WELSPUN CORP LTD, MUMBAI V. DCIT CEN CIR 22, MUMBAI

ITA 5370/MUM/2015

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0359 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Assessment Year: 2007-2008
• Appeal Filed On: 18-11-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PARAG VYAS SR
• Assessee Lawyers: Not Found
• Keywords: Capital asset; Depreciation; Search and seizure; Additional depreciation; Earning of tax free income; Source of fund; Question of law; Validity of assessment; Competent authority; Capital receipt; Revised return; TDS; Rule 8D; Set aside; Capital Gains
• Section: 143(3); 153A; 14A; 40(a)(ia); 32(1)(iia); 37(1); 13; 32; 147; 148; 37; 263; 132; 10; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G, BENCH MUMBAI BEFORE SHRI G. MANJUNATHA, ACCOUNTANT MEMBER & SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NO.5370/MUM/2015 ( ASSESSMENT YEAR: 2007-08 ) M/S WELSPUN CORP LTD. WELSPUN HOUSE 7 TH FLOOR, B-WING KAMLA MILLS COMPOUND SENAPATI BAPAT MARG LOWER PAREL MUMBAI-400 013 VS. DCIT,CENTRAL CIRCLE-22 ROOM NO.465, 4 TH FLOOR AAYKAR BHAWAN M.K.ROAD MUMBAI-400 020 PAN/GIR NO. AAACW0744L ( APPELLANT ) .. ( RESPONDENT ) & ITA NO.5722/MUM/2015 ( ASSESSMENT YEAR: 2007-08 ) DCIT,CENTRAL CIRCLE-3(3) ROOM NO.401, 4 TH FLOOR AAYKAR BHAWAN M.K.ROAD MUMBAI-400 020 VS. M/S WELSPUN CORP LTD. WELSPUN HOUSE 7 TH FLOOR, B-WING KAMLA MILLS COMPOUND SENAPATI BAPAT MARG LOWER PAREL MUMBAI-400 013 PAN/GIR NO. AAACW0744L ( APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY SHRI MITESH SHAH, CA, AR REVENUE BY SHRI PARAG VYAS, SR. COUNSEL, DR DATE OF HEARING 03/10/2019 DATE OF PRONOUNCEME NT 13 /12 /201 9 / O R D E R PER G.MANJUNATHA (A.M) : ITA NOS.5722 & 5370/MUM/2015 WELSPUN CORP.LTD. 2 THESE CROSS APPEALS FILED BY THE REVENUE, AS WELL A S THE ASSESSEE ARE DIRECTED AGAINST ORDER OF THE LD. COMM ISSIONER OF INCOME TAX (APPEALS) -51, MUMBAI, DATED 11/09/2015 AND THEY PERTAIN TO ASSESSMENT YEAR (AY) 2007-08. SINCE, THE FACTS ARE IDENTICAL AND ISSUES ARE COMMON, FOR THE SAKE OF CO NVENIENCE, THESE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED-OFF, B Y THIS CONSOLIDATED ORDER. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A} ERRED IN HOLDING MAT BACKWARD AREA I NCENTIVE CONSISTING OF SALES TAX INCENTIVE AND EXCISE DUTY BENEFITS AS CAP ITAL RECEIPT.' 2. 'ALTERNATIVELY AND WITHOUT PREJUDICE THE CIT(A) SHOULD HAVE APPLIED EXPLANATION 10 TO SEC.43(1) AND SHOULD HAVE DIRECTE D THAT THE BACKWARD AREA INCENTIVE SHOULD' HAVE BEEN REDUCED FROM THE A CTUAL COST.' 3. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASES AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE U/S.14A WITHOUT APPRECIATING THAT RULE 8D IS SQUARELY APPLICABLE' 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE ADDITION ON ACCOUN T PF DEPRECIATION ON FIXED ASSETS U/S.40A(IA) READ WITH SECTION 37 IN RE SPECT OF CAPITALIZATION OF PROFESSIONAL FEES CAPITALIZED OF CERTAIN EXPENSES, FCCB PREMIUM AND FCCB ISSUE EXPENSES,' 5. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CLT(A) ERRED IN DELETING THE ADDITION BY WAY OF DISALLOWING FCCB PREMIUM.' 6. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD.CLT(A) ERRED IN DELETING THE ADDITION OF BY WAY OF DISALLOWING DEPRECIATION IN RESPECT OF FCCB PREMIUM FIRST DEBIT ED TO PRE-OPERATIVE EXPENSES AND THEREAFTER CAPITALIZED IN THE FIXED AS SETS.' 7. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE ADDITION BY WAY OF DISALLOWANCE OF FOREIGN EXCHANGE LOSS INCURRED IN ISSUE OF FOREIGN CURRENCY CONVERTIBLE BONDS.' 8. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY.' 3. THE ASSESSE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- THE GROUND OR GROUNDS OF APPEAL ARE WITHOUT PREJUDI CE TO OUT; ANOTHER. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN NOT APPRECIATING THAT- (I) THE ORDER PASSED U/S.143(3) RWS.15 3A BY THE AO IS WITHOUT ITA NOS.5722 & 5370/MUM/2015 WELSPUN CORP.LTD. 3 JURISDICTION AND BAD IN LAW AS THE JURISDICTION U/S . 153A IS VITIATED, AND (II)THE ADDITIONS MADE BY THE AO ARE BEYOND, THE SC OPE OF PROVISIONS OF SECTION 153A. 2.A) ON THE FACT AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE ID. CIT(A) ERRED IN CONFIRMING THE ADDITION OF 3284670 70/-MADE BY THE AO TO THE INCOME OF YOUR APPELLANT BY WAY OF DISALLOWING CLAIM OF ADDITIONAL DEPRECIATION ON THE COST OF PLANT &. MACHINERY OF R S. 1,64,23,35,348/- PURCHASED IN THE PRECEDING PREVIOUS YEAR. THE ADDIT ION MADE LO THE INCOME OF THE APPELLANT IS INCORRECT AND INVALID. B) THE LD. CIT(A) TAILED TO APPRECIATE THAT AFTER THE AMENDMENT OF SECTION 32(1)(IIA)) BY THE FINANCE ACT, 2005, THE C ONDITION REGARDING THE PREVIOUS YEAR WHICH WAS PRESENT IN THE PRE-AMENDED PROVISIONS F SECTION 32(I)(IIA) HAS BEEN DELETED AND THEREFORE, THE APPE LLANT IS ELIGIBLE FOR ADDITIONAL DEPRECIATION FOR SUBSEQUENT YEARS ALSO I N ABSENCE OF ANY REFERENCE TO A SPECIFIC PREVIOUS YEAR IN THE AMENDE D PROVISIONS OF SECTION C) IN REACHING TO THE CONCLUSION AND DISALLOWIN G THE CLAIM OF ADDITIONAL DEPRECIATION, THE ID. CIT(A) OMITTED TO CONSIDER RE LEVANT FACTORS, CONSIDERATIONS, PRINCIPLES AND EVIDENCES WHILE HE W AS OVERWHELMED, INFLUENCED AND PREJUDICED BY IRRELEVANT CONSIDERATI ONS AND FACTORS. 3.A) ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW THE LD.CIT(A) ERRED IN CONFIRMING THE ADDITION TO THE EXTENT OF RS.100000/- MADE BY THE AO TO THE INCOME OF THE APPELLANT BY WA Y OF DISALLOWING CERTAIN EXPENDITURE CLAIMED TO HAVE BEEN INCURRED RELATING TO EXEMPT INCOME INVOKING THE PROVISIONS OF SECTION 14A. B) THE ID. CIT(A) FAILED TO APPRECIATE THAT:- (I) HAVING REGARD TO THE ACCOUNTS THERE IS NO REASON AND BASIS IN REACHING TO DIS-SATISFACTION WITH THE CORRECTNES S OF THE CLAIM OF THE APPELLANT THAT NO EXPENDITURE WAS INCURRED IN RELAT ION TO DIVIDEND INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME AND (II) THE INVESTMENT IN SHARES WAS MADE OUT OF BUS INESS STRATEGY AND THERE WAS NO MAJOR CHANGE IN SUCH INVESTMENT. C) IN REACHING TO THE CONCLUSION AND CONFIRMIN G SUCH ADDITION THE ID. CIT(A) OMITTED TO CONSIDER RELEVANT' FACTORS, CONS IDERATIONS, PRINCIPLES AND EVIDENCES WHILE HE WAS OVERWHELMED, INFLUENCED AND PREJUDICED BY IRRELEVANT CONSIDERATIONS AND FACTORS. 4. ON THE FACTS ARID IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT(A) ERRED IN CONFIRMING THE ADDITION TO THE EXTENT OF RS.1,00,000/- MADE BY THE AO TO THE BOOK PROFIT OF THE APPELLANT BY WAY OF ADDING BACK DISALLOWANCE MADE U/S.14A AND THEREBY ERRED IN ENH ANCING THE BOOK PROFIT ARTIFICIALLY. 5. THE ID. CIT(A) ERRED IN HOLDING THAT LEVY OF INTEREST U/S, 234B, 234C, 234D AND 220(2) OF THE INCOME TAX ACT, 1961 I S CONSEQUENTIAL. THE APPELLANT DENIES ITS LIABILITY FOR SUCH INTERES T. 6. THE ID. C1T(A) ERRED IN HOLDING THAT GROU ND RAISED DISPUTING INITIAL URN OF THE PENALTY PROCEEDINGS U/S.271 (L)(C) OF THE INCOME TAX ACT, 1961 IS PREMATURE. THE APPELLANT DENIES ITS LIA BILITY FOR SUCH PENALTY 4. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.1 OF ASSESSEE APPEAL IS CHALLENGING THE VALIDITY OF ASSESSMENT ITA NOS.5722 & 5370/MUM/2015 WELSPUN CORP.LTD. 4 ORDER PASSED BY THE LD. AO U/S 143(3) R.W.S. 153A O F THE I.T.ACT, 1961. THE FACTS WITH REGARD TO IMPUGNED DISPUTE ARE THAT A SEARCH AND SEIZURE ACTION U/S 132 OF THE I.T.ACT, 1961 WAS CARRIED OUT BY THE DEPARTMENT ON 13/10/2010 AT THE BUSINESS /RESIDENTI AL PREMISE OF WELSPUN GROUP OF COMPANIES AND ITS DIRECTORS. CONSE QUENT TO SEARCH NOTICE U/S153A OF THE I.T.ACT, 1961 WAS ISSU ED CALLING FOR RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION. IN RESPONSE, THE ASSESSEE HAS FILED RETURN OF INCOME ON 09/09/2011 D ECLARING TOTAL INCOME OF RS. 1,17,91,196/-, REPRESENTING SHORT TER M CAPITAL GAINS WITH CURRENT YEAR LOSS OF RS. 115,26,71,880/-, WHIC H IS SAME AS SHOWN IN THE REVISED RETURN OF INCOME FILED ON 15/0 9/2008 U/S 139 OF THE I.T.ACT, 1961. THE CASE WAS SELECTED FOR SCRUTI NY AND THE ASSESSMENT HAS BEEN COMPLETED U/S 143(3).R.W.S. 153 A OF THE I.T.ACT, 1961 ON 26/03/2013. 5 THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE AS SESSMENT ORDER PASSED BY THE AO U/S 143(3).R.W.S. 153A OF TH E I.T.ACT, 1961 IS WITHOUT JURISDICTION AND BAD IN LAW, BECAUSE THE AD DITIONS MADE BY THE LD.AO CONSEQUENT TO INVALID ASSESSMENT ARE BEYO ND THE SCOPE OF PROVISION OF SECTION 153A OF THE ACT .THE LD. AR FURTHER SUBMITTED THAT THE ASSESSMENT FOR THE IMPUGNED ASSESSMENT YEA R IS UNABATED AS ON THE DATE OF SEARCH. CONSEQUENTLY, THE LD. AO IS PRECLUDED FROM MAKING ANY ADDITIONS QUA INCRIMINATING MATERIA L FOUND AS A RESULT OF SEARCH. IN THIS CASE, IF YOU GO THROUGH, THE ADDITIONS MADE BY THE LD. AO IN THE ASSESSMENT FRAMED U/S153A, THE N NOWHERE, THE LD. AO HAS REFERRED TO INCRIMINATING MATERIAL FOUND AS A RESULT OF SEARCH. THEREFORE, THE ASSESSMENT ORDER PASSED BY T HE LD. AO MAKING VARIOUS ADDITIONS IS BAD IN LAW AND LIABLE T O BE QUASHED. IN THIS REGARD, HE RELIED UPON THE FOLLOWING JUDICIAL PRECEDENTS. 1. CIT VS SMT. SHAILA AGARWAL 204 TAXMAN 276 (ALL.) ITA NOS.5722 & 5370/MUM/2015 WELSPUN CORP.LTD. 5 2. ALL CARGO GLOBAL LOGISTICS LTD VS. DCIT MUMBAI I TAT SPECIAL BENCH-137 ITD 287 3. CIT VS. ANIL KUMAR BHATIA 24 TAXMAN.COM 98 (DEL. ) 4. CIT VS. CONTINENTAL WAREHOUSING CORPORATION (NHA VA SHEVA) LTD. 58 TAXMANN.COM 78(BOM.) 5. JAI STEEL (INDIA) VS. ACIT 36 TAXMANN.COM 523 (R AJ) 6. GURINDER SINGH BAWA VS. DCI 28 TAXMANN.COM 328 ( MUMBAI- TRIB.) 6. THE LD. DR, ON THE OTHER HAND, STRONGLY SUPPORTI NG ORDER OF THE LD.CIT(A) SUBMITTED THAT, THE ASSESSMENT FOR THE IM PUGNED ASSESSMENT YEAR IS ABATED AS ON THE DATE OF SEARCH BECAUSE, THE LD. AO HAS REOPENED THE ASSESSMENT U/S 147 OF THE I.T.ACT 1961, BY ISSUING NOTICE U/S 148 ON 26/02/2010. THE TIME L IMIT FOR COMPLETION OF RE-ASSESSMENT U/S 143(3) R.W.S. 147 E NDS ON 31/03/2011. FURTHER, SEARCH AND SEIZURE ACTION WAS CARRIED OUT IN THIS CASE ON 13/10/2010. SINCE, THE DATE OF SEARCH IS WELL WITHIN DATE OF COMPLETION OF ASSESSMENT U/S 143(3) R.W.S. 147OF THE ACT, THE ASSESSMENT FOR THE IMPUGNED YEAR IS ABATED AND CONS EQUENTLY, THE LD. AO IS ENTITLED TO ASSESS OR RE-ASSESS TOTAL INC OME, INCLUDING UNDISCLOSED, IF ANY FOUND AS A RESULT OF SEARCH. TH EREFORE, THERE IS NO MERIT IN THE CONTENTION OF THE ASSESSEE AND HENCE, THE SAME NEEDS TO BE REJECTED. 7. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. IT IS A SETTLED POSITION OF LAW THAT IN CASE OF SEARCH AND SEIZURE ASSESSMENT, THE ASSESSMENT CAN BE FRAMED ONLY QUA I NCRIMINATING MATERIAL FOUND AS A RESULT OF SEARCH, WHERE THE ASS ESSMENTS ARE UNABATED/CONCLUDED AS ON THE DATE OF SEARCH. FURTHE R, IN CASE OF ITA NOS.5722 & 5370/MUM/2015 WELSPUN CORP.LTD. 6 ABATED ASSESSMENTS, THE LD. AO IS EMPOWERED TO ASSE S OR RE- ASSESSES TOTAL INCOME, INCLUDING UNDISCLOSED INCOME , IF ANY FOUND AS A RESULT OF SEARCH. SIMILARLY, THE CONCEPT OF ABATE D AND UNABATED ASSESSMENT HAS BEEN EXPLAINED IN THE STATUE. AS PER THE PROVISION OF SECTION 153A, IF ANY ASSESSMENT PROCEEDINGS ARE PENDING AS ON THE DATE OF SEARCH, THEN THOSE ASSESSMENTS ARE ABAT E AND THE LD.AO SHALL HAVE THE POWERS TO ASSESS OR RE-ASSESS TOTAL INCOME OF THOSE ASSESSMENT YEARS. THE CONCEPT OF UNABATED ASS ESSMENT HAS BEEN EXPLAINED BY THE COURTS, AS PER WHICH ANY ASSE SSMENT, WHICH IS NOT PENDING AS ON THE DATE OF SEARCH IS CONSIDER ED AS UNABATED ASSESSMENT. IN THE LIGHT OF ABOVE LEGAL POSITION, I F YOU EXAMINE FACTS OF THE PRESENT CASE, IT IS ABUNDANTLY CLEAR THAT TH E ASSESSMENT FOR THE IMPUGNED ASSESSMENT YEAR IS ABATED AS ON THE DA TE OF SEARCH, BECAUSE BEFORE SEARCH AND SEIZURE ACTION CONDUCTED ON 13/10/2010, THE LD. AO HAS REOPENED THE ASSESSMENT U/S 147 OF T HE ACT, BY ISSUING NOTICE U/S 148 ON 26/22/010. FURTHER, ONCE, THE ASSESSMENT IS REOPENED, THEN THE LD. AO SHALL HAVE TIME LIMIT FOR COMPLETION OF ASSESSMENT ONE YEAR FROM THE END OF THE RELEVANT AS SESSMENT YEAR IN WHICH NOTICE U/S 148 IS ISSUED. IN THIS CASE, SI NCE NOTICE U/S 148 WAS ISSUED ON 26/12/2010, THE LD. AO WILL HAVE TIME LIMIT FOR COMPLETION OF REASSESSMENT UP TO 31/03/2011, WHICH IS MUCH LATER THAN THE DATE OF SEARCH I.E ON 13/10/2010. CONSEQUE NTLY, THE ASSESSMENT FOR THE IMPUGNED ASSESSMENT YEAR IS ABAT ED AND THE LD. AO SHALL HAVE THE POWER TO ASSESS OR RE-ASSESS TOTAL INCOME, INCLUDING UNDISCLOSED, IF ANY FOUND AS A RESULT OF SEARCH. 8. COMING BACK TO CASE LAWS RELIED UPON BY THE ASSE SSEE. ALTHOUGH, THE ASSESSEE HAS RELIED UPON PLETHORA OF JURIDICAL PRECEDENTS, INCLUDING THE DECISION OF HONBLE BOMBA Y HIGH COURT, IN THE CASE OF CIT VS CONTINENTAL WAREHOUSING CORPORAT ION (NHAVA ITA NOS.5722 & 5370/MUM/2015 WELSPUN CORP.LTD. 7 SHEVA) LTD. 58 TAXMANN.COM 78, BUT, ON PERUSAL OF CASE LAW S RELIED UP ON BY THE ASSESSEE, WE FIND THAT ALL CASE LAWS A RE APPLICABLE IN A SITUATION, WHERE THE ASSESSMENTS ARE UNABATED AS ON THE DATE OF SEARCH. IN THIS CASE, SINCE THE ASSESSMENT WAS ABAT ED AS ON THE DATE OF SEARCH, THE CASE LAWS RELIED UPON BY THE AS SESSEE ARE NOT APPLICABLE AND HENCE ARE NOT CONSIDERED. 9. IN THIS VIEW OF THE MATTER AND CONSIDERING FACTS AND CIRCUMSTANCES OF THIS CASE, WE ARE OF THE CONSIDERE D VIEW THAT THERE IS NO MERIT IN THE GROUND TAKEN BY THE ASSESSEE CHA LLENGING VALIDITY OF ASSESSMENT PROCEEDINGS PASSED U/S 143(3) R.W.S. 153A OF THE ACT, AND CONSEQUENTLY, GROUND TAKEN BY THE ASSESSEE IS REJECTED. 10. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.2 OF ASSESSEES APPEAL IS DISALLOWANCES OF ADDIT IONAL DEPRECIATION CLAIMED ON FIXED ASSETS OF RS. 32,84,6 7,070/-. THE ASSESSEE HAS CLAIMED ADDITIONAL DEPRECIATION OF RS. 32,84,67,070/- U/S 32(1)(IIA) @ 20% OF THE COST OF PLANT AND MACHI NERY OF RS. 164,23,35,348/-, WHICH WERE PURCHASED, INSTALLED AN D PUT TO USE IN THE PROCEEDING PREVIOUS YEAR. THE LD. AO HAS DISALL OWED THE CLAIM OF ADDITIONAL DEPRECIATION IN THE SECOND YEAR, ON T HE GROUND THAT SAID CLAIM IS ALLOWABLE IN THE YEAR IN WHICH SAID PLANT AND MACHINERY WAS PURCHASED/INSTALLED AND PUT TO USE AND ALSO, IT IS ONE TIME CLAIM. 11. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE LD.CIT(A) WAS ERRED IN CONFIRMING THE ADDITIONS MADE BY THE LD. A O TOWARDS DISALLOWANCES OF DEPRECIATION, IGNORING, THE FACT T HAT AFTER AMENDMENT TO SECTION 32(1)(IIA) OF THE ACT, BY THE FINANCE ACT, 2005, THE CONDITIONS REGARDING PREVIOUS YEAR, WHIC H WAS PRESENT IN THE PRE AMENDED PROVISION OF SECTION 32(1)(IIA) OF THE ACT, HAS BEEN ITA NOS.5722 & 5370/MUM/2015 WELSPUN CORP.LTD. 8 DELETED AND THEREFORE, THE ASSESSEE IS ELIGIBLE FOR ADDITIONAL DEPRECIATION FOR SUBSEQUENT YEARS, ALSO IN ABSENCE OF ANY REFERENCE TO A SPECIFIC PREVIOUS YEAR IN THE AMENDED PROVISIO N OF SECTION 32(1) (IIA) OF THE ACT. THE LD. AR, FURTHER SUBMITTED THA T THE LD. CIT(A) IN REACHING TO THE CONCLUSION AND DISALLOWED THE CLAIM OF ADDITIONAL DEPRECIATION, OMITTED TO CONSIDER RELEVANT FACTORS, CONSIDERATIONS, PRINCIPLES AND EVIDENCES FURNISHED BY THE ASSESSEE. IN THIS REGARD, HE RELIED UPON THE DECISION OF ITAT, MUMBAI, IN THE CASE OF ANEEK INDUSTRIES LTD.VS DCIT IN ITA NO.993/MUM/2016. 12. THE LD. DR, ON THE OTHER HAND, STRONGLY SUPPORT ING ORDER OF THE LD.CIT(A) SUBMITTED THAT AS PER THE PROVISION OF SE CTION 32(1)(IIA) OF THE ACT, WHICH DEALS WITH ADDITIONAL DEPRECIATION, AS PER WHICH IN CASE OF ANY NEW PLANT AND MACHINERY WHICH HAS BEEN ACQUIRED AND INSTALLED AFTER 31/03/2005, BY AN ASSESEE ENGAGED IN THE BUSINESS OF MANUFACTURING OR PRODUCTION OF ANY ARTICLE OR TH ING, A FURTHER SUM EQUAL TO 20% OF THE ACTUAL COST OF SUCH MACHINERY O R PLANT SHALL BE ALLOWED AS DEDUCTION UNDER CLAUSE (2) AND SUCH DEPR ECAITIONS CAN BE ALLOWED ONLY ONCE, WHEN SAID PLANT AND MACHINERY WAS PURCHASED, INSTALLED AND PUT TO USE. THE CIT(A) AFT ER CONSIDERING RELEVANT SUBMISSIONS HAS RIGHTLY CONFIRMED ADDITION S MADE BY THE LD. AO AND HIS ORDER SHOULD BE UPHELD. 13. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. THE PROVISION OF SECTION 32(1)(IIA) OF THE ACT, DEALS W ITH ADDITIONAL DEPRECIATIONS, AS PER WHICH, IN CASE OF ANY NEW PLA NT AND MACHINERY WHICH HAS BEEN ACQUIRED AND INSTALLED AFTER 31/03/2 005, BY ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING, A FURTHER SUM EQUAL TO 20% OF THE ACTUAL COST OF ITA NOS.5722 & 5370/MUM/2015 WELSPUN CORP.LTD. 9 SUCH MACHINERY OR PLANT SHALL BE ALLOWED AS DEDUCTI ON UNDER CLAUSE(2) OF SECTION 32 OF THE ACT. IF YOU GO THROU GH THE PROVISIONS, IT MAY BE SEEN THAT NORMAL AND ADDITIONAL DEPRECIATION ARE TWO SEPARATE DEDUCTIONS AVAILABLE TO THE ASSESEE AND BO TH ARE INDEPENDENT AND CUMULATIVE. THE EXPRESSION FURTHER SUM AND SHALL BE ALLOWED IN CLAUSE (IIA) OF SECTION 32(1) ARE IND ICATIVE OF THIS PROPOSITIONS. THE WORD FURTHER MEANS SOMETHING IN A DDITION TO. THEREFORE, THE ADDITIONAL DEPRECIATION AS PROVIDED UNDER SECTION 32(1)(IIA) IS A ONETIME DEDUCTION PROVIDED TO AN AS SESEE ENGAGED IN THE BUSINESS OF MANUFACTURING OR PRODUCTION OF ANY ARTICLE OR THING ON ANY NEWS PLANT AND MACHINERY, WHICH HAS BEEN ACQUI RED AND INSTALLED IN ITS BUSINESS. IN THIS LEGAL BACKGROUND , THE QUESTION THAT NEEDS TO BE ANSWERED IS WHETHER, AN ASSESSEE CAN CL AIM ADDITIONAL IN THE SUBSEQUENT YEARS IN ABSENCE OF ANY REFERENC E TO A SPECIFIC PREVIOUS YEAR AFTER AMENDMENT BY THE FINANCE ACT, 2 005 IN SECTION 32(1)(IIA) OF THE ACT. WE NOTED THAT ON A LITERAL R EADING OF SECTION 32(1)(IIA), THE ADDITIONAL DEPRECIATION IS RESTRICT ED TO ONE TIME DEDUCTION AND THERE IS NO EXPLICIT PROVISION ENTITL ING THE ASSESEE TO CLAIM ADDITIONAL DEPRECIATION IN SUBSEQUENT YEAR OR YEARS, WHEN THE ADDITIONAL DEPRECIATION WAS ALLOWED IN THE YEAR, WH EN PLANT AND MACHINERY HAS BEEN PUT TO USE. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT IT IS ILLOGICAL AND IRRATIONAL TO PRESUME SO, WHEN THE LEGISLATION INTENTION IS TO ALLOW ONE TIME ADDITION AL DEPRECIATION U/S 32(1)(IIA) IN A PREVIOUS YEAR IN WHICH PLANT AND MA CHINERY IS INSTALLED AND PUT TO USE. THE LD.CIT(A) AFTER CONSIDERING R ELEVANT FACTS HAS RIGHTLY NOTED THAT THERE IS NO ERROR IN THE FINDING S RECORDED BY THE LD. AO IN DISALLOWANCES OF ADDITIONAL DEPRECATION ON PL ANT AND MACHINERY FOR SECOND YEAR. THEREFORE, WE ARE OF TH E CONSIDERED VIEW THAT THE FINDINGS RECORDED BY THE LD.CIT(A), W HILE CONFIRMING ADDITIONS MADE BY THE LD. AO TOWARDS OF ADDITIONAL DEPRECIATION IN ITA NOS.5722 & 5370/MUM/2015 WELSPUN CORP.LTD. 10 SUBSEQUENT YEARS IS IN ACCORDANCE WITH LAW AS ENUME RATED UNDER THE PROVISION OF SECTION 32(1)(IIA) OF THE ACT AND HENCE, THE FINDINGS OF THE LD. CIT(A) DOES NOT CALL FOR ANY INTERFERENC E FROM OUR SIDE. ACCORDINGLY, THE GROUND TAKEN BY THE ASSESSEE IS DI SMISSED. 14. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.3 OF ASSESSEE APPEAL IS DISALLOWANCES OF EXPENDI TURE INCURRED IN RELATION TO EXEMPT INCOME U/S 14A OF THE I.T.ACT, 1 961. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LD. AO NOTICE D THAT THE ASSESSEE HAS EARNED EXEMPT INCOME BY WAY OF DIVIDEN D AT RS.4,17,31,419/- AND CLAIMED THE SAME AS EXEMPT IN COME U/S 10(34) OF THE I.T.ACT, 1961. THE LD. AO FURTHER NOT ED THAT THE ASSESSEE HAS NOT MADE ANY SUO-MOTO DISALLOWANCES OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME. THEREFORE, C ONSIDERING THE AMOUNT OF INVESTMENTS IN SHARES AND SECURITIES, WHI CH YIELD EXEMPT INCOME AND ALSO TAKEN NOTE OF DIVIDEND INCOME EARNE D FOR THE YEAR, ISSUED A SHOW-CAUSE NOTICE AND CALLED UPON THE ASS ESSEE TO EXPLAIN AS TO WHY DISALLOWANCES OF EXPENDITURE CONT EMPLATED U/S 14A SHALL NOT BE DISALLOWED BY INVOKING RULE 8D OF I.T.RULES, 1962. IN RESPONSE, THE ASSESEE SUBMITTED THAT THE INVESTM ENTS MADE IN SHARES AND MUTUAL FUNDS ARE OUT OF OWN FUNDS AND AL SO, IT HAS NOT INCURRED ANY SPECIFIC EXPENDITURE FOR EARNING EXEMP T INCOME. THEREFORE, THE QUESTION OF DISALLOWANCES OF EXPENDI TURE IN RELATION TO EXEMPT INCOME DOES NOT ARISE. THE LD. AO AFTER CONS IDERING RELEVANT SUBMISSION OF THE ASSESSEE AND ALSO TAKEN NOTE OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F GODREJ & BOYCE MANUFACTURING CO.LTD. REPORTED IN 2010 328 I TR 81, HELD THAT DISALLOWANCES CONTEMPLATED U/S 14A SHALL BE WORKED OUT IN ACCORDANCE WITH PRESCRIBED PROCEDURE PROVIDED UNDER RULE 8D AND ACCORDINGLY, INVOKED SAID RULES AND DETERMINED TOTA L DISALLOWANCES ITA NOS.5722 & 5370/MUM/2015 WELSPUN CORP.LTD. 11 OF RS.95,64,303/-. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD.CIT(A). THE LD.CIT(A) FOR THE DETAILED REASO NS RECORDED IN HIS APPELLATE ORDER AND ALSO, CONSIDERING THE DECISION OF HONBLE BOMBAY HIGH COURT, IN THE CASE OF GODREJ & BOYCE MA NUFACTURING CO.LTD VS DCIT(SUPRA) NOTED THAT THE PROVISION OF R ULE 8D DOES NOT APPLY PRIOR TO ASSESSMENT YEAR 2008-09 AND ACCORDI NGLY, BY CONSIDERING THE NATURE OF INVESTMENTS AND AMOUNT OF DIVIDEND INCOME EARNED FOR THE YEAR DIRECTED THE LD.AO TO MA KE AN ADHOC DISALLOWANCES OF RS. 1 LACK TO MEET THE EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME. AGGRIEVED BY THE LD.CIT( A) ORDER, THE ASSESSEE, AS WELL AS THE REVENUE ARE IN APPEAL BEF ORE US. 15. THE LD. DR SUBMITTED THAT THE LD.CIT(A) WAS ERR ED IN RESTRICTING DISALLOWANCES OF EXPENDITURE U/S 14A TO AN ADHOC AMOUNT OF RS. 1 LAC WITHOUT APPRECIATING THE FACT T HAT PROVISIONS OF SECTION 14A AND RULE 8D ARE INTERCONNECTED AND HENC E, SAID DISALLOWANCES NEEDS TO BE WORKED OUT, AS PER THE PR ESCRIBED METHOD PROVIDED UNDER RULE 8D OF INCOME TAX RULES 1962. 16. THE LD. AR FOR THE ASSESSEE, ON THE OTHER HAND, SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOR OF THE ASSE SSE BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN ASSESSEE OWN CASE F OR AY 2009- 10, WHERE THE HONBLE HIGH COURT HELD THAT PROVISIO NS OF RULE 8D HAS NO COMPLETION PRIOR TO ASSESSMENT YEAR 2008-09. THEREFORE, THERE IS NO REASON FOR THE LD. AO, AS WELL THE LD.C IT(A) TO MAKE AN ADHOC DISALLOWANCE OF EXPENDITURE. 17. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. NO DOUBT, THE HONBLE BOMBAY HIGH COURT, IN THE CASE O F GODREJ & ITA NOS.5722 & 5370/MUM/2015 WELSPUN CORP.LTD. 12 BOYCE MANUFACTURING CO.LTD VS DCIT(SUPRA) HAS HELD THAT PROVISION OF RULE 8D OF I.T.RULES, 1962 HAS NO APPLICATION PR IOR TO ASSESSMENT YEAR 2008-09. BUT, NOWHERE WAS IT STATED THAT EXPEN DITURE RELATED TO EXEMPT INCOME SHALL NOT BE DISALLOWED, WHEN THE ASS ESSE HAS EARNED HUGE EXEMPT INCOME BEING DIVIDEND FROM SHARE S AND SECURITIES. FURTHER, ALTHOUGH PROVISIONS OF RULE 8D HAS NO STRICT APPLICATION FOR THE YEAR UNDER CONSIDERATION, BUT A REASONABLE EXPENDITURE RELATED EXEMPT INCOME NEEDS TO BE ESTIM ATED CONSIDERING THE NATURE OF INVESTMENTS AND THE AMOUN T OF EXEMPT INCOME EARNED BY THE ASSESEE. IN THIS CASE, THE ASS ESSEE HAS EARNED HUGE AMOUNT OF EXEMPT INCOME IN THE FORM OF DIVIDEND FROM SHARES AMOUNTING TO RS.4,17,31,419/-, BUT DID NOT D ISALLOWED ANY EXPENDITURE ON ITS OWN. ALTHOUGH, THE LD. AO HAS DE TERMINED DISALLOWANCES, AS PER RULE 8D AND WHICH IS ON HIGHE R SIDE, WHEN COMPARE TO NATURE OF INVESTMENTS AND AMOUNT OF EXEM PT INCOME EARNED FOR THE YEAR, BUT ADHOC DISALLOWANCES OF RS. 1 LAC SUSTAINED BY THE LD.CIT(A) CANNOT BE ACCEPTED. THEREFORE, CON SIDERING THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THIS CASE AN D ALSO TAKEN NOTE OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN AS SESSEES OWN CASE FOR AY 2009-10, WE ARE OF THE CONSIDERED VIEW THAT A REASONABLE AMOUNT OF EXPENDITURE ATTRIBUTABLE TO EX EMPT INCOME NEEDS TO BE DISALLOWED. ACCORDINGLY, WE DIRECT THE LD.AO TO DISALLOW 5% OF TOTAL EXEMPT INCOME EARNED FOR THE YEAR TOWAR DS EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME U/S 14A OF TH E I.T.ACT, 1961. WE ORDERED ACCORDINGLY. 18. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.1 AND 2 OF REVENUE APPEAL IS TREATMENT OF SALES TAX INCENTIVES AND EXCISE DUTY BENEFITS RECEIVED BY THE ASSESSEE A S CAPITAL RECEIPTS. THE LD. AR FOR THE ASSESSEE SUBMITTED THA T THIS ISSUE IS ITA NOS.5722 & 5370/MUM/2015 WELSPUN CORP.LTD. 13 SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF ITAT, MUMBAI BENCH IN THE CASE OF WELSPUN INDIA LTD. VS D CIT IN ITA NO. 5376/MUM/2015 FOR AY 2008-09, WHERE UNDER IDENTICAL SET OF FACTS THE TRIBUNAL HELD THAT SALES TAX INCENTIVES AND EXC ISE DUTY BENEFITS RECEIVED BY THE ASSESEE ARE IN THE NATURE OF CAPITA L RECEIPTS NOT LIABLE TO TAX. 19. THE LD. DR, ON THE OTHER HAND, FAIRLY ACCEPTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESEE BY THE DE CISION OF ITAT, MUMBAI BENCH IN ASSESSEE GROUP COMPANY CASES. HOWEV ER, HE STRONGLY SUPPORTED ORDER OF THE LD. AO AND ALSO, RE FERRED AS-2 AND AS-10 ISSUED BY THE ICAI FOR VALUATION OF INVENTORY AND ACCOUNTING OF FIXED ASSETS AND SUBMITTED THAT AS PER THE PROVI SION OF SECTION 43(1) AND EXPLANATION (10), THE SAME NEEDS TO BE RE DUCED FROM ACTUAL COST OF ASSETS. 20. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THOUGH ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE CO-ORDINATE BENCH OF ITAT, IN THE CASE OF WELSPUN INDIA LTD. VS DCIT IN ITA NO. 5376/MUM/2015, WHERE UNDER IDENTICAL SET OF FACTS, THE TRIBUNAL HELD THAT SALES TAX INCENTIVES AND EXCISE DUTY BENEFIT R ECEIVED BY THE ASSESSEE IS IN THE NATURE OF CAPITAL RECEIPTS NOT L IABLE TO TAX. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER:- 5.2. THIS ISSUE OF CHARGEABILITY TO INCOME-TAX OF INCENTIVES BY WAY OF REFUND OF EXCISE DUTY AND EXEMPTION OF SALES TAX IN CENTIVE WHICH WERE GIVEN POST COMMENCEMENT OF PRODUCTION AFTER THE NEW INDUSTRIAL UNIT WAS SET UP BY ENTREPRENEURS IN KUTCH DISTRICT HAS NOW R EACHED BEFORE THE TRIBUNAL AT THE BEHEST OF THE REVENUE AND BOTH THE PARTIES HAVE ADVANCED DETAILED ARGUMENTS INCLUDING WRITTEN SUBMISSIONS FI LED BY REVENUE. THE CONTENTIONS WERE RAISED BY REVENUES SPECIAL COUNSE L TO EXPLAIN THAT THERE IS A DIFFERENCE BETWEEN SUBSIDY AND INCENTIVE . THE LEARNED SPECIAL COUNSEL FOR REVENUE EXPLAINED THAT SUBSIDY INVOLVES CASH FLOW WHILE THERE IS NO CASH FLOW IN THE CASE OF INCENTIVES. TH E SPECIAL COUNSEL FOR ITA NOS.5722 & 5370/MUM/2015 WELSPUN CORP.LTD. 14 REVENUE RELIED UPON THE ACCOUNTING STANDARD AS-2 IS SUED BY ICAI , PARA 7 TO CONTEND THAT COST OF PURCHASES OF THE INVENTOR IES WILL INCLUDE PURCHASE PRICE INCLUDING DUTIES AND TAXES OTHER THA N THOSE DUTIES AND TAXES SUBSEQUENTLY RECOVERABLE BY ENTERPRISE FROM T HE TAXING AUTHORITIES. THUS, IT WAS SUBMITTED IN ALTERNATIVE THAT EVEN IF THE SAID INCENTIVES ARE TREATED AS CAPITAL RECEIPT BY TRIBUNAL, THE TAXES R ECOVERABLE FROM GOVERNMENT ARE NOT PART OF THE COST OF THE ASSET AN D THE REFUND OF EXCISE DUTY AND EXEMPTION OF SALES TAX INCENTIVES SHOULD B E REDUCED FROM COST OF THE ASSETS BEFORE ALLOWING DEPRECIATION, WHILE O N THE OTHER HAND LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ISS UE OF SAID KUTCH INVESTMENT SUBSIDY INCENTIVE BY WAY OF REFUND OF CE NTRAL EXCISE AND EXEMPTION OF SALES TAX INCENTIVES HAVE BEEN GONE TH ROUGH BY THE ITAT, MUMBAI BENCHES IN THE CASE OF GROUP CONCERN OF THE ASSESSEE IN WELSPUN STEEL LTD., V. DCIT/ACIT, VIDE APPELLATE OR DER DATED 18.12.2015 , IN APPEALS IN ITA NO. 7630/MUM/2011 AND 8294/M/20 11 FOR AY 2007-08, ITA NO. 6371/MUM/2014 FOR AY 2006- 07, ITA NO. 6372 /MUM/2014, 6304/MUM/2014 FOR AY 2007-08, ITA NO. 6373/MUM/2014 , 6305/MUM/2014 FOR AY 2008-09, ITA NO. 6374/MUM/2014 , 6306/MUM/2014 FOR AY 2009-10, ITA NO. 6375/MUM/2014 , 6307/MUM/2014 FOR AY 2010-11, ITA NO. 6376/MUM/2014 , 6308/MUM/2014 FOR AY 2011-12, VIDE COMMON ORDER DAT ED 18.12.2015 , WHEREIN THE TRIBUNAL HAS HELD THAT THE SAID INCENTI VES ARE CAPITAL RECEIPT AND FURTHER IT HAS BEEN HELD THAT THE SAID AMOUNT O F INCENTIVES RECEIVED BY THE ASSESEE SHALL NOT BE REDUCED FROM THE COST O F THE ASSET OF THE ASSESSEE DESPITE PROVISIONS OF SECTION 43(1), EXPLA NATION 10 , BY HOLDING AS UNDER:- 5. THE BRIEF FACTS QUA THE ISSUE INVOLVED IS THAT, ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF SPONGE IRON, STEEL INGOTS AND ROLLED PRODUCT. IN THE WAKE OF DEVASTATI NG EARTHQUAKE IN KUTCH DISTRICT, GUJARAT, THE CENTRAL GOVERNMENT, VI DE NOTIFICATION NO. 39/2001 DATED 7TH AUGUST, 2001 ISSUED AN EXCISE BENEFIT INCENTIVE SCHEME AND STATE GOVERNMENT OF GUJARAT AL SO VIDE ITS NOTIFICATION DATED 9TH NOVEMBER, 2001 ANNOUNCED AN INCENTIVE SCHEME FOR SALES-TAX EXEMPTION KNOWN AS INCENTIVE SCHEME, 2001 FOR ECONOMIC DEVELOPMENT FOR KUTCH DISTRICT . BOTH THESE SCHEMES WERE FOR SETTING-UP OF A NEW INDUSTRIAL UNI T/S IN KUTCH DISTRICT AFTER COMPLYING WITH THE TERMS AND CONDITI ONS AS SET OUT IN THE NOTIFICATIONS AND SCHEMES OF THE CENTRAL AND ST ATE GOVERNMENT RESPECTIVELY. THE OBJECT OF BOTH THE SCH EMES WAS ECONOMIC DEVELOPMENT OF KUTCH DISTRICT AFTER THE EA RTHQUAKE AND CREATION OF NEW EMPLOYMENT OPPORTUNITIES AND ATTRAC TION OF LARGE SCALE INVESTMENTS. DURING THE PREVIOUS YEAR, THE AS SESSEE HAD RECEIVED FOLLOWING INCENTIVES BY THE STATE GOVERNME NT AND CENTRAL GOVERNMENT:- (I) SALES-TAX INCENTIVE - RS. 12,95,99,499 (II) CENTRAL EXCISE BENEFIT -RS. 22,37,23,672 ------------------------------ TOT AL -RS.35,33,23,171 THE AMOUNT OF INCENTIVE RECEIVED WAS CREDITED TO TH E PROFIT AND LOSS ACCOUNT, HOWEVER, THE ASSESSEE CLAIMED THAT TH E SAID RECEIPTS ARE NOT TAXABLE AS THEY ARE CAPITAL RECEIPTS. THE A O WHILE MAKING THE ASSESSMENT HAS REJECTED THE CLAIM OF THE ASSESS EE ON THE ITA NOS.5722 & 5370/MUM/2015 WELSPUN CORP.LTD. 15 GROUND THAT IN THE ASSESSMENT YEAR 2006-07, THE ASS ESSEES CLAIM WAS REJECTED BY THE AO ON THE GROUND THAT THE DECIS ION OF SPECIAL BENCH IN THE CASE OF RELIANCE INDUSTRIES IS PENDING FOR DISPOSAL BEFORE THE HONBLE BOMBAY HIGH COURT. 6. THE LD. CIT(A) TOO FOLLOWING THE DECISION OF BOM BAY HIGH COURT IN THE CASE OF RELIANCE INDUSTRIES, ALLOWED THE ASS ESSEES APPEAL. HOWEVER, LATER ON, THIS DECISION OF THE HONBLE BOM BAY HIGH COURT HAS BEEN SET ASIDE TO THE TRIBUNAL FOR FRESH ADJUDI CATION. 7. BEFORE US, IT HAS BEEN STATED THAT THIS ISSUE O F SUBSIDY / INCENTIVE IN THE CASE OF THE ASSESSEE HAD REACHED T O THE STAGE OF ITAT, WHEREBY THE TRIBUNAL, VIDE ORDER DATED 28.12. 2011 HAD SET ASIDE THIS ISSUE TO THE FILE OF THE AO ON THE GROUN D THAT AUTHORITIES BELOW HAVE NOT ANALYSED THE SCHEME OF SUBSIDY / INC ENTIVE GRANTED BY THE RESPECTIVE GOVERNMENTS. IT HAS BEEN INFORMED THAT, TILL DATE NO ASSESSMENT ORDER HAS BEEN PASSED IN PU RSUANCE OF TRIBUNAL ORDER. INSTEAD A FRESH ASSESSMENT ORDER HA S BEEN PASSED UNDER SECTION 143(3) R.W.S. 153A WHEREIN THIS ISSUE HAS BEEN CONFIRMED BY THE AO AGAIN WITHOUT PROPER ANALYZING THE PURPOSE TEST OF THE SCHEME. 8. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT, NOW THERE IS CATENA OF DECISIONS NOT ONLY OF THE TRIBUNAL BUT AL SO OF THE VARIOUS HIGH COURTS INCLUDING THAT OF THE JURISDICTIONAL HI GH COURT, IN FAVOUR OF THE ASSESSEE THAT IF THE SUBSIDY IS GIVEN FOR SE TTING UP FOR A NEW INDUSTRIAL UNIT OR PLANT THEN IT IS ON CAPITAL ACCO UNT. IN SUPPORT OF THIS CONTENTION A SEPARATE COMPILATION OF CASE LAWS HAVE BEEN FILED BEFORE US. EXPLAINING THE NATURE OF SCHEME, H E SUBMITTED THAT THE FUNDAMENTAL OBJECT FOR BOTH THE SCHEMES WAS TO SET UP AN INDUSTRIAL PLANT FOR ECONOMIC DEVELOPMENT AND CREAT ION OF NEW EMPLOYMENT OPPORTUNITIES. FROM THE PERUSAL OF THESE SCHEMES WHICH HAVE BEEN PLACED IN THE PAPER BOOK FROM PAGES 35 TO 47, HE SUBMITTED THAT IT CAN BE SEEN THAT THEY WERE PURELY FOR ASSISTING THE ENTREPRENEUR FOR SETTING-UP NEW INDUSTRIAL UNIT S AND NOT FOR RUNNING OF ANY INDUSTRY FOR PROFIT. HE REFER TO PRE AMBLE AS GIVEN IN THE INCENTIVE SCHEME OF 2001 FOR ECONOMIC DEVELOPMENT O F KUTCH DISTRICT ISSUED BY GOVERNMENT OF GUJARAT DATED 09.11.2001. EVEN IN THE CENTRAL EXCISE NOTIFICATION , THE SAME WAS ISSUED IN A PUBLIC INTEREST FOR SETTING UP OF A NEW INDUSTRIAL PLANT AND THE INCENTIVE OF EXCISE DUTY BENEFIT WAS GIVEN FOR A PERIOD OF FIVE YEARS. HE FURTHER SUBMITTED THAT THE NATURE OF INCENTIVE UNDER BOTH THE NOTIFICATIONS AND THE ACCOUNTING TREATMENT BY THE ASSESSEE AS STATED BY THE ASSESSEE BEFORE THE AUTHO RITIES BELOW WAS AS UNDER:- (A) THE NATURE OF INCENTIVES UNDER THE NOTIFICATION AND THE SCHEME AND THE PRESENT ACCOUNTING TREATMENT ARE SUMMARIZED AS UNDER:- (A) EXCISE DUTY (IN VIEW OF THE NOTIFICATION) - REF UND OF THE EXCISE DUTY PAID THROUGH PLA ON FINISHED GOODS CLEA RED FROM THE UNIT AFTER TAKING CENVAT CREDIT ON THE INP UTS. THIS AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT A S 'EXCISE BENEFIT RECEIVED AND INADVERTENTLY OFFERED TO TAX. PRESENTLY, THERE IS NO LIMIT FOR THE QUANTUM OF SUCH INCENTIVE . ITA NOS.5722 & 5370/MUM/2015 WELSPUN CORP.LTD. 16 (B) SALES TAX/VALUE ADDED TAX (IN VIEW OF THE SCHEM E) - PURCHASE OF INPUTS WITHOUT SALES TAX AND SALES WITH OUT CHARGING OF SALES TAX THUS, CLAIMING EXEMPTION. HOW EVER, AFTER THE INTRODUCTION OF VAT, REFUND OF VAT PAID O N INPUTS AND REMISSION OF VAT COLLECTED ON SALES IS AVAILABL E. BOTH THESE COMPONENTS ARE CREDITED TO THE PROFIT AND LOS S ACCOUNT AS 'SALES TAX INCENTIVES RECEIVED' AND INADVERTENTLY OFFERED TO TAX. THERE IS A MONETARY L IMIT SPECIFIED FOR THE QUANTUM OF THIS INCENTIVE LINKED TO INVESTMENT THAT IS ELIGIBLE UNDER THE SCHEME. (C) THE INCENTIVE CAN BE AVAILED OF ONLY AFTER COMMENCEMENT OF PRODUCTION. FURTHER, IN SO FAR AS I T RELATES TO THE INCENTIVES UNDER THE SCHEME, THE UNIT HAS TO INVEST AT LEAST 50% OF THE INCENTIVES IN THE STATE OF GUJRAT WITHIN A PERIOD OF 10 YEARS FROM THE DATE OF COMMERCIAL PROD UCTIO. THUS, HE SUBMITTED THAT, LOOKING TO THE OBJECTS AND THE PURPOSE FOR WHICH SUBSIDY WAS GIVEN, THE INCENTIVE RECEIPTS HAS TO BE TREATED AS CAPITAL. IN SUPPORT OF HIS CON TENTION, BESIDES SEVERAL DECISIONS, HE PLACED RELIANCE ON TH E FOLLOWING DECISIONS:- SR.NO CASE LAW CITATION 1 SAHNEY STEEL & PRESS WORKS LTD 228 ITR 253 (SC) 2 PONNI SUGARS & CHEMIC ALS LTD. 306 ITR 392 (SC) 3 BOUGAINVILLEA MULTIPLE X ENT. CENTRE (P) LTD 373 ITR 14 (TRIB 4 CHAPHALKAR BROTHER S 351 ITR 309 (BOM) 5 BIRLA VXL LTD. 32 TAXMANN.COM 330(GUJ) 6 M/S AJANTA MANUFA CTURING LTD. ITA NO. 793/RJT/2 010 7 M/S MIHIR PACKAGI NG ITA NO. 5629/M/2 011 8 M/S NIKOMOM FINANCE PVT LTD. ITANO. 3580/M/2 012 ITA NOS.5722 & 5370/MUM/2015 WELSPUN CORP.LTD. 17 9. LD. COUNSEL FURTHER POINTED OUT THAT IN THE CASE OF THE ASSESSEE, A SEARCH AND SEIZURE ACTION HAD TAKEN PLA CE ON 30.10.2010 IN WELSPUN GROUP OF CASES AND IN PURSUAN CE OF THAT NOTICE U/S 153A WAS ISSUED FOR THE IMPUGNED ASSESSMENT YEARS. THE LD. AO BESIDES TREATING THE S AID INCENTIVES AS REVENUE RECEIPTS HAD TAKEN AN ADDITIO NAL POINT BY WAY OF AN ALTERNATIVE OBSERVATION THAT IN CASE, THE SAID RECEIPTS ARE TREATED AS CAPITAL RECEIPTS, THEN SAME SHALL BE REDUCED FROM THE COSTS OF ASSETS AND DEPRECIATION C LAIMED ON THE NET COST OF THE ASSETS WILL BE ALLOWED AFTER REDUCING THE AMOUNT OF INCENTIVES IN TERMS OF EXPLANATION 10 TO SECTION 43(1). HE SUBMITTED THAT SUCH A CONTENTION OF THE AO CANNOT BE UPHELD, BECAUSE THE SAME IS NOT APPLIC ABLE IN THE PRESENT CASE AT ALL, BECAUSE THERE IS NO DIR ECT ACQUISITION OF ASSET FROM THE GOVERNMENT SUBSIDY. T HE SUBSIDY IS RECEIVED IN THE FORM OF EXCISE TAX BENEF IT AND SALES-TAX INCENTIVE ONLY WHEN THE ASSESSEE HAD SET UP THE WHOLE INDUSTRIAL UNIT AND STARTS MANUFACTURING AND COMMENCED ITS BUSINESS OF SALE. THUS, THE SAID PROV ISION IS NOT APPLICABLE AND IN SUPPORT OF HIS CONTENTION, HE RELIED UPON THE FOLLOWING TRIBUNAL DECISIONS:- SR.NO. CASE NAME CITATION 1 SASISRI EXTRACTION S LIMITED 122 ITD 428 (VISAKHAPATNA M) 2 M/S HARINAGAR SUGAR MILLS LTD ITA NO. 772/MUM/2012 3 RASOI LTD. 46 TAXMAN.COM214 (KOLKATA-TRIB) 4 UNIVERSAL CABLES LTD 57 TAXMAN.COM95( KOLKATA TRIB) 5 SOHAM ELECTROPLA ST PVT ITA NO. 1578/PN/2008 10. ON THE OTHER HAND LD. DR STRONGLY RELIED UPON T HE ASSESSMENT ORDER ESPECIALLY PASSED BY THE AO UNDER SECTION 143(3) R.W.S. 153A DATED 25.03.2013 AND SUB MITTED THAT, IF THE INCENTIVE/ SUBSIDY HAS BEEN GIVEN IN T HE FORM OF SALES-TAX OR EXEMPTION OF EXCISE DUTY THEN IT DIREC TLY LEADS TO AUGMENTATION OF PROFIT OF THE ASSESSEE AND HENCE , IT IS NOTHING BUT REVENUE RECEIPTS. ITA NOS.5722 & 5370/MUM/2015 WELSPUN CORP.LTD. 18 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTI ONS AND ALSO PERUSED THE RELEVANT MATERIAL PLACED ON RECORD . THE MAIN ISSUE INVOLVED IS, WHETHER THE INCENTIVE / SUB SIDY PROVIDED BY THE STATE GOVERNMENT IN THE FORM OF SAL ES-TAX INCENTIVE AND IN THE FORM OF CENTRAL EXCISE BENEFIT BY THE CENTRAL GOVERNMENT FOR SUMS AGGREGATING TO RS. 35,33,23,171/- IS TO BE TREATED AS CAPITAL RECEIPTS OR REVENUE RECEIPTS. THE HONBLE SUPREME COURT IN THE CASE OF PONNI SUGARS & CHEMICALS LTD VS CIT, REPORTED IN [2008] 306 ITR 392 AFTER REFERRING TO THE EARLIER DECISION S OF THE SUPREME COURT IN THE CASE OF SAHNEY STEEL WORKS LTD V CIT, REPORTED IN [1999] 228 ITR 253, HELD THAT THE PURPOSE FOR WHICH SUBSIDY IS GIVEN IS THE CRUCIAL F ACTOR . THE PURPOSE IS TO BE JUDGED FROM THE CHARACTER OF T HE RECEIPTS IN THE HANDS OF THE ASSESSEE WHICH HAS TO BE DETERMINED WITH RESPECT TO THE PURPOSE FOR WHICH TH E SUBSIDY IS GIVEN. THE POINT OF TIME IS NOT RELEVANT AND ALSO THE SOURCE AND THE FORM OF SUBSIDY IS IMMATERIAL. I F THE SUBSIDY HAS BEEN GIVEN TO SET-UP NEW UNITS OR FOR SUBSTANTIAL EXPLANATION OF EXISTING UNITS, THEN IT IS A CAPITAL RECEIPT. IF THE OBJECT OF THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO RUN THE BUSINESS MORE PROFITABLY TH EN, THE RECEIPT IS ON REVENUE ACCOUNT. THE RELEVANT OBSERVA TION OF THE HONBLE APEX COURT IN THIS REGARD GIVEN IN PARA 14 READS AS UNDER:- 14. IN OUR VIEW, THE CONTROVERSY IN HAND CAN BE RESOLVED IF WE APPLY THE TEST LAID DOWN IN THE JUDGMENT OF THIS COURT IN THE CASE OF SAHNEY STEEL & PRESS WORKS LTD. (SUPRA). IN THAT CASE, ON BEHALF O F THE ASSESSEE, IT WAS CONTENDED THAT THE SUBSIDY GIVEN WAS UP TO 10 PER CENT OF THE. CAPITAL INVESTM ENT CALCULATED ON THE BASIS OF THE QUANTUM OF INVESTMEN T IN CAPITAL AND, THEREFORE, RECEIPT OF SUCH SUBSIDY WAS ON CAPITAL ACCOUNT AND NOT ON REVENUE ACCOUNT. IT WAS ALSO URGED IN THAT CASE THAT SUBSIDY GRANTED ON THE BASIS OF. REFUND OF SALES TAX ON RAW MATERIALS, MACHINERY AND FINISHED GOODS WERE ALSO OF CAPITAL NATURE AS THE OBJECT OF GRANTING REFUND OF SALES TA X WAS THAT THE ASSESSEE COULD SET UP NEW BUSINESS OR EXPAND HIS EXISTING BUSINESS. THE CONTENTION OF THE ASSESSEE IN THAT CASE WAS DISMISSED BY THE TRIBUNAL AND, THEREFORE, THE ASSESSEE HAD COME TO THIS COURT BY WAY OF A SPECIAL LEAVE PETITION. IT WAS HELD BY THIS COURT ON THE FACTS OF THAT CASE AND ON THE BASIS OF THE ANALYSES OF THE SCHEME THEREIN THAT THE SUBSIDY GIVEN WAS ON REVENUE ACCOUNT BECAUSE IT WAS GIVEN BY WAY OF ASSISTANCE IN CARRYING ON OF TRADE OR BUSINESS. ON THE FACTS OF THAT CASE, IT WAS HELD TH AT THE SUBSIDY GIVEN WAS TO MEET RECURRING EXPENSES. I T WAS NOT FOR ACQUIRING THE CAPITAL ASSET. IT WAS NOT TO MEET PART OF THE COST. IT WAS NOT GRANTED FOR PRODUCTION OF OR BRINGING INTO EXISTENCE ANY NEW ITA NOS.5722 & 5370/MUM/2015 WELSPUN CORP.LTD. 19 ASSET. THE SUBSIDIES IN THAT CASE WERE GRANTED YEAR AFTER YEAR ONLY AFTER SETTING UP OF THE NEW INDUSTR Y AND ONLY AFTER COMMENCEMENT OF PRODUCTION AND, THEREFORE, SUCH A SUBSIDY COULD ONLY BE TREATED AS ASSISTANCE GIVEN FOR THE PURPOSE OF CARRYING ON THE BUSINESS OF THE ASSESSEE. CONSEQUENTLY, THE CONTENTIONS RAISED ON BEHALF OF THE ASSESSEE ON THE FACTS OF THAT CASE STOOD REJECTED AND IT WAS HELD T HAT THE SUBSIDY RECEIVED BY SAHNEY STEEL COULD NOT BE REGARDED AS ANYTHING BUT A REVENUE RECEIPT. ACCORDINGLY, THE MATTER WAS DECIDED AGAINST THE ASSESSEE. THE IMPORTANCE OF THE JUDGMENT OF THIS COURT IN SAHNEY STEEL & PRESS WORKS LTD. 'S CASE (SUPRA) LIES IN THE FACT THAT IT HAS DISCUSSED AND ANALYSED THE ENTIRE CASE LAW AND. IT HAS LAID DOWN THE BASIC TEST TO BE APPLIED IN JUDGING THE CHARACT ER OF A SUBSIDY. THAT TEST IS THAT THE CHARACTER OF TH E RECEIPT IN THE HANDS OF THE ASSESSEE HAS TO BE DETERMINED WITH RESPECT TO THE PURPOSE FOR WHICH TH E SUBSIDY IS GIVEN. IN OTHER WORDS, IN SUCH CASES, ON E HAS TO APPLY THE PURPOSE TEST. THE POINT OF TIME WHICH THE SUBSIDY IS PAID IS NOT RELEVANT. THE SOUR CE IS IMMATERIAL. THE FORM OF SUBSIDY IS IMMATERIAL. T HE MAIN ELIGIBILITY CONDITION IN THE SCHEME WITH WHICH WE ARE CONCERNED IN THIS CASE IS THAT THE INCENTIVE MU ST BE UTILIZED FOR REPAYMENT OF LOANS TAKEN BY THE ASSESSEE TO SETUP NEW UNITS OR FOR SUBSTANTIAL EXPANSION OF EXISTING UNITS; ON THIS ASPECT THERE I S NO DISPUTE. IF THE OBJECT OF THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO RUN THE BUSINESS MORE PROFITABLY THEN THE RECEIPT IS ON REVENUE ACCOUNT. ON THE OTHER HAND, IF THE OBJECT OF THE ASSISTANCE UND ER THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO SET UP A NEW UNIT OR TO EXPAND THE EXISTING UNIT TH EN THE RECEIPT OF THE SUBSIDY WAS ON CAPITAL ACCOUNT. THEREFORE, IT IS THE OBJECT FOR WHICH THE SUBSIDY/ASSISTANCE IS GIVEN WHICH DETERMINES THE NATURE OF THE INCENTIVE SUBSIDY. THE FORM OF THE MECHANISM THROUGH WHICH THE SUBSIDY IS GIVEN IS IRRELEVANT . 