that the decision of the CIT(A) is in line with the above decision of the Tribunal in the case of Avada Trading Co. Pvt. Ltd. (supra) as well as the decision of the Tribunal in the case of the Assessee for Assessment Year 2005-2006 [ITA No.3517/MUM/2006, Common Order, dated 04/07/2023]. The relevant extract of the aforesaid decision of the Tribunal for the Assessment Year 2005-06 reads as under: “42. The issue arising in ground no.10, raised in assessee’s appeal, is pertaining to the taxability of interest received from the Income Tax Department. ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 16 43. Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench of the Tribunal, vide order dated 13/06/2023, passed in assessee’s own case for the assessment year 2003–04 cited supra, while deciding similar issue in favour of the assessee by following the decision rendered in the preceding year, observed as under:– 15. Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench of the Tribunal, vide order dated 14/12/2021, passed in assessee‘s own case for the assessment year 2002–03 cited supra, by following the decision rendered in the preceding year, observed as under:– 15. Considered the submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee for the A.Y. 2001-02. While deciding the issue in favour of the assessee the Coordinate Bench of the Tribunal in ITA.No. 4083/Mum/2003 dated 22.10.2014 held as under: - \"7. The assessee is also aggrieved for taxing of interest received from Income Tax Department amounting to Rs. 13,64,09,609/. We find that similar issue has been dealt with by the Tribunal in A.Y. 1993-94 in ITA No. 1523/Mum/1997 vide para 62 as under: \"We have heard the parties and considered the rival submissions. These refunds have been granted to the assessee in the year under consideration and therefore they would partake the character of income of the assessee. If however, any refund has been found to be not refundable to the assessee and consequently the interest granted is withdrawn the same would not partake the character of income. We accordingly direct the Assessing Officer to reduce from the taxability of the aforesaid interest granted to the assessee, the amount which has been withdrawn subsequently. We direct accordingly.\" 8. It was argued by the ld. A.R. that benefit of interest so allowed by the department was subsequently withdrawn as a result of the ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 17 appellate orders should be given to the assessee and the interest subsequently withdrawn should not be taxed and for this, reliance was placed on the decision of the Tribunal in the case of Avada Trading Co. (P.) Ltd. vs. ACIT (2006) 100 ITD 131. 9. We have considered the rival contentions. As far as the taxability of interest amounting to Rs. 13,64,09,609/- is concerned, granted alongwith interest. However, if in the subsequent year refund of interest is withdrawn, then the same should be reduced from the total income of the assessee. Accordingly, we direct the A.O. to tax interest income in terms of the order of the tribunal for A.Y. 1993-94 as reproduced above, keeping in view our above observation\" 16. Respectfully following the above decision and following the principle of consistency, the view taken by the Tribunal is respectfully followed, we order accordingly.” 44. Therefore, in view of the above, ground no.10, raised in assessee’s appeal is allowed with similar directions, as rendered by the coordinate bench in the preceding assessment years.” (Emphasis Supplied) 10.6. In view of the above decision of the Special Bench of the Tribunal in the case of Avada Trading Co. Pvt. Ltd. (supra) and the decision of the Tribunal in the case of the Assessee for the Assessment Year 2005-06 (supra), contention of the Assessee that the CIT(A) erred in upholding the action of Assessing Officer in taxing the interest received from Income Tax Department during the relevant previous year since the issue had not attained finality is rejected. Accordingly, Ground Nos. 5 to 5.2 raised by the Assessee are dismissed. 10.7. Before parting we would like to observe that the Revenue has not challenged the order passed by the CIT(A) whereby the CIT(A) has upheld the alternative contention of the Assessee in paragraph 17 to 17.2 of the order impugned. Accordingly, the Assessing Officer ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 18 would be bound to give effect to the same. 11. Ground No. 6. “6. On the facts and circumstances of the case and in law, the appellant prays that AO be directed to give credit for TDS & TCS in respect of income and expenses included in the previous year's income for which the appellant could not file the claim due to non receipt of the requisite certificates from the issuer.” 11.1. During the course of hearing it was pointed out that vide order dated 15/04/2010 passed under Section 154 of the Act, the grievance of the Assessee has been addressed by the Assessing Officer and credit for TDS/TCS has been granted. In view of the aforesaid, Ground No. 6 raised by the Assessee is dismissed as not pressed. 12. Additional Ground No. 1. [Letter Dated 23/01/2023] “1 The learned CIT (A) ought to have held that the sum of Rs. 3,17,72,987/-being dividend received from Alexandria Carbon Black Company, a company incorporated and registered in Egypt (U.A.R.) was not taxable in India. 12.1. Additional Ground No. 1, was raised by the Assessee vide, letter dated 28/01/2013. During the course of hearing both the sides agreed that identical issue had come up for consideration by the Co-ordinate Bench of the Tribunal in appeal pertaining to Assessment Year 2005-06. In identical facts and circumstances, the Tribunal was pleased to admit the additional ground raised by the Assessee in appellate proceedings for the Assessment Year 2005- 06. However, the Tribunal disposed off the additional ground by deciding the same in favour of the Revenue on merits. We have perused the Common Order, dated 04/07/2023, passed by the Tribunal in ITA No. 3517/MUM/2017 pertaining to Assessment Year 2005-06, and the relevant extract of the same reads as under: “46. The assessee, vide application dated 23/01/2013, sought admission of the following additional ground of appeal:– The appellant prefers appeal against the order of the Commissioner ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 19 of Income Tax (Appeals) -XXVI [hereinafter referred as \"CIT (A)\"] on the following additional grounds: 1. The learned CIT (A) ought to have held that the sum of Rs. 2,68,71,018 being dividend received from Alexandria Carbon Black Company, a company incorporated and registered in Egypt (U.A.R.) was not taxable in India. 2. The appellant craves leave to add, to alter, amplify or delete all or any of the ground (s) before or at the time of hearing.” 47. The issue arising in the aforesaid additional ground of appeal is pertaining to the taxability of dividend received from Egyptian company. Since, the issue raised by way of additional ground is a legal issue, which can be decided on the basis of material available on record, we are of the view that the same can be admitted for consideration and adjudication in view of the ratio laid down by the Hon’ble Supreme Court in NTPC v/s CIT, [1998] 229 ITR 383 (SC). During the year under consideration, the assessee received Rs.2,68,71,018, as a dividend from M/s Alexandria Carbon Black Company S.A.E., a company incorporated and registered under the laws of Egypt (U.A.R.). It is the plea of the assessee that the aforesaid dividend received from the Egyptian company is not taxable in India. 48. We find that the coordinate bench, vide order dated 23/06/2023, passed in assessee’s own case for the assessment year 2004-05 cited supra, decided a similar issue against the assessee in light of the amendment in Section 90 of the Act, vide Finance Act, 2003, w.e.f. 01/04/2004, by observing as under:– “65. The issue arising in the aforesaid additional ground of appeal is pertaining to the taxability of dividend received from Egyptian company. Since, the issue raised by way of additional ground is a legal issue, which can be decided on the basis of material available on record, we are of the view that the same can be admitted for consideration and adjudication in view of the ratio laid down by the Hon‘ble Supreme Court in NTPC Ltd. (supra). During the year under consideration, the assessee received Rs.1,16,24,021 as a dividend from M/s Alexandria Carbon Black Company S.A.E., a company incorporated and registered under the laws of Egypt (U.A.R.). It is the plea of the assessee that the aforesaid dividend ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 20 received from the Egyptian company is not taxable in India. We find that a similar issue came up for consideration before the coordinate bench of the Tribunal in assessee‘s own case in assessment year 2003-04. Vide order dated 13/06/2023 cited supra, the coordinate bench observed as under:-“ “65. Having considered the submissions of both sides, we find that as per Article 11(2) of the India- UAR (Egypt) DTAA, dividends paid by a company which is a resident of the UAR (Egypt) to a resident of India may be taxed in the UAR (Egypt). As noted above, it is the plea of the assessee that prior to amendment by Finance Act 2003, w.e.f. 01/04/2004, to section 90 of the Act, the term “may be taxed” means that only the source country has the right to tax the income earned in such country and the resident country does not have any taxing rights. Therefore, the dividend received by the assessee from the Egyptian company, in the present case, is only taxable in Egypt. We find that while examining the issue of applicability of the aforesaid amendment vide Finance Act, 2003 to section 90 of the Act, and the aforesaid Notification issued under the said section, the coordinate bench of the Tribunal in Essar Oil Ltd v/s ACIT, [2013] 42 taxmann.com 21 (Mum-Trib.), observed as under:-“ “88 We summarise our conclusion as under:- (i) ….. (ii) The notification dated 28th August 2008, reflects a particular intent and objective of the Government of India, as understood during thecourse of negotiations leading to formalization of treaty. Therefore, such a notification has to be reckoned as clarificatory in nature and hence interpretation given by Govt. of India through this notification will be effective from 1st April 2004, i.e., from the date when provision of section 90(3) was brought in the statute, giving a Legal frame work for clarifying the intent of one of the negotiating parties;” ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 21 “66. The coordinate bench of the Tribunal also noted the legal position as it existed prior to the aforesaid amendment as under:- “57A. If we analyse all the judgments as have been referred to above, it is evident that:— • Firstly, in R.M. Muthaiah (supra), the expression “may be taxed” has not been expressly dealt with, however, in the context of Article-6(1), wherein similar phraseology has been used, the High Court has given its decision that once it has been taxed in the foreign country, the same cannot be taxed in India. Thus, this decision in a way interprets the phrase “may be treated” to mean that source country has a right to tax to the exclusion of resident state; • Secondly, in S.R.M. Firm (supra), the High Court has in a very clear terms, has interpreted the expression “may be taxed” to mean that once the income is taxable in other contracting State that is country of source then country of resident i.e., India is precluded from including the same income in India; • Thirdly, the Hon‘ble Supreme Court in Azadi Bachao Andolan (supra), has approved the reasoning of R.M. Muthaiah (supra) in an entirely different context, therefore, it cannot be held that the Hon‘ble Supreme Court has carved out any express law on the phraseology of “may be taxed”; • Fourthly, in P.V.A.L. Kulandagan Chettiar (supra‘s) the Hon‘ble Supreme Court has specifically refrained from giving any such interpretation of “may be taxed” and affirmed the decision of High Court on a different reasoning and grounds. Thus, this decision does not carve out any express law on the phrase “may be taxed”; and • Lastly, the Hon‘ble Supreme Court in Turquoise Investments & Finance Ltd. (supra) has not only confirmed the decision of R.M. Muthaiah (supra) but also decision of the M.P. High Court, wherein extensively reliance was placed on the decision of S.R.M. Firm (supra). Thus, this decision of the Hon‘ble Supreme Court in a way has confirmed the entire ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 22 reasoning of the S.R.M. Firm (supra) which, in our opinion, is slightly different from the judgment of the Hon‘ble Supreme Court in P.V.A.L. Kulandagan Chettiar (supra) to the extent that the phrase “may be taxed” was not expressly dealt with by the Hon‘ble Supreme Court as the reasoning of the High Court was affirmed on different ground. Thus, the later decision of the Hon‘ble Supreme Court in Turquoise Investments & Finance Ltd. (supra) can be said to be the view expressed by the decision in S.R.M. Firms (supra) by the Madras High Court. In this background, that the three High Courts have expressed their views and which have been affirmed by the Hon‘ble Supreme Court in some context or the other, specially the decision of Turquoise Investments & Finance Ltd. (supra), decisions completely, then as a judicial precedence, one has to accept that the phrase “may be taxed” has to be inferred as allocating the taxing right to the source country only on the income earned in such country and the country of resident is completely precluded from taxing the same income.” 66. Since the year under consideration before the coordinate bench in the aforesaid decision was the assessment year 2003-04, the coordinate bench following the decision of the Tribunal in Essar Oil Ltd v/s ACIT, [2013] 42 taxmann.com 21 (Mum-Trib.) came to the conclusion that the amendment w.e.f 01/04/2004, by which sub-section (3) to section 90 has been brought in the statute, whereby there was a clear departure from the earlier position, is not applicable to that year. However, since the amendment vide Finance Act, 2003 to section 90 was held to be effective from 01/04/2004 and thus applicable from the assessment year 2004-05, therefore the year under consideration will be governed by the aforesaid amended provisions and Notification no. 91 of 2008 dated 28/08/2008 issued under section 90(3) of the Act is also applicable. We find that the coordinate bench of the Tribunal in Technimont (P.) Ltd. v/s ACIT, [2020] 116 taxmann.com 996 (Mumbai - Trib.), after taking into consideration the aforesaid amendment observed as under:- “10. It may be recalled that, with effect from 1st April 2004, a new sub-section 3 was inserted ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 23 in Section 90, and this new sub-section provided that \"(a)ny term used but not defined in this Act or in the agreement referred to in subsection (1) shall, unless the context otherwise requires, and is not inconsistent with the provisions of this Act or the agreement, have the same meaning as assigned to it in the notification issued by the Central Government in the Official Gazette in this behalf\". In exercise of the powers so vested in the Central Government, vide notification no. 91 of 2008 dated 28th August 2008, it was notified as follows: In exercise of the powers conferred by sub-section (3) of section 90 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies that where an agreement entered into by the Central Government with the Government of any country outside India for granting relief of tax, or as the case may be, avoidance of double taxation, provides that any income of a resident of India \"may be taxed\" in the other country, such income shall be included in his total income chargeable to tax in India in accordance with the provisions of the Income-tax Act, 1961 (43 of 1961), and relief shall be granted in accordance with the method for elimination or avoidance of double taxation provided in such agreement. 11. The effect of Hon'ble Supreme Court's judgment in Kulandagan Chettiar's case (supra) thus was clearly overruled by the legislative developments. It was specifically legislated that the mere fact of taxability in the treaty partner jurisdiction will not take it out of the ambit of taxable income of an assessee in India and that \"such income shall be included in his total income chargeable to tax in India in accordance with the provisions of the Income-tax Act, 1961 (43 of 1961), and relief shall be granted in accordance with the method for elimination or avoidance of double taxation provided in such agreement\". A coordinate bench of this Tribunal, in the case of Essar Oil Ltd (supra) also proceeded to hold that this notification was retrospective in effect inasmuch as it applied with effect from 1st April 2004 i.e. the date on which sub-section 3 was introduced in Section 90.” ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 24 (emphasis supplied) 67. Therefore, in view of the above, we find no merit in the plea of the assessee. Accordingly, the additional ground filed by the assessee vide application dated 23/01/2013 is dismissed.” 49. In the absence of any allegation regarding the change in facts or in law in the present case, we find no reason to deviate from the conclusion so reached by the coordinate bench in the preceding year. Therefore, respectfully following the aforesaid decision, the additional ground raised by the assessee vide application dated 23/01/2013 is dismissed.” (Emphasis Supplied) Thus, Co-ordinate Bench of the Tribunal admitted the additional ground and after analyzing the change in legal position, rejected the plea of the Assessee holding that dividend income received by the Assessee from Alexandria Carbon Black Company would be liable to tax in India. 