M/s Steel Strips Wheels Limited, Chandigarh V. ACIT, CC-II, Chandigarh

ITA 731/CHANDI/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 0054 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 08-05-2019
• Assessment Year: 2014-2015
• Appeal Filed On: 18-05-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G S PHANI KISHORE
• Keywords: Capital asset; Bad and doubtful debts; Capital receipt; Revenue expenditure; Capital expenditure
• Section: 115JB; 37(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH B , CHANDIGARH , !' # $ % &' , BEFORE: SHRI SANJAY GARG, JUDICIAL MEMBER AND SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER ./ ITA NO.756/CHD/2018 / ASSESSMENT YEAR : 2011-12 THE D.C.I.T, CENTRAL CIRCLE-II, CHANDIGARH. M/S STEEL STRIPS WHEELS LTD., SCO 49-50, SECTOR-26, MADHYA MARG, CHANDIGARH. ./ PAN NO.AACCS3003L /APPELLANT / RESPONDENT ./ ITA NO.730/CHD/2018 / ASSESSMENT YEAR : 2012-13 M/S STEEL STRIPS WHEELS LTD., SCO 49-50, SECTOR-26, MADHYA MARG, CHANDIGARH. THE D.C.I.T, CENTRAL CIRCLE-II, CHANDIGARH. ./ PAN NO.AACCS3003L /APPELLANT / RESPONDENT ./ ITA NO.757/CHD/2018 / ASSESSMENT YEAR : 2012-13 THE D.C.I.T, CENTRAL CIRCLE-II, CHANDIGARH. M/S STEEL STRIPS WHEELS LTD., SCO 49-50, SECTOR-26, MADHYA MARG, CHANDIGARH. ./ PAN NO.AACCS3003L /APPELLANT / RESPONDENT ITA NOS.730,731,756 TO 758/CHD/2018 A.YS. 2012-13 & 2014-15 2 ./ ITA NO.731/CHD/2018 / ASSESSMENT YEAR : 2014-15 M/S STEEL STRIPS WHEELS LTD., SCO 49-50, SECTOR-26, MADHYA MARG, CHANDIGARH. THE D.C.I.T, CENTRAL CIRCLE-II, CHANDIGARH. ./ PAN NO.AACCS3003L /APPELLANT / RESPONDENT & ./ ITA NO.758/CHD/2018 / ASSESSMENT YEAR : 2014-15 THE D.C.I.T, CENTRAL CIRCLE-II, CHANDIGARH. M/S STEEL STRIPS WHEELS LTD., SCO 49-50, SECTOR-26, MADHYA MARG, CHANDIGARH. ./ PAN NO.AACCS3003L /APPELLANT / RESPONDENT /ASSESSEE BY : SHRI ASHWANI KUMAR, CA ! / REVENUE BY : SHRI G.S.PHANI KISHORE, CIT.DR ' # $ /DATE OF HEARING : 08.05.2019 $ /DATE OF PRONOUNCEMENT: 27 .05.2019 /ORDER PER BENCH: ALL THE ABOVE APPEALS RELATE TO THE SAME ASSESSEE. THE APPEAL IN ITA NO.756/CHD/2018 HAS BEEN FILED BY THE REVENUE AND PERTAINS TO A.Y 2011-12, WHILE THE APPE ALS IN ITA NO.730, ITA NO.757/CHD/2018, AND ITA NO.731 & 758/CHD/2018 ARE THE CROSS APPEALS FILED BY THE ASS ESSEE ITA NOS.730,731,756 TO 758/CHD/2018 A.YS. 2012-13 & 2014-15 3 AND REVENUE AGAINST SEPARATE ORDERS OF THE COMMISS IONER OF INCOME TAX [(APPEALS)-3, GURGAON [(IN SHORT CIT (A)] EACH DATED 30.3.2018, PASSED U/S 250(6) OF THE INCOME TA X ACT, 1961 (HEREINAFTER REFERRED TO AS ACT), RELATING T O ASSESSMENT YEARS 2012-13 AND 2014-15 RESPECTIVELY. IT WAS COMMON GROUND THAT THE ISSUES INVOLVED IN AL L THE APPEALS WAS IDENTICAL. THESE WERE THEREFORE TAK EN UP TOGETHER FOR HEARING AND ARE BEING DISPOSED OFF BY THIS COMMON AND CONSOLIDATED ORDER. WE SHALL FIRST BE TAKING UP THE APPEAL OF THE REVE NUE IN ITA NO.756/CHD/2018, RELATING TO ASSESSMENT YEAR 20 11- 12. 2. GROUND NOS.I) TO IV), IT WAS CONTENDED, RELATED TO THE SAME ISSUE OF TREATMENT OF SALES TAX SUBSIDY RECEIV ED BY THE ASSESSEE, WHETHER CAPITAL OR REVENUE IN NATURE AND THE SAME READ AS UNDER: I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN FOLLOWING THE DECISIO N OF THE HON'BLE ITAT DATED 21.10.2015 FOR AYS 2003-04, 2004 -05 & 2008-09 IN THE CASE OF THE ASSESSEE ITSELF AND DE LETING THE ADDITION OF RS. 1,84,45,151/- HOLDING THE SALES TAX SUBSIDY AS CAPITAL RECEIPT IN NATURE. II) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE DECISION OF THE HON'BLE SUPREME COURT IN THE CA SE PONNI SUGAR AND CHEMICALS LTD. AND TREATING THE SAL ES TAX SUBSIDY AS CAPITAL RECEIPTS IN NATURE WAS WRONG LY FOLLOWED DESPITE THE OBSERVATION OF THE AO IN THE ITA NOS.730,731,756 TO 758/CHD/2018 A.YS. 2012-13 & 2014-15 4 ASSESSMENT ORDER THAT THE FACTS OF THE PRESENT CASE ARE DISTINGUISHABLE FROM THAT OF PONNI SUGAR AND CHEMIC ALS LTD. III) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE FACT THAT SALE TAX SUBSIDY WAS GIVEN TO EXISTIN G UNIT AND NOT FOR SETTING UP NEW UNIT OR EXPANSION OF THE SAME WAS NOT CONSIDERED. IV) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE FACT THAT THE SUBSIDY RECEIPT AFTER THE COMMENC EMENT OF PRODUCTION BY THE UNIT WAS NOT REQUIRED TO BE TR EATED AS CAPITAL IN NATURE WAS NOT CONSIDERED. 3. THE FACTS RELATING TO THE CASE ARE THAT FROM THE NOTES ON ACCOUNTS OF THE ASSESSEE COMPANY, THE A.O. NOTED THAT IT HAD BEEN GRANTED EXEMPTION ON SALES TAX UNDER THE P UNJAB INDUSTRIAL POLICIES, 1989 & 1996. UNDER THIS THE AS SESSEE COMPANY WAS GIVEN SALES TAX EXEMPTION ON ACCOUNT OF ENHANCING MODERNIZATION OF UNITS AND FURTHERING IND USTRIAL GROWTH IN THE STATE AND AS PER THE SCHEME THE SALES TAX WAS DEEMED TO HAVE BEEN PAID. THE A.O., HOWEVER, NOTED THAT IN THE COMPUTATION OF TAXABLE INCOME OF THE ASSESSEE, THE ASSESSEE HAD REDUCED ITS TAXABLE PROFITS BY CLAIMIN G A DEDUCTION OF RS.1,84,45,151/- ON ACCOUNT OF NOTIONA L SALES TAX LIABILITY ARISING OUT OF SUCH SUBSIDY, BY TREAT ING THE SAME AS CAPITAL RECEIPT INSTEAD OF REVENUE RECEIPT. THE ASSESSEE WAS ASKED TO JUSTIFY THE SAME. IN RESPONSE TO WHICH, THE ASSESSEE FILED A DETAILED REPLY ELABORAT ING THE SCHEME OF THE PUNJAB GOVERNMENT AS PER WHICH THE SU BSIDY ITA NOS.730,731,756 