GRABAL ALOK IMPEX LTD, MUMBAI V. ADDL CIT RG 6(3), MUMBAI

ITA 1776/MUM/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2765 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2016
• Appeal Filed By: Assessee
• Bench Allotted: K
• Assessment Year: 2010-2011
• Appeal Filed On: 26-03-2015
• Court: TRIBUNAL
• Department Lawyers: MUKUNDRAJ CHATE
• Keywords: Capital asset; Transfer pricing; International transaction; Earning of tax free income; Question of law; Notional interest; Capital receipt; Revised return
• Section: 143(3); 92B; 14A; 115JB

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL K , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI AMIT SHUKLA , JM ./ ITA NO. 1776 / MUM/20 1 5 ( / ASSESSMENT YEAR : 20 10 - 2011 ) M/S GRABAL ALOK IMPEX LIMITED TOWER B, 2 ND & 3 RD FLOOR, PENINSULA BUSINESS PARK, G.K.MARG, LOWER PAREL, MUMBAI - 400013 VS. ADCIT, RANGE - 6(3), MUMBAI ./ ./ PAN/GIR NO. : A A A CG 2733 R ( / APPELLANT ) .. ( / RESPONDENT ) /ASSESSEE BY : SHRI M.P.LOHIA & SHRI NIKHIL TIWARI /REVENUE BY : SHRI MUKUNDRAJ CHATE / DATE OF HEARING : 23 / 0 6 /201 6 / DATE OF PRONOUNCEMENT 08 / 07 /201 6 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - MUMBAI, DATED 27 - 1 - 2015, FOR THE ASSESSMENT YEAR 20 10 - 2011 , IN THE MATTER OF ORDER PASSED U/S. 143(3) R.W.S.144C(3) OF THE I.T.ACT. 2. RIVAL CONTENTIONS HAVE BE EN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT T HE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND EXPORT OF VARIOUS EMBROIDERY PRODUCTS AND ACCESSORIES. FOR THE PERIOD RELEVANT TO A.Y. 2010 - 11 , TH E RETURN OF INCOME WAS FILED ON 15.1 0.2010 DECLARING A TOTAL INCOME OF RS.14,90,22,696 UNDER THE NORMAL PROVISIONS OF THE ACT AND BOOK PROFITS OF RS.25, 11,82,337 UNDER THE ITA NO. 1776 / 15 2 PROVISIONS OF SECTION 115JB OF THE ACT. THE CASE OF ASSESSEE WAS SELECTED FOR SCRUTINY AND ALSO REFERRED TO THE TPO FOR AN EXAMINATION OF THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE. THE TPO VIDE HIS ORDER DATED 31 . 12.2013 RECOMMENDED A TRA NSFER PRICING ADJUSTMENT OF RS. 71,05,654 ON ACCOUNT OF CORPORATE GUARANTEE ISSUED BY THE ASSESSEE ON BEHALF OF AN AE AND ANOTHER TRA NSFER PRICING ADJUSTMENT OF RS.9,60,867 ON ACCOUNT OF INTEREST ON ADVANCES GIVEN BY THE ASSESSEE TO ITS AE. BOTH THESE TRANSFER PRICING ADJUSTMENTS WERE INCORPORATED IN THE ASSESSMENT ORDER PASSED ON 11.02.2014. THE ASSESSING OFFICER FURTHER MADE CERTAIN A DDITIONS AND DISALLOWANCES TO THE RETURNED INCOME AND ASSESSED THE TOTAL INCOME OF THE ASSESSEE AT RS.17,53,50,351 UNDER THE NORMAL PROVISIONS O F THE ACT AND AT RS.26,78,15,875 U/S 115JB OF THE ACT. ASSESSEES CLAIM OF TUF SUBSIDY BEING CAPITAL IN NATURE, WAS ALSO DECLINED. 