WELSPUN STEEL LTD ( FORMELRY KNOWN AS M.,S WELSPUN POWER & STEEL LTD), MUMBAI V. DCIT 7(3), MUMBAI

ITA 7630/MUM/2011

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1915 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 16-12-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 11-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMOL S KAMAT
• Assessee Lawyers: NAGIN PAREKH
• Keywords: Capital asset; Depreciation; Search and seizure; Earning of tax free income; Initiation of penalty proceedings; Capital receipt
• Section: 143(3); 153A; 234B; 14A

Judgement Text

M/S WELSPUN STEEL LTD ITA : 7630 /MUM/201 1 ITA : 8294 /MUM/201 1 ITA S : 6371 TO 6376 /MUM/2014 ITA S : 6304 TO 6308 /MUM/2014 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G , MUMBAI , , BEFORE SHRI AMIT SHUKLA , JUDICIAL MEMBER AND SHRI RAMIT KOCHAR , ACCOUNTAN T MEMBER ITA NO. : 7630/MUM/2011 (ASSESSMENT YEAR : 200 7 - 0 8 ) ITA NO. : 6371/MUM/2014 (ASSESSMENT YEAR : 200 6 - 0 7 ) ITA NO. : 6372/MUM/2014 (ASSESSMENT YEAR : 200 7 - 0 8 ) ITA NO. : 6373/MUM/2014 (ASSESSMENT YEAR : 200 8 - 0 9 ) ITA NO. : 6374/MUM/2014 (ASSESSMENT Y EAR : 200 9 - 1 0) ITA NO. : 6375/MUM/2014 (ASSESSMENT YEAR : 2010 - 11 ) ITA NO. : 6376/MUM/2014 (ASSESSMENT YEAR : 20 11 - 12 ) M/S WELSPUN STEEL LTD , TRADE WORLD, B WING, 9 TH FLOOR, KAMALA MILLS COMPOUND SENAPATI BAPAT MARG, MUMBAI - 400 013 .: PAN: AAA CW 5308 G VS DY/ ASST. COMMISSIONER OF INCOME TAX 7(3)/ CC - 22, ROOM NO. 403, AAYAKAR BHAVAN, 4 TH FLOOR, MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI NEELKANTH KHANDELWAL & NAGIN PAREKH RESPONDENT BY : SHRI AMOL S KAMAT ITA NO. : 8294/MUM/2011 (ASSESSMENT YEAR : 2007 - 08) ITA NO. : 6304 /MUM/2014 (ASSESSMENT YEAR : 2007 - 08) ITA NO. : 6305 /MUM/2014 (ASSESSMENT YEAR : 200 8 - 0 9 ) ITA NO. : 6306 /MUM/2014 (ASSESSMENT YEAR : 200 9 - 1 0) ITA NO. : 6307/MUM/2014 (ASSESSMENT YEAR : 20 1 0 - 11 ) M/S WELSPUN STEEL LTD ITA : 7630 /MUM/201 1 ITA : 8294 /MUM/201 1 ITA S : 6371 TO 6376 /MUM/2014 ITA S : 6304 TO 6308 /MUM/2014 2 ITA NO. : 6308/MUM/2014 (ASSESSMENT YEAR : 20 11 - 12 ) ASST. COMMISSIONER OF INCOME TAX CC - 22 & 30 , ROOM NO. 403, AAYAKAR BHAVAN, 4 TH FLOOR, MUMBAI VS M/S WELSPUN STEEL LTD , TRA DE WORLD, B WING, 9 TH FLOOR, KAMALA MILLS COMPOUND SENAPATI BAPAT MARG, MUMBAI - 400 013 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AMOL S KAMAT RESPONDENT BY : SHRI NEELKANTH KHANDELWAL & NAGIN PAREKH /DATE OF HEARING : 09 - 11 - 201 5 / DATE OF PRONOUNCEMENT : 18 - 12 - 201 5 ORDER PER BENCH : THE AFORESAID CROSS APPEAL S HA VE BEEN FILED BY THE ASSESSEE AS WELL AS BY THE REVENUE AGAINST SEPAR ATE IMPUGNED ORDER S PASSED BY CIT(A) - 39, MUMBAI FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3) AND ALSO UNDER SECTION 143(3) R.W.S 153A RIGHT FROM THE ASSESSMENT ORDER 2006 - 07 TO 2011 - 12. 2. SIN CE COMMON ISSUES INVOLVED IN ALL THE APPEALS ARE ARISING OUT OF IDENTICAL SET OF FACTS, THEREFORE, THE SAME WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY WAY OF THIS CONSOLIDATED ORDER. 3. TO UNDERSTAND THE FACTS AND ISSUES INVOLVED, WE ARE TAKING - UP THE C ROSS APPEAL S FOR THE ASSESSMENT YEAR 2007 - 08 , BOTH FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3) AND SECTION 143(3) R.W.S. 153A. FOR THE SAKE OF READY REFERENCE GROUNDS RAISED BY THE REVENUE IN ITA NO. 8294/MUM/2014 ARE BEING REPRODUCED HEREUNDER: - A. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DELETING THE ADDITION THE ADDITION OF RS. M/S WELSPUN STEEL LTD ITA : 7630 /MUM/201 1 ITA : 8294 /MUM/201 1 ITA S : 6371 TO 6376 /MUM/2014 ITA S : 6304 TO 6308 /MUM/2014 3 35,33,23,171/ - AS REVENUE RECEIPT HOLDING THAT THE SAME REPRESENTS CAPITAL RECEIPTS NOT CHARGEABLE TO TAX. B. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN GIVING RELIEF TO THE ASSESSEE BY ALLOWING THE CLAIM OF PRIOR EXPENSES, TO THE EXTENT OF RS. 83,55,190/ - , WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE COULD NOT FURNISH COMPLETE DETAILS REGARDING THIS AMOUNT EITHER DURING THE ASSESSMENT PROCEEDINGS OR APPELLATE PROCEEDINGS. 4. THE MAIN ISSUE INVOLVED HERE WHICH IS PERMEATING IN ALL THE APPEALS IN ALL THE AFOREMENTIONED ASSESSMENT YEARS IS, WHETHER THE INCENTIVE /SUBSIDY RECEI VED FROM THE CENTRAL & STATE GOVERNMENT IS TREATED AS REVENUE RECEIPT OR CAPI TAL RECEIPT . 