12. NOW, IN THE WAKE OF THE PRINCIPLE LAID DOWN BY THE HONBLE SUPREME COURT, WE SHALL EXAMINE THE NATURE OF SUBSIDY PROVIDED TO THE ASSESSEE. THE INCENTIVE SCHEME 2001 FOR ECONOMIC DEVELOPMENT OF KUTCH DISTRICT OF THE GUJARAT GOVERNMENT GIVES THE FUNDAMENTAL PREAMBLE WHICH HIGHLIGHTS THE BASIC OBJECTIVE AND THE PURPOSE FOR WHICH THE INCENTIVE B Y THE STATE GOVERNMENT AS WELL AS CENTRAL GOVERNMENT IS BEING GIVEN HAS BEEN HIGHLIGHTED IN THE FOLLOWING MANNER:- THE ECONOMIC ACTIVITIES IN THE DISTRICT OF KUTCH C AME TO A STANDSTILL ON ACCOUNT OF THE DEVASTATING ITA NOS.5722 & 5370/MUM/2015 WELSPUN CORP.LTD. 20 EARTHQUAKE IN THE STATE ON 26TH JANUARY, 2001. NEW EMPLOYMENT, OPPORTUNITIES COULD BE CREATED IF NEW INVESTMENT TAKES PLACE. THE GOVERNMENT IS COMMITTED TO ATTRACTING INDUSTRIES IN THE DISTRICT TO MAKE THE INDUSTRIAL AND ECONOMIC ENVIRONMENT LIVE. GOVERNMENT OF INDIA HAVE ANNOUNCED EXCISE DUTY EXEMPTION FOR NEW INDUSTRIES TO PROMOTE LARGE SCALE INVESTMENT IN THE DISTRICT, ALONG WITH WHICH THE ST ATE GOVERNMENT HAS ALSO DECIDED TO ANNOUNCE THE SCHEME OF SALES TAX INCENTIVES. SINCE THE SCHEME IS AIMED AT MAKING THE ECONOMIC ENVIRONMENT OF KUTCH DISTRICT LIVE, IT HAS BEEN DECIDED TO CONFINE THE S AME ONLY TO KUTCH DISTRICT. 13. FROM THE PERUSAL OF THE ABOVE, IT IS AMPLY CLEA R THAT THE SCHEMES LAUNCHED WAS FOR SETTING UP OF NEW INDUSTRIES IN THE DISTRICT OF KUTCH FOR THE PURPOSE OF NEW EMPLOYMENT OPPORTUNITIES AND TO MAKE INDUSTRIAL AND ECONOMIC ENVIRONMENT LIVE. THUS, THE SCHEME OF INCENTIVES PROVIDED BY THE RESPECTIVE GOVERNMENTS WAS SETTING-UP OF A NEW UNIT AND NOT FOR RUNNING OF THE BUSINESS MORE PROFITABLY. AS LAI D DOWN BY THE HONBLE SUPREME COURT, THE FORM AND THE SOURCE OF SUBSIDY ARE IMMATERIAL AND WHAT IS MATERIAL IS WHETHER THE SUBSIDY IS FOR SETTING UP F OR A INDUSTRIAL UNIT OR RUNNING IT FOR PROFITABILITY. SI MILARLY, THE CENTRAL EXCISE EXEMPTION WAS GIVEN IN THE PUBLI C INTEREST FOR SETTING UP OF A NEW INDUSTRIAL UNIT IN THE KUTCH DISTRICT. ACCORDINGLY ON THE FACTS OF THE PRE SENT CASE, WE CONCLUDE THAT THE INCENTIVE GIVEN BY THE STATE GOVERNMENT AND THE CENTRAL GOVERNMENT IS NOTHING BUT CAPITAL RECEIPTS, BECAUSE APPLYING THE ONLY FOR SETTING UP OF NEW INDUSTRIAL UNIT AND ECONOMIC DEVELOPMENT AND GENERATION OF NEW EMPLOYMENT OPPORTUNITIES IN THE KUTCH DISTRICT AND NOT FOR RUNNING THE INDUSTRY FOR AUGMENTING THE PRO FIT ON DAY-TO-DAY BUSINESS. THIS PROPOSITION OF LAW HAS BEEN REITERATED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS CHAPHALKAR BROTHERS, REPORTED IN 351 ITR 309, WHEREIN THE HONBLE HIGH COURT RELYING UPON THE PRINCIPLES LAID DOWN BY THE SUPREME COURT IN THE CASE OF PONNI SUGARS & CHEMICALS LTD HAS HELD THAT IF THE OBJECT OF THE SUBSIDY WAS TO PROMO TE CONSTRUCTION OF MULTIPLEXES, THEATER COMPLEXES THEN , IT WOULD BE ON CAPITAL ACCOUNT. SIMILARLY, VIEWS HA VE BEEN TAKEN BY THE VARIOUS OTHER HIGH COURTS AND TRIBUNAL IN THE DECISION AS REFERRED AND RELIED UPO N BY THE LD. COUNSEL AS ABOVE. THUS, WE HOLD THAT THE AMOUNT OF INCENTIVE RECEIVED BY THE ASSESSEE CANNOT BE TAXED AS REVENUE RECEIPT AS IT IS PURELY ON CAPI TAL ACCOUNT. ITA NOS.5722 & 5370/MUM/2015 WELSPUN CORP.LTD. 21 14. AS REGARDS THE OTHER PLEA RAISED BY THE AO IN T HE ORDER PASSED U/S 143(3) R.W.S. 153A, WE AGREE WITH THE CONTENTION OF THE LD. COUNSEL THAT, NONE OF THE PLANT AND MACHINERY INSTALLED BY THE ASSESSEE FOR SETTING UP OF A NEW INDUSTRIAL UNIT HAS BEEN FUNDED BY THE GOVERNMENT SUBSIDY. THE SUBSIDY HERE IN THIS CASE IS NOT SPECIFICALLY INTENDED TO SUBSIDIES THE COST OF CAPITAL OR PLANT & MACHINERY. THE INCENTIVE IN T HE FORM OF SUBSIDY BY THE GOVERNMENT HERE IN THIS CASE CANNOT BE CONSIDERED AS PAYMENT DIRECTLY OR INDIRECTLY TO MEET ANY PORTION OF THE ACTUAL COST A ND HENCE IT DOES NOT FALL WITHIN THE PURVIEW OF EXPLANATION 10 TO SECTION 43(1). THUS, THIS ALTERNA TIVE PLEA AS RAISED BY LD. AO IS REJECTED. ACCORDINGLY, THE GROUND RAISED BY THE REVENUE ON THIS SCORE STANDS DISMISSED. 5.3. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED TH E MATERIAL ON RECORD INCLUDING CITED CASE LAWS, ORDERS OF THE AUTHORITIE S BELOW AND FACTUAL MATRIX OF THE CASE. WE HAVE ALSO GONE THROUGH THE T ERMS & CONDITION OF THE SAID INCENTIVE SCHEME FORMULATED BY CENTRAL AND STATE GOVERNMENT TO GRANT CENTRAL EXCISE BENEFITS BY WAY OF REFUND A ND EXEMPTION OF SALES TAX INCENTIVE AS ARE EXTRACTED BY LEARNED CIT(A) IN HIS APPELLATE ORDER WHICH ARE REPRODUCED ABOVE IN THE PRECEDING PARAS OF THIS ORDER WE HAVE OBSERVED THAT THE ASSESSEE IS ENGAGED IN THE B USINESS OF MANUFACTURING OF TERRY TOWELS. WE HAVE OBSERVED THA T THERE WAS A DEVASTATING EARTHQUAKE IN DISTRICT KUTCH IN GUJARAT ON 26.01.2001. IN ORDER TO REDEVELOP AND REHABILITATE THE SAID KUTCH DISTRICT OF GUJARAT , THE CENTRAL AND STATE GOVERNMENT FORMULATED POLICY WITH A VIEW TO ENCOURAGE SETTING UP OF NEW INDUSTRY IN SAID KUTCH DISTRICT WHEREIN CERTAIN INCENTIVES BY WAY OF REFUND OF EXCISE DUTY AS WELL EXEMPTION OF SALES TAX INCENTIVES WERE GIVEN BY CENTRAL AND STAT E GOVERNMENT TO THE ENTREPRENEURS FOR SETTING UP NEW INDUSTRY IN KUTCH DISTRICT ,AS DETAILED BELOW:- NOTIFICATION NO 39 /2001 -CENTRAL EXCISE. IN EXERCISE OF THE POWERS CONFERRED BY SUB-SECTION (1) OF SECTION 5A OF THE CENTRAL EXCISE ACT, 1944 (1 OF 1944), REA D WITH SUBSECTION (3) OF SECTION 3 OF THE ADDITIONAL DUTIE S OF EXCISE (GOODS OF SPECIAL IMPORTANCE) ACT, 1957 (58 OF 1957 ) AND SUB- SECTION (3) OF SECTION 3 OF THE ADDITIONAL DUTIES O F EXCISE (TEXTILES AND TEXTILE ARTICLES) ACT, 1978 ( 40 OF 1978), THE CENTRAL GOVERNMENT BEING SATISFIED THAT IT IS NECESSARY THE PUBLIC INTEREST SO TO DO, HEREBY EXEMPTS THE GOODS SPECIFIED IN THE FIRST SCHEDULE TO THE CENTRAL EXCISE TARIFF ACT,1985 (5 OF 1986) O THER THAN GOODS SPECIFIED IN THE ANNEXURE APPENDED TO THIS NOTIFICA TION AND CLEARED FROM A UNIT LOCATED IN KUTCH DISTRICT OF GUJARAT FR OM SO MUCH OF THE DUTY OF EXCISE OR THE ADDITIONAL DUTY OF EXCISE, AS THE CASE MAY BE, LEVIABLE. THE EXEMPTION CONTAINED IN THIS NOTIFICAT ION SHALL BE SUBJECT TO THE FOLLOWING CONDITIONS, NAMELY;- (I) IT SHALL APPLY ONLY TO NEW INDUSTRIAL UNITS, TH AT IS TO SAY, UNITS WHICH ARE SET UP ON OR AFTER THE DATE OF PUBLICATIO N OF THIS NOTIFICATION IN THE OFFICIAL GAZETTE BUT NOT LATER THAN THE 31ST DAY OF DECEMBER, 2004; ITA NOS.5722 & 5370/MUM/2015 WELSPUN CORP.LTD. 22 (II) IN ORDER TO AVAIL OF THIS EXEMPTION, THE MANU FACTURER SHALL PRODUCE A CERTIFICATE FROM A COMMITTEE CONSISTING O F THE CHIEF COMMISSIONER OF CENTRAL EXCISE, AHMEDABAD AND THE PRINCIPAL SECRETARY TO THE GOVERNMENT OF GUJARAT, DEPARTMENT OF INDUSTRY, TO THE JURISDICTIONAL ASSIS TANT COMMISSIONER OR THE DEPUTY COMMISSIONER OF CENTRAL EXCISE, AS THE CASE MAY BE, THAT THE UNIT IN RESPEC T OF WHICH EXEMPTION IS CLAIMED IS A NEW UNIT AND HAS BEEN SET UP DURING THE TIME PERIOD SPECIFIED IN CONDITION (I) A BOVE. (III) BEFORE EFFECTING CLEARANCES UNDER THIS NOTIF ICATION, THE MANUFACTURER SHALL ALSO FURNISH A DECLARATION REGAR DING THE ORIGINAL VALUE OF INVESTMENT IN PLANT AND MACHINERY INSTALLED IN THE FACTORY AS ON THE DATE OF COMMENCEMENT OF COMMERCIAL PRODUCTION, TO THE ASSISTANT COMMISSIONE R THE DEPUTY COMMISSIONER OF CENTRAL EXCISE, AS THE CASE MAY BE. (IV) THE MANUFACTURER SHALL ALSO PRODUCE A CERTIFI CATE FROM THE SAID COMMITTEE CONFIRMING THE ORIGINAL VALUE OF INV ESTMENT AND SUCH A CERTIFICATE SHALL BE PRODUCED WITHIN A P ERIOD OF ONE MONTH FROM THE DATE OF COMMENCEMENT OF COMMERCI AL PRODUCTION, OR SUCH EXTENDED PERIOD AS THE SAID ASS ISTANT COMMISSIONER OR DEPUTY COMMISSIONER MAY ALLOW. (V) IN CASE ON THE BASIS OF SUCH CERTIFICATION, OR OTHERWISE, THE ORIGINAL VALUE OF INVESTMENT IN PLANT AND MACHINERY , (A) IS FOUND TO BE LESS THAN RUPEES TWENTY CRORE BU T WAS DECLARED TO BE RUPEES TWENTY CRORE OR MORE, THE MANUFACTURER SHALL BE LIABLE TO PAY BACK THE ENTIRE AMOUNT OF DUTY EXEMPTION AVAILED UNDER THE NOTIFICATION AL ONGWITH INTEREST AT THE RATE OF TWENTY FOUR PER CENT PER AN NUM AS IF NO EXEMPTION WERE AVAILABLE; OR (B) IS FOUND TO BE LESS THAN THE DECLARED VALUE AND WAS DECLARED TO BE BELOW RUPEES TWENTY CRORE, THE MANUF ACTURE SHALL BE LIABLE TO PAY DUTY ON THE GOODS CLEARED ,I F ANY, IN EXCESS OF TWICE THE ACTUAL VALUE OF ORIGINAL INVEST MENT IN EACH OF THE YEARS DURING WHICH EXEMPTION HAS BEEN C LAIMED UNDER THIS NOTIFICATION ALONGWITH INTEREST AT THE R ATE OF TWENTY FOUR PER CENT PER ANNUM , AS IF NO EXEMPTION WERE A VAILABLE TO THOSE CLEARANCES UNDER THIS NOTIFICATION. (VI) THE EXEMPTION SHALL APPLY FOR A PERIOD NOT EX CEEDING FIVE YEARS FROM THE DATE OF COMMENCEMENT OF COMMERC IAL PRODUCTION BY THE UNIT. THE SALES TAX INCENTIVE SCHEME FORMULATED BY STATE GOVERNMENT OF GUJARAT IS DETAILED HEREUNDER: SALES TAX INCENTIVE SCHEME 2001 FOR KUTCH DISTRICT THE ECONOMIC ACTIVITIES IN THE DISTRICT OF KUTCH C AME TO A STANDSTILL ON ACCOUNT OF DEVASTATING EARTHQUAKE IN THE STATE ON 26TH JANUARY, 2001. NEW EMPLOYMENT OPPORTUNITIES COULD BE CREATED IF NEW INVESTMENT TAKES PLACE. THE GOVERNMENT IS COMMITTED TO ATTRACTING INDUSTRIES IN THE DISTRICT TO MAKE THE INDUSTRIAL AND ECONOMIC ENVIRO NMENT LIVE. GOVERNMENT OF INDIA HAVE ANNOUNCED EXCISE DUT Y ITA NOS.5722 & 5370/MUM/2015 WELSPUN CORP.LTD. 23 EXEMPTION TO NEW INDUSTRIES TO PROMOTE LARGE SCALE INVESTMENT IN THE DISTRICT, ALONG WITH WHICH THE ST ATE GOVERNMENT HAS ALSO DECIDED TO ANNOUNCE THE SCHEME OF SALES TAX INCENTIVE. SINCE THE SCHEME IS AIMED AT M AKING THE ECONOMIC ENVIRONMENT OF KUTCH DISTRICT LIVE, IT HAS BEEN DECIDED TO CONFINE THE SAME ONLY TO KUTCH DISTRICT. CONDITIONS UNDER THIS SCHEME, FOLLOWING CONDITIONS SHALL BE A PPLICABLE TO SALES TAX INCENTIVES. IN THE CASE OF VIOLATION O F ONE OR MORE CONDITIONS, THE AMOUNT OF SALES TAX INCENTIVES AVAILED OF SHALL BE RECOVERED AS ARREARS OF LAND REVENUE. (A) THE INDUSTRIAL UNIT SHALL HAVE TO GIVE A CLEAR UNDERTAKING THAT IT SHALL NOT TRANSFER OR DISPOSE OF THE ASSETS IN ANY MANNER, TILL THE EXPIRY OF THE ELIGIBILITY PERIOD O F INCENTIVES. (B) THE INDUSTRIAL UNIT AVAILING