M/s. Minda Industries Ltd., New Delhi V. DCIT, New Delhi

ITA 5251/DEL/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8352 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 25-02-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 25-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Rule of consistency; Earning of tax free income; Reasonable cause; Capital receipt
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL , DELHI `E BENCH , NEW DELHI BEFORE SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER , AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER I.T.A. NO. 150 6 /DEL/201 1 ASSESSMENT YEAR : 200 7 - 0 8 & I.T.A. NO. 5251 /DEL/2011 ASSESSMENT YEAR : 200 8 - 09 M/S MINDA INDUSTRIES LTD VS. THE ADDL. C . I . T, B - 64/1, WAZIRPUR INDUSTRIAL AREA RANGE - 6 DELHI 110 052 . NEW DELHI 52 . (PAN: AAA CM 1152 C ) I.T.A. NO. 1 715 /DEL/201 1 ASSESSMENT YEAR : 200 7 - 0 8 THE J .C.I.T [OSD] VS. M/S MINDA INDUSTRIES LTD CIRCLE 6(1) B - 64/1, WAZIRPUR INDUSTRIAL AREA NEW DELHI NEW DELHI 52. (PAN: AAACM 1152 C) (APPELLANT) ( RESPONDENT) ASSESSEE BY : SHRI PRADEEP DINODIA , CA SHRI R.K. KAPOOR, CA DEPARM ENT BY : SHRI P. DAM KANUNJNA, SR - DR DATE OF HEARING : 1 5 .02 .2015 DATE OF PRONOUNCEMENT : 13 . 04 .201 6 2 ITA NOS. 150 6 & 5251, 1 715 /DEL/2011 O R D E R PER CHANDRA MOHAN GARG, J.M. THE ABOVE CAPTIONED CROSS APPEALS BY THE REVENUE AS WELL AS THE ASSESSEE HAVE BEEN DIRECTED AGAINST THE ORDER OF CIT(A) - I X , NEW DELHI DATED 1 4 . 12 .201 0 PASSED IN FIRST APPEAL NO. 1 1 2 / 0 7 - 0 8 FOR ASSESSMENT YEAR 200 7 - 0 8 . THE ASSESSEE HAS ALSO FILED AN APPEAL FOR A.Y 2008 - 09 AGAINST THE ORDER OF THE LD. CIT(A) - IX, NEW DELHI DATED 29.8. 2011 PASSED IN FIRST APPEAL NO. 62/10 - 11 FOR A.Y 2008 - 09. SINCE THE GROUNDS OF APPEAL OF THE ASSESSEE FOR A.Y 2008 - 09 ARE SYNONYMOUS TO A.Y 2007 - 08, THEREFORE, THESE APPEALS ARE CLUBBED TOGETHER AND WE ARE DISPOSING THEM OFF BY THIS COMMON ORDER FOR T HE S AKE OF CONVENIENCE AND BREVITY. 2. BRIEFLY STATED, THE FACTS GIVING RISE TO THE APPEAL FOR A.Y 200 7 - 0 8 ARE THAT THE CASE WAS SELECTED FOR SCRUTINY AND THE AO MADE CERTAIN ADDITIONS AND FRAMED ASSESSMENT U/S 143(3) OF THE INCOME TAX ACT, 1961 [FOR SHORT, 'THE ACT'] AT RS. 24,34,92,800/ - AS AGAINST THE RETURNED INCOME OF RS. 23,21,09,140/ - BY MAKING SEVEN AD DITIONS UNDER DIFFERENT HEADS. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A) WHO UPHELD THE ADDITION PERTAINING TO SALES TAX SUBSIDY AND RESTRICTED THE DISALLOWANCE U/S 14A OF THE ACT TO RS. 2 LAKHS. THE 3 ITA NOS. 150 6 & 5251, 1 715 /DEL/2011 ASSESSEE HAS FILED APPEAL AGAINST THESE ADDITIONS WHICH WERE PARTLY UPHELD BY THE LD. CIT(A). THE REVENUE HAS ALSO FILED APPEAL AGAINST THE ORDER OF THE LD. CIT(A) FOR A.Y 2007 - 08 AGITATING THE OTHER FIVE ISSUES WHEREIN THE LD. CIT(A) DELETED THE ADDITIONS MADE BY THE AO. FOR A.Y 2008 - 0 9, THE ASSESSEE HAS RAISED SIMILAR GROUNDS OF APPEAL WHICH HAVE BEEN RAISED IN 2007 - 08 VIZ. ISSUE OF DISALLOWANCE OF SALES TAX SUBSIDY AND THE ISSUE OF DISALLOWANCE U/S 14A OF THE ACT R.W.R 8D OF THE INCOME - TAX RULES, 1962. GROUND NOS. 1 T O 1.2 OF THE ASSESSEE FOR A.YS 2007 - 08 & 2008 - 09 3. SIMILARLY WORDED GROUNDS OF THE ASSESSEE READ AS UNDER: 1.0 THAT THE LD. CIT(A) HAS GROSSLY ERRED IN LAW AND ON THE FACTS OF THE APPELLANT S CASE IN HOLDING THAT THE SALES TAX SUBSIDY RECEIVED BY THE APPE LLANT WAS A REVENUE RECEIPT. 