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 DEVASTATING EARTHQUAKE IN KUTCH DISTRICT, GUJARAT, THE CENTRAL GOVERNMENT , VIDE NOTIFICATION NO. 39/2001 DATED 7 TH AUGUST, 2001 ISSUED AN EXCISE BENEFIT INCENTIVE SCHEME AND STATE GOVERNMENT OF GUJARAT ALSO VIDE ITS NOTIFICATION DATED 9 TH NOVEMBER, 2001 ANNOUNCED AN I NCENTIVE S CHEME FOR S ALES - TAX EXEMPTION KNOWN AS I NCENTIVE SCHEME, 2001 FOR E CONOMIC D EVELOPMENT FOR K UTCH DISTRICT . BOTH THESE SCHEMES WERE FOR SETTING - UP OF A NEW INDUSTRIAL UNIT /S IN KUTCH DISTRICT AFTER COMPLYING WITH THE TERMS AND CONDITIONS AS SET OUT IN THE NOTIFICATION S AND S CHEME S OF THE CENTRAL AND STAT E GOVERNMENT RESPECTIVELY. THE OBJECT OF BOTH THE SCHEMES WAS ECONOMIC DEVELOPMENT OF KUTCH DISTRICT AFTER THE EARTHQUAKE AND CREATION OF NEW EMPLOYMENT OPPORTUNITIES AND ATTRACTION OF LARGE SCALE INVESTMENTS. DURING THE PREVIOUS YEAR, THE ASSESSEE HAD REC EIVED FOLLOWING INCENTIVES BY THE STATE GOVERNMENT AND CENTRAL GOVERNMENT : - ( I ) SALES - TAX INCENTIVE - RS. 12,95,99,499 ( II ) CENTRAL EXCISE BENEFIT - RS. 22,37,23,672 TOTAL - RS.35,33,23,171 M/S WELSPUN STEEL LTD ITA : 7630 /MUM/201 1 ITA : 8294 /MUM/201 1 ITA S : 6371 TO 6376 /MUM/2014 ITA S : 6304 TO 6308 /MUM/2014 4 THE AMOUNT OF INCENTIVE RECEIVED WAS CREDITED TO TH E PROFIT AND LOSS ACCOUNT, HOWEVER, THE ASSESSEE CLAIMED THAT THE SAID RECEIPTS ARE NOT TAXABLE AS THEY ARE CAPITAL RECEIPTS. THE AO WHILE MAKING THE ASSESSMENT HAS REJECTED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT IN THE ASSESSMENT YEAR 2006 - 07, THE A SSESSEES 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 BOMBAY HIGH COURT IN T HE CASE OF RELIANCE INDUSTRIES, ALLOWED THE 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 OF SUBSIDY / INCEN TIVE IN THE CASE OF THE ASSESSEE H AD REACHED TO 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 GROUND THAT AUTHORITIES BELOW HAVE NOT ANALYSE D THE SCHEME OF SUBSIDY / INCENTIVE GRA NTED BY THE RESPECTIVE GOVERNMENTS. IT HAS BEEN INFORMED THAT, TILL DATE NO ASSESSMENT ORDER HAS BEEN PASSED IN PURSUANCE OF TRIBUNAL ORDER . INSTEAD A FRESH ASSESSMENT ORDER HAS BEEN PASSED UNDER SECTION 143(3) R.W.S. 153A WHEREIN THIS ISSUE HAS BEEN CONFI RMED BY THE AO AGAIN WITHOUT PROPER ANALYZING THE PURPOSE TEST OF THE SCHEME. 8. T HE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT, NOW THERE IS CATENA OF DECISIONS NOT ONLY OF THE TRIBUNAL BUT ALSO OF THE VARIOUS HIGH COURTS INCLUDING THAT OF THE JURISD ICTIONAL HIGH COURT, IN FAVOUR OF THE ASSES S EE THAT IF THE SUBSIDY IS GIVEN FOR SETTING UP FOR A NEW INDUSTRIAL UNIT OR PLANT THEN IT IS ON CAPITAL ACCOUNT. IN SUPPORT OF THIS CONTENTION A SEPARATE COMPILATION OF CASE LAWS HAVE M/S WELSPUN STEEL LTD ITA : 7630 /MUM/201 1 ITA : 8294 /MUM/201 1 ITA S : 6371 TO 6376 /MUM/2014 ITA S : 6304 TO 6308 /MUM/2014 5 BEEN FILED BEFORE US. EXPLAI NING THE NATURE OF SCHEME, HE SUBMITTED THAT THE FUNDAMENTAL OBJECT FOR BOTH THE SCHEMES WAS TO SET UP AN INDUSTRIAL PLANT FOR ECONOMIC DEVELOPMENT AND CREATION OF NEW EMPLOYMENT OPPORTUNITIES. FROM THE PERUSAL OF THESE SCHEMES WHICH HAVE BEEN PLACED IN TH E 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 UNITS AND NOT FOR RUNNING OF ANY INDUSTRY FOR PROFIT . H E REFER TO PREAMBLE AS GIVEN IN THE INCENTIVE SCHE ME 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 BENEFIT WAS GIVEN FOR A PERIOD OF FIVE YEARS. HE FURTHER SUBMITTED THAT THE N ATURE OF INCENTIVE UNDER BOTH THE NOTIFICATION S AND THE ACCOUNTING TREATMENT BY THE ASSESSEE AS STATED BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW WAS AS UNDER: - (A) THE N ATURE 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) - REFUND OF THE EXCISE DUTY PAID THROUGH PLA ON FINISHED GOODS CLEARED FROM THE UNIT AFT ER TAKING CENVAT CREDIT ON THE INPUTS. THIS AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT AS 'EXCISE BENEFIT RECEIVED AND INADVERTENTLY OFFERED TO TAX. PRESENTLY, THERE IS NO LIMIT FOR THE QUANTUM OF SUCH INCENTIVE. (B) SALES TAX/VALUE ADDED TAX (IN V IEW 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 THES E COMPONENTS ARE CREDITED TO THE PROFIT AND LOSS ACCOUNT AS 'SALES TAX INCENTIVES RECEIVED' AND INADVERTENTLY OFFERED TO TAX. THERE IS A MONETARY LIMIT 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 IT RELATES TO THE INCENTIVES UNDER THE SCHEME, THE UNIT HAS TO INVEST AT LEAST 50% OF THE , M/S WELSPUN STEEL LTD ITA : 7630 /MUM/201 1 ITA : 8294 /MUM/201 1 ITA S : 6371 TO 6376 /MUM/2014 ITA S : 6304 TO 6308 /MUM/2014 6 INCENTIVES IN THE STATE OF GUJRAT WITHIN A PERIOD OF 10 YEARS FROM THE DATE OF COMMERCIAL PRODUCTION . THUS, HE