12.2. The facts and circumstances prevailing in the Assessment Year 2006-07 are identical to those prevailing in the Assessment Year 2005-06. During the relevant previous year the Assessee had received dividend of INR.3,17,72,987/- from Alexandria Carbon Black Company, a company incorporated and registered in Egypt (U.A.R.). By way of additional ground under consideration the Assessee has claimed that the aforesaid dividend income was not liable to tax in India. Though the aforesaid claim has been raised as an additional ground, the same is admitted since it involves a question of law which can be decided on the basis of material on record [National Thermal Power Co. Ltd. vs. Commissioner of Income-tax [1998] 229 ITR 383 (SC)]. We find the issue raised in the additional grounds stands decided against the Assessee in above Common Order, dated 04/07/2023, passed by the Tribunal in ITA No. 3517/MUM/2017 pertaining to Assessment Year 2005-06. Respectfully following the decision of the Tribunal in the case of the ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 25 Assessee for the Assessment Year 2005-06, we reject the contention of the Assessee and hold that dividend income received from Alexandria Carbon Black Company, a company incorporated and registered in Egypt(U.A.R.), would be liable tax in India. Accordingly, Additional Ground No.1 raised by the Assessee is dismissed. 13. Additional Ground No. 2. “2.1 On the facts and the circumstances of the case and in law the leaned AO erred in not treating TUF subsidy of INR.1.70 Cr as capital receipt and not chargeable to tax. 2.2 The Appellant prays that the learned AO be directed to increase the deduction allowed to the assessee on account of interest cost by Rs.1.70 Cr being TUF subsidy deducted from interest cost claimed during the year.” 13.1. Additional Ground No. 2.1 and 2.1 were raised by the Assessee vide Letter, dated 10/02/2015. During the course of hearing both the sides agreed that identical issue had come up for consideration by the Co-ordinate Bench of the Tribunal in appeal pertaining to Assessment Year 2005-06. In identical facts and circumstances, the Tribunal was pleased to admit and allow the additional ground raised by the Assessee in appellate proceedings for the Assessment Year 2005-06. We have perused the Common Order, dated 04/07/2023, passed by the Tribunal in ITA No. 3517/MUM/2017 pertaining to Assessment Year 2005-06, and the relevant extract of the same reads as under: “50. The assessee, vide application dated 06/02/2015, sought admission of the following additional grounds of appeal:– “1 On the facts and the circumstances of the case and in law the learned AO erred in not treating TUF subsidy of Rs.0.71 Cr as capital receipt and not chargeable to tax. 2 The Appellant prays that the learned AO be directed to increase the deduction allowed to the assessee on account of interest cost by Rs 0.71 Cr being TUF subsidy deducted from interest cost claimed during the year. ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 26 3. The Appellant craves leave to add and/or to amend and/or to alter the above Ground of appeal.” 51. The issue arising in the aforesaid additional ground of appeal is pertaining to treating the subsidy received by the assessee under Technology Upgradation Fund (“TUF”) Scheme as capital receipt and thus not chargeable to tax. Since, the issue raised by way of additional ground is a legal issue, which can be decided on the basis of material available on record, we are of the view that the same can be admitted for consideration and adjudication in view of the ratio laid down by the Hon’ble Supreme Court in NTPC v/s CIT, [1998] 229 ITR 383 (SC). 52. As per the assessee, the TUF subsidy is provided by the Central Government to sustain and improve the competitiveness and overall long-term viability of the Textile Industry and as an incentive for technology upgradation of the textile industry. It was submitted that the subsidy is granted via - Resolution on TUFS on Techno-Operational parameters by the Ministry of Textiles in March 1999. We, at the outset, find that while deciding a similar issue the coordinate bench of the Tribunal in the case of subsidiary of the assessee held the interest subsidy received under the TUF scheme is capital in nature. The relevant findings of the coordinate bench of the Tribunal in DCIT v/s M/s Grasim Industries Ltd (successor to Aditya Birla Novo Ltd.), ITAs No. 84/Mum./2023 and 356/Mum./2023, vide order dated 12/06/2023, observed as under:- “06. We have carefully considered the rival contention and perused the orders of the lower authorities as well as the decision of the coordinate bench. During the course of hearing before the coordinate bench in ITA number 2525/M/2014 for assessment year 2009–10, assessee raised an additional ground stating that interest subsidy received under technology upgradation fund scheme amounting to ₹ 83,426,992/– is revenue receipt. The coordinate bench as per paragraph number 12 of that decision remanded back this issue to the file of the learned assessing officer for de novo adjudication in accordance with the law. This decision was arrived at by in the earlier years also this issue was remanded back to the file of the learned assessing officer. Therefore based on this the learned AO proceeded to examine the claim of the assessee that whether the ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 27 interest subsidy received under technology upgradation fund scheme is revenue receipt or capital receipt. It is also to be noted that assessee itself has reduced the above subsidy from the interest expenditure debited to the profit and loss account. Thus, assessee itself treated it as a revenue income and not capital expenditure. However in assessee‘s own case in ITA number 4220 and 4704/M/2014 dated 24/2/2020 it has been held that the subsidy received by the appellant company under technology upgradation fund scheme is capital receipt. The coordinate bench held as under:- “38. Ground No. 11: \"On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in directing to treat the interest subsidy of ₹ 15,23,25,727/- as capital in nature.\" 38.1 In ground No.11 the Revenue has assailed the findings of CIT(A) in holding interest subsidy from Technology Up gradation Fund (TUF) ₹ 15,23,25,727/- as capital in nature. The ld. Authorized Representative for the assessee submitted that the Hon‘ble Rajasthan High Court in the case of PCIT vs. Nitin Spinners Ltd. in DB Income Tax appeal No.31/2019 decided on 19/09/2019 has held subsidy received under TUF as capital in nature. Similar view has been taken by Mumbai Tribunal in the case of ACIT vs. SVG Fashions Ltd. in ITA No.704/Mum/2016 for assessment year 2012-13 decided on 17/07/2018. The ld. Authorized Representative for the assessee to further buttress his submissions placed reliance on the following decisions:- (1) CIT vs. Gloster Jute Mills Ltd. ,96 taxmann.com 303 (Cal) (2) CIT vs. Sshyam Lal Bansal, 200 Taxman 14 (P&H) 38.2 The ld. Authorized Representative for the assessee further submitted that CIT(A) has decided this issue after seeking remand ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 28 report of Assessing Officer and examining TUF scheme in details. The ld. Authorized Representative for the assessee further submitted that the Tribunal in assessee‘s appeal for assessment year 2009-10 (supra) has admitted this issue raised in additional ground of appeal and has restored to Assessing Officer for fresh adjudication. 39. The ld. Departmental Representative submitted that the issue may be restored to Assessing Officer for reconsideration in line with Tribunal order in assessee‘s appeal for Assessment Year 2009-10. 40. Both sides heard. The assessee has received subsidy under TUF scheme. The assessee has claimed the subsidy as capital receipt, whereas, the Department treated the subsidy as Revenue in nature. We find that the Hon‘ble Rajasthan High Court in the case of PCIT vs. Nitin Spinners Ltd.(supra) examined the scheme in the light of various decisions and held the subsidy under TUF scheme as capital in nature. Similar view has been taken by the Hon‘ble Calcutta High Court in the case of CIT vs.Gloster Jute Mills Ltd.(supra). Thus, in view of above judgements of Hon‘ble High Courts, we see no infirmity in the findings of CIT(A). The same are upheld and ground No.11 of the appeal is dismissed. 41. In the result, appeal of the Revenue is partly allowed for statistical purpose.” 07. Therefore in view of the above decision of the coordinate bench the issue is squarely covered in favour of the assessee wherein it has been held that interest subsidy received under technology upgradation fund scheme, though credited in the net off against the interest expenditure in the books of account is still capital in nature and therefore not chargeable to tax. Further the argument of the learned departmental representative has also been negated about the applicability of explanation 10 to section 43(1) of the act by the decision of the ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 29 coordinate bench in case of orbit exports (supra). In view of this both the grounds of appeal raised by the learned assessing officer are dismissed.” 53. Therefore, respectfully following the decision of the coordinate bench cited supra, we direct the AO to treat the subsidy received under the TUF Scheme as capital in nature. As a result, the additional grounds raised by the assessee vide application dated 06/04/2015 are allowed.” (Emphasis Supplied) Thus, Co-ordinate Bench of the Tribunal admitted the additional ground and accepted the plea of the Assessee by following decision of Co-ordinate Bench of the Tribunal in the case of DCIT v/s Grasim Industries Ltd (successor to Aditya Birla Novo Ltd.) [ITA Nos. 84 & 356/MUM/2023, order dated 12/06/2023], holding that the subsidy received under Technology Up-gradation Fund (TUF) Scheme is capital receipt. 13.2. The facts and circumstances prevailing in the Assessment Year 2006-07 are identical to those prevailing in the Assessment Year 2005-06. During the relevant previous year the Assessee had received INR.1.70 Crore as Subsidy under TUF Scheme. By way of additional ground under consideration the Assessee has claimed that the aforesaid subsidy received under TUF Scheme is capital in nature and therefore, not liable to tax as revenue receipts. Respectfully following the decision of the Tribunal in the case of the Assessee for the Assessment Year 2005-06 [ITA No. 3517/MUM/2017, Common Order, dated 04/07/2023] we admit the additional ground raised by the Assessee and allow the same in favor of the Assessee holding that the subsidy of INR.1.70 Crore received by the Assessee during the relevant previous year under TUF Scheme to be a capital receipt. The Assessing Officer is directed to recompute the income of the Assessee accordingly. In terms of the aforesaid Additional Ground No. 2 to 2.1 raised by the Assessee are allowed. ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 30 14. Additional Ground No. 3. “3.1 On the facts and the circumstances of the case and in law, the learned AO erred in treating Education cess as disallowable expenditure under Section 40(a)(ii) of the Act. 3.2 The Appellant prays that the learned AO be directed to allow deduction of Education Cess while computing the total income of the Appellant.” 14.1. Additional Ground No. 3.1 and 3.2. were raised by the Assessee vide letter dated 30/01/2019. 14.2. During the course of hearing the Learned Departmental Representative, at the outset, pointed out that in identical facts and circumstances, the Tribunal had admit the additional ground raised by the Assessee for AY 2005-06 raising identical claim. However, the vide Common Order, dated 04/07/2023 passed in ITA No. 3517/MUM/2017, the Co-ordinate Bench of the Tribunal had rejected the Assessee’s claim for deduction for education cess holding that the in view of the provisions contained in Section 40(a)(ii) of the Act deduction for education cess cannot be allowed. 14.3. The Learned Senior Counsel appearing for the Assessee submitted that even if ‘tax’ is deemed to have always included ‘cess’ after the insertion of Explanation 3 to Section 40(a)(ii) of the Act, the education cess would still not qualify as ‘tax levied on the profits or gains of any business or profession’ to fall within the ambit of Section 40(a)(ii) of the Act. 14.4. We have given thoughtful consideration to the rival submissions. 14.5. Since the issue raised by way of additional ground is a legal issue which can be decided on the basis of material available on record, the additional ground is admitted in view of the ratio laid down by the Hon’ble Supreme Court in the case of National Thermal Power ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 31 Co. Ltd. vs. Commissioner of Income-tax [1998] 229 ITR 383 (SC). 14.6. The issue that arises for consideration is whether the provisions contained in Section 40(a)(ii) of the Act would get attracted in case of deduction is claimed by an assessee for education cess while computing income chargeable under the head ‘Profits and gains of Business or Profession’. In order to address the issue raised for consideration, we deem it appropriate to understand the legislative intent behind the insertion of Explanation 3 to Section 40(a)(ii) of the Act. 14.7. Explanation 3 to Section 40(a)(ii) of the Act was inserted by way of Finance Act, 2022 with retrospective effect from 01/04/2005. Finance Bill, 2022 proposed following amendment to Section 40(a)(ii) of the Act: “Amendment of section 40. 13. In section 40 of the Income-tax Act, in clause (a), in sub- clause (ii), after Explanation 2, the following Explanation shall be inserted and shall be deemed to have been inserted with effect from the 1st day of April, 2005, namely:–– ‘Explanation 3.–– For the removal of doubts, it is hereby clarified that for the purposes of this sub-clause, the term “tax” shall include and shall be deemed to have always included any surcharge or cess, by whatever name called, on such tax.” Emphasis Supplied) 14.8. The Memorandum to the Finance Bill, 2022 provided following the above amendment proposed by the Finance Bill: “Clarification regarding treatment of cess and surcharge Section 40 of the Act specifies the amounts which shall not be deducted in computing the income chargeable under the head “Profits and gains of business or profession”. Sub- clause (ii) of clause (a) of section 40 of the Act provides that any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains shall not be deducted in computing the income ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 32 chargeable under the head “Profits and gains of business or profession”. 2. However, certain taxpayers are claiming deduction on account of ‘cess’ or ‘surcharge’ under section 40 of the Act claiming that ‘cess’ has not been specifically mentioned in the aforesaid provisions of section 40(a)(ii) and, therefore, cess is an allowable expenditure. This view has been upheld by Courts in a few judgments. Further, Courts are also relying upon the CBDT Circular No. 91/58/66-ITJ(19) dated 18-05-1967. 3. xx xx 4. xx xx 5. Rajasthan High Court has also relied upon the circular dated 18.05.1967 issued by CBDT, which is being reproduced as under: “Interpretation of provision of s.40(a)(ii) of IT Act, 1961-Clarification regarding 18/05/1967 BUSINESS EXPENDITURE SECTION 40(a)(ii), Recently a case has come to the notice of the Board where the ITO has disallowed the ‘cess’ paid by the assessee on the ground that there has been no material change in the provisions of s.10(4) of the old Act and s.40(a)(ii) of the new Act. 2. The view of the ITO is not correct. Clause 40(a)(ii) of the IT Bill, 1961 as introduced in the Parliament stood as under: “(ii) any sum paid on account of any cess, rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains”. When the matter came up before the Select Committee, it was decided to omit the word ‘cess’ from the clause. The effect of the omission of the word ‘cess’ is that only taxes paid are to be disallowed in the assessments for the year 1962-63 and onwards. ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 33 3. The Board desire that the changed position may please be brought to the notice of all the ITOs so that further litigation on this account may be avoided.” 6. In the above referred Circular issued by CBDT, ‘Cess’ is to be allowed under sub-clause (ii) of clause (a) of section 40 of the Act. However, it is to be noted that ‘Cess’ is imposed not only by the Central Government through Finance Act for a financial year, but also by various State Governments. It is pertinent to mention that in the above referred Circular of CBDT, there is no reference to the ‘Cess’ imposed by the Central Government through Finance Act for a particular year. This CBDT circular needs to be seen from the perspective that “Education Cess” imposed by Finance Act 2004 and subsequent Acts and then designated as “Education and Health Cess” are actually tax in the form of additional surcharge, as stated clearly in each of the relevant Finance Act imposing such “Cess”. It is only called “Cess” since they were imposed for a particular purpose of fulfilling the commitment of the Government to provide and finance quality health services and universalized quality basic education and secondary and higher education. 