1.1 THAT THE LD. CIT(A) HAS GROSSLY ERRED IN LAW AND ON THE FACTS AND IN THE CIRCUMSTANCES OF THE APPELLANT S CASE IN CONFIRMING THE ACTION OF THE AO TO HOLD THAT THE SALES TAX SUBSIDY RECEIVED BY THE REVENUE IS OF REVENUE NATURE. 1.2 THAT THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT THE TREATMENT GIVEN BY THE APPELLANT TO THE SALES TAX SUBSIDY BY REDUCING THE SAME FROM THE COST OF FIXED ASSETS WAS THE ONLY POSSIBLE LEGAL TREATMENT TO BE GIVEN TO THE SUBSIDY. 4 ITA NOS. 150 6 & 5251, 1 715 /DEL/2011 4. APROPOS TH E ABOVE GROUNDS, WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE PERUSED THE RELEVANT MATERIAL ON RECORD OF THE TRIBUNAL. THE LD. AR SUBMITTED THAT THE ASSESSEE HAD SET UP A PLANT AT VILLAGE NAVADA, IN A REMOTE AREA IN GURGAON IN THE YEAR 2002 - 03. HE FURTHE R SUBMITTED THAT AS PER THE SCHEME OF SALES TAX OF HARYANA GOVERNMENT, THE ASSESSEE WAS ENTITLED TO SALES TAX EXEMPTION WITH TOTAL UPPER LIMIT OF RS. 451.30 LAKHS DURING THE PERIOD 3.11.2004 TO 2.11.2009. THE LD. AR FURTHER SUBMITTED THAT DURING A.Y 2007 - 08, THE ASSESSEE CLAIMED AN AMOUNT OF RS. 60,70,404/ - AS CAPITAL SUBSIDY IN THIS YEAR AND EARLIER YEARS ALSO AND REDUCED THE SAID AMOUNT FROM THE COST OF FIXED ASSETS U/S 43(1) OF THE ACT. THE LD. AR FURTHER CONTENDED THAT THIS TREATMENT OF ACCOUNT GIVEN BY THE ASSESSEE HAVE BEEN AC CE P T ED BY THE AO IN THE EARLIER A.YS AND UPTO A.Y 2006 - 07, THERE WAS NO DISALLOWANCE IN THIS REGARD. THE LD. AR VEHEMENTLY CONTENDED THAT FOLLOWING THE RULE OF CONSISTENCY, THE AO SHOULD NOT HAVE DISTUR B ED THE SYSTEM OF ACCOUNTING BEING FOLLOWED REGULARLY BY THE ASSESSEE AND ACCEPTED BY THE REVENUE TO TREAT THE SALES TAX SUBSIDY AS CAPITAL RECEIPT AND TO REDUCE THE SAME AMOUNT FROM THE COST OF ASSETS TO CLAIM REDUCED DEPRECATION. PLACING RELIANCE ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. WOODWARD GOVERNOR INDIA PVT. LTD REPORTED IN 312 ITR 254 [SC] AND CIT VS. REALEST BUILDERS AND 5 ITA NOS. 150 6 & 5251, 1 715 /DEL/2011 SERVICES REPORTED AT 307 ITR 202 [SC] , THE LD. AR SUBMITTED THAT A SYSTEM OF ACCOUNTING REGULARLY FO LLOWED BY THE ASSESSEE AND ACCEPTED BY THE DEPARTMENT IN THE EARLIER YEARS SHOULD NOT BE DISTURBED UNLESS THE AO FINDS THAT SUCH SYSTEM DOES NOT REFLECT THE TRUE AND CORRECT TAXABLE INCOME OF THE ASSESSEE. 5. THE LD. AR PLACING RELIANCE OF THE JUDGMENT OF THE HON'BLE HIGH COURT OF GUJARAT IN THE CASE OF CIT VS. BIRLA C X L LTD REPORTED AS 2 0 13 - TIOL 229 - GUJ - IT SUBMITTED THAT AFTER EXAMINING THE VARIOUS TERMS AND CONDITIONS OF GRANTING SUBSIDY HELD THAT THE SALES TAX SUBSIDY IS CAPITAL RECEIPT WHICH CANNOT BE TREATED AS REVENUE RECEIPT . THE LD. AR POINTED OUT THAT HOWEVER, THE ASSESSEE HAD NOT TREATED THE AMOUN T OF SALES TAX SUBSIDY AS REVENUE RECEIPT AND HAD RE DU CED THE SAME FROM COST OF THE FIXED ASSETS AND HAD CLAIMED DEPRECIATION ON THE REDUCED COST OF FIXED ASSETS ARRIVED THEREAFTER BUT HE AO AS WELL AS THE LD. CIT(A) IGNORED THIS ACCOUNTING TREATMENT GIVEN BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT. THE LD. AR VEHEMENTLY CONTENDED THAT THE LD. CIT(A) HAS NOT APPLIED CORRECT LAW TO HOLD THAT THE AMOUNT OF SUBSIDY WAS OF REVENUE NATURE AND THERE WAS NO JUSTIFIED REASONING OR BASIS FOR THE AUTHORITIES BELOW TO D ISTURB THE REGULAR ACCOUNTING TREATMENT GIVEN BY THE ASSESSEE AND ACCEPTED BY THE DEPARTMENT . 