SUBMITTED THAT, LOOKING TO THE OBJECT S AND THE PURPOSE FOR WHICH SUBSIDY WAS GIVEN, THE INCENTIVE RECEIPTS HAS TO BE TREATED AS CAPITAL . IN SUPPORT OF HIS CONTENTION, BESIDES SEVERAL DECISION S , HE PLACED RELIANCE O N THE FOLLOWING DECISIONS: - SR. NO. CASE LAW CITATION 1 SAHNEY STEEL & PRESS WORKS LTD 228 ITR 253 (SC) 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.COM330(GUJ) 6 M/S AJANTA MANUFACTURING LTD. ITA NO. 793/RJT/2010 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 PLACE ON 30.10.2010 IN WELSPUN GROUP OF CASES AND IN PURSUANCE OF THAT NOTICE U/S 153A WAS ISSUED FOR THE IMPUGNED ASSESSMENT YEARS. THE LD. AO BESIDES TREATING THE SAID INCENTIVES AS REVENUE RECEIPTS HA D TA KEN AN ADDITIONAL 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 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 S UCH A CONTENTION OF THE AO CANNOT BE UPHELD, BECAUSE THE SAME IS NOT APPLICABLE IN THE PRESENT CASE AT ALL, BECAUSE THERE IS NO DIRECT ACQUISITION OF ASSET F ROM THE GOVERNMENT SUBSIDY . THE SUBSIDY IS RECEIVED IN THE FORM OF EXCISE TAX BENEFIT 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 PROVISION IS NOT APPLICABLE AND IN SUPPORT OF HIS CONTENTION, HE RELIED UPON THE FOLLOWING TRIBUNAL DECISIONS: - M/S WELSPUN STEEL LTD ITA : 7630 /MUM/201 1 ITA : 8294 /MUM/201 1 ITA S : 6371 TO 6376 /MUM/2014 ITA S : 6304 TO 6308 /MUM/2014 7 SR. N O. CASE N AME CITATION 1 SAS IS RI EXTRACTIONS LIMITED 122 ITD 428 (VISAKHAPATNAM ) 2 M/S HARINAGAR SUGAR MILLS LTD ITA NO. 772/MUM/2012 3 RASOI LT D. 46 TAXMAN.COM214(KOLKATA - TRIB) 4 UNIVERSAL CABLES LTD 57 TAXMAN.COM95(KOLKATA TRIB) 5 SOHAM ELECTROPLAST PVT LTD ITA NO. 1578/PN/2008 10. ON THE OTHER HAND LD. DR STRONGLY RELIED UPON THE ASSESSMENT ORDER ESPECIALLY PASSED BY THE AO UNDER SECTION 1 43(3) R.W.S. 153A DATED 25.03.2013 AND SUBMITTED THAT, IF THE INCENTIVE / SUBSIDY HA S BEEN GIVEN IN THE FORM OF SALES - TAX OR EXEMPTION OF EXCISE DUTY THEN IT DIRECTLY LEADS TO AUGMENTATION OF PROFIT OF THE ASSESSEE AND HENCE , IT IS NOTHING BUT REVENUE RECEI PTS. 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND ALSO PERUSED THE RELEVANT MATERIAL PLACED ON RECORD. THE MAIN ISSUE INVOLVED IS , WHETHER THE INCENTIVE / SUBSIDY PROVIDE D BY THE STATE GOVERNMENT IN THE FORM OF SALES - 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 DECISIONS 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 FR OM THE CHARACTER OF THE RECEIPTS IN THE HANDS OF THE ASSESSEE 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 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 THEN, THE M/S WELSPUN STEEL LTD ITA : 7630 /MUM/201 1 ITA : 8294 /MUM/201 1 ITA S : 6371 TO 6376 /MUM/2014 ITA S : 6304 TO 6308 /MUM/2014 8 RECEIPT IS ON REVENUE ACCOUNT. THE RELEVANT OBSERVATION 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 OF THE ASSESSEE, IT WAS CONTENDED THAT THE SUBSIDY GIVEN WAS UP TO 10 PER CENT OF THE. CAPITAL INVESTMENT CALCULATED ON THE BASIS OF THE QUANTUM OF INVESTMENT IN CAPITAL AND, THEREFORE, RECEIPT OF SUCH SUBSIDY W AS 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 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 WAY OF A SPECIAL LEAVE PETITION. IT WAS HE LD 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 THAT THE SUBSIDY GIVEN WAS TO MEET RECURRING EXPENSES. IT 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 ASSET. THE SUBSIDIES IN THAT CASE WERE GRA NTED 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 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 THAT THE SUBSIDY RECEIVED BY SAHNEY STEEL COULD NOT BE REGARDED AS ANYTHING BUT A REVENUE RECEIPT. ACCORDINGLY, THE MATTER WAS DECIDED AGAINST THE ASSESS EE. THE IMPORTANCE OF THE JUDGMENT OF THIS COURT IN SAHNEY STEEL & PRESS WORK S 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 CHARACTER OF A SU BSIDY. THAT TEST IS THAT THE CHARACTER OF THE RECEIPT IN THE HANDS OF THE ASSESSEE HAS TO BE DETERMINED WITH RESPECT TO THE PURPOSE FOR WHICH THE SUBSIDY IS GIVEN. IN OTHER WORDS, IN SUCH CASES, ONE HAS TO APPLY THE PURPOSE TEST. THE POINT OF TIME WHICH TH E SUBSIDY IS PAID IS NOT RELEVANT. THE SOURCE IS IMMATERIAL. THE FORM OF SUBSIDY IS IMMATERIAL. THE MAIN ELIGIBILITY CONDITION IN THE SCHEME WITH WHICH WE ARE CONCERNED IN THIS CASE IS THAT THE INCENTIVE MUST 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 IS NO DISPUTE. IF THE OBJECT OF THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO RUN THE M/S WELSPUN STEEL LTD ITA : 7630 /MUM/201 1 ITA : 8294 /MUM/201 1 ITA S : 6371 TO 6376 /MUM/2014 ITA S : 6304 TO 6308 /MUM/2014 9 BUSINESS MORE PROFITABLY THEN THE RECEIPT IS ON REVENUE ACCOUNT. ON T HE OTHER HAND, IF THE OBJECT OF THE ASSISTANCE UNDER THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO SET UP A NEW UNIT OR TO EXPAND THE EXISTING UNIT THEN 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 NATU RE 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 BY THE STAT E GOVERNMENT AS WELL AS CENTRAL GOVERNMENT IS BEING GIVEN HAS BEEN HIGHLIGHTED IN THE FOLLOWING MANNER: - T HE ECONOMIC ACTIVITIES IN THE DISTRICT OF KUTCH CAME TO A STANDSTILL ON ACCOUNT OF THE DEVASTATING EARTHQUAKE IN THE STATE ON 26TH JANUARY, 2001. NE W 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 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 LIV E, IT HAS BEEN DECIDED TO CONFINE THE SAME ONLY TO KUTCH DISTRICT . 13. FROM THE PERUSAL OF THE ABOVE, IT IS AMPLY CLEAR THAT THE SCHEMES LAUNCHED WAS FOR SETTING UP OF NEW INDUSTRIES IN THE DISTRICT OF KUTCH FOR THE PURPOSE OF NEW EMPLOYMENT OPPORTUNITIE S AND TO MAKE INDUSTRIAL AND ECONOMIC ENVIRONMENT LIVE. THUS, THE SCHEME OF INCENTIVES PROVIDED BY THE RESPECTIVE GOVERNMENT S WAS SETTING - UP OF A NEW UNIT AND NOT FOR RUNNING OF THE BUSINESS MORE PROFITABLY. AS LAID DOWN BY THE HONBLE SUPREME COURT, THE F ORM AND THE SOURCE OF SUBSIDY ARE IMMATERIAL AND WHAT IS MATERIAL IS WHETHER THE SUBSIDY IS FOR SETTING UP FOR A INDUSTRIAL UNIT OR RUNNING IT FOR PROFITABILITY . SIMILARLY, THE CENTRAL EXCISE EXEMPTION M/S WELSPUN STEEL LTD ITA : 7630 /MUM/201 1 ITA : 8294 /MUM/201 1 ITA S : 6371 TO 6376 /MUM/2014 ITA S : 6304 TO 6308 /MUM/2014 10 WAS GIVEN IN THE PUBLIC INTEREST FOR SETTING UP OF A N EW INDUSTRIAL UNIT IN THE KUTCH DISTRICT. ACCORDINGLY ON THE FACTS OF THE PRESENT CASE, WE CONCLUDE THAT T HE INCENTIVE GIVEN BY THE STATE GOVERNMENT AND THE CENTRAL GOVERNMENT IS NOTHING BUT CAPITAL RECEIPTS, BECAUSE APPLYING THE PURPOSE TEST THE INCENTI VE / SUBSIDY WAS GIVEN 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 PROFIT ON DAY - TO - DAY BUSINESS . THIS PROPOSIT ION 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 & CHEM ICALS 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 . SIMILARLY, VIEW S HAVE BEEN TAKEN BY THE VARIOUS OTHER HIGH COURTS AND TRIBUNAL IN THE DECISION AS REFER RED 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 THE 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 THE 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 AND HENCE IT DOES NOT FALL WITHIN THE PURVIEW OF EXPLANATION 10 TO SECTION 43(1). THUS, THIS ALTERNATIVE PLEA AS RAISED BY LD. AO IS REJECTED. M/S WELSPUN STEEL LTD ITA : 7630 /MUM/201 1 ITA : 8294 /MUM/201 1 ITA S : 6371 TO 6376 /MUM/2014 ITA S : 6304 TO 6308 /MUM/2014 11 ACCORDINGLY, THE GROUND RAISED BY THE REVENUE ON THIS SCORE STANDS DISMISSED. 15. IN GROUND NO. 2, THE REVENUE HAS CHALLENGE D THE ALLOW ING OF CLAIM OF PRIOR PERIOD EXPENSES TO THE EXTENT OF RS. 83,55,000/ - . 16. FROM THE PERUSAL OF THE IMPUGNED ORDER WE FIND THAT, THESE ISSUES HAVE NOT BEEN DISCUSSED IN DETAILS EITHER BY THE AO OR BY THE CIT(A). BEFORE US, THE LD. COUNSEL SUBMI TTED THAT, THE ASSESSEE HAS GIVEN A DETAILED SUBMISSIONS WITH REGARD TO THE PRIOR PERIOD EXPENSES WHICH HAVE BEEN NOTED BY THE CIT(A) IN PARA 4.1. HOWEVER, THE LD. CIT(A) HAVE FAILED TO APPRECIATE THE ISSUE IN A PROPER PROSPECTIVE. IN THE ASSESSMENT YEAR 2 006 - 07, THE TRIBUNAL HAS SET ASIDE THIS ISSUE TO THE FILE OF THE AO. LD. DR ALSO ADMITTED THAT THE MATTER RELATING TO PRIOR PERIOD EXPENSES WHICH HAS BEEN RAISED BY THE REVENUE AS WELL AS BY THE ASSESSEE IN THE CROSS APPEAL SHOULD BE SET ASIDE TO THE FILE OF THE AO. 17. ACCORDINGLY, IN VIEW OF THE SUBMISSIONS MADE BY BOTH THE PARTIES, WE ARE OF THE OPINION THAT THE WHOLE ISSUE RELATING TO PRIOR PERIOD EXPENSES , AS RAISED BY THE DEPARTMENT VIDE GROUND NO. 1 & 2 AND BY THE ASSESSEE VIDE GROUND NO. 1 IS SET ASIDE TO THE FILE OF THE AO TO BE DECIDED AFRESH AFTER GIVING DUE OPPORTUNITY TO REPRESENT ITS CASE. ACCORDINGLY, APPEAL AS RAISED BY THE REVENUE AND THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 7630 /MUM/201 1 ASSESSEES APPE AL FOR AY 200 7 - 0 8 : 18 . IN ASSESSEES APPEAL FOR AY 2007 - 08 , S O FAR AS GROUND NO. 1 WHICH RELATES TO THE PRIOR PERIOD EXPENSES IS CONCERNED , THE SAME HAS BEEN SET ASIDE TO THE FILE OF THE AO WHILE ADJUDICATING THE REVENUES APPEAL IN ITA 8294/MUM/2011 FOR AY 2007 - 08 