TO 758/CHD/2018 A.YS. 2012-13 & 2014-15 5 WAS RECEIVED AND STATING THAT SINCE IT WAS GRANTED THE EXEMPTION UNDER THE INDUSTRIAL POLICY & INCENTIVE S CHEME, 1996 OF THE GOVERNMENT OF PUNJAB, WITH A VIEW TO PR OMOTE GROWTH OF INDUSTRY IN THE STATE AND TO PUSH AND SUP PORT FOR CONSOLIDATION AND EXPANSION OF EXISTING INDUSTRIES, THE NATURE OF SUBSIDY WAS CAPITAL AND THUS NOT TAXABLE IN THE HANDS OF THE ASSESSEE. THE A.O. REJECTED THE CONTEN TION OF THE ASSESSEE AND NOTED THAT IDENTICAL ISSUE HAD BEE N DECIDED BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LTD., 286 ITR 1, HOL DING THE SUBSIDY TO BE REVENUE IN NATURE. FOLLOWING THE SAID DECISION AND NOTING THE FACT THAT IT WAS A POST PRODUCTION S UBSIDY, THE A.O. TREATED THE SUBSIDY AS REVENUE IN NATURE A ND ADDED THE SAME IN THE INCOME OF THE ASSESSEE. 4. BEFORE THE LD.CIT(A), THE ASSESSEE CONTENDED THA T IDENTICAL ISSUE HAD ARISEN IN THE CASE OF THE ASSES SEE IN THE PRECEDING YEAR ALSO, WHEREIN THE MATTER HAD TRAVELL ED UP TO THE HON'BLE HIGH COURT WHO HAD REMANDED THE ISSUE B ACK TO THE I.T.A.T. AND WHO IN TURN HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN REMAND. THE LD.CIT(A) AFTER GOIN G THROUGH THE ORDER OF THE I.T.A.T. IN THE CASE OF THE ASSESS EE IN ITA NO.897/CHD/2006, ITA NO.341/CHD/2007 AND ITA NO 756/CHD/2011 FOR ASSESSMENT YEARS 2003-04, 2004-05 AND ITA NOS.730,731,756 TO 758/CHD/2018 A.YS. 2012-13 & 2014-15 6 2008-09, FOUND THAT THE ISSUE OF SALES TAX SUBSIDY HAD BEEN DECIDED BY THE I.T.A.T. IN FAVOUR OF THE ASSESSEE H OLDING THE SAME TO BE CAPITAL IN NATURE. ACCORDINGLY, THE ADD ITION MADE BY THE A.O. WAS DELETED BY THE LD.CIT(A). RELE VANT FINDINGS OF THE CIT(A) AT PAGE 12 OF THE ORDER ARE AS UNDER: I HAVE GONE THROUGH THE HON'BLE ITAT'S ORDER IN TH E CASE OF THE APPELLANT IN ITA NO. 897/CHD/2006, ITA NO. 341/CHD/2007 & ITA NO. 756/CHD/2011 FOR A.Y 2003-04 , A.Y 2004-05 AND 2008-09 WHEREIN THE MATTER HAS BEEN ADJUDICATED AS UNDER: 'IN THESE CASES, THE ASSESSEE HAVE RECEIVED SALES T AX SUBSIDY FROM PUNJAB GOVT. UNDER THE SCHEME NAMED 'I NDUSTRIAL POLICY & INVESTMENT CODE, 1996'. WE HAVE GONE THROU GH THE SAID POLICY AND FOUND THAT THE SCHEME THOUGH NOT VE RBATIM AS THAT OF WEST BENGAL OR GUJARAT SCHEME, BUT THE SUM AND SUBSTANCE OF ALL THESE SCHEMES ARE THE SAME, THEREF ORE, RELYING ON OUR FINDING GIVES IN ITA NO. 773/CHD/2012, WE HO LD THAT THE SALES TAX SUBSIDY RECEIVED BY THE ASSESSEE IS CAPIT AL IN NATURE.' AS THE ADDITION MADE BY THE AO IS COVERED BY THE OR DER OF THE HON'BLE ITAT IN FAVOUR OF THE APPELLANT, THE AD DITION MADE ON THIS ACCOUNT IS DELETED. 5. BEFORE US, THE LD. DR VEHEMENTLY SUPPORTED THE O RDER OF THE A.O. THOUGH HE FAIRLY CONCEDED THAT THIS ISS UE HAD BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE I.T.A .T. IN THE CASE OF THE ASSESSEE ITSELF IN EARLIER YEARS. 6. IN VIEW OF THE SAME, SINCE THE ISSUE OF SALES TA X SUBSIDY RECEIVED BY THE ASSESSEE BY VIRTUE OF SCHEM E OF PUNJAB GOVERNMENT HAS ALREADY BEEN DECIDED BY THE I .T.A.T. IN THE CASE OF THE ASSESSEE ITSELF IN THE PRECEDING YEARS, ITA NOS.730,731,756 TO 758/CHD/2018 A.YS. 2012-13 & 2014-15 7 HOLDING THE SAME TO BE CAPITAL IN NATURE AND WITH N O DISTINGUISHING FACTS HAVING BEEN BROUGHT TO OUR NOT ICE BY THE LD. DR, WE SEE NO REASON TO INTERFERE IN THE OR DER OF THE LD.CIT(A) ALLOWING THE ASSESSEES APPEAL FOLLOWING WITH ORDER OF THE I.T.A.T. IN VIEW OF THE ABOVE, GROUND OF APPEAL NOS.I) TO IV ) RAISED BY THE REVENUE ARE DISMISSED. 7. GROUND OF APPEAL NO.V) RAISED BY THE REVENUE REA DS AS UNDER: V) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE THE CIT(A) WAS RIGHT IN DELETING THE ADDITION MADE ON ACCOUNT OF TECHNICAL KNOWHOW FEES AMOUNTING TO RS.39,35,029/- ON THE BASIS THE DECISION OF THE HON 'BLE ITAT DATED 26.09.2013 FOR AY 2009-10. 8. BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE A SSESSEE HAD CLAIMED EXPENSES ON TECHNICAL KNOW-HOW, OF RS.39,35,029/- AS REVENUE EXPENDITURE IN ITS PROFIT & LOSS ACCOUNT. THE SAME HAD BEEN PAID TO M/S RING TECH. C O., JAPAN UNDER A TECHNICAL COLLABORATION AGREEMENT ENT ERED INTO IN 1997 AND EXTENDED FROM TIME TO TIME. THE A. O. ASKED THE ASSESSEE TO JUSTIFY AS TO HOW THE EXPENDITURE W AS REVENUE EXPENDITURE AND WHY IT SHOULD NOT BE TREATE D AS CAPITAL EXPENDITURE. IN RESPONSE TO THE SAME, THE A SSESSEE SUBMITTED THAT THE MAIN OBJECTIVE OF THE AGREEMENT WAS TO ITA NOS.730,731,756 TO 758/CHD/2018 A.YS. 2012-13 & 2014-15 8 INCREASE THE PRODUCTIVITY AND TO REDUCE THE REJECTI ONS FROM THE CURRENT LEVELS. THUS IT WAS POINTED OUT THAT TH E OBJECTIVE WAS TO EFFECT THE ECONOMY AND EFFICIENCY IN MANUFA CTURING AND, THEREFORE, HAD BEEN RIGHTLY CLAIMED AS REVENUE EXPENDITURE. IT WAS CONTENDED THAT THE COMPANY HAD NOT ACQUIRED ANY CAPITAL ASSET IN THE NATURE OF EXCLUSI VE USER OF TECHNOLOGY INFORMATION. THE ASSESSEE FURTHER SUBMIT TED THAT IDENTICAL ISSUE HAD BEEN DECIDED IN FAVOUR OF THE A SSESSEE BY THE I.T.A.T. IN EARLIER YEARS. THE A.O. DID NOT ACC EPT THE CONTENTION OF THE ASSESSEE. REFERRING TO THE COLLAB ORATION AGREEMENT, THE A.O. HELD THAT THE ASSESSEE HAD PURCHASED/ACQUIRED TECHNICAL KNOW-HOW TO COMPLETELY OVERHAUL ITS DESIGN, PLANT AND MANUFACTURING SYSTEM S THUS GETTING ENDURING BENEFIT