6 ITA NOS. 150 6 & 5251, 1 715 /DEL/2011 6. THE LD. AR PLACING RELIANCE ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF PONNI SUGARS AND CHEMICALS VS. CIT 306 ITR 392 [SC] SUBMITTED THAT T HE HON BLE APEX COURT HAS LAID DOWN THAT THE PURPOSE TEST NEEDS TO BE APPLIED TO DETERMINE THE TRUE CHARACTER OF A SUBSIDY AND IF THE PURPOSE OF THE SALES TAX SUBSIDY WAS TO FINANCE CAPITAL INVESTMENT TO PROMOTE INDUSTRY IN THE BACKWARD AREAS, THEN THE SAM E HAS TO BE TREATED AS CAPITAL SUBSIDY AND THE TREATMENT GIVEN BY THE ASSESSEE DURING THE EARLIER A.YS AND THE YEAR UNDER CONSIDERATION WAS TO BE HELD AS CORRECT AND JUSTIFIED AND THE SAME SHOULD BE ACCEPTED BY FOLLOWING THE PRINCIPLE OF CONSISTENCY . THE LD. AR HAS ALSO DRAWN OUR ATTENTION TOWARDS ASSESSEE S PAPER BOOK SPREAD OVER 136 PAGES AND SUBMITTED THAT AS PER THE HARYANA GENERAL SALES TAX ACT, 1973 AND RULE 28C OF THE HARYANA GENERAL SALES TAX RULES, 1975, THE EXEMPTED U N IT WOULD BE REQUIRED TO PAY BALANCE OF TAX AFTER DEDUCTING THE REBATE AND CAPITAL SUBSIDY AND ANY PURCHASE TAX PAYABLE IN THE HANDS OF THE ASSESSEE. THE LD. AR FURTHER POINTED OUT THAT THE ASSESSEE IS ENTITLED TO DE FER THE PAYM E NT OF 50% TAX AND TO RETAIN THE SAME AS CAPITAL SUBSID Y FROM THE STATE. 7 . THE LD. AR ALSO POINTED OUT THAT AS PER THE ENTITLEMENT CERTIFICATE DATED 3.11.2004 AVAILABLE AT PAGE 56 OF ASSESSEE S PAPER BOOK, THE ASSESSEE WAS ENTITLED FOR LIMITED QUANTUM OF TAX CONCESSION 7 ITA NOS. 150 6 & 5251, 1 715 /DEL/2011 FOR THE PERIOD OF ONLY FIVE YEARS WHICH WAS NOT RELATED TO THE QUANTUM OF SALES BUT THE PURPOSE OF THE SAID SUBSIDY AND TAX CONCESSION WAS TO PROMOTE INDUSTRY IN THE BACKWARD AREA AND TO CONTRIBUTE TO FIXED CAPITAL INVESTMENT OF THE ASSESSEE WHICH IS A CAP ITAL SUBSIDY. THE LD. AR LASTLY POINTED OUT THAT THE AO MADE DISALLOWANCE AND ADDITION WITHOUT ANY BASIS AND EVEN THE AO DID NOT ALLOW THE ASSESSEE ALLOWABLE DEPRECIATION ON THE ENHANCED FIXED ASSET WHILE TREATING THE SALES TAX SUBSIDY AS REVENUE RECEIPT INSTEAD OF CAPITAL RECEIPT. 8 . REPLYING TO THE ABOVE, THE LD. DR VEHEMENTLY SUPPORTED THE ACTION OF THE AO AND SUBMITTED THAT DURING THE EARLIER A.Y, THE AO HAD NO OCCASION TO EXAMINE THE ISSUE OF SALES TAX SUBSIDY IN RIGHT PERCEPTION AND A.Y 2007 - 08 WAS F IRST YEAR WHEREIN THIS ISSUE WAS EXAMINED IN DETAIL. THE LD. DR HAS FURTHER DRAWN OUR ATTENTION TOWARDS PARA 2 OF THE ASSESSMENT ORDER AND SUBMITTED THAT AFTER CONSIDERING ALL THE RELEVANT JUDGMENTS, PROPOSITIONS AND RATIO LAID DOWN BY THE HON'BLE SUPREME COURT/HIGH COURT AND CO - ORDINATE BEN C HES OF THE TRIBUNAL, THE AO RIGHTLY HELD THAT THE SALES TAX SUBSIDY /EXEMPTION RECEIVED BY THE ASSESSEE IS NOT CAPITAL SUBSIDY BUT THE SAME IS OF THE REVENUE RECEIPT AND THE SAME HAS TO BE TREATED AS