OF THE INCENTIVES UNDER THE SCHEME, SHALL HAVE TO INSTALL, EFFECTIVELY USE AND MAINTAIN THE POLLUTION CONTROL EQUIPMENTS AS PER THE STANDAR DS PRESCRIBED AND APPROVED BY THE COMPETENT AUTHORITY. (C) THE INDUSTRIAL UNIT SHALL HAVE TO CONTINUE PRO DUCTION UP TO THE PERIOD OF ELIGIBILITY. HOWEVER, IF THE UNIT DOES NOT REMAIN IN CONTINUOUS PRODUCTION ON ACCOUNT OF THE R EASONS BEYOND THE CONTROL OF THE MANAGEMENT, THE UNIT SHAL L PRESENT ITS CASE BEFORE THE STATE LEVEL COMMITTEE A S AN INDIVIDUAL CASE ON WHICH THE COMMITTEE CAN TAKE DEC ISION TO WAIVE THE PERIOD OF DISCONTINUATION OF PRODUCTION B ASED ON THE REPRESENTATION MADE. (D) THE INDUSTRIAL UNIT SHALL HAVE TO FURNISH THE DETAILS OF PRODUCTION, EMPLOYMENT AND OTHER INFORMATION EVERY YEAR BEFORE 30TH JUNE OR FROM TIME TO TIME AS SOUGHT BY THE STATE GOVERNMENT. (E) AS PER THE EMPLOYMENT POLICY OF THE GOVERNMENT OF GUJARAT, THE UNIT AVAILING OF THE INCENTIVES, WILL HAVE TO RECRUIT LOCAL PERSONS FOR A MINIMUM OF 85% OF THE T OTAL POSTS AND FOR A MINIMUM OF 60% OF THE MANAGERIAL AND SUPERVISORY POSTS. THE UNIT SHALL HAVE TO SUBMIT TH E DETAILS OF FULFILLING THE CONDITIONS OF LOCAL EMPLOYMENT TO THE CONCERNED AUTHORITY GRANTING THE INCENTIVES TO HIS SATISFACTION. THE PERCENTAGE OF THE ABOVE MENTIONED EMPLOYMENT WILL HAVE TO BE MAINTAINED BY THE INDUST RIAL UNIT DURING THE ELIGIBILITY PERIOD OF THE INCENTIVES. OT HERWISE, THE AMOUNT OF INCENTIVES AVAILED BY THE UNIT CAN BE REC OVERED AS ARREARS OF LAND REVENUE (F) UNIT WILL HAVE TO INVEST THE AMOUNT EQUIVALENT TO 50% OF THE SALES TAX INCENTIVES AVAILED IN THE NEW PROJECT S IN THE STATE WITHIN A PERIOD OF 10 YEARS FROM THE DATE OF COMMENCEMENT OF COMMERCIAL PRODUCTION. (G) UNIT OPTING FOR SALES TAX DEFERMENT SCHEME FOR THE PURPOSE OF DEFERRED AMOUNT SHALL HAVE TO GIVE A PER SONAL UNDERTAKING IN THE FORM OF SECURITY BOND AS PRESCRI BED VIDE RESOLUTION NO.INC-1087-2138-I DATED THE 1ST AUGUST, 1990 OR EQUITABLE CHARGE, SECOND CHARGE. ITA NOS.5722 & 5370/MUM/2015 WELSPUN CORP.LTD. 24 H) THE UNIT AVAILING OF INCENTIVES UNDER ANY OTHER SCHEME OF THE STATE GOVERNMENT WILL NOT BE ELIGIBLE TO RECEIV E BENEFITS UNDER THIS SCHEME. (I) EXPANSION, DIVERSIFICATION OR MODERNIZATION OF THE EXISTING INDUSTRIES WILL NOT BE CONSIDERED ELIGIBLE FOR THE BENEFITS UNDER THIS SCHEME WE HAVE ALSO OBSERVED THAT THE MUMBAI-TRIBUNAL HAS DEALT WITH THIS INCENTIVE SCHEMES OF CENTRAL AND STATE GOVERNMENT F OR GIVING INCENTIVES BY CENTRAL EXCISE BENEFITS BY WAY OF REFUND AND EXE MPTION OF SALES TAX INCENTIVES FOR SETTING UP INDUSTRIAL UNITS IN DISTR ICT KUTCH,GUJARAT TO REDEVELOP THE SAID KUTCH DISTRICT IN THE WAKE OF DE VASTATING EARTH QUAKES ON 26.01.2011 IN THE CASES OF GROUP CONCERN OF THE ASSESSEE IN WELSPUN STEEL LTD. V. DCIT/ACIT, VIDE APPELLATE ORDER DATED 18.12.2015 , IN APPEALS IN ITA NO. 7630/MUM/2011 AND 8294/M/2011 FO R AY 2007-08, ITA NO. 6371/MUM/2014 FOR AY 2006-07, ITA NO. 6372/ MUM/2014, 6304/MUM/2014 FOR AY 2007-08, ITA NO. 6373/MUM/2014 , 6305/MUM/2014 FOR AY 2008-09, ITA NO. 6374/MUM/2014 , 6306/MUM/2014 FOR AY 2009-10, ITA NO. 6375/MUM/2014 , 6307/MUM/2014 FOR AY 2010-11, ITA NO. 6376/MUM/2014 , 6308/MUM/2014 FOR AY 2011-12, VIDE COMMON ORDER DAT ED 18.12.2015 , WHEREIN THE MUMBAI TRIBUNAL HAS HELD THAT THE SAID INCENTIVES ARE CAPITAL RECEIPT NOT EXIGIBLE TO INCOME-TAX AND FURTHER IT H AS BEEN HELD THAT THE SAID AMOUNT OF INCENTIVES RECEIVED BY THE ASSESEEE SHALL NOT BE REDUCED FROM THE COST OF THE ASSET OF THE ASSESSEE DESPITE EXPLANATION 10 TO SECTION 43(1) , BY HOLDING AS UNDER 5. THE BRIEF FACTS QUA THE ISSUE INVOLVED IS THAT, ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF SPON GE IRON, STEEL INGOTS AND ROLLED PRODUCT. IN THE WAKE OF DEV ASTATING EARTHQUAKE IN KUTCH DISTRICT, GUJARAT, THE CENTRAL GOVERNMENT, VIDE NOTIFICATION NO. 39/2001 DATED 7TH AUGUST, 2001 ISSUED AN EXCISE BENEFIT INCENTIVE SCH EME AND STATE GOVERNMENT OF GUJARAT ALSO VIDE ITS NOTIF ICATION DATED 9TH NOVEMBER, 2001 ANNOUNCED AN INCENTIVE SCH EME FOR SALES-TAX EXEMPTION KNOWN AS INCENTIVE SCHEME, 2001 FOR ECONOMIC DEVELOPMENT FOR KUTCH DISTRICT . BOTH THESE SCHEMES WERE FOR SETTING-UP OF A NEW INDUSTRI AL UNIT/S IN KUTCH DISTRICT AFTER COMPLYING WITH THE TERMS AN D CONDITIONS AS SET OUT IN THE NOTIFICATIONS AND SCHE MES OF THE CENTRAL AND STATE GOVERNMENT RESPECTIVELY. THE OBJE CT OF BOTH THE SCHEMES WAS ECONOMIC DEVELOPMENT OF KUTCH DISTRICT AFTER THE EARTHQUAKE AND CREATION OF NEW EMPLOYMENT OPPORTUNITIES AND ATTRACTION OF LARGE SC ALE INVESTMENTS. DURING THE PREVIOUS YEAR, THE ASSESSEE HAD RECEIVED FOLLOWING INCENTIVES BY THE STATE GOVERNME NT AND CENTRAL GOVERNMENT:- (I) SALES-TAX INCENTIVE -RS. 12,95,99,499 (II) CENTRAL EXCISE BENEFIT -RS. 22,37,23,672 -------------- ---------------- TOTAL -RS.35,33,23,17 1 ITA NOS.5722 & 5370/MUM/2015 WELSPUN CORP.LTD. 25 THE AMOUNT OF INCENTIVE RECEIVED WAS CREDITED TO T HE PROFIT AND LOSS ACCOUNT, HOWEVER, THE ASSESSEE CLAIMED THA T THE SAID RECEIPTS ARE NOT TAXABLE AS THEY ARE CAPITAL R ECEIPTS. THE AO WHILE MAKING THE ASSESSMENT HAS REJECTED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT IN THE ASS ESSMENT YEAR 2006-07, THE ASSESSEES CLAIM WAS REJECTED BY THE AO ON THE GROUND THAT THE DECISION OF SPECIAL BENCH IN THE CASE OF RELIANCE INDUSTRIES IS PENDING FOR DISPOSAL BEFORE THE HONBLE BOMBAY HIGH COURT. 6. THE LD. CIT(A) TOO FOLLOWING THE DECISION OF BOM BAY HIGH COURT IN THE CASE OF RELIANCE INDUSTRIES, ALLOWED T HE ASSESSEES APPEAL. HOWEVER, LATER ON, THIS DECISION OF THE HONBLE BOMBAY HIGH COURT HAS BEEN SET ASIDE TO THE TRIBUNAL FOR FRESH ADJUDICATION. 7. BEFORE US, IT HAS BEEN STATED THAT THIS ISSUE O F SUBSIDY / INCENTIVE IN THE CASE OF THE ASSESSEE HAD REACHED T O THE STAGE OF ITAT, WHEREBY THE TRIBUNAL, VIDE I.T.A. NO .5373 TO 5376/MUM/2015 I.T.A. NO.5718, 5721, 5723 AND 5725/MUM/2015 28 ORDER DATED 28.12.2011 HAD SET ASI DE THIS ISSUE TO THE FILE OF THE AO ON THE GROUND THAT AUTHORITIES BELOW HAVE NOT ANALYSED THE SCHEME OF SUBSIDY / INC ENTIVE GRANTED BY THE RESPECTIVE GOVERNMENTS. IT HAS BEEN INFORMED THAT, TILL DATE NO ASSESSMENT ORDER HAS BE EN PASSED IN PURSUANCE OF TRIBUNAL ORDER. INSTEAD A FR ESH ASSESSMENT ORDER HAS BEEN PASSED UNDER SECTION 143( 3) R.W.S. 153A WHEREIN THIS ISSUE HAS BEEN CONFIRMED B Y THE AO AGAIN WITHOUT PROPER ANALYZING THE PURPOSE TEST OF THE SCHEME. 8. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT, NOW THERE IS CATENA OF DECISIONS NOT ONLY OF THE TRIBUN AL BUT ALSO OF THE VARIOUS HIGH COURTS INCLUDING THAT OF THE JU RISDICTIONAL HIGH COURT, IN FAVOUR OF THE ASSESSEE THAT IF THE S UBSIDY IS GIVEN FOR SETTING UP FOR A NEW INDUSTRIAL UNIT OR P LANT THEN IT IS ON CAPITAL ACCOUNT. IN SUPPORT OF THIS CONTENTIO N A SEPARATE COMPILATION OF CASE LAWS HAVE BEEN FILED B EFORE US. EXPLAINING THE NATURE OF SCHEME, HE SUBMITTED T HAT THE FUNDAMENTAL OBJECT FOR BOTH THE SCHEMES WAS TO SET UP AN INDUSTRIAL PLANT FOR ECONOMIC DEVELOPMENT AND CREAT ION OF NEW EMPLOYMENT OPPORTUNITIES. FROM THE PERUSAL OF T HESE SCHEMES WHICH HAVE BEEN PLACED IN THE PAPER BOOK FR OM PAGES 35 TO 47, HE SUBMITTED THAT IT CAN BE SEEN TH AT THEY WERE PURELY FOR ASSISTING THE ENTREPRENEUR FOR SETT ING-UP NEW INDUSTRIAL UNITS AND NOT FOR RUNNING OF ANY IND USTRY FOR PROFIT. HE REFER TO PREAMBLE AS GIVEN IN THE INCENTIVE SCHEME OF 2001 FOR ECONOMIC DEVELOPMENT OF KUTCH DISTRICT ISSUED BY GOVERNMENT OF GUJARAT DATED 09.11.2001. EVEN IN THE CENTRAL EXCISE NOTIFICATION , THE SAME WAS ISSUED IN A PUBLIC INTEREST FOR SETTING UP OF A NEW INDUSTRIAL PLANT AND THE INCENTIVE OF EXCISE DUTY B ENEFIT WAS GIVEN FOR A PERIOD OF FIVE YEARS. HE FURTHER SUBMIT TED THAT THE NATURE OF INCENTIVE UNDER BOTH THE NOTIFICATION S AND THE ITA NOS.5722 & 5370/MUM/2015 WELSPUN CORP.LTD. 26 ACCOUNTING TREATMENT BY THE ASSESSEE AS STATED BY T HE ASSESSEE BEFORE THE AUTHORITIES BELOW WAS AS UNDER: - (A) THE NATURE OF INCENTIVES UNDER THE NOTIFICATION AND THE SCHEME AND THE PRESENT ACCOUNTING TREATMENT ARE SUMMARIZED AS UNDER:- (A) EXCISE DUTY (IN VIEW OF THE NOTIFICATION) - REF UND OF THE EXCISE DUTY PAID THROUGH PLA ON FINISHED GOODS CLEARED FROM THE UNIT AFTER TAKING CENVAT CRE DIT ON THE INPUTS. THIS AMOUNT IS CREDITED TO THE PROFI T AND LOSS ACCOUNT AS 'EXCISE BENEFIT RECEIVED AND INADVERTENTLY OFFERED TO TAX. PRESENTLY, THERE IS N O LIMIT FOR THE QUANTUM OF SUCH INCENTIVE. (B) SALES TAX/VALUE ADDED TAX (IN VIEW OF THE SCHEME) - PURCHASE OF INPUTS WITHOUT SALES TAX AND SALES WITHOUT CHARGING OF SALES TAX THUS, CLAIMING EXEMPTION. HOWEVER, AFTER THE INTRODUCTION OF VAT, REFUND OF VAT PAID ON INPUTS AND REMISSION OF VAT COLLECTED ON SALES IS AVAILABLE. BOTH THESE COMPONENTS ARE CREDITED TO THE PROFIT AND LOSS ACCOUNT AS 'SALES TAX INCENTIVES RECEIVED' AND INADVERTENTLY OFFERED TO TAX. THERE IS A MONETARY L IMIT SPECIFIED FOR THE QUANTUM OF THIS INCENTIVE LINKED TO INVESTMENT THAT IS ELIGIBLE UNDER THE SCHEME. (C) THE INCENTIVE CAN BE AVAILED OF ONLY AFTER COMMENCEMENT OF PRODUCTION. FURTHER, IN SO FAR AS I T RELATES TO THE INCENTIVES UNDER THE SCHEME, THE UNI T HAS TO INVEST AT LEAST 50% OF THE INCENTIVES IN THE STATE OF GUJRAT WITHIN A PERIOD OF 10 YEARS FROM TH E DATE OF COMMERCIAL PRODUCTION. THUS, HE SUBMITTED THAT, LOOKING TO THE OBJECTS AND THE PURPOSE FOR WHICH SUBSIDY WAS GIVEN, THE INCENTIVE RECEIPTS HAS TO BE TREATED AS CAPITAL. IN SUPPORT OF HIS CONTENTION, BESIDES S EVERAL DECISIONS, HE PLACED RELIANCE ON THE FOLLOWING DECISIONS:- S.NO CASE L AW CITATION 1 SAHNEY STEEL & PRESS WORKS LTD 228 ITR 253 (SC)2 2 PONNI SUGARS & CHEMICALS LTD. 306 ITR 392 (SC) 3 BOUGAINVILLEA MULTIPLEX ENT. CENTRE (P) LTD 373 ITR 14 (TRIB 4 CHAPHALKAR BROTHERS 351 ITR 309 (BOM) 5 BIRLA VXL LTD. 32 TAXMANN.COM 330( GUJ) 6 M/S AJANTA MANUFACTU RING LTD. ITA NO. 793/RJT/2010 ITA NOS.5722 & 5370/MUM/2015 WELSPUN CORP.LTD. 27 7 M/S MIHIR PACKAGING ITA NO. 5629/M/2011 8 M/S NIKOMOM FINANCE PVT LTD. ITA NO. 3580/M/2012 9. LD. COUNSEL FURTHER POINTED OUT THAT IN THE CASE OF THE ASSESSEE, A SEARCH AND SEIZURE ACTION HAD TAKEN PLA CE ON 30.10.2010 IN WELSPUN GROUP OF CASES AND IN PURSUAN CE OF THAT NOTICE U/S 153A WAS ISSUED