OF PERMANENCE AND DURABILI TY. THE A.O. HELD THAT TECHNICAL KNOW-HOW OBTAINED BY THE A SSESSEE WAS LINKED TO SUBSTANTIAL MODERNIZATION AND EXPANSI ON OF EXISTING UNIT/TECHNIQUE AND PROCEDURE OF PRODUCTION AND, THEREFORE, WAS IN THE NATURE OF INTANGIBLE ASSET AN D OF ENDURING NATURE. HE FURTHER STATED THAT THE DEPART MENT HAD CHALLENGED THE ORDER OF THE I.T.A.T. BEFORE THE HON 'BLE HIGH COURT IN EARLIER YEARS. ACCORDINGLY, THE A.O. TREAT ED THE TECHNICAL KNOW-HOW EXPENSES INCURRED AND CLAIMED BY THE ASSESSEE AS CAPITAL IN NATURE AND DISALLOWED THE SA ME. ITA NOS.730,731,756 TO 758/CHD/2018 A.YS. 2012-13 & 2014-15 9 9. THE LD.CIT(A) ALLOWED THE ASSESSEES APPEAL ON F INDING THAT IDENTICAL ISSUE HAD BEEN ADJUDICATED BY THE CI T(A) IN EARLIER YEARS IN FAVOUR OF THE ASSESSEE AND APPEAL OF THE REVENUE AGAINST THE ORDER OF THE CIT(A) HAD BEEN DI SMISSED BY THE I.T.A.T. VIDE ITS ORDER DATED 26.9.2013 FOR ASSESSMENT YEAR 2009-10. 10. BEFORE US, THE LD. DR HEAVILY RELIED UPON THE O RDER OF THE A.O. THOUGH FAIRLY CONCEDED THAT IDENTICAL ISSU E HAD BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN ASSESSMEN T YEAR 2009-10 BY THE CIT(A), WHOSE ORDER HAD BEEN UPHELD BY THE I.T.A.T. ALSO. 11. IN VIEW OF THE FINDINGS OF THE CIT(A) THAT IDE NTICAL ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE IN A SSESSMENT YEAR 2009-10 BY THE I.T.A.T., WHICH HAS BEEN ADMITT ED TO BY THE REVENUE ALSO AND NO DISTINGUISHING FACTS HAVIN G BEEN BROUGHT TO OUR NOTICE BY THE LD. DR, THE LD.CIT(A), WE HOLD, HAS RIGHTLY ALLOWED THE ASSESSEES APPEAL FOLLOWING THE ORDER OF THE I.T.A.T. IN ASSESSEES OWN CASE FOR ASSESSME NT YEAR 2009-10. WE THEREFORE FIND NO REASON TO INTERFERE I N THE ORDER OF THE LD.CIT(A) HOLDING THE TECHNICAL KNOWHO W EXPENSES OF RS.39,35,029/- AS REVENUE IN NATURE. ITA NOS.730,731,756 TO 758/CHD/2018 A.YS. 2012-13 & 2014-15 10 THE GROUND OF APPEAL NO.V) RAISED BY THE REVENUE I, S THEREFORE, DISMISSED. 12. GROUND OF APPEAL NO.VI) RAISED BY THE REVENUE R EADS AS UNDER: VI) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) WAS RIGHT IN DELETING THE ADDITION MADE ON ACCOUNT OF DISALLOWANCES OF PRIOR PERIOD EXPENSES AMOUNTING TO RS.4,85,459/- IGNORING THE FACT THAT T HE ASSESSEE WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. 13. THE FACTS RELATING TO THE ISSUE ARE THAT THE AS SESSEE HAD CLAIMED PRIOR PERIOD EXPENDITURE OF RS.8,06,616 /- IN THE PROFIT & LOSS ACCOUNT. THE A.O. DISALLOWED THE SAID EXPENSES ON THE GROUND THAT THE ASSESSEE FOLLOWED MERCANTILE SYSTEM OF ACCOUNTING AND, THEREFORE, THE EXPENSES SHOULD HAVE BEEN DEBITED IN THE YEAR IN WH ICH THOSE EXPENSES WERE ACTUALLY INCURRED. THE LD.CIT(A ) DELETED THE DISALLOWANCE ON FINDING THAT THE ASSESSEE HAD MANUFACTURING UNITS AT THREE DISTANT LOCATIONS ON A CCOUNT OF WHICH SOME BILLS OF DAILY EXPENSES WERE RECEIVED LA TE AND ACCORDINGLY BOOKED AT THE TIME OF RECEIPT OF BILLS. THE CIT(A) ALSO NOTED THE FACT THAT EVEN SOME PRIOR PERIOD INC OME WAS ALSO BOOKED AT A LATER DATE TO THE PERIOD TO WHICH IT PERTAINED AND DURING THE IMPUGNED YEAR PRIOR PERIOD INCOME AMOUNTING TO RS.7,28,063/- HAD BEEN BOOKED BY THE ITA NOS.730,731,756 TO 758/CHD/2018 A.YS. 2012-13 & 2014-15 11 ASSESSEE. THE CIT(A) FURTHER TOOK NOTE OF THE FOLLO WING DECISIONS ON THE ISSUE OF PRIOR PERIOD EXPENSES AND DELETED THE DISALLOWANCE MADE: A) SAURASHTRA CEMENTS & CHEMICAL INDS. LTD. VS. CIT(GUJ), 213 ITR 523, B) JET LIFE (INDIA) LTD. VS. CIT(DELHI) 379 ITR 18 5 AND; C) MUNJAL SALES CORPORATION VS. ACIT (2004) 90 TTJ 282 ITAT CHANDIGARH. 14. BEFORE US, THE LD. DR HEAVILY RELIED UPON THE O RDER OF THE A.O. WHILE THE LD. COUNSEL FOR THE ASSESSEE REL IED ON THE ORDER OF THE LD.CIT(A). 15. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. THE FACTUAL SUBMIS SIONS MADE BY THE ASSESSEE THAT THE PRIOR PERIOD EXPENSES WERE BOOKED ON ACCOUNT OF LATE RECEIPT OF BILLS OF UNITS OF THE ASSESSEE LOCATED AT FARAWAY PLACES AND THAT EVEN PR IOR PERIOD INCOMES WERE ALSO SO BOOKED BY THE ASSESSEE, HAS NOT BEEN CONTROVERTED BY THE REVENUE. THE ASSESSEE HAS CONTENDED THAT IT WAS CONSISTENTLY BOOKING SUCH PRI OR PERIOD EXPENSES AND INCOME FROM YEAR TO YEAR, AND THIS HA S ALSO NOT BEEN CONTROVERTED BY THE REVENUE. 16. IN VIEW OF THE AFORESAID FACTS, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF THE LD.CIT(A), DELETING THE ITA NOS.730,731,756 TO 758/CHD/2018 A.YS. 2012-13 & 2014-15 12 DISALLOWANCE MADE OF PRIOR PERIOD EXPENSES, SINCE W E FIND THAT THE SAID EXPENSES HAD BEEN BOOKED AS PER THE ESTABLISHED AND CONSISTENT POLICY FOLLOWED BY THE A SSESSEE .FURTHER CONSIDERING THE FACT THAT EVEN PRIOR PERIO D INCOMES HAVE BEEN BOOKED, NO PURPOSE WOULD BE SERVED, WE FI ND, BY DISALLOWING ONLY PRIOR PERIOD EXPENSES SINCE IN THA T CASE, EVEN PRIOR PERIOD INCOME WOULD HAVE TO BE REDUCED F ROM THE TAXABLE PROFITS OF THE ASSESSEE. IN VIEW OF THE ABOVE, GROUND OF APPEAL NO.VI RAISED BY THE REVENUE IS DISMISSED. IN EFFECT THE APPEAL OF THE REVENUE IS DISMISSED. 