7. This circular was in reference to “Cess” imposed by State Government which is actually of the nature of “Cess” and not of the nature of “Additional Surcharge” being termed as “Cess” in the relevant Finance Act. When an additional surcharge is imposed by the Central Government and it is named as “Cess”, then its allowability needs to be examined whether an additional surcharge is allowed to be a deduction or not. Hon’ble Supreme Court in the case of K Srinivasan has held that “surcharge” and “additional surcharge” are tax. Hence, the additional surcharge named as “Cess” and imposed by the Central Government through the Finance Act is nothing but a tax and hence, needs to be disallowed under sub-clause (ii) of clause (a) of section 40 of the Act. The relevant part of Hon’ble Supreme Court judgment is as under: ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 34 “7. The above legislative history of the Finance Acts, as also the practice, would appear to indicate that the term “Income tax” as employed in Section 2 includes surcharge as also the special and the additional surcharge whenever provided which are also surcharges within the meaning of Article 271 of the Constitution. The phraseology employed in the Finance Acts of 1940 and 1941 showed that only the rates of income tax and supertax were to be increased by a surcharge for the purpose of the Central Government. In the Finance Act of 1958 the language used showed that income tax which was to be charged was to be increased by a surcharge for the purpose of the Union. The word “surcharge” has thus been used to either increase the rates of income tax and super tax or to increase these taxes. The scheme of the Finance Act of 1971 appears to leave no room for doubt that the term Income tax” as used in Section 2 includes surcharge.” 8. xx xx 9. From the above discussion it may be seen that the interpretations of two High courts and various ITATs are against the intention of legislature and not in line with the judgment of Hon’ble Supreme Court. Hence, in order to make the intention of the legislation clear and to make it free from any misinterpretation, it is proposed to include an Explanation retrospectively in the Act itself to clarify that for the purposes of this sub- clause, the term “tax” includes and shall be deemed to have always included any surcharge or cess, by whatever name called, on such tax. Amendment is made retrosectively to make clear the position irrespective of the circular of the CBDT. 10. This amendment will take effect retrospectively from 1st April, 2005 and will accordingly apply in relation to the assessment year 2005-06 and subsequent assessment years. [Clause 13]” (Emphasis Supplied) ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 35 14.9. On perusal of above we find that the Memorandum to Finance Bill, 2022 clearly brings out the legislative mandate to disallow deduction for cess. The Memorandum to Finance Bill, 2022 explains that cess imposed by the Central Government through the Finance Act is in the nature of additional surcharge (though named as ‘cess’). In the case of CIT Vs. K Srinivasan [1972] 83 ITR 346 (SC) Hon’ble Supreme Court has held that ‘surcharge’ and ‘additional surcharge’ are tax. By way of the deeming fiction created by Explanation 3 to Section 40(a)(ii) of the Act, term ‘tax’ is deemed to have always included ‘cess by whatever name called, on such tax’. The validity to amendment by way of which Explanation 3 to Section 40(a)(ii) of the Act was inserted is not under challenge. The Memorandum to Finance Bill, 2022 clearly states that additional surcharge is levied by the Central Government through the Finance Act (which has been named as ‘cess’) in nothing but tax, and hence, the same needs to be disallowed under sub-clause (ii) of clause (a) of section 40 of the Act. Given the clear legislative intent, accepting the contention of the Assessee would defeat the very purpose for which Explanation 3 to Section 40(a)(ii) of the Act was inserted. 14.10. Further, we do not find any merit in the contention advanced on behalf of the Assessee to the effect that cess is not levied on the profits & gains of any business or profession. In our view, though cess is calculated as a percentage of Income-tax, effectively, cess, being in the nature of income-tax, is a levy on the profits & gains only. Therefore, in our view, as per the provision of Section 40(a)(ii) of the Act read with Explanation 3 thereto deduction for education cess cannot be allowed to the assessee. 14.11. Our view draws support from the clear legislative intent to disallow deduction for ‘cess’ contained in Memorandum to the Finance Bill, ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 36 2022 and the decision of the Bangalore Bench of the Tribunal in the case of Cypress Semiconductor Technology India Pvt. Ltd. : [2022] 197 ITD 31 [27-07-2022]. 14.12. We further note in the immediately preceding assessment year also identical additional ground raised by the Assessee challenging the disallowance of cess under Section 40(a)(ii) of the Act was dismissed by the Co-ordinate Bench of the Tribunal by following the judgment of the Hon’ble Supreme Court in the case of Joint Commissioner of Income-tax vs. Chambal Fertilisers & Chemicals Ltd. : [2023] 291 Taxman 438 (SC)[14/12/2022]. We have perused the aforesaid decision of the Tribunal in the case of the Assessee for the Assessment Year 2005-2006 [ITA No. 3517/MUM/2006, common order dated 04/07/2023], the relevant extract of which reads as under: “54. The assessee, vide another application dated 30/01/2019, sought admission of the following additional grounds of appeal:– “3.1 On the facts and the circumstances of the case and in law, the learned AO erred in treating Education cess as disallowable expenditure under Section 40(a)(ii) of the Act. 3.2. The Appellant prays that the learned AO be directed to allow deduction of Education Cess while computing the total income of the Appellant. 3.3. The Appellant craves leave to add and/or to amend and/or to alter the above Ground of Appeal.” 55. xx xx 56. We find that Finance Act, 2022, with retrospective effect from 01/04/2005, inserted Explanation 3 to section 40(a)(ii), whereby it has been provided that the term 'tax' shall include and shall be deemed to have always included any surcharge or cess, by whatever name called, on such tax. We further find that the Hon'ble Supreme Court in JCIT Vs. Chambal Fertilisers & Chemicals Ltd., [2022] 145 taxmann.com 420 (SC) allowed the Revenue's appeal against the Hon'ble Rajasthan High Court's decision in Chambal Fertilisers & Chemicals Ltd. Vs. ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 37 JCIT, [2019] 107 taxmann.com 484 (Raj.) and held that education cess paid by the respondent assessee would not be allowed as an expenditure under Section 37 read with 40(a)(ii) of the Act. Therefore, in view of the above, the additional grounds raised by the assessee vide application dated 30/01/2019, are dismissed. 57. In the result, the appeal by the assessee is partly allowed for statistical purposes.” 14.13. In view of the above, we in view of Section 40(a)(ii) of the Act deduction for education cess cannot be allowed to the Assessee. Accordingly, Additional Ground No.3.1 to 3.2. raised by the Assessee are dismissed. AY 2005-06: ITA No.4385/MUM/2009: Appeal by Revenue 15. The Revenue has raised 10 grounds of appeal which require adjudication and are taken up hereinafter in seriatim. 16. Ground No. 1. “1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the disallowance of Rs. 4,57,39,010/- made u/s 43B of the Act by relying upon the order of the ITAT in the assessee's own case for the AY. 1993-94 without appreciating that the department had not accepted the findings of the Hon'ble Tribunal and has preferred further appeal u/s 260A” 16.1. The relevant facts in brief are that during the course of the assessment proceedings the Assessee was asked to show cause why amounts falling under Clause (b) to (f) of Section 43B aggregating to INR.4,57,39,010/- were not disallowed by the Assessee in the computation of income. In reply, the assessee contended that the aforesaid amounts were not payable as on 31/03/2006 (i.e. last day of the relevant previous year) and therefore, the same cannot be covered by the provisions of Section 43B of the Act. Relying upon the provisions contained in Explanation (2) to Section 43B of the Act it was contended on behalf of the Assessee that term \"any sum payable\" has been ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 38 defined to include any liability incurred by the assessee in the previous year, even if such sum was not payable within that year under the relevant law. It was pointed out that this Explanation was applicable only to Clause (a) of Section 43B of the Act. However, the Assessing Officer was not convinced, and therefore, made disallowance of INR.4,57,39,010/- under Section 43B of the Act. In appeal, the CIT(A) deleted the aforesaid disallowance following the decision of the Tribunal in the case of the Assessee for the preceding assessment years. Being aggrieved, the Revenue is now in appeal before the Tribunal. 16.2. We have heard both side and have perused the material on record. 16.3. The Learned Departmental Representative submitted the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. vs. Commissioner of Income-Tax-1 [2022] 448 ITR 518 (SC)[12/10/2022] has held that in order to claim deduction under Section 43B of the Act, payment must be actually made by the Assessee towards discharge of the liability. Therefore, disallowance made by the Assessing Officer under Section 43B of the Act be reinstated. 16.4. Per Contra, the it was contended on behalf of the Assessee that the Assessing Officer had denied deduction claimed by the assessee under Section 43B (b) to (f) of the Act by applying Explanation (2) to Section 43B of the Act whereas the said Explanation applied only to Section 43B(a) of the Act. It was contended that amount under consideration though incurred during the relevant previous year, were not payable during the relevant previous year as per the applicable statute. Therefore, failure of the Assessee to make payment towards the same during the relevant previous year cannot lead to disallowance under Section 43B(b) to (f) of the Act. ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 39 It was also submitted that identical issue stands decided in favour of the Assessee by the Co-ordinate Benches of the Tribunal in appeals pertaining to the preceding assessment years. 16.5. We have given a thoughtful consideration to the rival contentions and have perused the material on record and have examined the position in law. 16.6. We note that in the case of Checkmate Services Pvt. Ltd. (supra) the Hon’ble Supreme Court has, in the context of Section 43B of the Act, observed as under: “5. With effect from 1-4-1984, Section 43B was inserted. It reads inter alia, as follows: \"Section 43B. Certain deductions to be only on actual payment. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of-- xx xx (b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, or xx xx shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him: Provided that nothing contained in this section shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return.3 Explanation : For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (a) or clause (b) of this section is allowed in computing the income referred to in section 28 of the previous year (being a previous year relevant to the assessment year commencing ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 40 on the 1st day of April, 1983, or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him. xx xx Analysis and Conclusions 30. The factual narration reveals two diametrically opposed views in regard to the interpretation of section 36(1)(va) on the one hand and proviso to section 43(b) on the other. If one goes by the legislative history of these provisions, what is discernible is that Parliament's endeavour in introducing Section 43B [which opens with its non-obstante clause] was to primarily ensure that deductions otherwise permissible and hitherto claimed on mercantile basis, were expressly conditioned, in certain cases upon payment. In other words, a mere claim of expenditure in the books was insufficient to entitle deduction. The assessee had to, before the prescribed date, actually pay the amounts - be it towards tax liability, interest or other similar liability spelt out by the provision. 31. Section 43B falls in Part-V of the IT Act. What is apparent is that the scheme of the Act is such that Sections 28 to 38 deal with different kinds of deductions, whereas sections 40 to 43B spell out special provisions, laying out the mechanism for assessments and expressly prescribing conditions for disallowances. In terms of this scheme, section 40 (which too starts with a non-obstante clause overriding Sections 30-38), deals with what cannot be deducted in computing income under the head \"Profits and Gains of Business and Profession\". Likewise, section 40A(2) opens with a non-obstante clause and spells out what expenses and payments are not deductible in certain circumstances. Section 41 elaborates conditions which apply with respect to certain deductions which are otherwise allowed in respect of loss, expenditure or trading liability etc. If we consider this scheme, Sections 40- 43B, are concerned with and enact different conditions, that the tax adjudicator has to enforce, and the assessee has to comply with, to secure a valid deduction. xx xx 38. This court had occasion to consider the object of ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 41 introducing section 43B, in Allied Motors. The court held, after setting out extracts of the Budget speech of the Finance Minister, for 1983-84, that: \"Section 43B was, therefore, clearly aimed at curbing the activities of those tax-payers, who did not discharge their statutory liability of payment of excise duty, employer's contribution to provident fund, etc., for long periods of time but claimed deductions in that regard from their income on the ground that the liability to pay these amounts had been incurred by them in the relevant previous year. It was to stop this mischief that section 43B was inserted.\" xx xx 42. The rationale for introduction of section 43B was explained by this court in M.M. Aqua Technologies Ltd. v. CIT [2021] 129 taxmann.com 145/282 Taxman 281/436 ITR 582 (SC)/2021 SCC Online SC 575 \"19. The object of section 43B, as originally enacted, is to allow certain deductions only on actual payment. This is made clear by the non-obstante clause contained in the beginning of the provision, coupled with the deduction being allowed irrespective of the previous years in which the liability to pay such sum was incurred by the Assessee according to the method of accounting regularly employed by it. In short, a mercantile system of accounting cannot be looked at when a deduction is claimed under this Section, making it clear that incurring of liability cannot allow for a deduction, but only \"actual payment\", as contrasted with incurring of a liability, can allow for a deduction.\" xx xx 52. When Parliament introduced section 43B, what was on the statute book, was only employer's contribution (Section 34(1)(iv)). At that point in time, there was no question of employee's contribution being considered as part of the employer's earning. On the application of the original principles of law it could have been treated only as receipts not amounting to income. When Parliament introduced the amendments in 1988-89, inserting section 36(1)(va) and simultaneously inserting the second proviso of section 43B, its intention was not to treat the disparate nature of the amounts, similarly. As discussed previously, the memorandum introducing the Finance Bill clearly stated that the provisions - ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 42 especially second proviso to Section 43B - was introduced to ensure timely payments were made by the employer to the concerned fund (EPF, ESI, etc.) and avoid the mischief of employers retaining amounts for long periods. That Parliament intended to retain the separate character of these two amounts, is evident from the use of different language. Section 2(24)(x) too, deems amount received from the employees (whether the amount is received from the employee or by way of deduction authorized by the statute) as income - it is the character of the amount that is important, i.e., not income earned. Thus, amounts retained by the employer from out of the employee's income by way of deduction etc. were treated as income in the hands of the employer. The significance of this provision is that on the one hand it brought into the fold of \"income\" amounts that were receipts or deductions from employees income; at the time, payment within the prescribed time - by way of contribution of the employees' share to their credit with the relevant fund is to be treated as deduction (Section 36(1)(va)). The other important feature is that this distinction between the employers' contribution (Section 36(1)(iv)) and employees' contribution required to be deposited by the employer (Section 36(1)(va)) was maintained - and continues to be maintained. On the other hand, section 43B covers all deductions that are permissible as expenditures, or out-goings forming part of the assessees' liability. These include liabilities such as tax liability, cess duties etc. or interest liability having regard to the terms of the contract. Thus, timely payment of these alone entitle an assessee to the benefit of deduction from the total income. The essential objective of section 43B is to ensure that if assessees are following the mercantile method of accounting, nevertheless, the deduction of such liabilities, based only on book entries, would not be given. To pass muster, actual payments were a necessary pre-condition for allowing the expenditure.” (Emphasis supplied) 16.7. On perusal of the above, it become clear that the Hon’ble Supreme Court has observed that in order to claim deduction for expenses falling with the ambit of Section 43B of the Act, actual payment is the necessary pre-condition. This is made clear by the non-obstante clause contained in the beginning of Section 43B of the Act, coupled with the deduction being allowed irrespective of the previous years in which the liability to pay such sum was incurred (as per the ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 43 method of accounting followed) by as assessee. The assessee had to, before the prescribed date, actually pay the amounts - be it towards tax liability, interest or other similar liability spelt out by the provision. A mere claim of expenditure in the books was insufficient to entitle deduction following mercantile system of accounting. 