PROFITS AND GAINS OF BUSINESS OR PROFESSION U/S 28(IV) OF THE ACT. THE LD. DR HAS ALSO POINTED OUT THAT THE HON'BLE SUPREME COURT IN THE CASE 8 ITA NOS. 150 6 & 5251, 1 715 /DEL/2011 OF PONNI SUGARS AND CHEMICALS [SUPRA], HAS LAID DOWN THAT THE PURPOSE TEST NEEDS TO BE APPLIED TO DETERMINE THE TRUE CHARACTER OF A SUBSIDY. HE FURTHER SUBMITTED THAT AS PER THE SUBSIDY POLICY IT IS AMPLY CLEAR THAT THE MAIN INTENTION OF THE HARYANA STATE GOVERNMENT WHILE GIVING SALES TAX EXEMPTION WAS TO PROMOTE I NDUSTRY IN THE BACKWARD AREA OF THE STATE AND PART OF SALES TAX WHICH WAS NOT DEPOSITED BY THE ASSESSEE WITH THE EXCHEQUER AND RETAINED AS SUBSIDY HAS TO BE TREATED AS REVENUE RECEIPT. THEREFORE, THE VIEW TAKEN BY THE AUTHORITIES BELOW SHOULD BE UPHELD. 9 . ON CAREFUL CONSIDERATION OF THE ABOVE SUBMISSIONS, AT THE VERY OUTSET, WE OBSERVE THAT THERE IS NO DISPUTE REGARDING THE AMOUNT OF CLAIM OF THE ASSESSEE I.E. RS. 60,70,404/ - FOR A.Y 2007 - 08 AND RS. 59,37,3018/ - FOR A Y 2008 - 09. THE AUTHORITIES BELOW AS WELL AS THE LD. DR HAS ALSO NOT DISPUTED THIS FACT THAT THE ASSESSEE WAS ALLOWED TAX CONCESSION FROM 3.11.2004 TO 2.11.2009 OF RS. 451.30 LAKHS U/R 28C OF THE HARYANA GOVERNMENT SALES TAX RULES, 1975. THE MAIN CONTROVERSY REMAINS THAT THE ASSESSEE IS SIN CE THE BEGINNING CLAIMING AND TREATING SALES TAX SUBSIDY AS CAPITAL RECEIPT AND THE AMOUNT OF CLAIM HAS BEEN DEDUCTED FROM THE TOTAL AMOUNT OF FIXED ASSETS AND AFTER REDUCING THE VALUE OF FIXED ASSETS, THE ASSESSEE HAD CLAIMED DEPRECIATION OF THE REDUCED V ALUE OF FIXED ASSETS. 9 ITA NOS. 150 6 & 5251, 1 715 /DEL/2011 10 . ON THE OTHER HAND, THE AO AS WELL AS THE LD. CIT(A) TREATED THE SALES TAX SUBSIDY AS REVENUE RECEIPT AND THE LD. CIT(A) DIRECTED THE AO TO ALLOW DEPRECIATION TO THE ASSESSEE ON THE ENHANCED VALUE OF FIXED ASSETS AFTER ADDING AMOUNT OF SUBSIDY TO THE OPENING AMOUNT OF FIXED ASSETS. 1 1 . ADMITTEDLY AND UNDISPUTEDLY, THE ASSESSEE WAS HELD ENTITLED FOR SALES TAX SUBSIDY UNDER THE HARYANA GENERAL SALES TAX ACT, 1973 AND RULE 28C OF THE HARYANA GENERAL SALES TAX RULES, 1975, AS PER THE RELEVANT RULES, THE ASSESSEE WAS ENTITLED TO DEFER 50% PAYMENT OF SALES TAX AND TO RETAIN THE SAME AS CAPITAL SUBSIDY FROM THE STATE. RELEVANT PART OF HARYANA GOVERNMENT GENERAL SALES TAX ACT, 1973 RULE 28C READS AS UNDER: THE SCALE OF CONCESSION ADM ISSIBLE TO HIM IS 50%. HE IS ENTITLED TO DETER THE PAYMENT OF RS. 60[50% OF RS. 120] AND RETAIN THE SAME AS CAPITAL SUBSIDY FROM THE STATE. HE IS REQUIRED TO PAY RS. 30 AS PURCHASE TAX [SAME AS IN A NORMAL CASE] AND RS. 10 AS SALES TAX [TOTAL SALES TAX R S. 120 MINUS CAPITAL SUBSIDY. RS. 60 MINUS REBATE ADMISSIBLE RS. 50] IN THE GOVERNMENT TREASURY. PROVIDED THAT NEW INDUSTRIAL UNITS FALLING IN THE CATEGORY B AND CATEGORY C CAN OPT FOR THE SCALE O F TAX CONCESSION ON FIXED SLAB SCALE AS APPLICABLE TO UNITS CATEGORY A. 10 ITA NOS. 150 6 & 5251, 1 715 /DEL/2011 1 2 . AT THIS JUNCTURE, WE RESPECTFULLY TAKE COGNIZANCE OF THE DICTA LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF PONNI SUGARS AND CHEMICALS [SUPRA] WHEREIN THEIR LORDSHIPS EXPLICITLY HELD THAT THE PURPOSE TEST NEED TO BE APPLIED TO DE TERMINE THE TRUE CHARACTER