3. F IRST TRANSFER PRICING ADJUSTMENT OF RS.71,05,654 INCORPORATED IN THE ASSESSMENT ORDE R IS ON ACCOUNT OF FEES FOR GUARANTEE ISSUED BY THE ASSESSEE IN FAVOUR OF ITS ASSOCIATED ENTERPRISE. THE RELEVANT FACTS ARE THAT THE ASSESSEE DURING THE PERIOD UNDER CONSIDERATION HAD GIVEN VARIOUS GUARANTEES TO BANKS ON BEHALF OF ITS SUBSIDIARY COMPANY GRABAL ALOK UK LTD. THE ASSESSEE HAD NOT BENCHMARKED ANY OF THESE GUARANTEES IN ITS TRANSFER PRICING STUDY REPORT AS INTERNATIONAL TRANSACTIONS ON THE GROUND THAT THE GUARANTEES PROVIDED BY THE ASSESSEE ON BEHALF OF ITS A E EMANATED OUT OF THE OWNERSHIP OF THE CONCERNED SUBSIDIARY AND WERE QUASI EQUITY IN NATURE AND THAT THE CONCERNED GUARANTEES HAD BEEN ITA NO. 1776 / 15 3 PROVIDED DUE TO BUSINESS SYNERGIES BETWEEN THE ASS ESSEE AND ITS SUBSIDIARY AND FOR THE BUSINESS PU RPOSES OF THE ASSESSEE COMPANY. THE TPO DID NOT ACCEPT THE ASSESSEE'S CONTENTION AND HELD THAT IN AN ARMS LENGTH CONTEXT, ANY PARTY EXTENDING A GUARANTEE WOULD EXPECT FINANCIAL COMPENSATION FOR THE SAME IN TH E FORM OF AN APPROPRIATE GUARANTEE FEE. THE AO RELIED ON THE PROVISIONS OF SECTION 92B OF THE ACT TO HOLD THAT THE EXPRESSION 'INTERNAT I ONAL TRANSACTION' SHALL INCLUDE CAPITAL FINANCING INCLUDING GUARANTEE. FOR THE COMPUTATION OF THE ARMS LENGTH PRICE OF T HE GUARANTEE FEE RECEIVABLE F ROM SUCH TRANSACTIONS, THE AO USED THE CUP METHOD AND CALCULATED GUARANTEE COMMISSION AT THE RATE OF 2.4% PER ANNUM ON THE OUTSTANDING BALANCES DURING THE YEAR FOR WHICH THE CORPORATE GUARANTEES HAD BEEN EXTENDED BY THE ASSESSE E TO ITS AE WAS ACCORDINGLY COMPUTED BY THE TPO AT RS. 71 ,05,564/ - . 4. BY THE IMPUGNED ORDER, THE CIT(A) CONFIRMED THE ACTION OF THE AO, AGAINST WHICH ASSESSEE IS IN FURTHER APPEAL BEFORE US. 5. IT WAS ARGUED BY LD. AR THAT T HE QUANTUM OF THE CORPORATE GU ARANTEE GIVEN BY THE ASSESSEE WAS INSIGNIFICANT AND HAS IN NO WAY IMPACTED THE BORROWING POWERS OF THE ASSESSEE . FURTHER, THE SAME HAS NOT IMPACTED THE INTEREST COST IN RESPECT OF THE BANK BORROWINGS AND IS NOT DETRIMENTAL TO THE INTEREST OF THE ASSESSEE . ALSO, THE GUARANTEE PROVIDED BY THE ASSESSEE HAS NOT BEEN INVOKED. ACCORDINGLY, THERE ARE NO REAL COSTS WHATSOEVER INCURRED BY THE ASSESSEE FOR GIVING THE SAID CORPORATE GUARANTEE AND THERE IS NO CASE FOR M AKING ADDITION IN THIS RESPECT. IT WAS FURTHER AR GUED BY LD. AR THAT T HE TRANSACTION OF GIVING A CORPORATE ITA NO. 1776 / 15 4 GUARANTEE TO A BANK IS NOT AN INTERNATIONAL TRANSACTION. IN THIS CONNECTION, THE ASSESSEE RELIE D ON THE DECISION OF HON'BLE DELHI TRIBUNAL IN CASE OF BHARTI AIRTEL LIMITED (ITA NO 5816/DEI/2012) DAT ED 11 TH MARCH 2014 (AY 2008 - 09 ) . 6. LD. AR ALSO PLACED RELIANCE ON THE FOLLOWING DECISIONS : - I) VIDEOCON INDUSTRIES LTD (43 CCH 0113) (MUM TRIBUNAL) ; II) MICRO INK LIMITED (45 CCH 280); III) SIRO CLINPHARM PVT LIMITED (46 CCH 485) ; IV) MANUGRAPH INDIA LIMITED (ITA NO.2631/MUM/ 2015) DATED 13 TH APRIL 2016. 7. WITHOUT PREJUDICE TO THE ABOVE, IT WAS ARGUED BY LD. AR THAT GUARANTEE COMMISSION RATE OF 0.5% MUST BE APPLIED IN VIEW OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF M/S EVEREST K E NTO CYLINDERS LTD., [2015] 378 ITR 57 AND THE DECISION OF TRIBUNAL IN ITA NO.542/MUM/2012, ORDER DATED 23 - 11 - 2012. FOLLOWING MORE DECISIONS WERE ALSO RELIED UPON : - I) EVEREST KANTO CYLINDER LIMITED VS. ACIT (ITA NO. 550/MUM/2014); II) MAN U GRA P H INDIA LTD (ITA NO 4761/MUM/2013) ; III) ADITYA BIRLA MINACS WORLDWIDE LTD. (7033/M/2012) ; IV) GLENMARK PHARMACEUTICALS LIMITED (ITA NO 5031/MUM/2012) ; V) COX & KINGS LIMITED (ITA NO. 135.4 & 7770/MUM/2014) DATED 4 NOVEMBER 2015 ; VI) MANUGRAPH INDIA LIMITED (ITA NO.491 /MUM/2015) DATED 16 SEPTEMBER 2015 VII) HINDALCO INDUSTRIES LIMITED (ITA NO. 4857/MUM/2012) DATED 16 SEPTEMBER 2015. 