16.8. It was contended on behalf of the Assessee that the provisions contained in Clause (b) to (f) of Section 43B of the Act would get triggered only if the tax, duty, cess or fee specified therein was payable during the relevant previous year. In this regard we note that in paragraph 38 of the above judgment in the case of Checkmate Services Pvt. Ltd. (supra), the Hon’ble Supreme Court had referred to another judgment of the Hon’ble Supreme Court in the case of ‘Allied Motors’ [Allied Motors Pvt. Ltd. vs. Commissioner of Income-tax [(1997) 224 ITR 677 (SC)]. In that case the the Hon’ble Supreme Court had, while holding that the First Proviso to Section 43B of the Act shall have retrospective operation, observed as under: “4. To understand the circumstances in which section 43B came to be inserted in the Act and the mischief which it sought to prevent, it is necessary to look at the memorandum explaining the provisions in the Finance Bill of 1983 [1983] 140 ITR (St.) 160 : \"59. Under the Income-tax Act, profits and gains of business and profession are computed in accordance with the method of accounting regularly employed by the assessee. Broadly stated, under the mercantile system of accounting, income and outgo are accounted for on the basis of accrual and not on the basis of actual disbursements or receipts. For the purposes of computation of profits and gains of business and profession, the Income-tax Act, defines the word 'paid' to mean 'actually paid or incurred' according to the method of accounting on the basis of which the profits or gains are computed. 60. Several cases have come to notice where taxpayers do not discharge their statutory liability such as in respect of excise duty, employer's contribution to provident fund, Employees' State Insurance Scheme, etc., for long period of time, extending sometimes to several years. For the purpose of their income-tax assessments, they claim the liability as deduction on the ground ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 44 that they maintain accounts on mercantile or accrual basis. On the other hand, they dispute the liability and do not discharge the same. For some reason or the other, undisputed liabilities also are not paid. To curb this practice, it is proposed to provide that deduction for any sum payable by the assessee by way of tax or duty under any law for the time being in force (irrespective of whether such tax or duty is disputed or not) or any sum payable by the assessee as an employer by way of contribution to any provident fund, or superannuation fund or gratuity fund or any other-fund for the welfare of employees shall be allowed only in computing the income of that previous year in which such sum is actually paid by him.\" The Budget Speech of the Finance Minister for the year 1983-84, re-produced in [1983] 140 ITR (St.) 31, is to the same effect. 5. Section 43B was, therefore, clearly aimed at curbing the activities of those taxpayers who did not discharge their statutory liability of payment of excise duty, employer's contribution to provident fund, etc., for long periods of time but claimed deductions in that regard from their income on the ground that the liability to pay these amounts had been incurred by them in the relevant previous year. It was to stop this mischief that section 43B was inserted. It was clearly not realised that the language in which section 43B was worded would cause hardship to those taxpayers who had paid sales-tax within the statutory period prescribed for this payment, although the payment so made by them did not fall in the relevant previous year. This was because the sales-tax collected pertained to the last quarter of the relevant accounting year. It could be paid only in the next quarter which fell in the next accounting year. Therefore, even when the sales-tax had in fact been paid by the assessee within the statutory period prescribed for its payment and prior to the filing of the income-tax return, these assessees were unwittingly prevented from claiming a legitimate deduction in respect of the tax paid by them. This was not intended by section 43B. Hence the first proviso was inserted in section 43B. The amendment which was made by the Finance Act, 1987 in section 43B by inserting, inter alia, the first proviso, was remedial in nature, designed to eliminate unintended consequences which may cause undue hardship to the assessee and which made the provision unworkable or unjust in a specific situation. 6. Looking to the curative nature of the amendment made by the Finance Act, 1987 it has been submitted before us that the proviso which is inserted by the amending Finance Act, 1987 should be given retrospective effect and be read as forming a part of section 43B from its inception. This submission has taken support from decisions of a number of High Courts before whom this question came up for consideration. The High Courts of Calcutta, Gujarat, Karnataka, Orissa, Gauhati, Rajasthan, Andhra Pradesh, Patna and Kerala appear to have taken the view that the proviso must be given retrospective effect. Some of these High Courts have held that 'sum payable' under section 43B(a) refers only to the sum payable in the ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 45 same accounting year, thus excluding sales-tax payable in the next accounting year from the ambit of section 43B(a). The Delhi High Court has taken a contrary view holding that the first proviso to section 43B operates only prospectively. We will refer only to some of these judgments. 7. Explanation 2 was added to section 43B by the Finance Act, 1989 with retrospective effect from 1-4-1984. The memorandum explaining the reasons for introducing Explanation 2, states, inter alia, as follows - [1989] 176 ITR (St.) 123: \"24. Under the existing provisions of section 43B of the Income-tax Act, a deduction for any sum payable by way of tax, duty, cess or fee, etc., is allowed on actual payment basis only. The objective behind these provisions is to provide for a tax disincentive by denying deduction in respect of a statutory liability which is not paid in time. The Finance Act, 1987, inserted a proviso to section 43B to provide that any sum payable by way of tax or duty, etc., liability for which was incurred in the previous year will be allowed as a deduction, if it is actually paid by the due date of furnishing the return under section 139(1) of the Income-tax Act, in respect of the assessment year to which the aforesaid previous year relates. This proviso was introduced to remove the hardship caused to certain taxpayers who had represented that since the sales tax for the last quarter cannot be paid within that previous year, the original provisions of section 43B will unnecessarily involve disallowance of the payment for the last quarter. Certain Courts have interpreted the provisions of section 43B in a manner which may negate the very operation of this section. The interpretation given by these Courts revolves around the use of the words 'any sum payable'. The interpretation given to these words is that the amount payable in a particular year should also be statutorily payable under the relevant statute in the same year. This is against the legislative intent and it is, therefore, proposed, by way of a clarificatory amendment and for removal of doubts, that the words 'any sum payable' be defined to mean any sum, liability for which has been incurred by the taxpayer during the previous year irrespective of the date by which such sum is statutorily payable. This amendment will take effect from April 1, 1984.\" While interpreting section 43B without the first proviso some of the High Courts, in order to prevent undue hardship to the assessee, had taken the view that section 43B would not be attracted unless the sum payable by the assessee by way of tax, duty, cess or fee was payable in the same accounting year. If the tax was payable in the next accounting year, section 43B would not be attracted. This was done in order to prevent any undue hardship to assessees such as the ones before us. The memorandum of reasons takes note of the combined effect of section 43B and the first proviso inserted by the ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 46 Finance Act, 1987. After referring to the fact that the first proviso now removes the hardship caused to such taxpayers it explains the insertion of Explanation 2 as being for the purpose of removing any ambiguity about the term 'any sum payable' under clause (a) of section 43B. This Explanation is made retrospective. The memorandum seems to proceed on the basis that section 43B read with the proviso takes care of the hardship situation and hence Explanation 2 can be inserted with retrospective effect to make clear the ambit of section 43B(a). Therefore, section 43B(a), the first proviso to section 43B and Explanation 2 have to be read together as giving effect to the true intention of section 43B. If Explanation 2 is retrospective, the first proviso will have to be so construed. Read in this light also, the proviso has to be read into section 43B from its inception along with Explanation 2.” 16.9. On perusal of above it becomes clear that in view of the provisions contained in Section 43B of the Act the deduction for specified payments (otherwise allowable under the provisions of the Act) was allowed only on actual payment during the relevant previous year. However, this resulted in disallowance of taxes/duties etc. incurred during the relevant previous year which did not become payable during the relevant previous year (such as sales tax for last quarter). To obviate this unintended hardship, First Proviso to Section 43B of the Act was inserted by the Finance Act, 1987 with effect from 01/04/1988. The First Proviso made it clear that Section 43B shall not apply in relation to any sum which is actually paid by the assessee in the next accounting year if it is paid on or before the due date for furnishing the return of income in respect of the previous year in which the liability to pay such sum was incurred and the evidence of such payment is furnished by the assessee along with the return. Thus, the provisions contained in Section 43B of the Act get triggered even in cases where even if the tax, duty, cess or fee specified in Clause (b) to (f) of Section 43B of the Act, though incurred during the relevant previous year, are not payable during the relevant previous year in which the same were incurred. In the present case, the Assessee had not taken recourse to First Proviso to Section 43B of the Act. ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 47 16.10. Thus, respectfully following the judgment of Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. (supra), and Allied Motors Pvt. Ltd. (supra), we overturn the order passed by the CIT(A) on this issue and reinstate the disallowance of INR.4,57,39,010/- made by the Assessing Officer under Section 43B of the Act. Ground No. 1 raised by the Revenue is allowed. 16.11. Before parting we would like to observe that the Assessee would be free to take recourse to such action as available in law for claiming deduction for expenses disallowed under Section 43B of the Act in the year of actual payment provided other conditions for claiming deduction for the same are satisfied. 17. Ground No. 2 “2. On the facts and in the circumstances of the case, the Ld. CITIA) erred in deleting the disallowance of Rs. 45,08,009/- towards contribution to local organisation, relying upon the CIT(A)'s orders in the assessee's own case of the A.Y. 1900-2000 and 2001-02 which have not been accepted by the department and further appeal has been filled before the ITAT.” 17.1. The Assessing Officer made disallowance of INR.45,08,009/- being amount contributed by the Assessee to various local organisations. The amount disallowed consisted of (a) contribution of INR.12,44,409/- made towards local organizations, (b) contribution of INR.30,50,002/- to the Grasim Jan Kalyan Trust and (c) contribution of INR.2,14,200/- towards cement supply to Sidharth Vihar Trust. In appeal before CIT(A), it was contended that the aforesaid contributions per made by the assessee to help it maintain business smoothly, to ensure good relations, maintain good profile and secure benefit to its business. The CIT(A) granted relief to the Assessee and deleted the disallowance made by the Assessing Officer by following the decision of his predecessor in appeals pertaining to Assessment Years 1996-97 to 2005-06. Being ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 48 aggrieved the Revenue has preferred appeal on this issue. 17.2. We have heard both the sides and have perused the material on record. There is nothing on record to controvert the findings returned by the CIT(A) to the effect that the payments under consideration were made for business purpose. We note that it a recurring issue which has been decided in favour of the Assessee and against the Revenue by the Tribunal in the case of the Assessee in the preceding assessment years. For the immediately preceding Assessment Year 2005-06, the Tribunal had rejected identical ground raised by the Revenue vide Common Order dated 04/07/2023 passed in appeal preferred by the Revenue [ITA No. 3854/MUM/2006] holding as under: “62. The issue arising in ground no.2, raised in Revenue’s appeal, is pertaining to deletion of disallowance towards contribution to local organization. 63. Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench of the Tribunal, vide order dated 13/06/2023, passed in assessee’s own case for the assessment year 2003–04 cited supra, while deciding similar issue in favour of the assessee by following the decision rendered in the preceding year, observed as under:–“ “78. Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench, vide order dated 14/12/2021, passed in assessee‘s own case for the assessment year 2002–03, while following the decision rendered in the preceding year, decided the similar issue in favour of the assessee, by observing as under:–“ “52. Considered the submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee for the A.Y. 2001-02 in favour of the assessee. While deciding the issue in favour of the assessee the Coordinate Bench of the Tribunal in ITA.No. 4083/Mum/2003 dated 22.10.2014 held as under:-“ “32. With regard to the contribution to the ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 49 local organization, the issue has been dealt with by the A.O. at page 6 -7, para 10 of his order. The ld. CIT(A) deleted the addition/disallowance by dealing the issue at page 3, para 7 of his order wherein he has followed the order of the Tribunal in earlier years. 33. We have considered the rival contentions and we found that the issue has been decided by the Tribunal consistently in favour of the assessee in the assessment years 1986-87 to 1989-90, 1994-95 & 1995-96 to 1997-98. In an appeal further filed by the Revenue before the Hon‘ble High Court in assessment years 1988-89, 1994-95, 1995-96, the same has been decided in favour of the assessee. The order of the Tribunal for 2000-01 was not challenged by the Department before the Hon‘ble High Court on this issue. Respectfully following the order of the Tribunal and Hon‘ble High Court in assessee‘s own case, we do not find any reason to interfere with the order of the ld. CIT(A).” 53. Respectfully following the above decision, we sustain the order passed by the Ld.CIT(A) and dismiss the Ground No. 2 raised by the revenue. We order accordingly. 79. The learned DR could not show us any reason to deviate from the aforesaid decision rendered in assessee‘s own case and no change in facts and law was alleged in relevant assessment year. This issue is recurring in nature and has been decided in favour of the assessee in the preceding years. Therefore, respectfully following the judicial precedent in assessee‘s own case cited supra, ground no.2, raised in Revenue‘s appeal is dismissed.” 64. In the absence of any allegation regarding the change in facts or in law in the present case, we find no reason to deviate from the conclusion so reached by the coordinate bench in the preceding year. We find that this issue is recurring in nature and has been decided in favour of the assessee in the preceding years. Therefore, respectfully following the judicial precedent in assessee‟s own case cited supra, ground no.2, raised in Revenue‟s appeal is dismissed.” ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 50 17.3. In view of the above, we find no reason to interfere with the order passed by the CIT(A) allowing deduction for expenses of INR.45,08,009/- as revenue expenditure under Section 37(1) of the Act. Thus, Ground No.2 raised by the Revenue is dismissed. 18. Ground No. 3. “On the facts and in the circumstances of the case, the Ld.CIT(A) erred in deleting the disallowance of Rs. 94,95,125/- towards rural development expenses, relying upon the CIT(A)'s orders in the assessee's own case of the A.Ya. 1996-97 and 2001-02 which have been contested by the department in further appeal before the ITAT.” 18.1. Ground No. 3 raised by the Revenue challenges the order of CIT(A) deleting the disallowance of INR.94,95,125/- made by the Assessing Officer in respect of expenditure incurred by different units of the Assessee during the relevant previous year towards rural development expenses. The Assessee filed details of the aforesaid expenses during the assessment proceedings and claimed that the same be allowed as deduction under Section 37(1) of the Act. The Assessing Officer disallowed the deduction for INR.94,95.125/- following the assessment order passed in the preceding assessment years. In appeal, the CIT(A) deleted the disallowance observing that for the Assessment Years 1996-97 to 2005-06, identical disallowance was deleted by the first appellate authority. Therefore, the Revenue is now in appeal before the Tribunal in this issue. 