17. WE SHALL NOW TAKE UP THE CROSS APPEALS OF THE A SSESSEE AND REVENUE FOR ASSESSMENT YEAR 2012-13 IN ITA NO.730/CHD/2018 AND ITA NO.NO.757/CHD/2018 RESPECTIVELY. WE FIRST TAKE UP THE REVENUES APPEAL IN ITA.NO.757/CHD/2018. ITA NO.757/CHD/2018: A.Y 2012-13 18. GROUND NO.I), II), III) & IV) RAISED BY THE REV ENUE READS AS UNDER: I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN FOLLOWING THE DECISIO N OF THE HON'BLE ITAT DATED 21.10.2015 FOR AYS 2003-04, 2004 -05 & 2008-09 IN THE CASE OF THE ASSESSEE ITSELF AND DE LETING ITA NOS.730,731,756 TO 758/CHD/2018 A.YS. 2012-13 & 2014-15 13 THE ADDITION OF RS.8,89,51,004/- HOLDING THE SALES TAX SUBSIDY AS CAPITAL RECEIPT IN NATURE. II) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE DECISION OF THE HON'BLE SUPREME COURT IN THE CA SE PONNI SUGAR AND CHEMICALS LTD. AND TREATING THE SAL ES TAX SUBSIDY AS CAPITAL RECEIPTS IN NATURE WAS WRONG LY FOLLOWED DESPITE THE OBSERVATION OF THE AO IN THE ASSESSMENT ORDER THAT THE FACTS OF THE PRESENT CASE ARE DISTINGUISHABLE FROM THAT OF PONNI SUGAR AND CHEMIC ALS LTD. III) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE FACT THAT SALE TAX SUBSIDY WAS GIVEN TO EXISTIN G UNIT AND NOT FOR SETTING UP NEW UNIT OR EXPANSION OF THE SAME WAS NOT CONSIDERED. IV) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE FACT THAT THE SUBSIDY RECEIPT AFTER THE COMMENC EMENT OF PRODUCTION BY THE UNIT WAS NOT REQUIRED TO BE TR EATED AS CAPITAL IN NATURE WAS NOT CONSIDERED. 19. IT WAS COMMON GROUND THAT THE ISSUE RAISED IN THE ABOVE GROUNDS, PERTAINING TO TREATMENT OF SALES TAX SUBSIDY RECEIVED BY THE ASSESSEE WHETHER REVENUE OR CAPITAL IN NATURE, WAS IDENTICAL TO GROUND NOS. I) TO IV) RAIS ED IN THE REVENUES APPEAL IN ITA NO.756/CHD/2018. 20. OUR DECISION RENDERED THEREIN AT PARA 6 OF OUR ORDER ABOVE WILL THEREFORE SQUARELY APPLY TO THE ABOVE GR OUNDS ALSO, FOLLOWING WHICH WE HOLD THAT THE SALES TAX SU BSIDY IS CAPITAL IN NATURE AND ACCORDINGLY DISMISS THE GROUN DS RAISED BY THE REVENUE. 21. GROUND NO.V) RAISED BY THE REVENUE READS AS UND ER: ITA NOS.730,731,756 TO 758/CHD/2018 A.YS. 2012-13 & 2014-15 14 V) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE THE CIT(A) WAS RIGHT IN DELETING THE ADDITION MADE ON ACCOUNT OF TECHNICAL KNOWHOW FEES AMOUNTING TO RS.36,27,859/- ON THE BASIS THE DECISION OF THE HON 'BLE ITAT DATED 26.09.2013 FOR AY 2009-10. 22. IT WAS COMMON GROUND THAT THE ISSUE RAISED IN THE ABOVE GROUNDS, PERTAINING TO TREATMENT OF TECHNICAL KNOW HOW FEES PAID BY THE ASSESSEE WHETHER REVENUE OR CA PITAL IN NATURE, WAS IDENTICAL TO GROUND NOS. V) RAISED IN T HE REVENUES APPEAL IN ITA NO.756/CHD/2018. 23. OUR DECISION RENDERED THEREIN AT PARA 11 OF OUR ORDER ABOVE WILL THEREFORE SQUARELY APPLY TO THE ABOVE GR OUNDS ALSO, FOLLOWING WHICH WE HOLD THAT THE TECHNICAL KN OW HOW FEES PAID IS REVENUE IN NATURE AND ACCORDINGLY DIS MISS THE GROUND NO.V) RAISED BY THE REVENUE. 24. GROUND NO.VI) RAISED BY THE REVENUE READS AS UN DER: VI) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) WAS RIGHT IN DELETING THE ADDITION MADE ON ACCOUNT OF DISALLOWANCES OF PRIOR PERIOD EXPENSES AMOUNTING TO RS.4,85,459/- IGNORING THE FACT THAT T HE ASSESSEE WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. 25. IT WAS COMMON GROUND THAT THE ISSUE RAISED IN THE ABOVE GROUNDS, PERTAINING TO ALLOWANCE OF PRIOR PE RIOD EXPENSES CLAIMED BY THE ASSESSEE, WAS IDENTICAL TO GROUND NOS. VI) RAISED IN THE REVENUES APPEAL IN ITA NO.756/CHD/2018. ITA NOS.730,731,756 TO 758/CHD/2018 A.YS. 2012-13 & 2014-15 15 26. OUR DECISION RENDERED THEREIN AT PARAS 15 & 16 OF OUR ORDER ABOVE WILL THEREFORE SQUARELY APPLY TO THE AB OVE GROUNDS ALSO, FOLLOWING WHICH WE HOLD THAT THE PRI OR PERIOD EXPENSES ARE ALLOWABLE AND ACCORDINGLY DISMISS THE GROUND NO.VI) RAISED BY THE REVENUE. IN EFFECT THE APPEAL OF THE REVENUE IS DISMISSED. WE NOW TAKE UP ASSESSEES APPEAL IN ITA NO.730/CHD/2018 FOR ASSESSMENT YEAR 2012-13 : 27. THE SOLE GROUND RAISED IN THIS APPEAL READS AS UNDER: 1.THAT THE LD. CIT(APPEALS) HAS GROSSLY ERRED IN N OT ALLOWING THE CLAIM OF THE ASSESSE FOR DEDUCTION OF RS.8,89,51,004/- FROM THE BOOK PROFITS U/S 115JB ON ACCOUNT OF SALES TAX SUBSIDY BEING IN THE NATURE OF CAPITAL RECEIPT. THE DEDUCTION OF RS.8,89,51,004/- MAY KINDLY BE ALLOWED FROM THE BOOK PROFITS U/S 115JB. 28. BRIEFLY STATED, THE ASSESSEE HAD SUBMITTED THAT THE SALES TAX SUBSIDY RECEIVED BY IT DURING THE YEAR WA S NOT CHARGEABLE TO TAX BEING IN THE NATURE OF CAPITAL RE CEIPT AND WOULD ALSO THEREFORE NOT BE LIABLE TO TAX U/S 115JB OF THE ACT FOR THE SAME REASON, DESPITE THE FACT THAT IT W AS CREDITED TO ITS PROFIT & LOSS ACCOUNT. THE LD.CIT(A) HELD TH AT FOR THE PURPOSE OF SECTION 115JB OF THE ACT THE ASSESSEE CO ULD NOT GO BEYOND THE NET PROFITS SHOWN IN ITS BOOKS OF ACC OUNT. HE RELIED UPON THE DECISION OF THE HON'BLE ALLAHABAD H IGH COURT ITA NOS.730,731,756 TO 758/CHD/2018 A.YS. 2012-13 & 2014-15 16 IN THE CASE OF PCIT VS. J.K. SYNTHETICS (2017) 390 ITR 129 AND THE DECISION OF THE HON'BLE KARNATAKA HIGH COUR T IN THE CASE OF B&B INFRATECH. LTD. (2016) 76 TAXMANN.COM 1 88. ACCORDINGLY, HE DISMISSED THIS CONTENTION OF THE AS SESSEE AND INCLUDED THE SALES TAX SUBSIDY IN THE BOOK PROF ITS OF THE ASSESSEE FOR THE PURPOSE OF PAYMENT OF MINIMUM ALTE RNATE TAX (MAT) U/S 115JB OF THE ACT. 29. BEFORE US, THE LD. COUNSEL FOR ASSESSEE POINTED OUT THAT IDENTICAL ISSUE HAD BEEN DEALT WITH BY THE ITAT CHA NDIGARH BENCH IN GROUP OF CASES