FOR THE IMPUGNED ASSESSM ENT YEARS. THE LD. AO BESIDES TREATING THE SAID INCENTIVES AS REVENUE RECEIPTS HAD TAKEN AN ADDITIONAL POINT BY WAY OF AN ALTERNATIVE OBSERVATION THAT IN CASE, THE SAID RECEIPTS ARE TRE ATED AS CAPITAL RECEIPTS, THEN SAME SHALL BE REDUCED FROM THE COSTS OF ASSETS AND DEPRECIATION CLAIMED ON THE NET COST OF THE ASSETS WILL BE ALLOWED AFTER REDUCING THE AMOUNT OF INCENTIVES IN TERMS OF EXPLANATION 10 TO SECTION 43(1). HE SUBMITTED THAT SUCH A CONTENTI ON OF THE AO CANNOT BE UPHELD, BECAUSE THE SAME IS NOT APPLICABL E IN THE PRESENT CASE AT ALL, BECAUSE THERE IS NO DIRECT ACQ UISITION OF ASSET FROM THE GOVERNMENT SUBSIDY. THE SUBSIDY IS RECEIVE D IN THE FORM OF EXCISE TAX BENEFIT AND SALES-TAX INCENTIVE ONLY WHEN THE ASSESSEE HAD SET UP THE WHOLE INDUSTRIAL UNIT AND S TARTS MANUFACTURING AND COMMENCED ITS BUSINESS OF SALE. T HUS, THE SAID PROVISION IS NOT APPLICABLE AND IN SUPPORT OF HIS C ONTENTION, HE RELIED UPON THE FOLLOWING TRIBUNAL DECISIONS:- S.NO CASE NAME CITATION 1 SASISRIEXTRACTIS LIMITED 122 ITD 428 (VISAKHAPATNAM) 2 M/S HARINAGAR SUGAR MILLS LTD ITA NO. 772/MUM/2012 3 RASOI LTD. 46TAXMAN.COM214(KOLKATA -TRIB) 4 UNIVERSALCABLS LTD 57 TAXMAN.COM95(KOLKATA TRIB) 5 SOHAMELECTROPL AST PVT ITA NO. 1578/PN/2008 10. ON THE OTHER HAND LD. DR STRONGLY RELIED UPON T HE ASSESSMENT ORDER ESPECIALLY PASSED BY THE AO UNDER SECTION 143(3) R.W.S. 153A DATED 25.03.2013 AND SUBMITTED T HAT, IF THE INCENTIVE/ SUBSIDY HAS BEEN GIVEN IN THE FORM OF SA LES-TAX OR EXEMPTION OF EXCISE DUTY THEN IT DIRECTLY LEADS TO AUGMENTATION OF PROFIT OF THE ASSESSEE AND HENCE, IT IS NOTHING BUT REVENUE RECEIPTS. 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTI ONS AND ALSO PERUSED THE RELEVANT MATERIAL PLACED ON RECORD. THE MAIN ISSUE INVOLVED IS, WHETHER THE INCENTIVE / SUBSIDY PROVID ED BY THE STATE GOVERNMENT IN THE FORM OF SALES-TAX INCENTIVE AND I N THE FORM OF CENTRAL EXCISE BENEFIT BY THE CENTRAL GOVERNMENT FO R SUMS AGGREGATING TO RS. 35,33,23,171/- IS TO BE TREATED AS CAPITAL ITA NOS.5722 & 5370/MUM/2015 WELSPUN CORP.LTD. 28 RECEIPTS OR REVENUE RECEIPTS. THE HONBLE SUPREME C OURT IN THE CASE OF PONNI SUGARS & CHEMICALS LTD VS CIT, REPORT ED IN [2008] 306 ITR 392 AFTER REFERRING TO THE EARLIER DECISION S OF THE SUPREME COURT IN THE CASE OF SAHNEY STEEL WORKS LTD V CIT, REPORTED IN [1999] 228 ITR 253, HELD THAT THE PURPOSE FOR WHICH SUBSIDY IS GIVEN IS THE CRUCIAL FACTOR . THE PURPOSE IS TO BE JUDGED FROM THE CHARACTER OF THE RECEIPTS IN THE HANDS OF THE ASSES SEE WHICH HAS TO BE DETERMINED WITH RESPECT TO THE PURPOSE FOR WHICH THE SUBSIDY IS GIVEN. THE POINT OF TIME IS NOT RELEVANT AND ALSO T HE SOURCE AND THE FORM OF SUBSIDY IS IMMATERIAL. IF THE SUBSIDY HAS B EEN GIVEN TO SET- UP NEW UNITS OR FOR SUBSTANTIAL EXPLANATION OF EXIS TING UNITS, THEN IT IS A CAPITAL RECEIPT. IF THE OBJECT OF THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO RUN THE BUSINESS MORE PROFIT ABLY THEN, THE RECEIPT IS ON REVENUE ACCOUNT. THE RELEVANT OBSERVA TION OF THE HONBLE APEX COURT IN THIS REGARD GIVEN IN PARA 14 READS AS UNDER:- 14. IN OUR VIEW, THE CONTROVERSY IN HAND CAN BE RES OLVED IF WE APPLY THE TEST LAID DOWN IN THE JUDGMENT OF THIS COURT IN THE CASE OF SAHNEY STEEL & PRESS WORKS LTD. (SUP RA). IN THAT CASE, ON BEHALF OF THE ASSESSEE, IT WAS CON TENDED THAT THE SUBSIDY GIVEN WAS UP TO 10 PER CENT OF THE . CAPITAL INVESTMENT CALCULATED ON THE BASIS OF THE QUANTUM O F INVESTMENT IN CAPITAL AND, THEREFORE, RECEIPT OF SU CH SUBSIDY WAS ON CAPITAL ACCOUNT AND NOT ON REVENUE ACCOUNT. IT WAS ALSO URGED IN THAT CASE THAT SUBSID Y GRANTED ON THE BASIS OF. REFUND OF SALES TAX ON RAW MATERIALS, MACHINERY AND FINISHED GOODS WERE ALSO O F CAPITAL NATURE AS THE OBJECT OF GRANTING REFUND OF SALES TAX WAS THAT THE ASSESSEE COULD SET UP NEW BUSINESS OR EXPAND HIS EXISTING BUSINESS. THE CONTENTION OF THE ASSESSEE IN THAT CASE WAS DISMISSED BY THE TRIBUNAL AND, THEREFORE, THE ASSESSEE HAD COME TO THIS COURT BY W AY OF A SPECIAL LEAVE PETITION. IT WAS HELD BY THIS COURT ON THE FACTS OF THAT CASE AND ON THE BASIS OF THE ANALYSES OF THE SCHEME THEREIN THAT THE SUBSIDY GIVEN WAS ON REVENU E ACCOUNT BECAUSE IT WAS GIVEN BY WAY OF ASSISTANCE I N CARRYING ON OF TRADE OR BUSINESS. ON THE FACTS OF T HAT CASE, IT WAS HELD THAT THE SUBSIDY GIVEN WAS TO MEET RECU RRING EXPENSES. IT WAS NOT FOR ACQUIRING THE CAPITAL ASSE T. IT WAS NOT TO MEET PART OF THE COST. IT WAS NOT GRANTED FO R PRODUCTION OF OR BRINGING INTO EXISTENCE ANY NEW AS SET. THE SUBSIDIES IN THAT CASE WERE GRANTED YEAR AFTER YEAR ONLY AFTER SETTING UP OF THE NEW INDUSTRY AND ONLY AFTER COMMENCEMENT OF PRODUCTION AND, THEREFORE, SUCH A SUBSIDY COULD ONLY BE TREATED AS ASSISTANCE GIVEN F OR THE PURPOSE OF CARRYING ON THE BUSINESS OF THE ASSESSEE . CONSEQUENTLY, THE CONTENTIONS RAISED ON BEHALF OF T HE ASSESSEE ON THE FACTS OF THAT CASE STOOD REJECTED A ND IT WAS HELD THAT THE SUBSIDY RECEIVED BY SAHNEY STEEL COULD NOT BE REGARDED AS ANYTHING BUT A REVENUE RECEIPT. ACCORDINGLY, THE MATTER WAS DECIDED AGAINST THE ASSESSEE. THE IMPORTANCE OF THE JUDGMENT OF THIS CO URT IN SAHNEY STEEL & PRESS WORKS LTD. 'S CASE (SUPRA) LIE S IN ITA NOS.5722 & 5370/MUM/2015 WELSPUN CORP.LTD. 29 THE FACT THAT IT HAS DISCUSSED AND ANALYSED THE ENT IRE CASE LAW AND. IT HAS LAID DOWN THE BASIC TEST TO BE APPL IED IN JUDGING THE CHARACTER OF A SUBSIDY. THAT TEST IS TH AT THE CHARACTER OF THE RECEIPT IN THE HANDS OF THE ASSESS EE HAS TO BE DETERMINED WITH RESPECT TO THE PURPOSE FOR WH ICH THE SUBSIDY IS GIVEN. IN OTHER WORDS, IN SUCH CASES, ON E HAS TO APPLY THE PURPOSE TEST. THE POINT OF TIME WHICH THE SUBSIDY IS PAID IS NOT RELEVANT. THE SOURCE IS IMMA TERIAL. THE FORM OF SUBSIDY IS IMMATERIAL. THE MAIN ELIGIBI LITY CONDITION IN THE SCHEME WITH WHICH WE ARE CONCERNED IN THIS CASE IS THAT THE INCENTIVE MUST BE UTILIZED FO R REPAYMENT OF LOANS TAKEN BY THE ASSESSEE TO SETUP N EW UNITS OR FOR SUBSTANTIAL EXPANSION OF EXISTING UNIT S; ON THIS ASPECT THERE IS NO DISPUTE. IF THE OBJECT OF THE SU BSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO RUN THE BUSINE SS MORE PROFITABLY THEN THE RECEIPT IS ON REVENUE ACCO UNT. ON THE OTHER HAND, IF THE OBJECT OF THE ASSISTANCE UND ER THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO SET UP A NEW UNIT OR TO EXPAND THE EXISTING UNIT THEN THE RE CEIPT OF THE SUBSIDY WAS ON CAPITAL ACCOUNT. THEREFORE, IT I S THE OBJECT FOR WHICH THE SUBSIDY/ASSISTANCE IS GIVEN WH ICH DETERMINES THE NATURE OF THE INCENTIVE SUBSIDY. THE FORM OF THE MECHANISM THROUGH WHICH THE SUBSIDY IS GIVEN IS IRRELEVANT . 12. NOW, IN THE WAKE OF THE PRINCIPLE LAID DOWN BY THE HONBLE SUPREME COURT, WE SHALL EXAMINE THE NATURE OF SUBSIDY PROVIDED TO THE ASSESSEE. THE INCENTIVE SCHEME 2001 FOR ECONOMIC DEVELOPMENT OF KUTCH DISTR ICT OF THE GUJARAT GOVERNMENT GIVES THE FUNDAMENTAL PREAMBLE WHICH HIGHLIGHTS THE BASIC OBJECTIVE AND T HE PURPOSE FOR WHICH THE INCENTIVE BY THE STATE GOVERN MENT AS WELL AS CENTRAL GOVERNMENT IS BEING GIVEN HAS BE EN HIGHLIGHTED IN THE FOLLOWING MANNER:- THE ECONOMIC ACTIVITIES IN THE DISTRICT OF KUTCH C AME TO A STANDSTILL ON ACCOUNT OF THE DEVASTATING EARTHQUAKE IN THE STATE ON 26TH JANUARY, 2001. NEW EMPLOYMENT, OPPORTUNITIES COULD BE CREATED IF NEW INVESTMENT TA KES PLACE. THE GOVERNMENT IS COMMITTED TO ATTRACTING INDUSTRIES IN THE DISTRICT TO MAKE THE INDUSTRIAL A ND ECONOMIC ENVIRONMENT LIVE. GOVERNMENT OF INDIA HAVE ANNOUNCED EXCISE DUTY EXEMPTION FOR NEW INDUSTRIES TO PROMOTE LARGE SCALE INVESTMENT IN THE DISTRICT, ALO NG WITH WHICH THE STATE GOVERNMENT HAS ALSO DECIDED TO ANNOUNCE THE SCHEME OF SALES TAX INCENTIVES. SINCE THE SCHEME IS AIMED AT MAKING THE ECONOMIC ENVIRONMENT OF KUTCH DISTRICT LIVE, IT HAS BEEN DECIDED TO CONFINE THE SAME ONLY TO KUTCH DISTRICT 13. FROM THE PERUSAL OF THE ABOVE, IT IS AMPLY CLE AR THAT THE SCHEMES LAUNCHED WAS FOR SETTING UP OF NEW INDUSTRIES IN THE DISTRICT OF KUTCH FOR THE PURPOSE OF NEW EMPLOYMENT OPPORTUNITIES AND TO MAKE INDUSTRIAL AND ECONOMIC ENVIRONMENT LIVE. THUS, THE SCHEME OF ITA NOS.5722 & 5370/MUM/2015 WELSPUN CORP.LTD. 30 INCENTIVES PROVIDED BY THE RESPECTIVE GOVERNMENTS W AS SETTING-UP OF A NEW UNIT AND NOT FOR RUNNING OF THE BUSINESS MORE PROFITABLY. AS LAID DOWN BY THE HONB LE SUPREME COURT, THE FORM AND THE SOURCE OF SUBSIDY A RE IMMATERIAL AND WHAT IS MATERIAL IS WHETHER THE SUBS IDY IS FOR SETTING UP FOR A INDUSTRIAL UNIT OR RUNNING IT FOR PROFITABILITY. SIMILARLY, THE CENTRAL EXCISE EXEMPT ION WAS GIVEN IN THE PUBLIC INTEREST FOR SETTING UP OF A NE W INDUSTRIAL UNIT IN THE KUTCH DISTRICT. ACCORDINGLY ON THE FACTS OF THE PRESENT CASE, WE CONCLUDE THAT THE INC ENTIVE GIVEN BY THE STATE GOVERNMENT AND THE CENTRAL GOVERNMENT IS NOTHING BUT CAPITAL RECEIPTS, BECAUSE GIVEN ONLY FOR SETTING UP OF NEW INDUSTRIAL UNIT AN D ECONOMIC DEVELOPMENT AND GENERATION OF NEW EMPLOYMENT OPPORTUNITIES IN THE KUTCH DISTRICT AND NOT FOR RUNNING THE INDUSTRY FOR AUGMENTING THE PROFIT ON D AY-TO- DAY BUSINESS. THIS PROPOSITION OF LAW HAS BEEN REIT ERATED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS CHAPHALKAR BROTHERS, REPORTED IN 351 ITR 309, WHERE IN THE HONBLE HIGH COURT RELYING UPON THE PRINCIPLES LAID DOWN BY THE SUPREME COURT IN THE CASE OF PONNI SUGA RS & CHEMICALS LTD HAS HELD THAT IF THE OBJECT OF THE SUBSIDY WAS TO PROMOTE CONSTRUCTION OF MULTIPLEXES, THEATER COMPLEXES THEN, IT WOULD BE ON CAPITAL ACCOUNT. SIM ILARLY, VIEWS HAVE BEEN TAKEN BY THE VARIOUS OTHER HIGH COU RTS AND TRIBUNAL IN THE DECISION AS REFERRED AND RELIED UPON BY THE LD. COUNSEL AS ABOVE. THUS, WE HOLD THAT THE AMOUNT OF INCENTIVE RECEIVED BY THE ASSESSEE CANNOT BE TAXED AS REVENUE RECEIPT AS IT IS PURELY ON CAPITAL ACCOUNT. 