18.2. We have heard both the sides and have perused the material on record. Both the sides agreed that this a recurring issue which has been decided in favour of the Assessee and against the Revenue by the Tribunal in the case of the Assessee in the preceding assessment years. For the immediately preceding Assessment Year 2005-06, the Tribunal had rejected identical ground raised by the Revenue vide Common Order dated 04/07/2023 passed in appeal ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 51 preferred by the Revenue [ITA No. 3854/MUM/2006] holding as under: “65. The issue arising in ground no.3, raised in Revenue’s appeal, is pertaining to the deletion of disallowance on account of rural development expenses. 66. Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench of the Tribunal, vide order dated 13/06/2023, passed in assessee‟s own case for the assessment year 2003–04 cited supra, while deciding similar issue in favour of the assessee by following the decision rendered in the preceding year, observed as under:– “83. Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench, vide order dated 14/12/2021, passed in assessee‘s own case for the assessment year 2002–03, while following the decision rendered in the preceding year, decided the similar issue in favour of the assessee by observing as under:– “60. Considered the submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee for the A.Y. 2001-02 in favour of the assessee. While deciding the issue in favour of the assessee the Coordinate Bench of the Tribunal in ITA.No. 4083/Mum/2003 dated 22.10.2014 held as under: - 38. Ground No. 6 of Revenue‘s appeal relates to the disallowance of rural development expenses. The A.O. has dealt with this issue at page 9, para 15 and the ld. CIT(A) has dealt with this issue at page 4-5, para 11 of his order. We found that the issue has been decided by the Tribunal in assessee‘s own case in its favour in assessment years 1998-99, 1999-00 & 2000-01. We further found that the Department on this ground is not in appeal before the Hon‘ble High Court in these years. Respectfully following the order of the Tribunal, we do not find any reason to interfere with the order of the ld. CIT(A) for deleting the ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 52 rural development expenses amounting to Rs. 66,08,937/-. 61. Respectfully following the above decision, we sustain the order of the Ld.CIT(A) and dismiss the ground raised by the revenue. We order accordingly. 84. The learned DR could not show us any reason to deviate from the aforesaid decision rendered in assessee‘s own case and no change in facts and law was alleged in the relevant assessment year. This issue is recurring in nature and has been decided in favour of the assessee in the preceding years. Therefore, respectfully following the judicial precedent in assessee‘s own case cited supra, ground no.3, raised in Revenue‘s appeal is dismissed.” 67. In the absence of any allegation regarding the change in facts or in law in the present case, we find no reason to deviate from the conclusion so reached by the coordinate bench in the preceding year. We find that this issue is recurring in nature and has been decided in favour of the assessee in the preceding years. Therefore, respectfully following the judicial precedent in assessee‟s own case cited supra, ground no.3, raised in Revenue‟s appeal is dismissed.” 18.3. In view of the above, we find no reason to deviate from the conclusion so reached by the Co-ordinate Bench of the Tribunal in the case of the Assessee for the immediately preceding Assessment Year 2005-06 and therefore, respectfully following the same, Ground No.3 raised by the Revenue is dismissed. 19. Ground No. 4. “4. On the facts and in the circumstances of the case, the Ld.CIT(A) erred in directing the Assessing Officer to treat the production cost of advertisement films of Rs.4,09,58,428/ as a revenue expenditure by relying upon his earlier orders for the Asst. Years 2002-03 and 2003- 04 without appreciating that the department has not accepted the orders by filing appeal to ITAT.” 19.1. Ground No. 3 raised by the Revenue challenges the order of CIT(A) deleting the disallowance of INR.94,95,125/- made by the Assessing Officer in respect of advertisement films by treating the same as capital expenditure. ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 53 19.2. We find that identical issue had come up for consideration before the Tribunal in the case of the Assessee in the preceding assessment years; and the same was decided in favour of the Assessee and against the Revenue. For the immediately preceding Assessment Year 2005-06, the Tribunal had rejected identical ground raised by the Revenue vide Common Order dated 04/07/2023 passed in appeal preferred by the Revenue [ITA No. 3854/MUM/2006] holding as under: “68. The issue arising in ground no.4, raised in Revenue‟s appeal, ispertaining to the deletion of disallowance made on account of expenses incurred for making advertisement films. 69. Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench of the Tribunal, vide order dated 13/06/2023, passed in assessee‟s own case for the assessment year 2003–04 cited supra, while deciding similar issue in favour of the assessee by following the decision rendered in the preceding year, observed as under:– “97. Having considered the submissions of both sides and perused the material available on record, we find that the Coordinate bench, vide order dated 14/12/2021, passed in assessee‘s own case for the assessment year 2002–03, while following the decision rendered in the preceding year, decided the similar issue in favour of the assessee by observing as under:– “94. Considered the submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee for the A.Y. 2001-02 in favour of the assessee. While deciding the issue in favour of the assessee the Coordinate Bench of the Tribunal in ITA.No. 4083/Mum/2003 dated 22.10.2014 held as under: - “47. The issue in ground No. 13 with regard to deleting the disallowance of expenses incurred for making advertisement films has been dealt with by the A.O. at page 15-16, para 26. The ld. CIT(A) deleted the same after having observed at page ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 54 12-13, para 21 of his order. We found that the issue has already been settled by the Tribunal in assessee‘s own case in A.Y. 1976-77 and no ground was taken by the Department before the Hon‘ble High Court. Similar issue has been decided by the Hon‘ble Supreme Court in the case of Empire Jute Co. Ltd., 124 ITR 1 (SC). Accordingly, we do not find any infirmity in the order of the ld. CIT(A) deleting the disallowance by observing that advertisement film was made only for advertisement and its useful life is very short and such films do not add to the capital structure of the company.” 95. Respectfully following the above decision, we do not find any reason to interfere with the order of the Ld.CIT(A) and dismiss the ground raised by the revenue. We order accordingly. 98. The learned DR could not show us any reason to deviate from the aforesaid decision rendered in assessee‘s own case and no change in facts and law was alleged in relevant assessment year. This issue is recurring in nature and has been decided in favour of the assessee in the preceding years. Therefore, respectfully following the judicial precedent in assessee‘s own case cited supra, ground no.6, raised in Revenue‘s appeal is dismissed.” 70. In the absence of any allegation regarding the change in facts or in law in the present case, we find no reason to deviate from the conclusion so reached by the coordinate bench in the preceding year. We find that this issue is recurring in nature and has been decided in favour of the assessee in the preceding years. Therefore, respectfully following the judicial precedent in assessee‟s own case cited supra, ground no.4, raised in Revenue‟s appeal is dismissed.” 19.3. In absence of any change in law or in facts having been pointed out by the Revenue, we decline to interfere with the order passed by the CIT(A) by respectfully following the above decision of the Tribunal in the case of the Assessee for the Assessment Year 2005- 2006. Thus, Ground No.4. raised by the Revenue is dismissed. ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 55 20. Ground No. 5 “5. On the facts and in the circumstances of the case, the Ld.CIT(A) erred in treating the subsidy amount of Rs. 148.05 crores as non- taxable capital receipt, without appreciating the fact that the main objective of the scheme was to increase sales by giving a sales tax incentive and that there was no capital objective of the scheme.” 20.1. Ground No. 5 raised by the Revenue challenges the order of CIT(A) deleting the addition of INR.148.05 Crores made by the Assessing Officer by treating sales tax subsidies received by different units of the Assessee under various schemes as revenue receipts taxable in the hands of the Assessee. 20.2. During the course of hearing, both the sides agreed that identical issue had come up for consideration before the Tribunal in the case of the Assessee in the immediately preceding Assessment year 2005-06. In appeal preferred by the Assessee, the Tribunal had held the subsidy received by the Assessee was capital receipts not chargeable to tax. The relevant extract of the Common Order dated 04/07/2023 passed in appeal preferred by the Assessee [ITA No. 3517/MUM/2006] for the Assessment Year 2005-2006 reads as under: “11. The issue arising in ground no.3, raised in assessee’s appeal, is pertaining to the taxability of Sales Tax exemption received by the assessee. 12. The brief facts of the case pertaining to the issue, as emanating from the record, are: During the year under consideration, the assessee availed Sales Tax exemption benefit of Rs.143.12 crore from the State Governments for setting–up of industries in the notified area. The assessee claimed that the Sales Tax exemption is a capital receipt not chargeable to tax and, therefore, is to be excluded from the profit while computing the income taxable under the head “Income From Business”. 13. The AO, vide assessment order passed under section 143(3) of the Act, held that the State Governments have not given any ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 56 amount of subsidy either in cash or in-kind to the assessee. It was further held that the object of the government is to grant Sales Tax exemption is to increase sales. It was further held that under the scheme, the assessee is not required to pay the amount of sales tax and there cannot be any question of receiving the subsidy. Therefore, the AO rejected the claim of the assessee and held that the Sales Tax exemption received by the assessee is revenue in nature and therefore is part of the taxable profit of the business. 14. The learned CIT(A), vide impugned order, dismissed the ground raised by the assessee on this issue. Being aggrieved, the assessee is in appeal before us. 15. We have considered the submissions of both sides and perused the material available on record. We find that in the year under consideration, the assessee received Sales Tax subsidy under the following schemes, which has been claimed to be capital in nature:- • Packet Scheme of Incentive, 1988 dated 01/10/1988 by State of Maharashtra • Sales Tax New Incentive Scheme for Industries 1989, Rajasthan • Sales Tax Exemption Scheme (Madhya Pradesh Industrial Policy & Action Plan, 1994) • Sales Tax Waiver Scheme (Package of Fiscal Incentives offered by Government of Tamil Nadu to Industries) • Punjab Industrial Incentive Code under the Industrial Policy, 1996 • Haryana Valued Added Tax Act, 2003 • Sales Tax Incentive Scheme (Incentives offered by Government of Gujarat under the New Incentive Policy- Capital Investment Incentive (General) Scheme-1995-2000) 16. We find that the coordinate bench of the Tribunal, vide order dated 23/06/2023, passed in assessee‟s own case in Grasim Industries Ltd. in ITA No.3439/Mum./2005 and ITA No.4337/Mum./2005, for the assessment year 2004– 05, after considering the Sales Tax subsidy received under the aforesaid schemes held the same to be capital in nature and thus not taxable in the hands of the assessee. The relevant findings of ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 57 the coordinate bench, in the aforesaid decision, are as under:– “54. We have considered the submissions of both sides and perused the material available on record. As per the assessee, the object for the grant of the incentive by the State Governments is to promote setting up industries in the backward/notified areas and therefore, the subsidy is capital in nature. In the year under consideration, the assessee received sales tax subsidiary under the following schemes:- • Packet Scheme of Incentive, 1988 dated 01/10/1988 by State of Maharashtra • Sales Tax New Incentive Scheme for Industries 1989, Rajasthan • Sales Tax Exemption Scheme (Madhya Pradesh Industrial Policy & Action Plan, 1994) • Sales Tax Waiver Scheme (Package of Fiscal Incentives offered by Government of Tamil Nadu to Industries) • Punjab Industrial Incentive Code under the Industrial Policy, 1996 • Haryana Valued Added Tax Act, 2003 • Sales Tax Exemption Scheme (M.P. VanijyikarAdhiniyam, 1994) • Sales Tax Incentive Scheme (Incentives offered by Government of Gujarat under the New Incentive Policy- Capital Investment Incentive (General) Scheme-1995- 2000) 55. We find that the taxability of sales tax exemption received under the schemes of the State of Maharashtra, Haryana, Rajasthan, and Madhya Pradesh came up for consideration before the coordinate bench of the Tribunal in assessee‘s own case in JCIT v/s Grasim industries Ltd, in ITA No. 2155/Mum/2016 etc., for the assessment years 1996-97 to 2000-01. The coordinate bench vide order dated 29/04/2022 decided a similar issue in respect of these schemes in favour of the assessee and held that the subsidy/incentive received by the assessee is in the nature of capital receipt and not chargeable to tax. We find that after analysing each sales tax subsidy scheme, the ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 58 coordinate bench held that the only purpose of these schemes is for setting up industries in the respective areas for industrial development in State and also to accelerate development and absolutely not for augmenting the profits of the assessee. The relevant findings of the coordinate bench, in the aforesaid decision, in this regard are as under:- “5.3.5. From the perusal of the aforesaid schemes together with its objects and preamble, we find that the dominant purpose for which the incentive scheme per se introduced by the respective State Governments was only for the purpose of setting up of industries in the respective areas for industrial development in State and also to accelerate development and absolutely not for augmenting the profits of the assessee. Effectively, the schemes of various State Governments envisaged the rapid industrialisation, growth and new employment generation in the respective areas which would in turn promote the growth of the State. Hence, it could be safely concluded that subsidy / incentive granted is only for setting up of the units based on the fixed percentage of the capital cost and not for running the business of the assessee. Moreover, even this subsidy which is determined based on sales tax assessment orders for 9 years, 6 years etc., are subject to maximum outer limit already fixed under the respective schemes. Though the quantification of the subsidy has been made post commencement of business, the measurement of subsidy is immaterial. In our considered opinion, none of the schemes contemplated to finance the assessee in the form of subsidy / incentive for meeting the working capital requirements of the assessee company post commencement of business. Hence, by applying the purpose test, apparently, the subsidy / incentive received in the instant case would only have to be construed as capital receipts not chargeable to income tax. In this regard, we find that ld. AR placed reliance on the decision of Hon’ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd., reported in 306 ITR 392, wherein the incentive conferred under that scheme were two fold. First, in the nature of higher free sale sugar quota and ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 59 second, in allowing the manufacturer to collect Excise duty on sale price on the free sale sugar in excess of the normal quota, but to pay to the Government only the Excise duty payable on the price of levy sugar. The Hon’ble Supreme Court in para 14 of its decision had held that ―character of receipt of subsidy has to be determined with respect to the purpose for which the subsidy is given. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial.‖ In fact, the Hon’ble Supreme Court while rendering this decision had duly considered its earlier decision in the case of Sahney Steel and Press Works Ltd., reported in 228 ITR 253 and had absolutely no quarrel with that judgement. Rather, it concurred with the decision rendered in Sahney Steel and Press Works Ltd., case. In this regard, it would be relevant to reproduce the operative portion of the decision of Hon’ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd., as under:-“ “14. The second case is Lincolnshire Sugar Co. Ltd. v. Smart 20 TC 643. In that case it was found that Lincolnshire Sugar Co. Ltd carried on the business of manufacturing sugar from home grown beet. The company was paid various sums under British Sugar Industry (Assistance) Act, 1931, out of monies provided by the Parliament. The question was whether these monies were to be taken into account as trade receipts or not. The object of the grant was that in the year 1981, in view of heavy fall in prices of sugar, sugar industries were in difficulty. The Government decided to give financial assistance to certain industries in respect of sugar manufactured by them from home-grown beet during the relevant period. Lord Macmillan held that \"What to my mind is decisive is that these payments were made to the company in order that the money might be used in their business.