RELATING TO M/S H.M. STEEL S LTD. VS. ADDL.CIT IN THEIR ORDER DATED 5.11.2018 AND HAD DEC IDED IN FAVOUR OF THE ASSESSEE. OUR ATTENTION WAS DRAWN TO THE FINDINGS OF THE I.T.A.T. AT PARA NOS.16 TO 19 OF TH E ORDER AS UNDER: 16. APART FROM THAT,THE ASSESSEE HAS TAKEN FOLLOWING ADDITIONAL GROUND OF APPEAL:- THAT THE AMOUNT VAT DEFERMENT OF RS.16,96,924/- MAY BE EXCLUDED WHILE COMPUTING BOOK PROFITS U/S 115JB AS BEING THE CAPITAL RECEIPT AND NOT IABLE TO TAX IN VIEW OF THE PROPOSITION LAID DOWN IN THE CAS E OF SHREE BALAJI ALLOYS & ORS. 17. THOUGH THE LD. DR HAS OBJECTED TO TAKING OF THE ADDITIONAL GROUND AT THIS STAGE, HOWEVER, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO CONSIDERING THE SUBSEQUENT DECISIONS OF THE HON'BLE SUPREME COURT IN RESPECT OF NATURE AND CHARACTER OF THE SUBSIDY RECEIVED ITA NOS.730,731,756 TO 758/CHD/2018 A.YS. 2012-13 & 2014-15 17 ON VAT DEFERMENT AS CAPITAL RECEIPT, WE DEEM IT FIT TO ADMIT THIS ADDITIONAL GROUND. 18. IN THE ADDITIONAL GROUND, THE ASSESSEE HAS CLAIMED THAT SINCE THE SUBSIDY ON ACCOUNT OF VAT DEFERMENT IS AS CAPITAL RECEIPT, THE SAME IS NOT LIABLE TO BE TAXED TAKING INTO CONSIDERING WHILE COMPUTING THE BOOK PROFIT U/S 115JB OF THE ACT. HE IN THIS RESPECT HAS RELIED UPON THE DECISION OF THE LUCKNOW BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. L.H. SUGAR FACTORY LTD AND ANR IN ITA NOS. 339, 417 & 418/LKW/2013, 518 & 53/LKW/569 & CO NO. 26 & 27/LKW/2013 ORDER DATED L9.2.2016. THE RELEVANT ISSUE HAS BEEN DISCUSSED IN PARA 50 OF THE SAID ORDER, WHICH IS REPRODUCED FOR THE SAKE OF CONVENIENCE. 50. FROM THE ABOVE PARAS, WE FIND THAT THE TRIBUNAL HAS DULY CONSIDERED THE JUDGMENT OF THE HONBLE APEX COURT RENDERED IN THE CASE OF APOLLO TYRES LTD. ((SUPRA) AND THEREAFTER, IT WAS NOTED BY THE TRIBUNAL IN THIS CASE THAT AS PER THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL RENDERED IN THE CASE OF RAIN COMMODITIES LTD. VS. DCIT, 41 DTR 449, IF PROFIT AND LOSS ACCOUNT IS NOT IN ACCORDANCE WITH PART II & PART III OF SCHEDULE VI TO THE COMPANIES ACT, 1956 BECAUSE IT IS PREREQUISITE FOR SECTION 115JB OF THE ACT. THE TRIBUNAL IN THIS CASE ALSO CONSIDERED TWO ANOTHER TRIBUNALS ORDERS RENDERED IN THE CASE OF DCIT VS. BOMBAY DIAMOND COMPANY LTD. 33 DTR 59 AND SYNDICATE BANK VS. ACIT, 7 SOT 51 BANGALORE WHERE IT WAS HELD BY THE TRIBUNAL AFTER CONSIDERING THE DECISION OF HONBLE APEX COURT RENDERED IN THE CASE OF APOLLO TYRES LTD. (SUPRA), AND AFTER 28 EXPLAINING THE SAME THAT ADJUSTMENT TO PROFIT AND LOSS ACCOUNT IS POSSIBLE TO MAKE IT COMPLIANT WITH SCHEDULE VI PART II AND PART III OF THE COMPANIES ACT, 1956 WHICH IS PREREQUISITE OF SECTION 115JB OF THE ACT. ON THIS BASIS, THE TRIBUNAL IN THE CASE OF SHREE CEMENT LTD. (SUPRA) DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE AND IT WAS HELD THAT CAPITAL RECEIPT IN THE FORM OF SALES TAX SUBSIDY NEEDS TO BE EXCLUDED FROM PROFIT AS PER P&L ITA NOS.730,731,756 TO 758/CHD/2018 A.YS. 2012-13 & 2014-15 18 ACCOUNT FOR THE PURPOSE OF COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. BY RESPECTFULLY FOLLOWING THESE TRIBUNALS ORDERS, WE HOLD THAT IN THE PRESENT CASE ALSO, THE RECEIPT ON ACCOUNT OF TRANSFER OF CARBON CREDIT WHICH IS HELD TO BE A CAPITAL RECEIPT NEEDS TO BE EXCLUDED FROM PROFIT AS PER P&L ACCOUNT FOR THE PRESENT YEAR WHILE COMPUTING THE BOOK PROFIT U/S 115JB OF THE ACT. THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND ACCORDINGLY GROUND NOS.1 TO 5 ARE ALLOWED. THE ASSESSEE GETS RELIEF OF RS.27,70,880/- AND CONSEQUENT INTEREST BEING 10% OF AMOUNT RECEIVED BY THE ASSESSEE ON SALE OF CARBON CREDIT OF RS.277,08,800/-. 19. SINCE IN THE LIGHT OF THE VARIOUS DECISIONS OF THE HON'BLE SUPREME COURT IT HAS ALREADY BEEN HELD THAT THE SUBSIDY ON ACCOUNT OF VAT DEFERMENT IS A CAPITAL RECEIPT, HENCE, IN THE LIGHT OF THE AB OVE DECISION OF THE TRIBUNAL, THE SAME NEED TO BE EXCLUDED FROM THE PROFITS AS PER THE PROFIT AND LOS S ACCOUNT OF THE PRESENT YEAR WHILE COMPUTING THE BOOK PROFIT U/S 115JB OF THE ACT. THIS ADDITIONAL GROUND OF THE ASSESSEE, IS THEREFORE, ALLOWED. IN THE RESULT, THIS APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 30. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE CIT(A). 31. WE HAVE HEARD THE RIVAL CONTENTIONS. THE ISSUE TO BE ADJUDICATED IS WHETHER SALES TAX SUBSIDY IS TO BE R EDUCED WHILE COMPUTING THE BOOK PROFITS FOR THE PURPOSES O F LEVYING MIMINUM ALTERNATE TAX (MAT) AS PER THE PROVISIONS O F SECTION 115JB OF THE ACT. 32. WE HAVE GONE THROUGH THE ORDER OF THE ITAT IN T HE CASE OF H.M STEELS, CITED BY THE LD.COUNSEL FOR THE ASSE SSEE ITA NOS.730,731,756 TO 758/CHD/2018 A.YS. 2012-13 & 2014-15 19 BEFORE US. WE FIND THAT IDENTICAL ISSUE HAS BEEN DE ALT WITH BY THE ITAT IN THE SAID CASE HOLDING THE VAT SUBSID Y ,BEING CAPITAL IN NATURE, AS NOT INCLUDIBLE IN THE BOOK PR OFITS U/S 115JB OF THE ACT. THE ITAT ,WHILE HOLDING SO HAS TA KEN NOTE OF THE DECISION OF THE HONBLE APEX COURT IN THE CA SE OF APOLLO TYRES (SUPRA) AS PER WHICH ANY ADJUSTMENT TO THE PROFIT AND LOSS ACCOUNT PREPARED BY THE ASSESSEE WA S RULED OUT FOR THE PURPOSES OF CALCULATING THE BOOK PROFIT AMENABLE TO TAX. THE ITAT HELD AS PER SECTION 115JB THE PROF IT AND LOSS ACCOUNT PREPARED SHOULD BE IN ACCORDANCE WITH PART II & III OF SCHEDULE VI TO THE COMPANIES ACT,1956 AND THEREFORE ADJUSTMENTS TO THE SAME CAN BE MADE TO MA KE IT COMPLIANT WITH THE SCHEDULE. THE ITAT ACCORDINGLY H ELD THAT SALES TAX/VAT SUBSIDY BEING CAPITAL IN NATURE WOULD HAVE TO BE REDUCED FROM THE PROFITS. 