8. ON THE OTHER HAND, LD. DR RELIED ON THE ORDER OF LOWER AUTHORITIES AND CONTENDED THAT T HE TRANSACTION OF PROVISION OF BANK GUARANTEE, IN THE FACTS OF THE PRESENT CASE HAS A BEARING ON THE ASSETS OF THE ASSESSEE AT ITA NO. 1776 / 15 5 THE TIME OF THE TRANSACTIONS AND ALSO ON A FUTURE DATE TO THE EXTENT THAT THE BANKS HAD PROVIDED THE FUNDS TO THE SUBSIDIARY HAD OBTAINED A CHARGE ON THE ASSETS OF THE ASSESSEE TO THE EXTENT OF SUCH GUARANTEE GIVEN. THE ARGUMENT OF BUSINESS EXPEDIENCY HAS NO RELEVANCE TO TRANSFER PRICING ASSESSMENT WHEREIN PROVIDING CORPORATE GUARANTEE WOULD BE A SERVICE RENDERED BY THE ASSESSEE, THAT HAD CONFERRED A BENEFIT TO ITS AE, FOR WHICH COMPENSATION WAS REQUIRED TO BE PAID BY THE CONCERNED AE EQUIVALENT TO THE PRICE PAYABLE IN' A SIMILAR ARMS IENGTH TRANSACTION WITH AN UNRELATED PARTY. 9. WE HAVE CONSIDERED RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW AND AL SO DELIBERATED ON THE JUDICIAL PRONOUNCEMENTS REFERRED BY LOWER AUTHORITIES IN THEIR RESPECTIVE ORDERS AS WELL AS CITED BY LD. AR AND DR DURING THE COURSE OF HEARING BEFORE US. THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED BY THE DECISION OF ITAT MUMBA I IN THE CASE OF EVEREST KENTO CYLINDERS LTD. IN ITA NO.542/M/2012, VIDE ORDER DATED 23 RD NOVEMBER, 2012, WHEREIN THE TRIBUNAL HELD THAT GUARANTEE COMMISSION RATE OF 0.5% CAN BE SAID TO BE AT ARMS LENGTH. THIS DECISION OF TRIBUNAL HAS BEEN UPHELD BY HONBL E BOMBAY HIGH COURT , WHICH IS REPORTED AT [2015] 378 ITR 57. AS THE FACTS AND CIRCUMSTANCES IN THE CASE UNDER CONSIDERATION ARE SAME, AS DISCUSSED BY THE TRIBUNAL IN THE CASE OF EVEREST KENTO ITA NO.542/MUM/2012, WHICH WAS CONFIRMED BY THE HONBLE HIGH COU RT CITED ABOVE, WE DIRECT THE AO TO RESTRICT BANK GUARANTEE COMMISSION AT 0.5% WE DIRECT ACCORDINGLY. ITA NO. 1776 / 15 6 10. T HE SECOND GROUND OF APPEAL IS WITH REFERENCE TO THE TRANSFER PRICING ADJUSTMENT MADE IN THE ASSESSMENT ORDER ON ACCOUNT OF INTEREST ON ADVANCES GIVEN BY THE ASSESSEE TO ITS AE. DURING THE PERIOD UNDER CONSIDERATION, THE ASSESSEE HAD GIVEN AN ADVANCE OF RS.81 ,08,748 TO ITS AE GRABAL ALOK INTERNATIONAL LIMITED. THE ASSESSEE HAD NOT BENCHMARKED THIS TRANSACTION ON THE GROUND THAT THE SAID ADVANCES HAD BE EN GIVEN IN THE NORMAL COURSE OF ITS BUSINESS AND WERE TO BE REGARDED AS AN EQUITY INVESTMENT. THE TPO TREATED THE GRANTING OF ADVANCE BY THE ASSESSEE TO ITS AE AS A SHORT TERM CREDIT FACILITY AS THE SAME WERE TO BE ADJUSTED AGAINST THE PAYABLES. BASED ON THE BOND YIELD RATES CORRESPONDING TO THE CREDIT RATING APPLICABLE TO THE CONCERNED AE, INTEREST AT THE RATE OF 11.86% WAS COMPUTED BY THE TPO AS THE ARMS LENGTH INTEREST EXPECTED TO BE RECOVERED BY THE ASSESSEE FROM ITS AE IN A SIMILAR TRANSACTION WITH AN UNRELATED PARTY. ARMS LENGTH INTEREST SO COMPUTED BY THE TPO AT RS.9,60,867 WAS INCORPORATED IN THE ASSESSMENT ORDER AS THE TRANSFER PRICING ADJUSTMENT FOR THIS INTERNATIONAL TRANSACTION. THE ACTION OF THE AO WAS CONFIRMED BY THE CIT(A), AGAINST