\" He further observed that: \"I think that they were supplementary trade receipts bestowed upon the company ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 60 by the Government and proper to be taken into computation in arriving at the balance of the company's profits and gains for the year in which they were received.\" 15. In the case before us, the payments were made to assist the new industries at the commencement of business to carry on their business. The payments were nothing but supplementary trade receipts. It is true that the assessee could not use this money for distribution as dividend to its shareholders. But the assessee was free to use the money in its business entirely as it liked and was not obliged to spend the money for a particular purpose like extension of docks as in the Seaham Harbour Dock Co. 5 case (supra). 16. There is a Canadian case St. John Dry Dock & Ship Building Co. Ltd. v. Minister of National Revenue 4 DLR 1, which has close similarity to the case of Seaham Harbour Dock Co. 's case (supra). In that case it was held that where subsidies were given under statutory authority, the statutory purpose for which they are authorised is relevant and may even be decisive in determining whether it is taxable income in the hands of the recipient. In that case, it was pointed out after discussing the Seaham Harbour Dock Co. 's case (supra)as well as that of Lincolnshire Sugar Co. Ltd. 5 case (supra)that subsidy given by the Canadian Government to encourage construction of dry docks was 'an aid to the construction of dry dock and not an operational subsidy'. 17. This precisely is the question raised in this case. By no stretch of imagination can the subsidies whether by way of refund of sales tax or relief of electricity charges or water charges can be treated as an aid to setting up of the industry of the assessee. As we have seen earlier, the payments were to be made only if and when the assessee commenced its production. The said payments were trade for a period of five years calculated from the date of commencement of production in the assessee's factory. The subsidies are ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 61 operational subsidies and not capital subsidies.” 56. Thus, respectfully following the aforesaid decision, rendered in assessee‘s own case, we are of the considered view that the sales tax exemption received by the assessee, in the year under consideration, under the similar schemes of the State of Maharashtra, Haryana, Rajasthan, and Madhya Pradesh are in the nature of capital receipts and therefore not taxable in the hands of the assessee. 57. As regards the Sales Tax Waiver Scheme (Package of Fiscal Incentives offered by the Government of Tamil Nadu to Industries), forming part of the paper book from pages 289-334, we find that the objective of the scheme was for fostering the pace of industrialisation and to enhance the competitiveness of Tamil Nadu for attracting a large share of industrial projects. Accordingly, the Government of Tamil Nadu introduced the aforesaid scheme which includes capital subsidies and sales tax concessions. From page No. 294 of the paper book, we find that as per the said scheme the State Government has provided a set of waivers and deferrals which can be availed by the investor setting up a mega-investment. It is further provided that the concession is available to industries set up anywhere regardless of its location. In this regard, the assessee has also placed on record the eligibility certificate issued under the aforesaid scheme granted to the assessee‘s unit located at Reddipalayam Village for the manufacture of cement. Therefore, upon perusal of the aforesaid documents we are of the considered view that the sales tax exemption scheme floated by the Government of Tamil Nadu is of the nature similar to the schemes considered by the coordinate bench in the earlier years, and thus, sales tax exemption received under this scheme is in the nature of capital receipt. 58. Similarly, as regards the Sales Tax Incentive Scheme (Incentives offered by the Government of Gujarat under the New Incentive Policy–Capital Investment Incentive (General) Scheme–1995–2000), forming part of the paper book from pages 553–575, we find that the said scheme was to accelerate the development of the backward areas of the State and to create large–scale employment opportunities. Further, under the said scheme, it was also ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 62 stressed that the need is to increase the total flow of investment to the industrial sector with the proper development of infrastructure and human resources to sustain long–term growth and achieve sustainable development. From the perusal of the eligibility certificate issued under the aforesaid scheme, forming part of the paper book on page 577, we find that the same also mentions the total investment in fixed assets by the assessee. Therefore, in view of the above, we find that the sales tax exemption scheme of the Government of Gujarat is of the nature similar to the schemes considered by the coordinate bench in the earlier years, and thus, sales tax exemption received under this scheme is in the nature of capital receipt. 59. As regards the Punjab Industrial Incentive Code under the Industrial Policy, 1996, forming part of the paper book from pages 481-490, we find that the said scheme was formulated with a view to promote growth of the industry in the State and for that purpose it provides various incentives for new industrial units that come into production or undertake expansion on or after 01/04/1996. We find that in the scheme, inter-alia, the capital subsidy is provided to the new large and medium units set up in the notified area as mentioned in Annexure- I of the scheme. We find that under the said scheme certificate of eligibility was also issued to the assessee in respect of Vikram Bathinda Cement Grinding Unit. Thus, the dominant purpose for which this incentive scheme was introduced is also for setting up the industry in the notified area to promote industrial growth in the State. Therefore, we are of the considered view that the sales tax exemption received by the assessee under the scheme is also in the nature of capital receipt. Therefore, in view of the above, the sales tax exemptions received by the assessee under all the schemes of various State Governments, as noted above, are in the nature of capital receipt, and thus, are not taxable in the hands of the assessee. Accordingly, grounds no.7.1 and 7.2 raised in assessee‘s appeal are allowed.” 17. In the absence of any allegation regarding the change in facts or in law in the present case, we find no reason to deviate from the conclusion so reached by the coordinate bench in the preceding year. Therefore, respectfully following the judicial ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 63 precedent rendered in assessee’s own case cited supra, ground no.3, raised in assessee’s appeal is allowed.” 20.3. Respectfully following the above decision of the Tribunal in the case of the Assessee for the Assessment Year 2005-2006, we decline to interfere with the order passed by the CIT(A). Thus, Ground No.5. raised by the Revenue is dismissed. 21. Ground No. 6 “6. On the facts and in the circumstances of the case, the Ld. CITIA) erred in allowing the assessee's appeal by stating that provisions of section 41(1) and 28(iv) are not applicable to the case, without appreciating the fact that the loan liability which is in the nature of sales tax liability is only a trading liability and hence cannot be treated as a capital liability and subsequently remission of the same cannot be treated as capital receipt.” 21.1. The relevant facts in brief are that the during the assessment proceedings the Assessing Officer noted that the Assessee had disclosed a surplus of INR.4.13 Crores arising from prepayment of loan liability as Extraordinary Item credited to the Profit & Loss Account. The Assessing Officer treated the same as income by placing reliance upon the order, dated 28/03/2008, passed by the Ld. Commissioner of Income Tax - VI, Mumbai under Section 263 of the Act for the Assessment Year 2005-2006. In appeal, the CIT(A) deleted the aforesaid addition accepting the contention of the Assessee that the provisions of Section 41(1) of the Act would not apply to the facts of the present case as the Assessee has not claimed deduction for the loan liability in any of the preceding assessment years. Being aggrieved, the Revenue is now in appeal before the Tribunal on this issue. 21.2. We have heard both the sides and have perused the material on record. 21.3. The Assessee had placed on record copy of order, dated 11/03/2010, passed in ITA No. 3104/MUM/2008 whereby the order, ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 64 dated 28/03/2008, passed by the Ld. Commissioner of Income Tax - VI, Mumbai under Section 263 of the Act for the Assessment Year 2005-2006 was set aside. The Tribunal had observed that the view taken by the Assessing Officer of not bringing to tax surplus arising from prepayment of loan under Sales Tax Deferment Scheme, 1989 of Government of Rajasthan reflected correct legal position as per the decision of Special Bench of the Tribunal in the case of Suzler India Ltd Vs JCIT (ITA No. 2871 & 2944/MUM/2010, dated 10/11/2010). 21.4. On perusal of the decision of Special Bench of the Tribunal in the case of Suzler India Ltd (supra), we find that the following question came had come up for consideration before the Special Bench of the Tribunal: \"Whether in the facts and circumstances of the case, the remission of deferred sales tax liability is chargeable to tax as business income of the assessee under section 41(1) being remission of trading liability or the same is exempt from tax as capital receipt being remission of loan liability.” Answering the above question in favour of the Assessee, the Special Bench of the Tribunal concluded as under: “108. We have …. Now coming back to the case before us, the assessee was liable to pay sales tax amounts collected from 1-11-1989 to 31-10-1996, payments of which were deferred under the scheme, and the amounts were payable after twelve years in six equal annual instalments commencing from 1-5-2003, which means that the liability was payable in future. Later on, the State Government came with a scheme by which it was provided that if some dealer opts, then they could pay the future liability at a discounted value or what we may call net present value immediately. Thus, in this situation, it cannot be construed as remission of liability; because the State Government has not waived any of the liability as given in the illustrations. Had the State Government accepted lesser amount after twelve years or reduced such instalments, then it could have been a case of remission or cessation. However, in the case before us the State Government has chosen to receive the money immediately which was receivable from 1-5-2003 to 1-5-2008. The amount of Rs. 3,37,13,393 was actually paid to SICOM on 30-12- ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 65 2002. Thus, the amount which was payable from 1-5-2003 to 1-5- 2008, has been paid on 30-12-2002. Thus, it does not satisfy the condition of actual remission in praesenti as opined by the Learned Authors in the above commentary. It is a simple case of collecting the amount at net present value which is due later on and even the formula for collecting the net present value was also given by the SICOM and the amounts have been paid as per that formula. Therefore, such payment of net present value of the future liability cannot be, in our opinion, classify as remission or cessation of the liability so as to attract the provisions of section 41(1)(a) of the Income-tax Act, 1961. We are fully conscious that issue before us is regarding statutory liability and the above discussion and the provisions of the Indian Contract Act referred to by us in the above para relate to contractual liability. However, we have referred to these provisions just to understand the meaning of the expression \"remission\" for the purpose of deciding the case before us under the Income-tax Act and our decision is based on the provisions of the Income-tax Act, 1961 109. For the reasons as stated above, we hold that the deferred sales tax liability Rs. 4,14,87,984 being the difference between the payment of net present value Rs. 3,37,13,393 against the future liability of Rs. 7,52,01,378 credited by the assessee under the capital reserve account in its books of account is a capital receipt and cannot be termed as remission/cessation of liability and consequently no benefit has arisen to the assessee in terms of section 41(1)(a) of the Income-tax Act, 1961. Accordingly, the modified question as framed in para-5 of this order is answered in favour of the assessee and against the revenue.” (Emphasis Supplied) We note that the above decision of the Special Bench of the Tribunal has since been affirmed by the Hon’ble Bombay High Court [(2014) 369 ITR 717 (Bombay), 05/12/2014] and thereafter, by the Hon’ble Supreme Court in the case of Commissioner of Income Tax- 6, Mum. vs. Balkrishna Industries Ltd. [(2018] 252 Taxman 375 (SC)/(2018) 300 CTR 209 (SC), 21/11/2017]. 21.5. Further, on perusal of the order passed by the CIT(A) we find that it was contended by the Assessee before the CIT(A) that the sales tax collected from customers under deferral scheme was treated as income of the assessee, and deduction under Section 43B of the Act was allowed on conversion of deferred tax liability into loan liability. ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 66 The CIT(A) had returned a finding that the Appellant had not claimed deduction for this loan liability in any of the assessment proceedings. Thus, prepayment of the aforesaid loan liability and surplus recorded in the books of account arising therefrom does not attract the provisions of Section 41 or Section 28(iv) of the Act. The aforesaid findings returned by the CIT(A) have gone uncontroverted in the appellate proceedings before the Tribunal. In our view the decision of the CIT(A) is in conformity with the to the view taken by the Tribunal in the case of the Assessee [ITA No. 3104/MUM/2008, dated 11/03/2010]1, and the judicial precedents referred to in the paragraph above. 21.6. In view of the above, we decline to interfere with the order passed by the CIT(A) on this issue. Accordingly, Ground No. 6 raised by the Revenue is dismissed. 22. Ground No. 7 “7. On the facts and in the circumstances of the case, the Ld.CIT(A) erred in holding that conversion of shares of Rajshree Polyfil Ltd. which were acquired in 1992-93, into shares of Century Enka Ltd. is not transfer as the same was on account of amalgamation and has accepted indexation of F.Y 1992-93 instead of indexation of F.Y. 1998-99 while calculating capital gain, without appreciating the fact that this finding is contrary to the provisions of section 48, which provides that indexation will be from the first year in which the assessee held the asset i.e. F.Y. 1998-99, the year in which the shares were first allotted to the assessee.” 22.1. The Ground No. 7 raised by the Revenue is directed against the order of the CIT(A) deleting addition made by Assessing Officer in relation to long-term capital gains disclosed by the Assessee in the return of income. 22.2. The relevant facts in brief are that the Assessee acquired 10,00,000 shares of Rajshree Polyfils Limited (RPL) during the Financial Year 1 In appeal against revisions order passed under Section 263 of the Act for the Assessment Year 2005-2006 ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 67 1992-1993. Subsequently, RPL was amalgamated with Century Enka Limited (CEL) and the Assessee was allotted 50,000 shares of CEL in place of shares of RPL. During the relevant previous year the Assessee sold the aforesaid 50,000 shares of CEL and declared long-term capital loss of INR.31,22,044/- in the return of income. While computing the aforesaid loss, the Assessee claimed cost of acquisition of shares of RPL as the cost of acquisition of shares of CEL. Further, the Assessee also claimed benefit of indexation from the Financial Year 1992-93 treating the same the year of acquisition of asset transferred. The Assessing Officer accepted the cost of acquisition of share of RPL as the cost of acquisition of shares of CEL. However, the Assessing Officer declined to grant the benefit of indexation from the Financial Year 1992-93. According to the Assessing Officer, the asset transferred were shares of CEL which were acquired by the Assessee as a result of amalgamation in Financial Year 1998-99. Thus, the Assessing Officer computed the long term capital loss by granting benefit of indexation from the Financial Year 1998-99. In appeal, the CIT(A) accepted the claim of the Assessee and granted the benefit of indexation from the Financial Year 1992-93 by following the decisions of the Tribunal in the case of Pushpa Sofat Vs ITO: 81 ITD 1. Being aggrieved, the Revenue has carried the issue in appeal before the Tribunal. 22.3. We have considered the rival submission, perused the material on record and examined the position in law in view of the submission made. 22.4. It is admitted position that the shares of RPL were acquired by the Assessee in the Financial Year 1992-93 and that the share of CEL were allotted to the Assessee in place of shares of RPL as a result of amalgamation of RPL and CEL in the year 1998-1999. The Assessing Officer had accepted the cost of acquisition of share of ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 68 RPL as the cost of acquisition of shares of CEL. The dispute is limited to the year from which benefit of indexation of cost of acquisition is to be granted. 