OF A SUBSIDY. IN THE CASE OF BIRLA CXL LTD [SUPRA], THE HON'BLE HIGH COURT OF GUJARAT HELD THAT THE MAIN PURPOSE OF THE RESOLUTION WAS TO MODERNIZE INDUSTRIES WHICH ORDINARILY WOULD COME AT A CONSIDERABLE COST, PARTICULARLY WHEN SUCH INDUSTRIES W E RE LOCATED N UNDERDEVELOPED AREAS. THEIR LORDSHIPS FURTHER HELD THAT FOR THIS PURPOSE, THAT THE SAID SCHEME WAS TO PROMOTE GIVING BENEFIT OF SALES TAX WAIVER/DEFERMENT AT THE OPTION OF THE INDUSTRY CONCERNED AND SUCH H A D TO BE COMPUT E D IN TERMS OF PERCENTAGE OF FIXED CAPITAL INVESTMENT AND BENEFITS WERE TO LAST FOR SPECIFIED PERIODS AND UPTO EXHAUSTING MINIMUM LIMIT COMPUTED IN TERMS OF THE PERCENTAGE OF THE FIXED CAPITAL INVESTMENT. 1 3 . IN THE PRESENT CASE, AS PER TABLE 2 OF RULE 28C OF THE RULES APPLICABLE TO THE INDUSTRIAL UNIT, TAX CONCESSION FOR MEDIUM/LARGE SCALE INDUSTRIAL UNITS HAVE BEEN LINKED WITH FIXED CAPITAL INVESTMENT AND ALSO IN TABLE 2 APPLICABLE TO INDUSTRIAL UNTIES THE TAX CONCESSION HAS BEEN LINKED WITH ADDITIONAL INVESTMENT IN PLANT AND MACHINERY WHICH CLEARLY SHOWS THAT THE PURPOSE OF SALES TAX SUBSIDY BY THE HARYANA GOVERNMENT BY WAY OF TAX CONCESSION/SUBSIDY WAS TO 11 ITA NOS. 150 6 & 5251, 1 715 /DEL/2011 CONTRIBUTE TOWARDS THE CAP I TAL INVESTMENT MADE BY ENTREPRENEURS AND THE AM OUNT OF SUBSIDY HAS BEEN CLEARLY DEFINED AS CAPITAL SUBSIDY. IN VIEW OF THE ABOVE, IN THE INSTANT CASE WHILE WE APPLY THE PURPOSE TEST LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF PONNI SUGARS AND CHEMICALS LTD [SUPRA], IT IS CLEAR THAT THE PURPO SE OF THE HARYANA GOVERNMENT TO GRANT SALES TAX SUBSIDY TO THE UNIT WAS CAPITAL CONTRIBUTION AND TH EREFORE. THE ASSESSEE REDUCED THE AMOUNT OF SALES TAX SUBSIDY FROM THE OPENING AMOUNT OF FIXED ASSETS AND CLAIM DEPRECIATION ON REDUCED VALUE OF FIXED ASSETS . 14. WHEN WE ANALYZE THE FACTS AND CIRCUMSTANCES OF THE CASE, IN THE LIGHT OF THE PROPOSITION LAID DOWN BY THE HON'BLE HIGH COURT OF GUJARAT IN CASE OF BIRLA CXL [SUPRA] WE ARE CONVINCED THAT IN THE PRESENT CASE, THE MAIN PURPOSE OF SALES TAX SUBSIDY/CO NCESSION GIVEN BY THE HARYANA GOVERNMENT TO THE ASSESSEE UNIT WAS TO GIVE BENEFIT ON SALES TAX WAIVER/DEFERMENT AT THE OPTION OF THE INDUSTRY CONCERNED. FROM THE TABLES GIVEN IN RULE 28C, IT IS ALSO CLEAR THAT THE TAX CONCESSION/SUBSIDY HAVE BEEN LINKED W ITH THE AMOUNT OF FIXED CAPITAL INVESTMENT AND PERCENTAGE AND PERIOD OF SUBSIDY HAS ALSO BEEN LINKED AND FIXED WITH THE FIXED CAPITAL INVESTMENT IN THE CA S E OF NEW INDUSTRIAL UNIT AND ADDITIONAL INVESTMENT IN PLANT AND MACHINERY FOR EXPANSION AND DIVERSIFY UNITS. THE SALES TAX SUBSIDY/CONCESSION 12 ITA NOS. 150 6 & 5251, 1 715 /DEL/2011 BEN E F IT WERE TO LAST FOR FIVE Y EARS AND THE AMOUNT OF SUBSIDY WAS ALSO FIXED TO RS. 451.30 LAKHS AS MAXIMUM LIMIT WHICH WAS COMPUT E D IN TERMS OF PERCENT AGE OF FIXED CAPITAL INVESTMENT. THEREFORE, THE ASSESSEE RIGHTLY TREATED THE ASSESSEE SALES TAX SUBSIDY AS CAPITAL SUBSIDY SINCE THE FIRST TWO YEAR S OF SUBSIDY PERIOD THAT WAS A.Y 2005 - 06 AND 2006 - 07 WHICH WAS ACCEPTED BY THE DEPARTMENT. 