WHICH TH E ASSESSEE IS IN FURTHER APPEAL BEFORE US. 11 . IT WAS CONTENDED BY LD. AR THAT NO DISALLOWANCE CAN BE MADE FOR STRATEGIC INVESTMENT MADE IN THE SUBSIDIARY COMPANY. AS PER LD. AR SINCE SUFFICIENT OWN FUNDS WERE AVAILABLE WITH THE ASSESSEE TO COVER THE INVES TMENT SO MADE, NO DISALLOWANCE SHOULD BE MADE AS PER VERDICT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER ITA NO. 1776 / 15 7 LIMITED, 313 ITR 340. HE FURTHER CONTENDED THAT INVESTMENT SO MADE IN SHARE APPLICATION MONEY OF THE COMPANY SHOULD BE EXCLUDED. 1 2 . ON THE OTHER HAND, LD. DR RELIED ON THE ORDER OF LOWER AUTHORITIES. 13 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND FROM THE RECORD THAT D URING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD GIVEN ADVANCES TO ITS ASSOCIATE E NTERPRISE GRABAL ALOK INTERNATIONAL LTD ('GALL') OF R S 81,08,748/ - . THE SAID ADVANCE WERE GIVEN IN THE NORMAL COURSE OF BUSINESS AND ADJUSTED AGAINST PAYABLES. BASED ON THE VARIOUS PRECEDENTS OF COURTS AND TRIBUNALS, IT HAS BEEN HELD THAT ALP INTEREST IN THE CASE OF FOREIGN CURRENCY LOANS SHOULD BE ARRIVED ON THE BASIS OF L BOR. IN THIS REGARD, RELIANCE IS PLACED ON VARIOUS DECISIONS WHICH ARE AS FOLLOWS: I) TATA AUTOCOMP SYSTEMS LIMITED ( ITA NO. 1320 OF 2012) (BO M HC); II) COTTON NATURALS (I) PVT L TD (ITA NO 233/ 2014) (DELHI HC); III) COTTON NATURALS (I) PVT LTD (ITA N O 3265/DEL/2011) (DEL TRIBUNAL); IV) EVEREST KANTO CYLINDERS LIMITED (ITA NO 7073/MUM/2012) DATED 25 SEPTEMBER 2014 (MUMBAI TRIBUNAL) V) BHARTI AIRTEL LIMITED (ITA NO 5816/DEI/2012) DATED 11 MARCH 2014 (AY 2008 - 09) (DELHI TRIBUNAL) 14. RESPECTFULLY FOLLOWING THE JUDICIAL PRECEDENTS, WE DIRECT THE AO TO RESTRICT THE DISALLOWANCE IN RESPECT OF NOTIONAL INTEREST ADJUSTMENT TOWARDS ADVANCE GRANTED TO AE, ON THE BASIS OF LIBOR. WE DIRECT ACCORDINGLY. 15. NEXT GRIEVANCE OF THE ASSESSEE RELATES TO DISALLOWANCE OF EXPENSES U/S.14A. 16. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE EARNED DIVIDEND INCOME OF RS.42,82,776/ - AND ASSESSEE SUO MOTO DISALLO WED RS.8,10,663/ - IN THE ITA NO. 1776 / 15 8 COMPUTATION OF INCOME. THE AO COMPUTED DISALLOWANCE OF RS. 1,27,03,271/ - UNDER SECTION 14A BY INVOKING RULE 8D OF INCOME TAX RULES, 1961 . FOLLOWING INVESTMENT WAS MADE BY THE ASSESSEE : - (RS. IN CORRES) INVEST MENT MADE IN AS ON 31 MARCH 2010 AS ON 31 MARCH 2009 ALOK INDUSTRIES LIMITED 31.34 18.30 OTHERS(GB CO - OP BANK LTD.) 0.01 0.01 PREFERENCE SHARES IN SUBSIDIARY COMPANY (OUTSIDE INDIA) 22.38 117.77 EQUITY SHARES IN SUBSIDIARY COMPANY (OUTSIDE INDIA) 0.22 0.22 SHARE APPLICATION MONEY 0 7.8 TOTAL 53.95 144.1 17. LD. AR DREW OUR ATTENTION TO THE FACT THAT ASSESSEE WAS HAVING SUFFICIENT OWN FUNDS AS UNDER : - (RS. IN CORRES) PARTICULARS AS ON 31 MARCH 2010 AS ON 31 MARCH 2009 SHARE CAPITAL 22.48 21.83 SEC URITIES PREMIUM 66.01 70.51 GENERAL RESERVE 5.63 5.63 FOREIGN CURRENCY MONETARY ITEM TRANSLATION ACCOUNT 10.47 0 SURPLUS IN PROFIT & LOSS ACCOUNT 38.51 24.4 TOTAL 143.1 122.37 INVESTMENTS 53.95 144.1 SINCE THE ASSESSEE HAD SUFFICIENT OWN FUNDS WHIC H WERE FAR IN EXCESS OF INVESTMENTS AS OBSERVED FROM THE AFORESAID CHART, A PRESUMPTION MAY BE DRAWN THAT THE AMOUNT HAD BEEN INVESTED LOUT OF OWN FUNDS. 