33. THE FACT IN THE CASE BEFORE US, WE FIND IS IDEN TICAL TO THAT IN H.M STEELS ,WITH THE SALES TAX SUBSIDY HAVI NG BEEN HELD TO BE CAPITAL IN NATURE. IN VIEW OF THE SAME , THE ISSUE WE HOLD IS SQUARELY COVERED BY THE DECISION OF THE ITAT IN THE CASE OF H.M STEELS, FOLLOWING WHICH WE HOLD THA T THE SALES TAX SUBSIDY IS TO BE REDUCED FROM THE BOOK PR OFITS FOR THE PURPOSES OF PAYING TAX U/S 115JB OF THE ACT. ITA NOS.730,731,756 TO 758/CHD/2018 A.YS. 2012-13 & 2014-15 20 THE GROUND OF APPEAL RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED IN EFFECT THE APPEAL OF THE ASSESSEE IS ALLOWED. 34. WE NOW TAKE UP THE CROSS APPEALS FOR A.Y 2014-1 5.WE SHALL FIRST BE DEALING WITH THE REVENUES APPEAL I N ITA NO.758/CHD/2018: 35. GROUND NOS. I), II) & III) RAISED BY THE REVENU E READ AS UNDER: I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN FOLLOWING THE DECISIO N OF THE HON'BLE ITAT DATED 21.10.2015 FOR AY 2008-09 IN TH E CASE OF THE ASSESSEE ITSELF AND DELETING THE ADDITI ON OF RS.3,78,76,511/- HOLDING THE SALES TAX SUBSIDY AS CAPITAL RECEIPT IN NATURE. II) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE DECISION OF THE HON'BLE SUPREME COURT IN THE CA SE PONY SUGAR AND CHEMICALS LTD. AND TREATING THE SALE S TAX SUBSIDY AS CAPITAL RECEIPTS IN NATURE WAS WRONG LY FOLLOWED DESPITE THE OBSERVATION OF THE AO IN THE ASSESSMENT ORDER THAT THE FACTS OF THE PRESENT CASE ARE DISTINGUISHABLE FROM THAT OF PONNI SUGAR AND CHEMIC ALS LTD. III) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE FACT THAT SALE TAX SUBSIDY WAS GIVEN TO EXISTIN G UNIT AND NOT FOR SETTING UP NEW UNIT OR EXPANSION OF THE SAME WAS NOT CONSIDERED. IV) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE FACT THAT THE SUBSIDY RECEIPT AFTER THE COMMENC EMENT OF PRODUCTION BY THE UNIT WAS NOT REQUIRED TO BE TR EATED AS CAPITAL IN NATURE WAS NOT CONSIDERED. ITA NOS.730,731,756 TO 758/CHD/2018 A.YS. 2012-13 & 2014-15 21 36. IT WAS COMMON GROUND THAT THE ISSUE RAISED IN THE ABOVE GROUNDS, PERTAINING TO TREATMENT OF SALES TAX SUBSIDY RECEIVED BY THE ASSESSEE WHETHER REVENUE OR CAPITAL IN NATURE, WAS IDENTICAL TO GROUND NOS. I) TO IV) RAIS ED IN THE REVENUES APPEAL IN ITA NO.756/CHD/2018. OUR DECISION RENDERED THEREIN AT PARA 6 OF OUR ORDE R ABOVE WILL THEREFORE SQUARELY APPLY TO THE ABOVE GR OUNDS ALSO, FOLLOWING WHICH WE HOLD THAT THE SALES TAX SU BSIDY IS CAPITAL IN NATURE AND ACCORDINGLY DISMISS THE GROUN DS RAISED BY THE REVENUE. IN EFFECT THE APPEAL OF THE REVENUE IS DISMISSED. 37. GROUND OF APPEAL NO.(V) RAISED BY THE REVENUE R EADS AS UNDER V) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE THE CIT(A) WAS RIGHT IN DELETING THE ADDITION MADE ON ACCOUNT OF TECHNICAL KNOWHOW FEES AMOUNTING TO RS.1,25,75,000/- ON THE BASIS THE DECISION OF THE H ON'BLE ITAT DATED 26.09.2013 FOR AY 2009-10. 38. IT WAS COMMON GROUND THAT THE ISSUE RAISED IN THE ABOVE GROUNDS, PERTAINING TO TREATMENT OF TECHNICAL KNOW HOW FEES PAID BY THE ASSESSEE WHETHER REVENUE OR C APITAL IN ITA NOS.730,731,756 TO 758/CHD/2018 A.YS. 2012-13 & 2014-15 22 NATURE, WAS IDENTICAL TO GROUND NOS. V) RAISED IN T HE REVENUES APPEAL IN ITA NO.756/CHD/2018. 39. OUR DECISION RENDERED THEREIN AT PARA 11 OF OUR ORDER ABOVE WILL THEREFORE SQUARELY APPLY TO THE ABOVE GR OUNDS ALSO, FOLLOWING WHICH WE HOLD THAT THE TECHNICAL KN OW HOW FEES PAID IS REVENUE IN NATURE AND ACCORDINGLY DIS MISS THE GROUND NO.V) RAISED BY THE REVENUE. IN EFFECT THE APPEAL OF THE REVENUE IS DISMISSED. WE NOW TAKE UP ASSESSEES APPEAL IN ITA NO.731/CHD/2018: 40. THE GROUND NO.1 OF APPEAL RAISED IN THIS APPEAL READS AS UNDER: 1. THAT THE LD. CIT (APPEALS) HAS GROSSLY ERRED IN LAW AS WELL AS ON FACTS IN CONFIRMING THE DISALLOWANCE OF CLAIM OF THE ASSESSEE FOR RS.37876511/- ON ACCOUNT OF SAL ES TAX SUBSIDY AS DEDUCTION FROM THE BOOK PROFITS U/S 115JB BEING IN THE NATURE OF CAPITAL RECEIPT. THE DEDUCTI ON OF RS.37876511/- MAY KINDLY BE ALLOWED FROM THE BOOK PROFITS U/S 115JB. 41. IT WAS COMMON GROUND BETWEEN THE PARTIES THAT T HE ABOVE GROUND RAISED BY THE ASSESSEE IN THIS APPEAL IS IDENTICAL TO GROUND NO. 1 RAISED IN THE APPEAL OF T HE ASSESSEE IN ITA NO.730/CHD/2018.OUR DECISION RENDER ED ITA NOS.730,731,756 TO 758/CHD/2018 A.YS. 2012-13 & 2014-15 23 THEREIN AT PARA 31 & 32 OF OUR ORDER WILL ACCORD INGLY APPLY MUTATIS MUTANDIS TO THIS GROUND ALSO. GROUND OF APP EAL NO.1 RAISED THE ASSESSEE IS THEREFORE ALLOWED . 42. GROUND NO.2 RAISED BY THE ASSESSEE READS AS UND ER: 2. THAT THE LD. CIT (APPEALS) HAS GROSSLY ERRED IN LAW AS WELL AS FACTS IN CONFIRMING THE DISALLOWANCE OF DEDUCTION OF BAD DEBTS WRITTEN OFF BEING IN THE NAT URE OF IRRECOVERABLE ADVANCE AS BUSINESS LOSS U/S 37(1) RE AD WITH SECTION 28 OF THE ACT. THE ADDITION MADE ON TH IS ACCOUNT AMOUNTING TO RS.60410/- MAY PLEASE BE DELETED. 43. BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE A.O. DURING THE ASSESSMENT PROCEEDINGS NOTICED THAT DEBT ORS WHICH HAD BEEN CLAIMED AS BAD DEBTS DURING THE YEAR AMOUNTING TO RS.60,410/- WERE NEVER TAKEN INTO ACCO UNT WHILE COMPUTING THE INCOME OF THE ASSESSEE. HE, THE REFORE, HELD THAT THE CLAIM OF BAD DEBTS WAS NOT ALLOWABLE SINCE THE ASSESSEE DID NOT SATISFY THE BASIC CONDITIONS LAID DOWN IN SECTION 36(2)(I) OF THE ACT, WHICH CLEARLY STIPULAT ES THAT DEDUCTION U/S 36(1)(VII) OF THE ACT WOULD NOT BE AL LOWED UNLESS THE DEBT HAD BEEN TAKEN INTO ACCOUNT WHILE COMPUTING THE INCOME. THE LD.CIT(A) UPHELD THE FIND INGS OF THE A.O. ITA NOS.730,731,756 TO 758/CHD/2018 A.YS. 2012-13 & 2014-15 24 44. BEFORE US, THE LD. COUNSEL FOR ASSESSEE CONTEND ED THAT IT HAD CLAIMED DEDUCTION OF BAD DEBTS ON ACCOUNT OF THE FOLLOWING: I) RS.48,000/-ADVANCE GIVEN TO SHRI SANTOSH DUMBRE. II) RS.12,410/- ADVANCE AGAINST MATERIAL WRITTEN OF F. 45. THE LD. COUNSEL FOR ASSESSEE CONTENDED THAT BOT H THE ADVANCES HAD BEEN ROUTED THROUGH TRADING ACCOUNT AN D HAD BEEN SHOWN UNDER THE HEAD CURRENT ASSETS AS ADVAN CE TO VENDOR AND AS TRADE RECEIVABLES RESPECTIVELY AND HENCE WAS ALLOWABLE AS BAD DEBTS. 46. THE LD. DR, ON THE OTHER HAND POINTED OUT THAT THE IMPUGNED AMOUNTS WERE MERELY ADVANCES WHICH HAD NOT BEEN TAKEN INTO ACCOUNT WHILE COMPUTING THE INCOME OF THE ASSESSEE EITHER IN THE IMPUGNED OR ANY OTHER PREVIO US YEAR. HE, THEREFORE, CONTENDED THAT THE WRITE OFF OF THES E AMOUNTS HAD BEEN RIGHTLY DISALLOWED SINCE THE BASIC CONDITI ONS REQUIRED TO BE FULFILLED FOR CLAIMING THE SAME WAS THAT THE DEBTS SHOULD HAVE BEEN TAKEN INTO ACCOUNT WHILE COM PUTING THE INCOME, WHICH HAS NOT BEEN FULFILLED IN THE PRE SENT CASE. THE LD. DR HEAVILY RELIED UPON THE FINDINGS OF THE LOWER AUTHORITIES. ITA NOS.730,731,756 TO 758/CHD/2018 A.YS. 2012-13 & 2014-15 25 47. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. IT IS NOT DISPUTED THAT THE AMOUNT CLAIMED AS BAD DEBTS RELATED TO ADVANCES GIV EN, AS ADMITTED BY THE LD. COUNSEL FOR ASSESSEE ALSO. THER E IS, THEREFORE, NO QUESTION OF THE SAME HAVING BEEN DEBI TED OR CONSIDERED WHILE COMPUTING THE INCOME OF THE ASSESS EE. FURTHER THE ASSESSEE HAS BEEN UNABLE TO DEMONSTRATE THE SAME EVEN BEFORE THE LOWER AUTHORITIES OR EVEN BEFO RE US. ALSO UNDOUBTEDLY, FOR CLAIMING THE WRITE OFF OF ANY AMOUNT AS BAD DEBTS, THE NECESSARY PRE-REQUISITE IS THAT T HE SAID AMOUNT SHOULD HAVE BEEN EARLIER TAKEN INTO ACCOUNT WHILE COMPUTING THE INCOME OF THE ASSESSEE. IN VIEW OF TH E ABOVE FACTS AND POSITION OF LAW, WE HAVE NO HESITATION IN UPHOLDING THE ORDER OF THE LD.CIT(A) IN DISALLOWING THE CLAIM OF THE ASSESSEE OF BAD DEBTS AMOUNTING TO RS.60,410/-. THE GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE IS, THEREFORE , DISMISSED. 48. GROUND NO.3 RAISED BY THE ASSESSEE READS AS UND ER: 3. THAT THE LD. CIT (APPEALS) HAS GROSSLY ERRED IN LAW AS WELL AS FACTS IN CONFIRMING THE DISALLOWANCE OF DEDUCTION OF RS.77000/- BEING IN THE NATURE OF FINE AND PENALTIES AS BUSINESS LOSS U/S 37(1) OF THE ACT. TH E ADDITION MADE ON THIS ACCOUNT AMOUNTING TO RS.77000/- MAY PLEASE BE DELETED. ITA NOS.730,731,756 TO 758/CHD/2018 A.YS. 2012-13 & 2014-15 26 49. BRIEFLY STATED, THE A.O. HAD DISALLOWED DEDUCTI ON OF RS.77,000/- CLAIMED BY THE ASSESSEE IN ITS PROFIT & LOSS ACCOUNT UNDER THE HEAD PENALTY ON THE GROUND THAT IT WAS IN THE NATURE OF FINE/PENALTY AND FURTHER RS.75,000 /- CLAIMED DID NOT PERTAIN TO THE YEAR UNDER CONSIDERA TION BUT TO ASSESSMENT YEAR 2013-14. THE CIT(A) UPHELD THE DISALLOWANCE MADE BY THE A.O . 50. BEFORE US, THE LD. COUNSEL FOR ASSESSEE DREW OU R ATTENTION TO THE PLEADINGS MADE TO THE AUTHORITIES BELOW STATING THAT PENALTY OF RS.75,000/- WAS A LEVY OF A RBITRAL TRIBUNAL AND THAT THE ASSESSEE HAD INCURRED THE COS T PURSUANT TO ITS CLAIM FILED AGAINST M/S TATA AIG GE NERAL INSURANCE COMPANY LTD. THAT THE EXPENSES INCURRED W ERE LEGAL EXPENSES AND FURTHER THAT IN CASE THE TRIBUNA L DECIDED THE CASE IN FAVOUR OF THE ASSESSEE, THEN THE AMOUNT OF CLAIM RECEIVED BY THE ASSESSEE WOULD HAVE BEEN SHOWN AS I NCOME AND, THEREFORE, EXPENSES INCURRED TO EARN THE CLAIM WERE ALSO ALLOWABLE. 51. THE LD. DR, ON THE OTHER HAND, DREW OUR ATTENTI ON TO THE FINDINGS OF THE A.O. THAT RS.2000/- RELATED TO PENALTY (CHALLAN) FOR SLEEPING DRIVER, WHILE RS.75,000/- WA S THE COST AWARDED OR LEVIED ON THE ASSESSEE BY ARBITRAL TRIBU NAL TO ITA NOS.730,731,756 TO 758/CHD/2018 A.YS. 2012-13 & 2014-15 27 COMPENSATE THE RESPONDENT, M/S TATA AIG GENERAL INSURANCE COMPANY LTD. THE LD. DR CONTENDED THAT SU RELY THE SAID EXPENSE WAS NOT INCURRED IN THE NORMAL COU RSE OF BUSINESS AND SINCE THE ORDER OF THE TRIBUNAL WAS TO COMPENSATE THE INSURANCE COMPANY IN TERMS OF COST I T WAS IN THE NATURE OF FINE ORDERED BY IT. FURTHER THE LD . DR DREW OUR ATTENTION TO THE FACT THAT THE ORDER OF THE TRI BUNAL LEVYING FINE WAS DATED 17.2.2013 AND ACCORDINGLY TH E EXPENSE PERTAINED TO ASSESSMENT YEAR 2013-14 AND TO THE IMPUGNED YEAR. HE ACCORDINGLY, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 52. WE HAVE HEARD THE CONTENTIONS OF BOTH THE PARTI ES. WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF THE CIT(A) IN DISALLOWING THE PENALTY AMOUNTING TO RS.77,000/- . THE FACT RELATING TO THE NATURE OF THE PENALTY, AS POIN TED OUT BY THE LD. DR BEFORE US, IS NOT