1 5 . ADMITTEDLY AND UNDISPUTEDLY, THE ISSUE OF SALES TAX SUBSIDY WAS NOT AGITATED BY THE AUTHORITIES BELOW IN THE EARLIER A.Y FROM 2005 - 06 TO 2006 - 07 AND THE ASSESSEE CONSISTENTLY TREATED THE SALES TAX SUBSIDY AS CAPITAL RECEIPT AND TREATMENT WAS ACCEPTED BY THE REVENUE AUTHORITIES. FURTHER , A.Y 2007 - 08 WAS FIRST YEAR WHEN THE AO TREATED SALES TAX SUBSIDY AS REVENUE RECEIPT INSTEAD OF CAPITAL RECEIPT AS CLAIMED AND TREATED BY THE ASSESSEE IN HIS BOOKS OF ACCOUNT. HOWEVER, WE MAY POINT OUT THAT THE PRINCIPLE OF RES JUDIC ATE DOES NOT APPLY TO TAX PROCEEDINGS. AT THE SAME TIME, WE NOTE THAT THE PRINCIPLE OF CONSISTENCY SHOULD BE RESPECTED BY REVENUE AUTHORITIES WHICH SAYS THAT A SYSTEM O F ACCOUNTING REGULARLY FOLLOWED BY THE ASSESSEE AND ACCEPTED BY THE REVENUE SHOULD NOT B E DISTURBED SUBSTANTIALLY UNLESS THE AO FINDS THAT SUCH SYSTEM DOES NOT REFLECT T HE TRUE FACTUAL INCOME OF THE ASSESSEE. 13 ITA NOS. 150 6 & 5251, 1 715 /DEL/2011 16. IN THE PRESENT CASE, UNDISPUTEDLY AND ADMITTEDLY THE AO ACCEPTED THE TREATMENT GIVEN BY THE ASSESSEE TO THE SALES TAX SUBSIDY AS CAPITAL RECEIPT IN A.YS 2005 - 06 AND 2006 - 07 AND FOR A.YS 2007 - 08 AND 2008 - 09. T HE AO HAS NOT BROUGHT OUT ANY ALLEGATION OR FACTS TO ALLEGE THAT THAT THE INCOME DOES NOT REFLECT TRUE FACTUAL INCOME OF THE ASSESSEE. I N THIS SITUATION, WE ARE INCLINED TO HOLD THAT THE AUTHORITIES BELOW FLAUNTED THE RULE OF CONSISTENCY WITHOUT ANY JUSTIFIED CAUSE OR BASIS AND IN VIEW OF THE PROPOSITION LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. WOODWARD [SUPRA] AND CIT VS. REALIST BUILDERS [SUPRA] A SYSTEM OF ACCOUNTING FOLLOWING BY THE ASSESSEE AND ACCEPTED BY THE REVENUE DURING THE EARLIER YEARS, CONSISTENCY CANNOT BE DISTURBED WITHOUT ANY REASONABLE CAUSE OR JUSTIFIED REASONING. 17. ON THE BASIS OF FOREGOING DISCUSSION, WE HAVE NO HESITATION TO HOLD THAT IN THE PRESENT FACTS AND CIRCUMSTANCES OF THE CASE WHEREIN THE PROVISIONS OF RULE 28C OF THE HARYANA GOVERNMENT GENERAL SALES TAX RULES , AS REPRODUCED HEREINABOVE, ARE SELF SPEAKIN G AND CLEARLY MANDATES THAT THE SALES TAX SUBSIDY GIVEN TO THE INDUSTRIAL UN IT FOR PROMOTION OF INDUSTRY FOR A SPECIFIED PERIOD OF ITEM AS PER SPECIFIED PERCENTAGE TO THE LIMITED AMOUNT, THE SAME HAS TO BE TREATED A CAPITAL SUBSIDY AS PER THE PURPOSE TEST LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE PONNI SUGAR MILLS [SUPRA] . FINALLY, WE HOLD 14 ITA NOS. 150 6 & 5251, 1 715 /DEL/2011 THAT THE AO AS WELL AS THE LD. CIT(A) WERE NOT CORRECT AND JUSTIFIED IN TREATING THE AMOUNT OF SALES TAX SUBSIDY AS REVENUE RECEIPT INSTEAD OF CAPITAL RECEIPT AS CLAIMED BY THE ASSESSEE. THEREFORE, THE CONCLUSION OF THE AUTHORITIES BEL OW IS NOT SUSTAINABLE AND THUS WE DISMISS AND DEMOLISH THE SAME. ACCORDINGLY, GROUND NO. 1 TO 1.2 OF THE ASSESSEE FOR A.Y 2007 - 08 AND 2008 - 09 ARE ALLOWED AND THE AO IS DIRECTED TO TREAT THE AMOUNT OF SALES TAX SUBSIDY AS CAPITAL RECEIPT AND TO GRANT DEPRE CIATION ON THE REDUCED VALUE OF FIXED ASSETS. GROUND NO. 2 OF THE ASSESSEE FOR A.Y 2007 - 08 1 8 . GROUND NO 2 OF THE ASSESSEE READS AS UNDER: 2. THAT THE LD. CIT(A) HAS GROSSLY ERRED IN LAW AND ON THE FACTS OF THE APPELLANT S CASE IN ATTRIBUTING A SUM OF RS. 2 LAKHS U/S 14A OF THE ACT IN SPITE OF THE FACT THAT NO DIVIDEND INCOME HAS BEEN EARNED BY THE APPELLANT DURING THE YEAR UNDER CONSIDERATION. GROUND NO. 2 OF THE ASSESSEE FOR A.Y 2008 - 09 1 9 . GROUND NO 2 OF THE ASSESSEE READS AS UNDER: 2. THAT THE LD. CIT(A) HAS GROSSLY ERRED IN LAW AND ON THE FACTS OF THE APPELLANT S CASE IN CONFIRMING THE DISALLOWANCE U/S 14A OF THE ACT R.W.R 8D OF THE I.T. RULES. 