18. FROM THE RECORD WE FOUND THAT IN THE APPELLATE ORDER PASSED FOR AY 2008 - 09 AND AY 2009 - 2010, THE CI T( A) HAS ACCEPTED THE FACT OF THE INVESTMENTS (INCLUDING SHARE APPLICATION MONEY) BEING FUNDED THROUGH OWN FUNDS OF THE ASSESSEE AND HAS DELETED THE DISALLOWANCE OF INTEREST EXPENDITURE. FURTHER THE ASSESSEE HAD SUFFICIENT OWNED FUNDS OF RS 14 4 .1 ITA NO. 1776 / 15 9 CRORES FOR MAKING INCREMENTAL INVESTMENTS DURING THE YEAR OF RS 5.24 CRORES IN ALOK INDUSTRIES LIMITED (EXCLUDING SHARE APPLICATION MONEY CONVERTED INTO SHARES DURING THE YEAR . IN VIEW OF THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF HDFC BANK LTD. 366 ITR 505 AND RELIANCE UTILITIES & POWER LTD., 313 ITR 340 AS WELL AS VARIOUS JUDICIAL PRONOUNCEMENTS REFERRED BY LD. AR, NO DISALLOWANCE ON ACCOUNT OF INTEREST IS TO BE MADE U/S.14A, WHEN THE INVESTMENTS ARE MADE FROM OWN FUNDS. ACCORDINGLY, WE DIR ECT THE AO NOT TO MAKE ANY DISALLOWANCE ON ACCOUNT OF INTEREST. 19. IN VIEW OF THE ABOVE DISALLOWANCE U/S.14A WORKS OUT AT RS. 12,44,207 / - AS UNDER : - SL. NO PARTICULARS AMOUNT IN RUPEES 1 EXPENDITURE DIRECTLY ATTRIBUTABLE TO EXEMPT INCOME 2,949 2 INTERE ST EXPENDITURE (AS INVESTMENTS MADE OUT OF OWN FUNDS) NIL 3 0.5% OF THE AVERAGE VALUE OF INVESTMENT AS CALCULATED BELOW 12,41,258 TOTAL EXPENDITURE COMPUTED AS PER RULE 8D(1+2+3) 12,44,207 LESS : AMOUNT SUO MOTO DISALLOWED 8,10,663 14A DISALLOWANCE TO BE RESTRICTED 4,33,544 ACCORDINGLY, DISALLOWANCE SHOULD BE RESTRICTED TO RS. 12,44,207 / - . HOWEVER, SINCE THE ASSESSEE HAS SUO - MOTO DISALLOWED RS. 8,10,663 / - IN ITS RETURN OF INCOME. THE ADDITIONAL DISALLOWANCE UNDER SECTI ON 14A SHOULD BE RS 4,33,544/ - . 20. WHILE COMPUTING THE PROFIT U/S.115JB, WE DIRECT THE AO TO CONSIDER DISALLOWANCE U/S.14A AT RS.12,44,207/ - , AS DIRECTED BY US HEREINABOVE. ITA NO. 1776 / 15 10 21 . NEXT GRIEVANCE OF THE ASSESSEE RELATES TO TREATING INTEREST SUBSIDY RECEIVED UNDER TECHNOLOGY UPGRADATION FUN D (TUF) SCHEME AS REVENUE RECEIPT. 2 2 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT ASSESSEE HAD AVAILED LOANS FROM VARIOUS BANKS UNDER THE TUF SCHEME. IN ORDER TO ENCOURAGE THE UPGRADATION OF TECHNOLOGY SO AS TO MEET THE GLOBAL CHALLENGES, THE MIN ISTRY OF TEXTILES HAD LAUNCHED THE TUF SCHEME FROM APRIL 1, 1999. UNDER THIS SCHEME THE LENDING AGENCY WOULD REIMBURSE 5% INTEREST COST TO THE BORROWERS UPON SATISFACTIO N OF CERTAIN CONDITIONS. THE ASSESSEE HAD RECEIVED INTEREST SUBSIDY UNDER THIS SCHEME DURING THE YEAR WHICH WAS OFFERED TO TAX IN THE RETURN OF INCOME. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD MADE A CLAIM FOR CONSIDERING INTEREST SUBSIDY RECEIVED UNDER TUF SCHEME AS A CAPITAL RECEIPT NOT CHARGEABLE TO TAX AND REQUESTED TO EXCLUD E THE INTEREST INCOME FROM THE INCOME RETURNED BY THE ASSESSEE . HOWEVER THE AO REFUSED TO ACKNOWLEDGE THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE CLAIM WAS MADE OTHERWISE THAN BY FILING A REVISED RETURN OF INCOME. THE AO OBSERVED THAT AS PER DECISION OF THE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD VS. CIT (284 ITR 323) SUCH CLAIM OF THE ASSESSEE CANNOT BE ENTERTAINED. ACCORDINGLY THE CLAIM MADE BY THE ASSESSEE WAS REJECTED. 