14. AS REGARDS THE OTHER PLEA RAISED BY THE AO IN T HE ORDER PASSED U/S 143(3) R.W.S. 153A, WE AGREE WITH THE CONTENTION OF THE LD. COUNSEL THAT, NONE OF THE PLA NT AND MACHINERY INSTALLED BY THE ASSESSEE FOR SETTING UP OF A NEW INDUSTRIAL UNIT HAS BEEN FUNDED BY THE GOVERNME NT SUBSIDY. THE SUBSIDY HERE IN THIS CASE IS NOT SPECI FICALLY INTENDED TO SUBSIDIES THE COST OF CAPITAL OR PLANT & MACHINERY. THE INCENTIVE IN THE FORM OF SUBSIDY BY THE GOVERNMENT HERE IN THIS CASE CANNOT BE CONSIDERED A S PAYMENT DIRECTLY OR INDIRECTLY TO MEET ANY PORTION OF THE ACTUAL COST AND HENCE IT DOES NOT FALL WITHIN THE P URVIEW OF EXPLANATION 10 TO SECTION 43(1). THUS, THIS ALTERNA TIVE PLEA AS RAISED BY LD. AO IS REJECTED. ACCORDINGLY, THE G ROUND RAISED BY THE REVENUE ON THIS SCORE STANDS DISMISSE D. WE ARE IN AGREEMENT WITH THE AFORESAID DECISION OF THE TRIBUNAL DATED 18.12.2015 IN THE CASE OF WELSPUN STEEL LTD(S UPRA) AS THE SAID INCENTIVES BY WAY OF EXCISE DUTY REFUND AND SA LES TAX INCENTIVES WERE GIVEN TO ENCOURAGE SETTING UP OF NE W INDUSTRIAL UNIT IN KUTCH DISTRICT TO REDEVELOP THE KUTCH DISTR ICT IN THE WAKE OF DEVASTATING EARTHQUAKE ON 26.01.2001 ALBEIT THE SAI D INCENTIVES ARE GIVEN POST COMMENCEMENT OF MANUFACTURING AND TH E SAID SUBSIDY SHALL BE CAPITAL IN NATURE AS IT IS FOR PRO MOTING SETTING UP OF ITA NOS.5722 & 5370/MUM/2015 WELSPUN CORP.LTD. 31 NEW INDUSTRY IN KUTCH DISTRICT WHICH WAS DEVASTATED BY EARTHQUAKE EVEN IF THE SUBSIDY IS GIVEN POST COMMENCEMENT OF C OMMERCIAL PRODUCTION BY WAY OF REFUND OF CENTRAL EXCISE AND E XEMPTION OF SALES TAX WHICH IS NOT MATERIAL KEEPING IN VIEW PUR POSIVE TEST AND THE FACT THAT THE SAID INCENTIVES WERE GIVEN TO ENC OURAGE MAKING CAPITAL INVESTMENTS IN KUTCH DISTRICT IN SETTING UP NEW INDUSTRY TO REDEVELOP THE KUTCH DISTRICT POST DEVASTATING EARTH QUAKES ON 26.01.2001. WE ALSO NOTE THAT SPECIAL BENCH DECISIO N OF THE MUMBAI-TRIBUNAL IN THE CASE OF RELIANCE INDUSTRIES LIMITED(SUPRA) WAS UPHELD BY HONBLE BOMBAY HIGH COURT IN CIT V. R ELIANCE INDUSTRIES LIMITED (2011) 339 ITR 632(BOM.) BY HOLD ING THAT NO SUBSTANTIAL QUESTION OF LAW WOULD ARISES AS THE OBJ ECT OF THE SUBSIDY WAS TO SET UP A NEW UNIT IN A BACKWARD AREA TO GENERATE EMPLOYMENT BUT AFORESAID DECISION OF HONBLE BOMBAY HIGH COURT HAS BEEN SET ASIDE BY HONBLE SUPREME COURT IN CIVI L APPEAL NUMBER 7769 OF 2011 ( ARISING OUT OF SLP (C) NO. 98 60 OF 2010) DATED 09.09.2011 AND THE MATTER IS REMITTED BACK TO HONBLE BOMBAY HIGH COURT TO DECIDE THE QUESTION OF LAW FRA MED THEREON IN ACCORDANCE WITH LAW. THIS REVIVES THE SPECIAL BENCH DECISION OF THE TRIBUNAL IN THE CASE OF RELIANCE INDUSTRIES LIM ITED(SUPRA) , WHICH HAS ALREADY HELD THAT SUBSIDY WHICH IS GIVEN FOR SETTING UP OR EXPANSION OF INDUSTRY IN A BACKWARD AREA , WILL BE CAPITAL IN NATURE, IRRESPECTIVE OF MODALITY OR SOURCE OF FUNDS THROUGH OR FROM WHICH IT IS GIVEN. THUS, FOLLOWING THE RATIO OF DECISION OF CO-ORDINATE BENCHES OF THE TRIBUNAL IN THE CASE OF WELSPUN STEE L LTD(SUPRA) , WE HOLD THAT CENTRAL EXCISE BENEFIT AND SALES TAX I NCENTIVE RECEIVED BY THE ASSESSEE DURING THE IMPUGNED ASSESS MENT YEAR UNDER CONSIDERATION, ARE CAPITAL RECEIPTS NOT EXIGI BLE TO INCOME-TAX AND FURTHER WE HOLD THAT THE SAME SHALL NOT BE DEDU CTED FROM COST OF ASSETS FOR COMPUTING DEPRECIATION. THE GROUND NU MBER 1 AND 2 RAISED BY THE REVENUE IN ITS MEMO OF APPEAL FILED W ITH THE TRIBUNAL ARE DISMISSED. WE ORDER ACCORDINGLY. 21. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH VIEW TAKEN BY THE CO-ORDINATE BENCH AND ALSO, CONSIDERING THE FACTS T HAT THE JURISDICTION HIGH COURT OF BOMBAY HAS UPHELD THE FINDINGS OF THE TRIBUNAL, IN THE CASE OF M/S.WELSPUN STEEL LTD. VS CIT IN ITA NO. 1 743/2016, VIDE ORDER DATED 26/02/2019, WE ARE OF THE CONSIDERED VI EW THAT THERE IS NO ERROR IN THE FINDINGS RECORDED BY THE LD.CIT(A), WHILE DELETING ADDITIONS MADE BY US LD. AO TOWARDS SALES TAX INC ENTIVES AND EXCISE DUTY BENEFITS RECEIVED BY THE ASSESEE. HENCE , WE ARE INCLINED TO UPHOLD THE FINDINGS OF LD.CIT(A) AND RE JECT GROUND TAKEN BY THE REVENUE. ITA NOS.5722 & 5370/MUM/2015 WELSPUN CORP.LTD. 32 22. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.4 OF REVENUE APPEAL IS DISALLOWANCE OF DEPRECIAT ION ON FIXED ASSETS U/S 40(A)(IA) R.W.S 37(1) OF THE ACT, UNDER DIFFERENT CATEGORIES ON THE PLEA THAT THE DEPRECATION WAS DISALLOWED IN THE AY 2005-06. THE LD. AO HAS DISALLOWED DEPRECIATION FOR NON DEDU CTION OF TAX AT SOURCE ON CERTAIN PAYMENTS, WHICH ARE CAPITALIZED T O FIXED RECEIPTS, LIKE, PROFESSIONAL FEES, FCCB PREMIUM AND FCCB ISSU E EXPENDITURE. THE LD.CIT(A) HAS DELETED THE ADDITIONS MADE BY THE LD.AO BY FOLLOWING HIS PREDECESSOR APPELLATE ORDER FOR AY 2 005-06. 23. THE LD. AO FOR THE ASSESSEE, AT THE TIME OF HEA RING SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF TH E ASSESSEE BY THE DECISION OF ITAT, MUMBAI IN ASSESSEE OWN CASE FOR A SST. YEAR 2005- 06 IN ITA.NO.3375/MUM/2010 AND ALSO ITA NO.5371/MUM /2015 FOR AY 2005-06, WHERE THE TRIBUNAL UNDER IDENTICAL FACT S DELETED ADDITION MADE BY THE AO TOWARDS DISALLOWANCE OF DEP RECIATION ON FIXED ASSETS. 24. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ISSUE IS WITH REGARD TO DISALLOWANCES OF DEPRECIATION ON FIXED ASSETS, IN R ESPECT OF CERTAIN EXPENDITURE CAPITALIZED FOR NON DEDUCTION OF TAX AT SOURCE WAS CONSIDERED IN AY 2005-06 IN U/S 263 PROCEEDINGS IN ITA NO. 3375/MUM/2010. WE, FURTHER NOTED THAT ALTHOUGH, THE TRIBUNAL HAS QUASHED 263 PROCEEDINGS, BUT NOT DISCUSSED THE ISSU E ON MERITS. SUBSEQUENTLY, IN 153A ASSESSMENTS, THE LD. AO HAS M ADE SIMILAR ADDITIONS. BUT, THE ITAT HAS DELETED SAID ADDITIONS IN ITA NO. 5371/MUM/2015, ON TECHNICAL GROUND WITHOUT DISCUSSI NG THE ISSUES ON MERITS. THEREFORE, IT IS NECESSARY TO EXAMINE TH E ISSUE ON MERITS, ITA NOS.5722 & 5370/MUM/2015 WELSPUN CORP.LTD. 33 WHETHER THE CLAIM OF THE ASSESSEE WITH REGARD TO DE PRECIATION ON FIXED ASSETS, IN RESPECT OF THAT EXPENDITURE FOR NO N DEDUCTION OF TAX AT SOURCE IS IN ACCORDANCE WITH LAW. THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT, IS APPLICABLE, WHERE ANY EXPE NDITURE IS DEBITED INTO PROFIT AND LOSS ACCOUNT WITHOUT DEDUCTION OF T AX AT SOURCE, THEN TO THAT EXTENT, THE EXPENDITURE ON WHICH TDS WAS NO T DEDUCTED IS NOT ALLOWABLE AS DEDUCTION. SIMILARLY, IF ANY AMOUN T AS CAPITALIZED TO FIXED ASSETS AND DEPRECIATION WAS CLAIMED THEREON, IF NO TDS IS DEDUCTED, IN RESPECT OF THOSE CAPITALIZED FIXED ASS ETS, THEN DEPRECIATION TO THAT EXTENT IS NOT ALLOWABLE. THE L D. AR FOR THE ASSESSEE HAS FAILED TO BRING ON RECORD ANY EVIDENCE TO PROVE THAT WHETHER, THE CLAIM MADE, IN RESPECT OF DEPRECIATION ON FIXED ASSETS, IN RESPECT OF THOSE EXPENDITURE IS IN ACCORDANCE WI TH PROVISION OF SECTION 40(A)(IA) OF THE ACT. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE ISSUE NEEDS TO GO BACK TO THE FILE OF LD.A O FOR VERIFICATION OF FACTS WITH REGARD TO APPLICABILITY OF PROVISION OF SECTION 40(A)(IA) OF THE INCOME TAX ACT,1961. HENCE, WE SET ASIDE THE IS SUE TO FILE OF THE LD. AO AND DIRECT HIM TO RECONSIDER THE ISSUE IN AC CORDANCE WITH LAW. 25. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.6 AND 7 OF REVENUE APPEAL IS DISALLOWANCES OF FCCB PREMIUM AND DEPRECIATION ON FCCB PREMIUM DEBITED TO PRE-O PERATIVE EXPENSES. THE LD. AO HAS DISALLOWED SAID EXPENDITUR E, ON THE GROUND THAT THE ASSESSEE HAS CREATED ONLY A PROVISI ON, EVEN THOUGH THE BOND HOLDERS HAVE NOT EXERCISED THEIR OPTION DU RING THE YEAR UNDER CONSIDERATION. THE LD.CIT(A) HAS DELETED ADDI TIONS BY FOLLOWING HIS PREDECESSOR APPELLATE ORDER FOR AY 20 05-06. FURTHER, ALTHOUGH THE APPEALS FOR AY 2005-06 HAS BEEN DECIDE D BY THE TRIBUNAL IN ITA NO.5371/UM/2015, BUT THE ISSUE HAS NOT BEEN ITA NOS.5722 & 5370/MUM/2015 WELSPUN CORP.LTD. 34 DISCUSSED ON MERITS, BECAUSE THE TRIBUNAL HAS QUASH ED ASSESSMENT ORDER ON TECHNICAL GROUNDS. THEREFORE, IT IS NECESS ARY TO DISCUSS THE ISSUE ON MERITS, IN LIGHT OF FACTS BROUGHT OUT BY T HE LD. AO DURING THE YEAR UNDER CONSIDERATION. IT IS THE CASE OF THE LD. AO THAT FCCB PREMIUM AND FCCB ISSUE EXPENDITURE ARE ONLY A PROVI SION, WHICH IS NOT CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATIO N, BECAUSE THE BOND HOLDERS HAVE NOT EXERCISED THEIR OPTION. IT S THE CLAIM OF THE ASSESSEE BEFORE THE AO IS THAT ALTHOUGH, THE EXPEND ITURE HAS BEEN DEBITED TO PROFIT AND LOSS ACCOUNT, WHEN PROVISION IS CREATED IN RESPECTIVE YEARS, BUT WHEN THE OPTION WAS EXERCISE D, THE SAME HAS BEEN OFFERED TO TAX IN AY 2008-09. IN THIS REGARD, THE ASSESSEE HAS FILED STATEMENT OF TOTAL INCOME RELEVANT ASSESSMENT YEAR 2014-15 TO PROVE THAT REVERSAL OF PROVISION WAS OFFERED TO TAX FOR ASST. YEAR 2014-15. 26. WE HAVE HEARD RIVAL CONTENTION OF BOTH PARTIES AND CONSIDERED MATERIALS ON RECORD. WE FIND THAT INITIALLY, THE AS SESSE HAS DEBITED PROVISION TOWARDS FCBB PREMIUM AND FCBB ISSUE EXPEN DITURE, EVEN THOUGH THE BOND HOLDERS HAVE NOT EXERCISED THE IR OPTION. FURTHER, IF ANY EXPENDITURE IS DEBITED TO PROFIT AN D LOSS ACCOUNT BY CREATION OF PROVISION AND SUCH LIABILITY WAS NOT CR YSTALLIZED, THEN OBVIOUSLY, THE SAME CANNOT BE ALLOWED AS DEDUCTION, AND THEREFORE TO THAT EXTENT, THE FINDINGS OF LD. AO IS CORRECT. HOWEVER, THE FACT REMAINS THAT ASSESSEE CLAIMS TO HAVE OFFERED THE SA ME FOR TAXATION FOR AY 2014-15, WHEN THE BOND HOLDERS HAVE EXERCISE D THEIR OPTION. IN THIS REGARD, HE HAS FILED A COPY OF STATEMENT OF TOTAL INCOME, WHERE FCCB PREMIUM PAID ON CONVERSION OF BONDS INTO EQUITY SHARES HAVE BEEN DISALLOWED IN THE STATEMENT OF TOT AL INCOME. BUT, THE FACTS WITH REGARD TO THE AVAILABILITY OF THESE EVIDENCES BEFORE THE LD. AO AT THE TIME OF ASSESSMENT PROCEEDINGS ARE NO T CLEAR. HENCE, ITA NOS.5722 & 5370/MUM/2015 WELSPUN CORP.LTD. 35 WE ARE OF THE CONSIDERED VIEW THAT THE ISSUE NEEDS TO GO BACK TO THE FILE OF THE LD. AO TO ASCERTAIN THE FACT WITH REGAR D TO THE CLAIM OF THE ASSESEE THAT SAID EXPENDITURE HAS BEEN SUFFERED TO TAX IN AY 2014- 15. HENCE, WE SET ASIDE THE ISSUE TO THE FILE OF TH E LD. AO AND DIRECT HIM TO CAUSE NECESSARY ENQUIRIES AND IF HE IS FOUND THAT THE SAID AMOUNT HAS BEEN OFFERED TO TAX IN AY 2014-15, THEN THE ADDITIONS MADE FOR THE YEAR UNDER CONSIDERATION NEEDS TO BE D ELETED. 27. IN THE RESULT, APPEAL FILED BY THE ASSESEE AND APPEAL FILED BY THE REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURP OSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 13 / 12/2019 SD/- (RAM LAL NEGI) SD/- (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 13/12/2019 THIRUMALESH SR.PS 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//