AND THEREFORE , THIS GROUND IS ALSO SET ASIDE THE TO THE FILE OF THE AO. M/S WELSPUN STEEL LTD ITA : 7630 /MUM/201 1 ITA : 8294 /MUM/201 1 ITA S : 6371 TO 6376 /MUM/2014 ITA S : 6304 TO 6308 /MUM/2014 12 ACCORDINGLY, GROUND NO. 1 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 19 . SO FAR AS GROUND NO. 2 IS CONCERNED, IT RELATES TO LEVY OF INTEREST U/S 234B & 234C, WHICH IS CONSEQUENTIAL IN NATURE AND HENCE NO ADJUDICATION IS CALLED FOR AND SAME IS DISMISSED AS SUCH. 20 . SO FAR AS GROUND NO. 3 WITH REGARD TO PENALTY PROCEEDINGS U/S 271(1)(C) IS CONCERNED, THE SAME IS PREMATURE AND HENCE NEED NOT BE ADJUDICATED AND ACCORDING LY , THE SAME IS DISMISSED AS PREMATURE. 21 . IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 637 2 /MUM/2014 ASSESSEES APPEAL FOR AY 200 7 - 0 8 : 22 . THIS APPEAL IS ARISING IN RELATION TO QUANTUM OF ASSESSMENT PASSED U/S 143(3) R.W.S. 153A. IN ITS APPEAL, THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - THE GROUND OR GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO ONE ANOTHER. 1.A) ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT(A) ERRED IN CONFIRMING THE ADDITION TO THE EXTENT OF 43,35,322/ - MADE BY THE AO TO THE INCOME OF THE APPELLANT BY WAY OF DISALLOWING PRIOR PERIOD EXPENSES. B) THE ID. CIT(A) FAILED TO APPRECIATE THAT: - (I) THESE EXPENSES HAVE BEEN CRYSTALLIZED DURING THE PREVIOUS Y EAR AND AS SUCH DEDUCTION FOR THE SAME IS ALLOWABLE; AND (II) NO DEDUCTION OF THESE EXPENSES WAS EITHER CLAIMED OR ALLOWED IN THE PRECEDING PREVIOUS YEAR 2. THE L D. CIT(A) ERRED IN HOLDING THAT THE ISSUE OF INTEREST 234B AND 234C OF THE INCOME TAX ACT, 1 961 IS CONSEQUENTIAL. THE APPELLANT DENIES ITS LIABILITY FOR SUCH INTEREST. 3. THE L D. CIT(A) ERRED IN HOLDING THAT THE GROUND RAISED DISPUTING INITIATION OF PENALTY PROCEEDINGS U/S.271(1)(C) OF THE INCOME TAX ACT, 1961 IS PRE - MATURE. THE APPELLANT DENIES ITS LIABILITY FOR SUCH PENALTY. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR DELETE ANY OR ALL OF THE ABOVE GROUNDS OF APPEAL. M/S WELSPUN STEEL LTD ITA : 7630 /MUM/201 1 ITA : 8294 /MUM/201 1 ITA S : 6371 TO 6376 /MUM/2014 ITA S : 6304 TO 6308 /MUM/2014 13 23 . THE ISSUE IN GROUND NO. 1 RELATES TO PRIOR PERIOD EXPENSES, WHICH WE HAVE ALREADY SET ASIDE TO THE FILE OF THE AO, THEREFORE, THIS ISSUE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 24 . FURTHER, I T IS ALSO MADE AMPLY CLEAR THAT, THESE ADDITIONS CAN BE MADE ONLY IN ONE ASSESSMENT ONLY, IF AT ALL , AND CANNOT BE ROPED IN BOTH THE ASSESSMENT. 25 . GROUND NO. 2 IS WIT H REGARDS LEVY OF INTEREST UNDER SECTION 234B AND 234C, THE SAME IS CONSEQUENTIAL IN NATURE. 26 . GROUND NO. 3 IS WITH REGARD TO PENALTY PROCEEDINGS U/S 271(1)(C), THE SAME IS PREMATURE AND DOES NOT CALL FOR ANY INTERFERENCE AND SAME IS DISMISSED AS SUCH. 27 . IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 6304 /MUM/2014 R E VENUE S APPEAL FOR AY 200 7 - 0 8 : 28 . THE REVENUE IN THE CROSS APPEAL IN RELATION TO THE QUANTUM OF ASSESSMENT U/S 143(3) R.W.S. 153A HAS RAISED FOLL OWING GROUNDS OF APPEAL: - 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION BY WAY OF A SUM OF RS. 35,33,23,171/ - MADE BY THE AO RELATING TO INCENTIVES RECEIVED FROM GOVERNMENT AS REVENUE R ECEIPTS. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1,26,90,512/ - MADE BY THE AO BY DISALLOWING PRIOR PERIOD EXPENDITURE AS CLAIMED BY THE ASSESSEE. 29 . SINCE THESE IDENTIC AL ISSUES HAVE ALREADY BEEN DECIDED IN REVENUES APPEAL IN ITA NO. 8274/MUM/2011 FOR AY 2007 - 08 THEREFORE, IN VIEW OF THE FINDING GIVEN THEREIN, THE GROUND NO. 1 IS DISMISSED AND GROUND NO.2 IS ALLOWED FOR STATISTICAL PURPOSES. M/S WELSPUN STEEL LTD ITA : 7630 /MUM/201 1 ITA : 8294 /MUM/201 1 ITA S : 6371 TO 6376 /MUM/2014 ITA S : 6304 TO 6308 /MUM/2014 14 THUS, THE REVENUES APPEAL I S TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 6371/MUM/2014 ASSESSEES APPEAL FOR AY 2006 - 07 : 30 . IN ASSESSEES APPEAL FOR AY 2006 - 07 FOLLOWING GROUNDS HAVE BEEN RAISED: - THE GROUND OR GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO ONE ANOT HE R. 1 A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE L D. CIT(A) ERRED IN CONFIRMING INITIATION OF THE ASSESSMENT PROCEEDINGS AND COMPLETION OF THE ASSESSMENT U/S.143(3) R.W.S. 153A BY AO WHICH IS WITHOUT JURISDICTION AND BAD IN LAW AS THE JURISDICTION U/S.153A IS VITIATED. B) THE LD . CIT(A) FAILED TO APPRECIATE THAT NO INCRIMINATING MATERIAL WAS FOUND DURING THE COURSE OF SEARCH FOR COMPLETION OF ASSESSMENT U/S.143(3) R.W.S. 153A. 2 A) ON THE FACT AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE ID. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO BY BRINGING TO TAX INCENTIVES OF 19,23,83,694/ - GRANTED BY THE GOVERNMENTS FOR SETTING UP A UNIT IN KUTCH DISTRICT AS REVENUE RECEIPTS WITHOUT ANY REASON THOUGH THE SAME WAS ALLOWED BY THE ID. CIT(A) - 18, MUMBAI AS CAPITAL RECEIPTS AND ON SECOND APPEAL BY THE DEPARTMENT THE ITAT, MUMBAI HAS SET ASIDE THE ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION BOTH IN PURSUANCE TO THE ORIGINAL ASSESSMENT COMPLETED U/ S. 143(3). B) THE ID. CIT (A) FAILED TO APPRECIATE THAT: - (I) IN FILING THE RETURN OF INCOME IN PURSUANCE TO NOTICE U/S.153A, THE APPELLANT DUE TO BONA FIDE MISTAKE FAILED TO CLAIM THE SUBSIDIES AS CAPITAL RECEIPTS THOUGH THE SAME WAS CLAIMED DURING THE COURSE OF ORIGINAL ASSESSMEN T PROCEEDINGS; II) THE AO IS DUTY BOUND TO DETERMINE THE TAXABLE INCOME AND TAX CHARGEABLE FROM AN ASSESSEE STRICTLY AS PER LAW, IRRESPECTIVE OF C OMMISSION OR MISTAKE OF AN ASSESSEE; III) IF ON THE BASIS OF MATERIAL PLACED ON RECORD AN ASSESSEE WAS E NTITLED TO CLAIM CERTAIN RELIEF THEN THE APPELLATE AUTHORITY SHOULD ALLOW THE SAME; IV) EVEN, IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY, A FRESH CLAIM CAN BE ADMITTED AS DECIDED BY THE APEX COURT. V) EVEN OTHERWISE NON GRANTING OF SUCH RELIEF WOU LD AMOUNT TO MISTAKE APPARENT FROM RECORD. C) IN REACHING TO THE CONCLUSION AND NOT DISALLOWING THE CLAIM OF THE APPELLANT, THE LD. CIT(A) OMITTED TO CONSIDER RELEVANT FACTORS, CONSIDERATIONS, PRINCIPLES AND EVIDENCES WHILE HE WAS OVERWHELMED, INFLUENCED AND PREJUDICED BY IRRELEVANT CONSIDERATIONS AND FACTORS. M/S WELSPUN STEEL LTD ITA : 7630 /MUM/201 1 ITA : 8294 /MUM/201 1 ITA S : 6371 TO 6376 /MUM/2014 ITA S : 6304 TO 6308 /MUM/2014 15 3. THE LD. CIT(A) ERRED IN NOT DISPOSING OFF THE GROUND NO.3 RAISED DISPUTING LEVY OF INTEREST U/S 234B, 234C, 234D AND 220(2) OF THE INCOME TAX ACT, 1961. THE APPELLANT DENIES ITS LIABILITY FOR SU CH INTEREST. 31 . SO FAR AS ISSUE RAISED IN GROUND NO.2, THE SAME HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN THE APPEAL FOR THE ASSESSMENT YEAR 2007 - 08 AND ACCORDINGLY , THIS GROUND RAISED BY THE ASSESSEE IS TREATED AS ALLOWED AND AO IS DIRECTED T O TREAT THE SUBSIDY / INCENTIVE RECEIVED FROM THE GOVERNMENT AS A CAPITAL RECEIPTS. 3 2. SO FAR AS ISSUE RELATING TO GROUND NO. 1, THE SAME HAS BECOME PURELY ACADEMIC AS THE ADDITION ON MERITS STANDS DELETED. 33 . AS REGARDS GROUND NO. 3 IS LEVY OF INTERES T WHICH HAVE BEEN ADMITTED BY BOTH THE PARTIES THA T IT IS CONSEQUENTIAL IN NATURE, HENCE IT IS DISMISSED. 34 . IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 637 3 /MUM/2014 ASSESSEES APPEAL FOR AY 200 8 - 0 9 : 3 5 . IN ITS APPEAL, THE ASSESSEE HAVE RAISED FOLLOWING GROUNDS OF APPEAL: - THE GROUND OR GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO ONE ANOTHER. 1.A) ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A), HAVING ACCEPTED THE CLAIM OF THE APPELLANT IN RESPECT OF INCENTIVES OF 46,52,53,662/ - GRANTED BY THE GOVERNMENTS FOR SETTING UP A UNIT IN KUTCH DISTRICT AS CAPITAL RECEIPTS, ERRED IN HOLDING THAT SUCH INCENTIVES SHALL BE REDUCED FROM THE COST OF THE ASSET AND DEPRECIATION THEREON BE A LLOWED ON NET VALUE/COST OF ASSET IN TERMS OF EXPLANATION 10 TO SECTION 43(1). B) THE LD. CIT(A) FAILED TO APPRECIATE THAT: - (I) THE OBJECT BEHIND GRANT OF THESE SUBSIDIES SHOWS BEYOND DOUBTS THAT THESE SUBSIDIES ARE NOT INTENDED TO MEET, DIRECTLY OR IND IRECTLY, THE COST OF NEW INVESTMENT NOR RELATABLE TO ASSETS ACQUIRED; ( III ) WHERE SUBSIDY RECEIVED ON CAPITAL ACCOUNT IS NOT AT ALL INTENDED TO MEET, DIRECTLY OR INDIRECTLY, THE COST OF ASSETS, IRRESPECTIVE OF THE FACT THAT SUBSIDY GIVEN IS QUANTIFIED WITH REFE RENCE TO THE COST OF VARIOUS ASSETS, THEN SUCH SUBSIDY IS NOT REQUIRED TO BE REDUCED FROM THE COST OF VARIOUS ASSETS SINCE THE SUBSIDIES ARE RECEIVED FOR ENCOURAGING INVESTMENT IN BACKWARD AREA; AND M/S WELSPUN STEEL LTD ITA : 7630 /MUM/201 1 ITA : 8294 /MUM/201 1 ITA S : 6371 TO 6376 /MUM/2014 ITA S : 6304 TO 6308 /MUM/2014 16 ( IV ) IN THE CASES OF SUBSIDIES BY WAY OF INCENTIVE/SUBSIDY IN THE FORM OF REIMBURSEMENT OF TAX GIVEN TO THE UNITS FOR THE REASON OF PROMOTION OF INDUSTRIAL DEVELOPMENT IN THE STATE OR FOR ECONOMIC DEVELOPMENT OF CERTAIN INDUSTRIES IN A STATE OR FOR GENERATION OF EMPLOYMENT AND NOT TO REIMBURSE THE COST OF ANY FIXE D ASSET, THE AMOUNT SO RECEIVED CANNOT BE REDUCED FROM THE ACTUAL COST. C) IN REACHING TO THE CONCLUSION AND HOLDING SO, THE LD. CIT(A) OMITTED TO CONSIDER RELEVANT FACTORS, CONSIDERATIONS, PRINCIPLES AND EVIDENCES WHILE HE WAS OVERWHELMED, INFLUEN CED AND PREJUDICED BY IRRELEVANT CONSIDERATIONS AND FACTORS. 