15 ITA NOS. 150 6 & 5251, 1 715 /DEL/2011 2.1 THAT THE LD. CIT(A) HAS GROSSLY ERRED IN LAW IN HOLDING THAT THE DISALLOWANCE U/S 14A NEEDS TO BE MAD E INSP I TE OF TH E FACT THAT NO DIVIDEND INCOME HA S BEEN RE C EIVED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. 2.2 THAT WITHOUT PREJUDICE, THE LD. CIT(A) HAS GROSSLY ERRED IN NOT CONSIDERING THE CLAIM OF THE APPELLANT WITH REGARD TO (I) NETTING OF IN TEREST EXPENDITURE WITH THE INTER E ST INCOME (II) EXCLUDING THE INTEREST COST TOWARDS FUNDS BORROWED FOR SPECIFIC PURPOSE OF PURCHASE OF VEHICLES/MACHINERY ETC, AND (III) CONSIDERING THE CLAIM THAT THE VALUE OF GROSS ASSETS SHOULD BE CONSIDERED FOR THE PURP OSES OF COMPUTING THE DISALLO WA N C E U/S 14A R.W.R 8D. 20 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE PERUSED THE RELEVANT MATERIAL ON RECORD. THE LD. AR CONTENDED THAT ADMITTEDLY AND UNDISPUTEDLY, THE ASSESSEE HAS NOT EARNED ANY EXEMPT DIVIDEND INCOME DURING BOTH THE A.YS. THE LD. AR FURTHER CONTENDED THAT AS PER THE RECENT JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF CHEM INVEST PVT. LTD REPORTED AT 378 ITR 33 [DELHI], WHEN NO EXEMPT WAS EARNED BY THE ASSESSEE IN THE RELEVANT A.Y AND GENUINENESS OF THE EXPENDITURE INCURRED BY THE ASSESSEE WAS NOT IN DOUBT, THEN NO DISALLOWANCE SHOULD BE MADE U/S 14A R.W.R 8D OF THE RULES. 16 ITA NOS. 150 6 & 5251, 1 715 /DEL/2011 2 1. PER CONTRA, THE LD. DR STRONGLY SUPPORTED THE ACTION OF THE AUTHORITIES BELOW AND FAIRLY SUBMITTED THAT WHILE MAKING DISALLOWANCE U/S 14A OF THE ACT, THE AO HAS RELIED ON THE DECISION OF THE DELHI ITAT SPECIAL BENCH IN THE CASE OF CHEM INVEST LTD VS. ITO [2009] 317 ITR [AT] 86 [DELHI SPL. BENCH] WHICH HAS BEEN REVERSED BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CHEM INVEST [SUPRA]. 22 . IN VIEW OF THE SUBMISSIONS MADE BY BOTH THE SIDES, ADMITTEDLY AND UNDISPUTEDLY, THE ASSESSEE HAS NOT EARNED ANY DIVIDEND INCOME DURING THE A.YS 2007 - 08 AND 2008 - 09 AND AS PER THE DICTA LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CHEM INVEST [SUPRA] , NO DISALLOWANCE CAN BE MADE IN THE SITUATION WHEN NO EXEMPT INCOME WAS EARNED BY THE ASSESSEE IN THE RELEVANT A.Y AND SINCE IN THE PRESENT CASE THE AO AS WELL AS THE LD. CIT(A) HAS NOT BROUGHT OUT ANY ALLEGATION OR FACT TO ALLEGE OR DISTURB OR DOUBT THE GENUINETY OF THE EXPENDITURE INCURRED BY THE ASSESSEE, THEREFORE, NO DISALLOWANCE CAN BE MADE U/S 14A OF THE ACT IN A.Y 2007 - 08 U/S 14A R.W.R 8D OF THE RULES FOR A.Y 2008 - 09. RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE HIGH COURT OF DELHI IN THE CA SE OF CHEM INVEST LTD [SUPRA], GROUND NO 2 IN A.Y 2007 - 08 AND 2 TO 2.2 IN A.Y. 2008 - 09 OF THE ASSESSEE ARE ALLOWED AND THE AO IS DIRECTED TO DELETE THE ADDITION MADE IN THE ASSESSMENT ORDER. 