2 3 . BY THE IMPUGNED ORDER CIT(A) REJECTED THE CLAIM OF THE ASSESSEE. 24 . WE HAVE CONSIDERED RIVAL CONTENTIONS. THE HONBLE SUPREME COURT, IN THE CASE OF NATIONAL THERMAL POWER COMPANY LTD. VS CIT (229 ITR 383) (COPY IS ENCLOSED AT PB PAGE NO. 516 - 519), HAS OBSERVED THAT EVEN ITA NO. 1776 / 15 11 IF A CLAIM IS NOT MADE BEFORE THE AO, IT CAN BE MAD E BEFORE THE APPELLATE AUTHORITY. FURTHER THE BOMBAY HIGH COURT IN THE CASE OF CIT VS PRUTHVI BROKERS & SHAREHOLDERS PVT. LTD (349 ITR 336), HAVING CONSIDERED THE DECISIONS OF THE SUPREME COURT IN THE CASE OF GOETZE INDIA LTD. (SUPRA) AND ALSO NATIONAL THE RMAL POWER COMPANY LTD. V CIT (SUPRA), HELD THAT THE APPELLATE AUTHORITIES ARE ENTITLED TO CONSIDER THE NEW CLAIM OF THE ASSESSEE AND ADJUDICATE UPON THE SAME ON MERITS OF THE CA SE. AS ALL THE FACTS ARE AVAILABLE ON RECORD, WE ADJUDICATE ASSESSEES CLAIM O F TUF SUBSIDY. FROM THE RECORD WE FOUND THAT THE ASSESSEE HAS RECEIVED REIMBURSEMENT OF INTEREST COST AS PER TUF SCHEME. THE OBJECT OF THE SCHEME WAS TO ENCOURAGE THE UPGRADATION OF TECHNOLOGY. THEREFORE, THE INCOME TO THE EXTENT OF DUTY CREDIT AND REIMBU RSEMENT OF INTEREST COST UNDER TUF SCHEME, WHICH THOUGH CREDITED TO PROFIT AND LOSS ACCOUNT, SHOULD BE TREATED AS CAPITAL RECEIPT, NOT CHARGEAB LE TO TAX. THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED BY THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COU RT IN THE CASE OF SHRI SHAM L AL BANSAL (200 TAXMAN 14)(P&H ). WE FIND THAT IDENTICAL ISSUE UNDER THE TECHNOLOGY UPGRADATION FUND SCHEME (IN SHORT TUFS) OF MINISTRY OF TEXTILES WAS CONSIDERED BY THE HONBLE PUNJAB & HARYANA HIGH COURT IN ITA NO. 472 OF 20 10 VIDE DECISION DATED 17.01.2011. HONBLE HIGH COURT HAS CONSIDERED AND HELD THE ISSUE AS UNDER: - 2. THE ASSESSEE IS ENGAGED IN MANUFACTURE AND SALE OF WOOLEN GARMENTS. IT RECEIVED SUBSIDY FOR REPAYMENT OF LOAN TAKEN FOR BUILDING, PLANT AND MACHINERY UND ER THE CREDIT LINKED CAPITAL SUBSIDY SCHEME UNDER TECHNOLOGY UPGRADATION FUND SCHEME (TUFS) OF MINISTRY OF TEXTILES, GOVERNMENT OF INDIA. THE ASSESSEE CLAIMED THE SAID SUBSIDY ITA NO. 1776 / 15 12 TO BE CAPITAL RECEIPT BUT THE ASSESSING OFFICER DID NOT ACCEPT THE SAME AND ADDE D BACK THE SAME TO THE INCOME OF THE ASSESSEE HOLDING THE SAME TO BE REVENUE RECEIPT. ON APPEAL, THE CIT(A) UPHELD THE PLEA OF THE ASSESSEE, WHICH VIEW HAS BEEN AFFIRMED BY THE TRIBUNAL WITH THE FOLLOWING OBSERVATIONS: - HAVING REGARD TO THE AFORESAID, IN OUR VIEW, IT IS QUITE CLEAR THAT THE OBJECTIVE OF THE SUBSIDY SCHEME WAS TO ENHANCE THE TECHNOLOGY APPARATUS OF THE ASSESSEE BY ASSISTING IN ACQUIRING MACHINERY AND FURTHER THAT THE SUBSIDY SO RECEIVED WAS UTILIZED FOR REPAYMENT OF LOANS TAKEN BY THE ASSE SSEE TO SET UP THE NEW UNIT, AS WAS THE INTENTION OF THE SUBSIDY. 