2.A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 1,39,730/ - (SUBJECT TO CERTAIN RELIEF) MADE BY THE AO TO THE INCOME OF T HE APPELLANT BY WAY OF DISALLOWING CERTAIN EXPENDITURE CLAIMED TO HAVE BEEN INCURRED RELATING TO EXEMPT INCOME INVOKING THE PROVISIONS OF SECTION 14A. B) THE L D. CIT(A) FAILED TO APPRECIATE THAT - (I) HAVING REGARD TO THE ACCOUNTS THERE IS NO REAS ON AND BASIS IN REACHING TO DIS SATISFACTION WITH THE CORRECTNESS OF THE CLAIM OF THE APPELLANT THAT NO EXPENDITURE WAS INCURRED IN RELATION TO DIVIDEND INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME; (II) THE DISALLOWANCE WORKED OUT BY THE AO U/S. 14A IS EXC ESSIVE AND UNREASONABLE; AND (III) THE AO HAS COMMITTED CERTAIN MISTAKES IN WORKING OUT THE DISALLOWABLE PART OF SUCH EXPENSES. C) IN REACHING TO THE CONCLUSION AND CONFIRMING SUCH ADDITION THE ID. CIT(A) OMITTED TO CONSIDER RELEVANT FACTORS, CONSIDERATIO NS, PRINCIPLES AND EVIDENCES WHILE HE WAS OVERWHELMED, INFLUENCED AND PREJUDICED BY IRRELEVANT CONSIDERATIONS AND FACTORS. 3. THE L D. CIT(A) ERRED IN HOLDING THAT LEVY OF INTEREST U/S.234B AND 234C OF THE INCOME TAX ACT, 1961 IS CONSEQUENTIAL. THE APPELLAN T DENIES ITS LIABILITY FOR SUCH INTEREST. 4. THE L D. CIT(A) ERRED IN HOLDING THAT THE GROUND RAISED DISPUTING INITIATION OF PENALTY PROCEEDINGS U/S.271(1)(C) OF THE INCOME TAX ACT, 1961 IS PREMATURE. THE APPELLANT DENIES ITS LIABILITY FOR SUCH PENALTY . 36 . G ROUND NO. 1 IS SIMILAR TO THE GROUNDS RAISED IN THE EARLIER APPEALS AND, THEREFORE, IN VIEW OF THE FINDINGS GIVEN ABOVE, GROUND NO. 1 IS ALLOWED IN FAVOUR OF THE ASSESSEE. 37 . IN GROUND NO.2 THE ASSESSEE HAS MAINLY CHALLENGED DISALLOWANCE U/S 14A FOR RS. 1,39, 730/ - . 38 . BRIEF FACTS ARE THAT, THE ASSESSEE HAD MADE INVESTMENT IN SHARES AND MUTUAL FUNDS AGGREGATING TO RS. 69,03,142/ - . THE ASSESSEES HAD NOT ATTRIBUTED ANY EXPENDITURE TOWARDS SUCH M/S WELSPUN STEEL LTD ITA : 7630 /MUM/201 1 ITA : 8294 /MUM/201 1 ITA S : 6371 TO 6376 /MUM/2014 ITA S : 6304 TO 6308 /MUM/2014 17 INVESTMENT ACTIVITY. THE AO WORKED OUT THE DISALLOWANCE U /S 14A R.W. RULE 8D AT RS. 1,39,730/ - AS PER THE WORKING GIVEN AT PAGE 13 OF THE ASSESSMENT ORDER WHICH CONSISTS OF DISALLOWANCE OF INTEREST OF RS. 1,22,357/ - AND INDIRECT EXPENSES OF RS. 17,373/ - WHICH WAS WORKED OUT ON THE BASIS OF 0 .5% OF AVERAGE VALUE OF INVESTMENT. THE ASSESSEES CASE HAS BEEN THAT, IT HAS MADE INVESTMENT IN THE SHARES OF THE GROUP COMPANIES FOR ACQUIRING CONTROL INTEREST AND THEREFORE, ARE IN THE NATURE STRATEGIC INVESTMENT AND NOT FOR EARNING DIVIDEND INCOME, THEREFORE, SUCH SHARES CANNOT BE TREATED AS INVESTMENT FOR THE PURPOSE OF DISALLOWANCE U/S 14A . 39 . THE ASSESSEES SUBMISSIONS HAS BEEN DEALT BY THE CIT(A) IN PARA 9.2. HOWEVER, HE REJECTED THE MOST OF THE CONTENTIONS AND HELD THAT AO SHOULD EXCLUDE THE DISCOUNTING AND BANKIN G CHARGES OF RS. 7,43,909/ - WHILE CALCULATING THE DISALLOWANCE OF INTEREST. 40 . BEFORE US, THE LD. COUNSEL SUBMITTED THAT, ASSESEES OWN FUNDS WERE FAR EXCESS THEN THE INVESTMENTS MADE, THEREFORE, NO DISALLOWANCE OF INTEREST COULD HAVE BEEN MADE. FURTHER, THE INTEREST WERE PAID ON THE SPECIFIC BORROWINGS LIKE FOREIGN CURRENCY, TERM LOAN ETC. THUS, DISALLOWANCE OF INTEREST SHOULD NOT BE MADE. FURTHER THE EXEMPT INCOME IS ONLY RS. 100/ - THEREFORE, SUCH A DISALLOWANCE IS NOT JUSTIFIED IN VIEW OF THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CHEM I NVEST LIMITED V CIT , REPORTED IN 378 ITR 33 . 41 . ON THE OTHER HAND, LD. DR RELIED UPON THE ORDER OF THE CIT(A). 42 . AFTER CONSIDERING THE RIVAL SUBMISSIONS AND ON PERUSAL OF THE MATERIALS ON RECORD, WE AGR EE IN PRINCIPLE WITH THE LD. COUNSEL THAT IN CASE , ASSESSEE HAS OWN SURPLUS FUND WHICH ARE IN FAR EXCESS OF INVESTMENT MADE , THEN NO DISALLOWANCE OF INTEREST SHOULD M/S WELSPUN STEEL LTD ITA : 7630 /MUM/201 1 ITA : 8294 /MUM/201 1 ITA S : 6371 TO 6376 /MUM/2014 ITA S : 6304 TO 6308 /MUM/2014 18 BE MADE AND THIS VIEW STANDS COVERED BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE C ASE OF HDFC BANK LTD., REPORTED IN 366 ITR 505 (BOM) . A CCORDINGLY, THE AO IS DIRECTED TO VERIFY THIS CONTENTION AND GRANT RELIEF SO FAR AS INTEREST DISALLOWANCE IS CONCERNED. FURTHER, THE AO IS ALSO DIRECTED TO APPLY THE PRINCIPLES LAID DOWN BY DELHI HIGH COURT IN THE CASE CHEM INVEST INASMUCH AS IF THERE IS NO EXEMPT INCOME THEN , NO DISALLOWANCE SHOULD BE MADE. ACCORDINGLY, WITH THIS DIRECTION THIS GROUND RAISED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 43 . AS REGARDS GROUND N O. 3, WHICH IS CONSEQUENTIAL IN NATURE AND GROUND NO. 4 IS PREMATURE. 