22.5. As per the Revenue it is the year of allotment of shares of CEL (i.e. 1998-99) since this is the year in which the asset was first held by the Assessee. Whereas, the contention of the Assessee, which has been accepted by the CIT(A), was that the benefit of indexation must be granted from the year of acquisition of shares of RPL (i.e. 1992-1993). 22.6. During the course of hearing decision of the Special Bench of the Tribunal in the case of Deputy Commissioner of Income-tax, 12(2) vs. Manjula J. Shah: [2009] 126 TTJ 145 (Mumbai) (SB)[16/10/2009] was cited on behalf of the Assessee. In that case while examining a transaction of transfer of asset received by the assessee as gift, it was held that the assessee would be entitled to the benefit of indexed cost of acquisition with reference to year in which previous owner first held the asset. We note that the aforesaid decision of the Special Bench of the Tribunal has been confirmed by the Hon’ble Bombay High Court in Commissioner of Income-tax-12 vs. Manjula J. Shah [2013] 355 ITR 474 (Bombay). The relevant extract of the aforesaid judgment of the Hon’ble Bombay High Court reads as under: “16. It is the contention of the revenue that since the indexed cost of acquisition as per clause (iii) of the Explanation to Section 48 of the Act has to be determined with reference to the Cost Inflation Index for the first year in which the asset was held by the assessee and in the present case, as the assessee held the asset with effect from 1/2/2003, the first year of holding the asset would be FY 2002-03 and accordingly, the cost inflation index for 2002-03 would be applicable in determining the indexed cost of acquisition. 17. We see no merit in the above contention. As rightly contended by Mr. Rai, learned counsel for the assessee, the indexed cost ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 69 of acquisition has to be determined with reference to the cost inflation index for the first year in which the capital asset was 'held by the assessee'. Since the expression 'held by the assessee' is not defined under Section 48 of the Act, that expression has to be understood as defined under Section 2 of the Act. Explanation 1(i)(b) to Section 2(42A) of the Act provides that in determining the period for which an asset is held by an assessee under a gift, the period for which the said asset was held by the previous owner shall be included. As the previous owner held the capital asset from 29/1/1993, as per Explanation 1(i)(b) to Section 2(42A) of the Act, the assessee is deemed to have held the capital asset from 29/1/1993. By reason of the deemed holding of the asset from 29/1/1993, the assessee is deemed to have held the asset as a long term capital asset. If the long term capital gains liability has to be computed under Section 48 of the Act by treating that the assessee held the capital asset from 29/1/1993, then, naturally in determining the indexed cost of acquisition under Section 48 of the Act, the assessee must be treated to have held the asset from 29/1/1993 and accordingly the cost inflation index for 1992-93 would be applicable in determining the indexed cost of acquisition. 18. If the argument of the revenue that the deeming fiction contained in Explanation 1(i)(b) to Section 2(42A) of the Act cannot be applied in computing the capital gains under Section 48 of the Act is accepted, then, the assessee would not be liable for long term capital gains tax, because, it is only by applying the deemed fiction contained in Explanation 1(i)(b) to Section 2(42A) and Section 49(1)(ii) of the Act, the assessee is deemed to have held the asset from 29/1/1993 and deemed to have incurred the cost of acquisition and accordingly made liable for the long term capital gains tax. Therefore, when the legislature by introducing the deeming fiction seeks to tax the gains arising on transfer of a capital asset acquired under a gift or will and the capital gains under Section 48 of the Act has to be computed by applying the deemed fiction, it is not possible to accept the contention of revenue that the fiction contained in Explanation 1(i)(b) to Section 2(42A) of the Act cannot be applied in determining the indexed cost of acquisition under Section 48 of the Act. 19. It is true that the words of a statute are to be understood in their natural and ordinary sense unless the object of the statute suggests to the contrary. Thus, in construing the words 'asset was held by the assessee' in clause (iii) of Explanation to ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 70 Section 48 of the Act, one has to see the object with which the said words are used in the statute. If one reads Explanation 1(i)(b) to Section 2(42A) together with Section 48 and 49 of the Act, it becomes absolutely clear that the object of the statute is not merely to tax the capital gains arising on transfer of a capital asset acquired by an assessee by incurring the cost of acquisition, but also to tax the gains arising on transfer of a capital asset inter alia acquired by an assessee under a gift or will as provided under Section 49 of the Act where the assessee is deemed to have incurred the cost of acquisition. Therefore, if the object of the legislature is to tax the gains arising on transfer of a capital acquired under a gift or will by including the period for which the said asset was held by the previous owner in determining the period for which the said asset was held by the assessee, then that object cannot be defeated by excluding the period for which the said asset was held by the previous owner while determining the indexed cost of acquisition of that asset to the assessee. In other words, in the absence of any indication in clause (iii) of the Explanation to Section 48 of the Act that the words 'asset was held by the assessee' has to be construed differently, the said words should be construed in accordance with the object of the statute, that is, in the manner set out in Explanation 1(i)(b) to section 2(42A) of the Act. 20. To accept the contention of the revenue that the words used in clause (iii) of the Explanation to Section 48 of the Act has to be read by ignoring the provisions contained in Section 2 of the Act runs counter to the entire scheme of the Act. Section 2 of the Act expressly provides that unless the context otherwise requires, the provisions of the Act have to be construed as provided under Section 2 of the Act. In Section 48 of the Act, the expression 'asset held by the assessee' is not defined and, therefore, in the absence of any intention to the contrary the expression 'asset held by the assessee' in clause (iii) of the Explanation to Section 48 of the Act has to be construed in consonance with the meaning given in Section 2(42A) of the Act. If the meaning given in Section 2(42A) is not adopted in construing the words used in Section 48 of the Act, then the gains arising on transfer of a capital asset acquired under a gift or will be outside the purview of the capital gains tax which is not intended by the legislature. Therefore, the argument of the revenue which runs counter to the legislative intent cannot be accepted. 21. Apart from the above, Section 55(1)(b)(2)(ii) of the Act provides that where the capital asset became the property of ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 71 the assessee by any of the modes specified under Section 49(1) of the Act, not only the cost of improvement incurred by the assessee but also the cost of improvement incurred by the previous owner shall be deducted from the total consideration received by the assessee while computing the capital gains under Section 48 of the Act. The question of deducting the cost of improvement incurred by the previous owner in the case of an assessee covered under Section 49(1) of the Act would arise only if the period for which the asset was held by the previous owner is included in determining the period for which the asset was held by the assessee. Therefore, it is reasonable to hold that in the case of an assessee covered under Section 49(1) of the Act, the capital gains liability has to be computed by considering that the assessee held the said asset from the date it was held by the previous owner and the same analogy has also to be applied in determining the indexed cost of acquisition. 22. The object of giving relief to an assessee by allowing indexation is with a view to offset the effect of inflation. As per the CBDT Circular No. 636 dated 31/8/1992 [see 198 ITR 1 (St)] a fair method of allowing relief by way of indexation is to link it to the period of holding the asset. The said circular further provides that the cost of acquisition and the cost of improvement have to be inflated to arrive at the indexed cost of acquisition and the indexed cost of improvement and then deduct the same from the sale consideration to arrive at the long term capital gains. If indexation is linked to the period of holding the asset and in the case of an assessee covered under Section 49(1) of the Act, the period of holding the asset has to be determined by including the period for which the said asset was held by the previous owner, then obviously in arriving at the indexation, the first year in which the said asset was held by the previous owner would be the first year for which the said asset was held by the assessee. 23. Since the assessee in the present case is held liable for long term capital gains tax by treating the period for which the capital asset in question was held by the previous owner as the period for which the said asset was held by the assessee, the indexed cost of acquisition has also to be determined on the very same basis. 24. In the result, we hold that the ITAT was justified in holding that while computing the capital gains arising on transfer of a capital asset acquired by the assessee under a gift, the indexed cost of ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 72 acquisition has to be computed with reference to the year in which the previous owner first held the asset and not the year in which the assessee became the owner of the asset. 25. Accordingly, we dispose off the appeal by answering the question in the affirmative i.e. in favour of the assessee and against the revenue with no order as to costs.” (Emphasis Supplied) 22.7. In our view, the above judgment would also apply to the facts of the present case. It is only by applying the deeming fiction contained in Explanation 1(i)(c) to Section 2(42A) of the Act and Section 49(2) of the Act, that the Assessee is deemed to have held the asset since 1992-93. Once the Revenue has accepted the aforesaid position, the benefit of indexation from the year 1992- 1993 should be granted to the Assessee since the Assessee is also offering to the gain/loss earned in respect of share of RPL held by the Assessee from 1992-93 till 1998-99. It would be pertinent to note that in the present case there is no change of owner; but only substitution of asset held by the same owner (and such substitution is not treated as transfer in terms of Section 47 of the Act). 22.8. In view of the above, we do not find any infirmity in the order passed by the CIT(A) on this issue. Accordingly, Ground No. 7 raised by the Revenue is dismissed. 23. Ground No. 8 “8. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in directing the Assessing Officer not to reduce the claim of deduction of Rs.1,00,90,705/- u/s 80-1A by relying upon his earlier orders on the issue for Asst. Years 1996-97 to 2003-04 without appreciating that the department had not accepted the same by filing an appeal to the ITAT.” 23.1. Ground No. 8 raised by the Revenue challenges the order of the CIT(A) overturning the decision of the Assessing Officer to allocate the Head Office Expenses over different units claiming deduction under Section 80IA of the Act. ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 73 23.2. Both the sides agreed that identical issue had come up for consideration before the Tribunal in the case of the Assessee in the immediately preceding Assessment year 2005-06. In appeal preferred by the Assessee, the Tribunal had held that head office expenses cannot be allocated to units claiming deduction under Section 80IA of the Act. The relevant extract of the Common Order dated 04/07/2023 passed in appeal preferred by the Assessee [ITA No. 3517/MUM/2006] for the Assessment Year 2005-2006 reads as under: “75. The issue arising in ground no.6, raised in assessee’s appeal, is pertaining to the apportionment of Head Office expenses to the Units eligible for deduction under section 80IA of the Act. 76. Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench of the Tribunal, vide order dated 13/06/2023, passed in assessee‟s own case for the assessment year 2003–04 cited supra, while deciding similar issue in favour of the assessee by following the decision rendered in the preceding year, observed as under:– “109. Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench, vide order dated 14/12/2021, passed in assessee‘s own case for the assessment year 2002–03, while following the decision rendered in the preceding year, decided the similar issue in favour of the assessee, by observing as under:– “109.Considered the submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee for the A.Y. 2001-02 in favour of the assessee. While deciding the issue in favour of the assessee the Coordinate Bench of the Tribunal in ITA.No. 4083/Mum/2003 dated 22.10.2014 held as under:- “54. The issue in ground No. 18 pertains to the apportionment of head Office expenses while computing deduction u/s 80IA of the Act. ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 74 55. This issue has been dealt with by the ld. CIT(A) vide his order in page 15- 16, para 23.5 & 23.6. We found that the issue has been decided by the Tribunal in assessee‘s own case in its favour in assessment years 1994-95 to 1998-99 and the Department is not in appeal against the order of the Tribunal. Respectfully following the order of the Tribunal, we do not find any reason to interfere with the order of ld. CIT(A) on this issue.” 110. Respectfully following the above decision, we do not find any reason to interfere with the order of the Ld.CIT(A) and dismiss the ground raised by the revenue. We order accordingly. 110. The learned DR could not show us any reason to deviate from the aforesaid decision rendered in assessee‘s own case and no change in facts and law was alleged in relevant assessment year. This issue has been decided in favour of the assessee in the preceding years also. Therefore, respectfully following the judicial precedent in assessee‘s own case cited supra, ground no.9, raised in Revenue‘s appeal is dismissed.” 77. In the absence of any allegation regarding the change in facts or in law in the present case, we find no reason to deviate from the conclusion so reached by the coordinate bench in the preceding year. We find that this issue is recurring in nature and has been decided in favour of the assessee in the preceding years. Therefore, respectfully following the judicial precedent in assessee’s own case cited supra, ground no.6, raised in Revenue’s appeal is dismissed.” 23.3. Respectfully following the above decision of the Tribunal in the case of the Assessee for the Assessment Year 2005-2006, we decline to interfere with the order passed by the CIT(A). Thus, Ground No.8. raised by the Revenue is dismissed. 24. Ground No.9 “On the facts and in the circumstances of the case, the Ld.CIT(A) erred in deleting the claim of Rs.31,42,48,060/- in respect of profits of Rail System Raspur and Hotgi, relying upon the CIT(A)'s orders in the ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 75 assessee's own case of the A.Ys. 2003-04 to 2005-06, which have been contested by the department in further appeal before the ITAT.” 24.1. By way of Ground No. 9 Revenue has challenged the order of the CIT(A) overturning the decision of the Assessing Officer to deny deduction claimed by the Assessee under Section 80IA of the Act in respect of the profits of Rail System Raspur and Hotgi. 24.2. We have heard both the sides at length on this issue and have perused the material on record. 24.3. It emerged that in appeal preferred by the Assessee for the Assessment Year 2005-06, the Tribunal had allowed the ground raised by the Assessee and had accepted Assessee’s claim for deduction under Section 80IA of the Act in respect of the profits of Rail System Raspur and Hotgi after taking note of identical submission made by both the sides. The relevant extract of the Common Order dated 04/07/2023 passed in appeal preferred by the Assessee [ITA No. 3517/MUM/2006] for the Assessment Year 2005-2006 reads as under: “78. The issue arising in ground no.7, raised in assessee’s appeal, is pertaining to the claim of deduction under section 80IA of the Act in respect of profit derived from Rail System at Raipur, and Hotgi. 79. Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench, vide order dated 23/06/2023, passed in assessee‟s own case for the assessment year 2004–05 cited supra, while deciding a similar claim in favour of the assessee in respect of Rail System at Raipur and Hotgi, observed as under:– “107. Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench of the Tribunal, vide order dated 13/06/2023, passed in assessee‘s own case for the assessment year 2003–04 cited supra, while deciding similar claim in favour of the assessee in respect of Rail System at Raipur, observed as under:– ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 76 “122. We have considered the submissions of both sides and perused the material available on record. In the present case, it is undisputed that the assessee has a cement plant in Raipur District. It is the claim of the assessee that to facilitate the inward and upward movement of goods, the assessee company developed an infrastructure facility for the rail system and the same satisfies the conditions for deduction under section 80-IA of the Act. We find that the assessee on this aspect made detailed submissions before the AO, which have been recorded in para 21.3 of the assessment order. Similarly, the assessee also made submissions before the learned CIT(A), which have been recorded in para 16.4-16.13 of the impugned order, as under:-“ “16.4 The appellant made detailed submission with regard to the issue in dispute before the undersigned. It stated that the appellant company had established a cement plant in Raipur. The nearest available Railway Siding was at a distance of around 20 kilometres from the plant. To facilitate inward and outward movement of goods, the appellant developed infrastructure facility of Rail System. which was made operative in September 1999. The appellant company duly entered into an agreement with Southern East Railway, which is a part of Government of India. It was submitted that there was option available u/s 801A with the appellant to claim deduction for any 10 consecutive years at its own choice. The appellant has opted for claiming the deduction from AY2003- 04 onwards. The income offered for tax by the appellant includes income from Rail System. 16.5 The appellant further submitted that the Rail System is a 'Profit Centre'. The Rail System is engaged in business of providing transportation facility to the cement plant, profit of which is embedded in the profit of the appellant company as a whole. By developing this infrastructure facility, there has been a saving in transportation cost and all over profits of the Company has increased due to such savings. All the businesses of the appellant company are ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 77 interconnected. interlaced and there is common management, funds and control. Profits of the Rail System are embedded in the overall profit of the company. In support of contention that treatment of a transaction in books of account cannot govern the tax statement, the appellant relied on the decisions of the Supreme Court 82 ITR 363 Kadernath Jute Mfg. Co. Ltd Vs. CIT and 227 ITR 172 Tuticurin Alkali Chemical Ltd. 16.6 The appellant further submitted that Sec. 80IA(8) itself contemplates a situation where goods or services are transferred by an eligible undertaking to non eligible undertaking and vice versa. In such cases, deduction is to be allowed based on the market value of such goods or services. It was submitted that Section Itself envisages situation of captive consumption. Reliance was placed 59 ITR 514(Gui.) Anil Starch Ltd. vs CIT. 254 ITR 187(Bom.) CIT vs. Win Laboratories Pvt Ltd and 48 ITR 123(SC) Tata Iron & Steel Co. Ltd. vs State of Bihar. 16.6 Further, it was submitted that the facility of Rail System consists of all that is required to carry on the railway activity in an organised and systematic manner. The activity of Rail System is real and substantial and it is carried on with a said purpose, namely, transportation of goods from one place to another and thereby augmenting profits of the company as a whole by saving transportation cost which it would have otherwise incurred. The profits derived from the Rail System are clearly arising out of the business of developing, operating and maintaining the Rail System. 16.7 The appellant submitted that substantial investment has been made in setting up the Rail System. All the assets are new assets and were not used for any purpose by any person earlier. There is an agreement with the Government for operating and maintaining the Rail System. It employees required personnel directly or through the railway authorities and is bearing the salary cost. relating thereto. ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 78 Rail System is developed on the basis of entirely different technology and employs different equipment and machinery from those applied by the cement unit for cement production. It was also submitted that the Rail System is not formed by splitting up on reconstruction of a business already in existence or by the transfer to a new business of machinery previously used for any purpose. It was therefore, argued that the Rail System is not a part of the cement unit but is an independent unit. 16.8 The appellant submitted that the conditions specified in Section 80IA(4) in respect of an infrastructure facility are fully satisfied in the present case. The Rail System is owned by the appellant company which is a company registered in India. The appellant has entered into an agreement with the Central Government for operating and maintaining the new infrastructure facility. It has started operating and maintaining the infrastructure facility after 1st April 1995. 16.9 The appellant submitted that there is no basis on which the Assessing Officer has mentioned that the legislature's intention was to cover organisations like Konkan Railway, Delhi Metro Corporation, etc. There is no such specific mention in the Act. The appellant relied on the decision of the Bajaj Tempo Ltd vs CIT 156 ITR 188(SC). 16.10 Regarding maintenance of separate books of account, the appellant submitted that there is no such condition for grant of tax holiday benefit. Although separate books of account are not maintained, profit of the eligible business has been computed based on the memorandum books of account and other details maintained by the appellant. The Balance Sheet and Profit & Loss account of the eligible business has been audited by the Chartered Accountant. The appellant has filed along with its Return of Income the form No. 10CCB, duly audited, as per the provisions of Section 801A(7). In the case of CIT vs Dunlop Rubber Co (1) Ltd. 107 ITR 182 (Cal.) it ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 79 was held that for the purpose of tax holiday benefits it is not necessary that the eligible unit must maintain separate books of account. 16.12 The appellant submitted that the number of employees directly employed in the eligible business is not relevant at all. There is an agreement with the railway authority for operation and maintenance of the Rail System and under the said agreement, the operations and maintenance is to be carried out by the railways and the appellant bears the cost of the employees deputed by the railway authorities for this purpose. It is settled position that in order to compute the number of workers, casual and other workers appointed through the contractors have to be taken into consideration. The number of employees, including appointed through the railway authorities, would far exceed 10. The appellant relied 152 ITR 152(Kar.), K.G. Yediyurappa& Co, and 99 Taxmann 229 VikshanaTdg& Investment Pvt Ltd. In any case, the condition of employing a minimum of 10 workers is not applicable to an infrastructure enterprise. 16.13 The appellant argued that the AO's allegations that it has no control over the operations of the Rail system, is baseless and without merits. Merely because the workers are deputed by the railway under the operations and maintenance agreement, does not mean that the appellant has no control over the Rail System. It is not open for the railway authority to use the faclity for any purpose other than for the purpose of appellant's business. The entire loading and unloading is done under the insistence of and supervision of the appellant. The appellant decides the destination to which the material is to be transported. Entire risk and reward in relation to the Rail System are of the appellant. Therefore, it was submitted that the appellant has effective and total control over the Rail System.”. 123. After considering the aforesaid submission, the learned CIT(A) vide impugned order came to the ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 80 conclusion that all the 3 conditions required to be fulfilled as per section 80-IA(4)(i) of the Act are satisfied by the assessee. At the outset, it is pertinent to note that in respect of the same rail terminal at Rawan District, Raipur, deduction under section 80-IA of the Act was allowed in the case of assessee‘s subsidiary company in UltraTech cement Ltd v/s DCIT, in ITA No. 1412/Mum./2018, etc., vide order dated 14/12/2021, by the coordinate bench of the Tribunal. 124. In the assessment order, the AO held that in the present case, the rail system does not have any agreement with the authorities mentioned above. On the contrary, the learned DR though agreed that the assessee has entered into an agreement with South-Eastern Railway administration on 10/04/2000 for the Rail System at Rawan District, Raipur, however, submitted that the same is subsequent to the commencement of operations on 25/09/1999. The learned DR also submitted that since the infrastructure facility was made operational during the financial year 1999-2000, therefore, the claim of benefit under section 80-IA for the alleged infrastructure facility is to be examined as per the provisions of the Act relevant for the financial year 1999-2000. The learned DR also submitted that as per the provisions of section 80-IA (4)(i)(b) of the Act, as applicable for the financial year 1999-2000, such undertaking was required to be transferred to the Central Government, State Government, local authority or such other statutory body. However, the agreement dated 10/04/2000 does not have any such clause and therefore the same is not in conformity with the provisions of the Act. From the perusal of the record, it is evident that aforesaid submissions made by the learned DR were not the basis for disallowance under section 80-IA of the Act. In this regard, the following observations of the Special Bench of the Tribunal in Mahindra and Mahindra Ltd vs DCIT, [2009] 30 SOT 374 (Mumbai) (SB), becomes relevant:- “In our considered opinion the learned Departmental Representative has no jurisdiction to go beyond the order passed by the Assessing Officer. He cannot raise any point different from that considered by ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 81 the Assessing Officer or CIT(A). His scope of arguments is confined to supporting or defending the impugned order. He cannot set up an altogether different case. If the learned DR is allowed to take up a new contention de hors the view taken by the Assessing Officer that would mean the learned A.R. stepping into the shoes of the CIT exercising jurisdiction under section 263. We, therefore, do not permit the learned DR to transgress the boundaries of his arguments.” 125. Therefore, on this preliminary basis only, as noted by the Special Bench of the Tribunal in the aforesaid decision, the contention of the learned DR is rejected. Even otherwise, it is an accepted position that the assessee did not make any claim in the first year of its operation and the claim was made for the first time in the year under consideration, i.e. assessment year 2003- 04. Therefore, we are of the considered view that in order to determine the eligibility of the assessee for deduction under section 80-IA of the Act, the provisions of the Act as applicable for this year become relevant. We find that vide Finance Act 2001, w.e.f. 01/04/2002, the provisions of section 80-IA (4) of the Act were amended and the same reads as under:- (4) This section applies to— (i) any enterprise carrying on the business of (i) developing or ( ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility which fulfils all the following conditions, namely :— (a) it is owned by a company registered in India or by a consortium of such companies; (b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility; (c) it has started or starts operating and maintaining the infrastructure facility on or ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 82 after the 1st day of April, 1995 126. We find that all the aforesaid conditions are satisfied in the present case for claiming deduction under section 80-IA of the Act. As regards the submission of the learned DR that the assessee has constructed a private siding for captive use, we find that similar submission was rejected by the coordinate bench of the Tribunal in the case of assessee‘s subsidiary company in UltraTech cement Ltd (supra), vide order dated 14/12/2021. Further, even though the agreement was entered on 10/04/2000, and the operations commenced in September 1999, it is pertinent to note that the parties to the agreement have honoured the said agreement, and the rights granted therein were not revoked for this reason and the said agreement was still valid in the year under consideration. In view of the aforesaid findings and respectfully following the decision of the coordinate bench cited supra, we find no infirmity in the impugned order allowing deduction under section 80-IA of the Act to the assessee in respect of profits from the rail system. As a result, ground no.11 raised in Revenue‘s appeal is dismissed.” 108. The learned DR made similar submissions, as were made in the preceding assessment year. The learned DR reiterated that the operations commenced prior to entering of the agreement by the assessee with the concerned Railway Authorities. We find that the coordinate bench of the Tribunal in the preceding year duly considered similar arguments of the learned DR and found no merits in the same. We also find that as per section 80IA(4) of the Act, one of the conditions for applicability of the section is that there has to be an agreement entered with the other Statutory Body for developing or operating and maintaining or developing, operating and maintaining a new infrastructure facilities. No material has been brought on record to show that such an agreement does not exist in the present case and the only plea raised by the learned DR is that such an agreement is post the commencement of operation and, therefore, the assessee does not satisfy the conditions as provided in section 80IA(4) of the Act for availing the benefit of the said section. However, we find that the language of the section does not support the submissions so made by the learned DR, as there is ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 83 no specific requirement in the section that such an agreement should be prior to the operation. We find that the said section only requires that there has to be an agreement, which condition as noted by the coordinate bench of the Tribunal in the preceding year is duly satisfied. In the absence of any allegation of change in facts and law as compared to the preceding year, we find no reason to deviate from the view so taken by the coordinate bench in the preceding year. Therefore, respectfully following the decision of the coordinate bench cited supra rendered in assessee‘s own case, we find no infirmity in the impugned order in allowing deduction under section 80IA of the Act to the assessee in respect of profits from Rail System, Raipur, and Hotgi. As a result, ground no.7, raised in Revenue‘s appeal is dismissed.” 80. In the absence of any allegation regarding the change in facts or in law in the present case, we find no reason to deviate from the conclusion so reached by the coordinate bench in the preceding year. Therefore, respectfully following the judicial precedent in assessee’s own case cited supra, ground no.7, raised in Revenue’s appeal is dismissed.” (Emphasis Supplied) 24.4. In view of the above, we do not find any infirmity in the order passed by the CIT(A) on this issue. Therefore, respectfully following the above decision of the Tribunal in the case of the Assessee for the Assessment Year 2005-2006, we decline to interfere with the order passed by the CIT(A). Ground No.9. raised by the Revenue is, therefore, dismissed. 25. Ground No. 10 “10. On the facts and in the circumstances of the case, the Ld.CIT(A) erred in including the excess provision written back and prior period adjustments for the purpose of computing deduction u/s 80HHC without appreciating the fact that deduction u/s 80IA is allowable on 'profits and gains derived from the business of an industrial undertaking' and the source of both the aforesaid incomes is not the industrial undertaking.” 9.3. Ground No. 10 raised by the Revenue is directed against the order of CIT(A) directing the Assessing Officer to include the excess provision written back (INR.3,58,567/-) and prior period ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 84 adjustments (INR.4,89,461/-) in Business Profits for the purpose of computing deduction under Section 80IA of the Act. We note that while adjudicating Ground No. 4 in appeal preferred by the Assessee we have remanded the issue raised back to the file of Assessing Officer with the directions to examine each item forming part of Miscellaneous Receipts of INR.48,448/- before including/excluding the same for the purpose of computing deduction under Section 80IA of the Act. We note that excess provision written back and prior period adjustments were also included in miscellaneous receipts. Accordingly, we remit the issue raised by the Revenue in Ground No. 10 back to the file of the Assessing Officer with the same directions. The Assessing Officer is directed directions to examine provision written back and prior period adjustments forming part of Miscellaneous Receipts before including/excluding the same for the purpose of computing deduction under Section 80IA of the Act. It is clarified that the Assessee shall be granted a reasonable opportunity of being head. In terms of the aforesaid, Ground No. 10 raised by the Revenue is allowed for statistical purposes. In result, the Appeal preferred by the Assessee and the appeal preferred by the Revenue is partly allowed. Order pronounced on 25.02.2025. Sd/- Sd/- (Narendra Kumar Billaiya) Accountant Member (Rahul Chaudhary) Judicial Member म ुंबई Mumbai; दिन ुंक Dated : 25.02.2025 Milan, LDC ITA No.3762 & 4385/Mum/2009 Assessment Years: 2006-2007 85 आदेश की प्रतितिति अग्रेतिि /Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त/ The CIT 4. प्रध न आयकर आय क्त / Pr.CIT 5. दिभ गीय प्रदिदनदध ,आयकर अपीलीय अदधकरण ,म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file. आिेश न स र/ BY ORDER, सत्य दपि प्रदि //True Copy// उप/सह यक पुंजीक र /(Dy./Asstt. Registrar) आयकर अपीलीय अदधकरण, म ुंबई / ITAT, Mumbai "