DISPUTED. THUS RS.2000 /- BEING PENALTY LEVIED FOR SLEEPING DRIVER, IS CLEARLY NO A LLOWABLE BEING IN THE NATURE OF PENALTY FOR INFRINGEMENT OF LAW. SIMILARLY, ALSO, THE AMOUNT OF RS.75,000/- LEVIED B Y THE ARBITRAL TRIBUNAL ON THE ASSESSEE TO COMPENSATE THE RESPONDENT IN A CASE FILED BY IT TO THE TRIBUNAL IS , WE HOLD, RIGHTLY HELD BY THE CIT(A) TO BE IN THE NATURE OF P ENALTY AND THUS DISALLOWED U/S 37(1) OF THE ACT. MOREOVER, IT IS AN ITA NOS.730,731,756 TO 758/CHD/2018 A.YS. 2012-13 & 2014-15 28 UNDISPUTED FACT THAT THE ORDER LEVYING PENALTY/COST BY THE TRIBUNAL WAS DATED 17.2.2013. THEREFORE, WE AGREE W ITH THE AUTHORITIES BELOW THAT THE LIABILITY TO PAY THE FIN E ACCRUED IN ASSESSMENT YEAR 2013-14 AND, THEREFORE, DID NOT PER TAIN TO THE IMPUGNED YEAR AT ALL. IN VIEW OF THE ABOVE, WE AGREE WITH THE LD.CIT(A) THAT THE AMOUNT OF RS.77,000/- WAS IN THE NATURE OF PENALTY PAID BY THE ASSESSEE AND FURTHER OUT OF THE ABOVE RS.75,000/- PERTAINED TO THE EARLIER YEAR AND , THEREFORE, FOR THE AFORESAID REASONS, THE SAID AMOU NT WAS NOT ALLOWABLE TO. GROUND OF APPEAL NO.3 RAISED BY T HE ASSESSEE IS, THEREFORE, DISMISSED. 53. GROUND OF APPEAL NO.4 RAISED BY THE ASSESSEE RE ADS AS UNDER: 4. THAT THE LD. CIT (APPEALS) HAS GROSSLY ERRED IN LAW AS WELL AS FACTS IN CONFIRMING THE DISALLOWANCE OF DEDUCTION OF PROVISION OF WARRANTY REJECTIONS OF RS.56162/-. THE ADDITION MADE ON THIS ACCOUNT AMOUNTING TO RS.56162/- MAY PLEASE BE DELETED. 54. BRIEF FACTS RELATING TO THE ISSUE ARE THAT DURI NG ASSESSMENT PROCEEDINGS THE A.O. NOTICED THAT THE AS SESSEE HAD CLAIMED EXPENDITURE ON ACCOUNT OF PROVISION UN DER THE HEAD WARRANTY REJECTION OF RS.7,82,303/- AND RS.3,05,063/- AS ON 31.3.2014. ON BEING ASKED TO SH OW CAUSE AS TO WHY THE SAME MAY NOT BE ADDED BACK TO T HE INCOME OF THE ASSESSEE SINCE THESE WERE NOT ACTUALL Y ITA NOS.730,731,756 TO 758/CHD/2018 A.YS. 2012-13 & 2014-15 29 EXPENDITURE INCURRED, IT WAS CONTENDED BY THE ASSES SEE THAT THE SAID PROVISION HAD BEEN REVERSED IN THE SUBSEQU ENT YEARS ON RECEIPT OF NECESSARY BILLS FROM THE PARTIE S. THE ASSESSEE EXPLAINED THAT THE AMOUNTS HAD BEEN BOOKED AS PROVISION FOR WARRANTY REJECTION ON RECEIPT OF REJE CTED MATERIAL AT THE FACTORY, PENDING ISSUE OF DEBIT NOT E FOR REJECTION BY THE PARTY WHICH HAD REJECTED THE MATER IAL. THAT IN THE BOOKS OF ACCOUNT, PROVISION HAD BEEN CLAIMED SINCE THE REJECTION HAD BEEN RECEIVED BY THE ASSESSEE AS AT THE CLOSE OF THE YEAR AND THUS THE TRANSACTION HAD CRY STALLIZED AND, THEREFORE, AS PER THE PREVAILING ACCOUNTING CO NVENTIONS AND STANDARDS, THE EXPENSES HAD ACCRUED . THAT ONCE THE REJECTION WERE VERIFIED THROUGH DEBIT NOTE BY CUSTO MERS, THE PROVISIONS WERE NULLIFIED AND REVERSED. THE A.O. EX AMINED THE CONTENTION MADE BY THE ASSESSEE AND FOUND THAT OUT OF THE TOTAL PROVISIONS CREATED, PROVISIONS OF ONLY RS.10,29,207/- HAD BEEN REVERSED BY THE ASSESSEE IN THE SUBSEQUENT YEAR. HE, THEREFORE, FOUND THAT THE BALA NCE AMOUNT OF RS.56,162/- WAS ONLY A PROVISION AND NO A CTUAL EXPENDITURE HAD BEEN INCURRED BY THE ASSESSEE AND ACCORDINGLY, DISALLOWED THE SAME. THE LD.CIT(A) UPH ELD THE DISALLOWANCE MADE BY THE A.O. ITA NOS.730,731,756 TO 758/CHD/2018 A.YS. 2012-13 & 2014-15 30 55. BEFORE US, THE LD. COUNSEL FOR ASSESSEE REITERA TED THE CONTENTIONS MADE BEFORE THE LOWER AUTHORITIES. HOWE VER, THE LD. DR RELIED UPON THE ORDER OF THE CIT(A). 56. WE HAVE HEARD THE RIVAL CONTENTIONS. WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF THE LD.CIT( A). THE FACTUAL FINDINGS OF THE LOWER AUTHORITIES THAT THE IMPUGNED PROVISION OF RS.56,162/- HAD NOT BEEN REVERSED IN T HE SUBSEQUENT YEAR BY WAY OF DEBT NOTE RECEIVED FROM A PARTY ON ACCOUNT OF REJECTED MATERIAL, HAS NOT BEEN CONTR OVERTED BY THE ASSESSEE BEFORE US. THEREFORE, AS PER THE EX PLANATION OF THE ASSESSEE, ALSO THE SAID PROVISIONS DID NOT R ELATE TO ANY REJECTED MATERIAL RECEIVED BACK BY THE ASSESSEE FROM ANY PARTY BECAUSE AS PER THE EXPLANATION GIVEN BY THE A SSESSEE, SUCH PROVISIONS WERE CREATED ON RECEIPT OF REJECTED MATERIAL AS AT THE END OF THE YEAR PENDING THE DEBIT NOTES T O BE ISSUE BY THE CONCERNED PARTIES. IN THE IMPUGNED CASE, THE FACT THAT NO DEBIT NOTE RELATING TO RS.56,162/- WAS ISSU ED IN THE SUBSEQUENT YEAR SHOWS THAT THERE WAS NO RECEIPT OF REJECTED MATERIAL TO THAT EXTENT AS AT THE END OF THE YEAR A ND THE AMOUNT DID NOT REPRESENT ANY LIABILITY BUT WAS ONLY A PROVISION FOR THE SAME. THE DISALLOWANCE OF THE SAM E IS, THEREFORE, RIGHTLY UPHELD BY THE CIT(A). GROUND OF APPEAL NO.4 RAISED BY THE ASSESSEE IS, THEREFORE, DISMISSE D. ITA NOS.730,731,756 TO 758/CHD/2018 A.YS. 2012-13 & 2014-15 31 IN EFFECT THE APPEAL OF THE ASSESSEE IS PARTLY ALL OWED. 57. IN THE RESULT, THE APPEALS OF THE REVENUE IN IT A NO.756-758/CHD/18 ARE DISMISSED AND THE ASSESSES AP PEAL IN ITA NO.730/CHD/18 IS ALLOWED, WHILE IN ITA NO.731/CHD/18 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- # $ % &' (SANJAY GARG ) (ANNAPURNA GUPTA) / JUDICIAL MEMBER ( / ACCOUNTANT MEMBER *# /DATED: 27 TH MAY, 2019 * ' * ) *+ ,+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ' - / CIT 4. ' - ( )/ THE CIT(A) 5. +./ 0 , $ 0 , 123/4 / DR, ITAT, CHANDIGARH 6. /3 5# / GUARD FILE ) ' / BY ORDER, ! / ASSISTANT REGISTRAR