10. CONSIDERED IN THE AFORESAID LIGHT, IN OUR VIEW, THE FACTS OF THE INSTANT CASE ARE ON ALL FOURS COMPARABLE TO THOSE CONSIDERED BY THE HONBLE SUPREME COURT IN THE CASE OF PONNI SUGARS & CHEMICALS LTD. (SUPRA) AND THEREFORE, A NATURAL COROLLARY IS THAT THE NATURE OF THE SUBSIDY IN QUESTION IS CAPITAL. THEREFORE, BOTH ON THE ISSUE OF THE OBJECTIVE OF THE SCHEME AND ON THE UTILIZATION OF THE FUNDS RECEIVED AS SUBSIDY, THE SUBSIDY IS TO BE VI EWED AS CAPITAL IN NATURE HAVING REGARD TO THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF PONNI SUGARS & CHEMICAL LTD. (SUPRA). 11. RELIANCE PLACED BY THE REVENUE ON THE CASE OF SAWHNEY STEELS AND PRESS WORKS LTD. & OTHERS (SUPRA), IN OUR VIEW, IS NOT APPROPRIATE HAVING REGARD TO THE AFORESAID FEATURES OF THE SCHEME, WHICH ARE NOT IN DISPUTE. MOREOVER, IN THE CASE OF SAWHNEY STEELS AND PRESS WORKS LTD. & OTHERS (SUPRA), IT WAS FOUND AS A FACT THAT THE SUBSIDY WAS GIVEN TO MEET RECURRING EXPENDITU RE AND WAS NOT FOR ACQUIRING A CAPITAL ASSET. WHEREAS IN THE INSTANT CASE, ADMITTEDLY, THERE IS NO PROVISION IN THE SCHEME TO GRANT SUBSIDY TO MEET ANY RECURRING EXPENDITURE AND NEITHER SUCH A CASE HAS BEEN SET UP BY THE DEPARTMENT. THE ONLY OBJECTIONS OF THE DEPARTMENT ARE THAT THE SUBSIDY HAS BEEN GIVEN AFTER COMMENCEMENT OF PRODUCTION AND, SECONDLY THAT IT WAS FOR REPAYMENT OF LOANS. BOTH THESE FACTORS DO NOT DISTRACT FROM THE NATURE OF THE SUBSIDY BEING TREATED AS CAPITAL, AS EXPLAINED BY THE HONBLE SU PREME COURT IN THE CASE OF CIT VS. PONNI SUGARS CHEMICALS LTD. [2008] 306 ITR 392 (SC). 3. WE HAVE HEARD LEARNED COUNSEL FOR THE APPELLANT. 4. LEARNED COUNSEL FOR THE REVENUE SUBMITTED THAT THE SUBSIDY WAS NOT GIVEN AT HTE TIME OF SETTING UP OF THE INDUS TRY BUT AFTER COMMENCEMENT OF PRODUCTION FOR REPAYMENT OF LOAN. IN SUCH SITUATION, THE AMOUNT SHOULD HAVE BEEN TREATED AS REVENUE RECEIPT AS PER JUDGMENT OF THE HONBLE SUPREME COURT IN SAHNEY STEEL & PRESS WORKS LTD. & ORS. V. CIT (1997) 228 ITR 253. 5. WE ARE UNABLE TO ACCEPT THE SUBMISSION. 6. THE PURPOSE OF SCHEME UNDER WHICH THE SUBSIDY IS GIVEN, HAS BEEN DISCUSSED BY THE TRIBUNAL. TO SUSTAIN AND PROVE THE ITA NO. 1776 / 15 13 COMPETITIVENESS AND OVERALL LONG TERM VIABILITY OF THE TEXTILE INDUSTRY, THE CONCERNED MINISTRY OF TEXTILE ADOPTED THE TUFS SCHEME, ENVISAGING TECHNOLOGY UPGRADATION OF THE INDUSTRY. UNDER THE SCHEME, THERE WERE TWO OPTIONS, EITHER TO REIMBURSE THE INTEREST CHARGED ON THE LENDING AGENCY ON PURCHASE OF TECHNOLOGY UPGRADATION OR TO GIVE CAPITAL SUBSID Y ON THE INVESTMENT IN COMPATIBLE MACHINERY. IN THE PRESENT CASE, THE ASSESSEE HAS TAKEN TERM LOANS FOR TECHNOLOGY UPGRADATION AND SUBSIDY WAS RELEASED UNDER AGREEMENT DATED 12.7.2005 WITH SMALL INDUSTRY DEVELOPMENT BANK OF INDIA. THE RELEVANT CLAUSE OF TH E AGREEMENT UNDER WHICH THE SUBSIDY WAS GIVEN IS AS UNDER: - PARA 8. - TO PREVENT MISUTILIZATION OF CAPITAL SUBSIDY AND TO PROVIDE AN INCENTIVE FOR REPAYMENT, THE CAPITAL SUBSIDY WILL BE TREATED AS A NON INTEREST BEARING TERM LOAN BY THE BANK/FIS. THE REP AYMENT SCHEDULE OF THE TERM LOAN HOWEVER WILL BE WORKED OUT EXCLUDING THE SUBSIDY AMOUNT AND SUBSIDY WILL BE ADJUSTED AGAINST THE TERM LOAN ACCOUNT OF THE BENEFICIARY AFTER A LOCK IN PERIOD OF THREE YEARS ON A PRO - RATE BASIS IN TERMS OF RELEASE OF CAPITAL SUBSIDY. THERE IS NO APPARENT OR REAL FINANCIAL LOSS TO A BORROWER SINCE THE COUNTERVAILING CONCESSION IS EXTENDED TO THE LOAN AMOUNT. 