17 ITA NOS. 150 6 & 5251, 1 715 /DEL/2011 23 . DURING THE ARGUMENTS, THE LD. DR SUBMITTED THAT THE REVENUE DOES NOT WANT TO PRESS GROUND NOS. 4 AND 4.1 FOR A.Y 2007 - 08 AND WE THEREFORE, DISMISS THE SAME AS NOT PRESSED. 2 4 . IT IS PERTINENT TO MENTION THAT GROUND NOS. 2 AND 2.1 OF THE REVENUE IN A.Y 2007 - 08 PERTAINS TO THE DIRECTION GIVEN BY THE LD. CIT(A) TO THE AO TO ALLOW DEPRECIATION ON THE ENHANCED VALUE OF THE FIXED ASSETS. SINCE BY THE EARLIER PART OF THIS ORDER WE HAVE ALLOWED GROUND NOS. 1 TO 1.2 OF THE ASSESSEE IN BOTH THE A.YS AND THE CONCLUSION IN THIS REGARD WOULD APPLY TO GROUND NO. 2 AND 2.1 OF THE REVENUE FOR A.Y 2007 - 08. FINALLY, GROUND NOS. 2 AND 2.1 OF THE REVENUE ARE DISMISSED WITH THE DIRECTION TO THE AO THAT THE AMOUNT OF SALES TAX SUBSIDY SHOULD BE ACCEPTED AS CAPITAL RECEIPT AND DEPRECIATION ON THE REDUCED VALUE OF FIXED ASSETS SHOULD BE A LLOWED TO THE ASSESSEE ACCORDINGLY. 2 5 . GROUND NO. 4 OF THE REVENUE BEING DEPRECIATION ON COMPUTER PERIPHERALS AT AN ESTIMATED BASIS IS BY NOW COVERED BY VARIOUS JUDGMENTS OF THE HON'BLE JURISDICTIONAL HIGH COURT WHEREIN IT HAS BEEN HELD THAT DEPRECIATION OF COMPUTERS PERIPHERALS IS AVAILABLE @ 60%, THE LEAD CASE BEING CIT VS. BSES YAMUNA POWER LTD REPORTED AT 2010 - TIOL - 636 - HON'BLE HIGH COURT - DELHI - IT WHICH HAS BEEN UPHELD BY THE HON'BLE 18 ITA NOS. 150 6 & 5251, 1 715 /DEL/2011 SUPREME COURT IN THE CASE OF BIRLA SOFT LTD TS - 82 - HON'BLE SUPREME COURT - 2014. IN VIEW OF THE ABOVE POSITION, WE DISMISS GROUND NO. 4 RAISED BY THE REVENUE. 26 . GROUND NO. 5 RAISED BY THE ASSESSEE PERTAINS TO ADHOC DISALLOWANCE @ 10% OUT OF FOREIGN TRAVELLING EXPENSES AMOUNTING TO RS. 12,19,496/ - . 27 . AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIND THAT THE AO HAS NOT BROUGHT OUT ANY MATERIAL ON RECORD TO PROVE THAT THE EXPENSES INCURRED WERE NOT FOR BONAFIDE BUSINESS NEEDS OF THE ASSESSEE. HE SIMPLY ASSUMED SUCH EXPENDITURE AS CAPITAL NATURE AND DISALLOWED ON ADHOC BASIS. THE AO DID NOT EVEN ALLOW DEPRECIATIO N ON SUCH EXPENSES. WHEN THE ASSESSEE WENT IN FIRST APPEAL, THE LD. CIT(A) RELYING UPON THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. KULWANT RAI REPORTED AT 291 ITR 36, DELETED THE ADDITION BY HOLDING THAT THERE WAS NO BASI S TO MAKE THE ADDITION. ACCORDINGLY, FINDING NO MERITS IN THE GROUND OF APPEAL RAISED BY THE REVENUE, WE DISMISS GROUND NO. 5. 2 8 . GROUND NOS. 6 AND 6.1 OF REVENUE FOR A.Y 2007 - 08 ARE RELATED TO THE DIRECTION OF THE LD. CIT(A) WHEREIN HE RESTRICTED THE ADDITION U/S 14A OF THE ACT TO RS. 2 LAKHS AS AGAINST RS. 1517998/ - MADE BY THE AO. 19 ITA NOS. 150 6 & 5251, 1 715 /DEL/2011 SINCE BY THE EARLIER PART OF THIS ORDER WE HAVE A LLOWED GROUND NO. 2 OF THE ASSESSEE IN BOTH THE A.YS, THEREFORE, GROUND NOS. 6 AND 6.1 OF THE REVENUE BECOME INFRUCTUOUS AND WE DISMISS THE SAME AS HAVING BECOME INFRUCTUOUS. 2 9 . TO SUM UP, I N THE RESULT, THE APPEAL S OF THE ASSESSEE ARE ALLOWED WHEREAS TH E APPEAL OF THE DEPARTMENT IS DISMISSED. THE DECISION IS PR ON OUNCED IN THE OPEN COURT ON 1 3 . 04 .2015. S D / - S D / - ( P. MAHARISHI ) (C.M. GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 1 3 T H APRIL, 201 6 VL/ COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR ASST. REGISTRAR I TAT, NEW DELHI