7. IN VIEW OF ABOVE, THE VIEW TAKEN IN SAHNEY STEEL & PRESS WORKS LTD. & ORS., COULD NOT BE APPLIED IN THE PRESENT CASE , AS IN SAID CASE THE SUBSIDY WAS GIVEN FOR RUNNING THE BUSINESS. FOR DETERMINING WHETHER SUBSIDY PAYMENT WAS REVENUE RECEIPT OR CAPITAL RECEIPT, CHARACTER OF RECEIPT IN THE HANDS OF THE ASSESSEE HAD TO BE DETERMINED WITH RESPECT TO THE PURPOSE FOR WHI CH SUBSIDY IS GIVEN BY APPLYING THE PURPOSE TEST, AS HELD IN SAHNEY STEEL & PRESS WORKS LTD. & ORS. ITSELF AND REITERATED IN LATER JUDGMENT IN CIT V. PONNI SUGARS & CHEMICALS LTD. & ORS. (2008) 306 ITR 392, REFERRED TO IN THE IMPUGNED ORDER OF THE TRIBUNAL . 8. IN VIEW OF ABOVE, SINCE THE MATTER IS COVERED BY JUDGMENT OF THE HONBLE SUPREME COURT IN CIT V. PONNI SUGARS & CHEMICALS LTD. & ORS. [2008] 306 ITR 392(SC) AGAINST THE REVENUE, NO SUBSTANTIAL QUESTION OF LAW ARISES. 11. THUS WE FIND THAT ON IDEN TICAL ISSUE THE MATTER HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. IN THESE CIRCUMSTANCES, WE ARE OF THE OPINION THAT AS HELD HEREINABOVE IN ORDER TO SUSTAIN COMPETITIVENESS IN THE DOMESTIC AS WELL AS INTERNATIONAL MARKETS AND OVERALL LONG - TERM VIABILITY O F THE INDUSTRY , THE CONCERNED MINISTRY ADOPTED THE TUFS SCHEME ENVISAGING TECHNOLOGY UPGRADATION OF THE INDUSTRY. HENCE, THE SUBSIDY RECEIVED IN THIS REGARD FALLS INTO CAPITAL FIELD. HENCE RESPECTFULLY FOLLOWING THE PRECEDENT AS ABOVE WE SET ASIDE THE ORDE R OF THE LD. CIT(APPEALS) AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. ITA NO. 1776 / 15 14 2 5 . IN D CIT VS. GLOSTER JUTE MILLS LTD (ITA 766/KOL/2010) ORDER DATED 2 JULY 2014 , KOLKATA TRIBUNAL HELD THAT IN ORDER TO SUSTAIN COMPETITIVENESS IN THE DOMESTIC AS WELL AS INTERN ATIONAL MARKETS AND OVERALL LONG - TERM VIABILITY OF THE INDUSTRY, THE CONCERNED MINISTRY ADOPTED THE TUFS SCHEME ENVISAGING TECHNOLOGY UPGRADATION OF THE INDUSTRY. HENCE THE SUBSIDY RECEIVED IN THIS REGARD FALLS INTO CAPITAL FIELD. 26. SIMILAR VIEW HAS BEEN TAKEN BY DELHI BENCH OF THE TRIBUNAL IN THE CASE OF D CIT VS M/ S SUTLEJ TEXTILES & INDUSTRIES LTD (ITA NO 5142/ DE L/2013) DATED 3 JULY 2015; AND BY CHENNAI BENCH OF THE TRIBUNAL M/S CN V TEXTILES PVT LTD VS OCIT (ITA 746/MDS/2014) DATED 21 - 11 - 2014 . THE ISSUE IS ALSO COVERED BY THE DECISION OF ITAT MUMBAI BENCH IN THE CASE OF SVG FASHIONS LTD., ITA NO.8565/MUM/2010, ORDER DATED 23 - 12 - 2015. RECENTLY HONBLE SUPREME COURT IN THE CASE OF SHREE BALAJI ALLOYS HELD THAT SUBSIDY BY WAY OF REFUND OF EXCISE DUTY AND IN TEREST FOR SETTING UP NEW INDUSTRIAL UNDERTAKING IS CAPITAL RECEIPT AND NOT TAXABLE AS INCOME. 2 7 . IN VIEW OF THE ABOVE, RESPECTFULLY FOLLOWING THE DECISIONS OF HONBLE SUPREME COURT, HIGH COURT AND THE TRIBUNAL, AS DISCUSSED ABOVE, WE SET ASIDE THE ORDERS OF LOWER AUTHORITIES AND DIRECT THE AO TO TREAT THE INTEREST SUBSIDY RECEIVED UNDER TUF SCHEME AS CAPITAL RECEIPT NOT LIABLE TO TAX. 2 8 . IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 08/07 /201 6 . SD/ - ( AMIT SHUKLA ) SD/ - ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 08/07 /201 6 . . /PKM , . / PS ITA NO. 1776 / 15 15 / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. //TRUE COPY//