4 4 . IN THE RESULT OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 6305 /MUM/2014 R E VENUE S APPEAL FOR AY 200 8 - 0 9 : 45 . THE REVENUE HAS RAISED FOLLOWING GROUNDS OF AP PEAL: - 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION BY WAY OF A SUM OF RS. 46 , 52 , 53 , 662 / - MADE BY THE AO RELATING TO INCENTIVES RECEIVED FROM GOVERNMENT AS REVENUE RECEIPTS. 2. 'WHETH ER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A)HAS ERRED IN EXCLUDING THE DISCOUNTING AND BANKING CHARGES OF RS. 7,43,909/ - WHILE TAKING THE FIGURE OF INTEREST FOR COMPUTATION OF DISALLOWANCE U/S 14A OF THE IT ACT . ' WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF DISALLOWANCE OF RS. 1,39,730/ - MADE BY THE AO TO THE BOOK PROFIT U/S 14A R.W.S. RULE 8. '. 46 . GROUND NO. 1 HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSE SSEE ACCORDINGLY, THE SAME IS TREATED AS DISMISSED. 47 . GROUND NO. 2, WE HAVE ALREADY GIVEN DIRECTION TO THE AO WHILE DEALING WITH THE SIMILAR GROUND IN EARLIER APPEALS AND ACCORDINGLY GROUND NO. 2 RAISED BY THE REVENUE IS TREATED AS PARTLY ALLOWED FOR ST ATISTICAL PURPOSES. M/S WELSPUN STEEL LTD ITA : 7630 /MUM/201 1 ITA : 8294 /MUM/201 1 ITA S : 6371 TO 6376 /MUM/2014 ITA S : 6304 TO 6308 /MUM/2014 19 48 . AS REGARDS DISALLOWANCE U/S 14A WHILE COMPUTING THE BOOK PROFIT, THE SAME IS ADMITTEDLY CONSEQUENTIAL IN NATURE IN VIEW OF THE VARIOUS DECISIONS OF THE TRIBUNAL AND DELHI HIGH COURT I N THE CASE OF GOETZ INDIA. ACCORDINGLY, THE BOOK PROFIT WOULD BE CALCULATED AFTER TAKING INTO ACCOUNT THE DISALLOWANCE U/S 14A IF AT ALL , IS BEING WORKED OUT BY THE AO. 49. THUS, THE REVENUES APPEAL IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 637 4 /MUM/2014 ASSESSEES APPEAL FOR AY 200 9 - 1 0 : 50 . IN THE SAID APPEAL, THE ASSESSEE HA S RAISED FOLLOWING GROUNDS OF APPEAL: - THE GROUND OR GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO ONE ANOTHER. 1.A) ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A), HAVING ACCE PTED THE CLAIM OF THE APPELLANT IN RESPECT OF INCENTIVES OF 34 ,5 7 , 67 , 19 2/ - GRANTED BY THE GOVERNMENTS FOR SETTING UP A UNIT IN KUTCH DISTRICT AS CAPITAL RECEIPTS, ERRED IN HOLDING THAT SUCH INCENTIVES SHALL BE REDUCED FROM THE COST OF THE ASSET AND DEPRECI ATION THEREON BE ALLOWED ON NET VALUE/COST OF ASSET IN TERMS OF EXPLANATION 10 TO SECTION 43(1). B) THE LD. CIT(A) FAILED TO APPRECIATE THAT: - (I) THE OBJECT BEHIND GRANT OF THESE SUBSIDIES SHOWS BEYOND DOUBTS THAT THESE SUBSIDIES ARE NOT INTENDED TO MEE T, DIRECTLY OR INDIRECTLY, THE COST OF NEW INVESTMENT NOR RELATABLE TO ASSETS ACQUIRED; ( V ) WHERE SUBSIDY RECEIVED ON CAPITAL ACCOUNT IS NOT AT ALL INTENDED TO MEET, DIRECTLY OR INDIRECTLY, THE COST OF ASSETS, IRRESPECTIVE OF THE FACT THAT SUBSIDY GIVEN IS QU ANTIFIED WITH REFERENCE TO THE COST OF VARIOUS ASSETS, THEN SUCH SUBSIDY IS NOT REQUIRED TO BE REDUCED FROM THE COST OF VARIOUS ASSETS SINCE THE SUBSIDIES ARE RECEIVED FOR ENCOURAGING INVESTMENT IN BACKWARD AREA; AND ( VI ) IN THE CASES OF SUBSIDIES BY WAY OF INCENTIVE/SUBSIDY IN THE FORM OF REIMBURSEMENT OF TAX GIVEN TO THE UNITS FOR THE REASON OF PROMOTION OF INDUSTRIAL DEVELOPMENT IN THE STATE OR FOR ECONOMIC DEVELOPMENT OF CERTAIN INDUSTRIES IN A STATE OR FOR GENERATION OF EMPLOYMENT AND NOT TO REIMBURSE TH E COST OF ANY FIXED ASSET, THE AMOUNT SO RECEIVED CANNOT BE REDUCED FROM THE ACTUAL COST. C) IN REACHING TO THE CONCLUSION AND HOLDING SO, THE LD. CIT(A) OMITTED TO CONSIDER RELEVANT FACTORS, CONSIDERATIONS, PRINCIPLES AND EVIDENCES WHILE HE WAS OVE RWHELMED, INFLUENCED AND PREJUDICED BY IRRELEVANT CONSIDERATIONS AND FACTORS. 2.A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 28 , 05 ,0 70 / - MADE BY THE AO TO THE INCOME OF THE APPELLA NT BY WAY OF DISALLOWING CERTAIN EXPENDITURE CLAIMED TO HAVE BEEN INCURRED RELATING TO EXEMPT INCOME INVOKING THE PROVISIONS OF SECTION 14A. M/S WELSPUN STEEL LTD ITA : 7630 /MUM/201 1 ITA : 8294 /MUM/201 1 ITA S : 6371 TO 6376 /MUM/2014 ITA S : 6304 TO 6308 /MUM/2014 20 B) THE L D. CIT(A) FAILED TO APPRECIATE THAT - (I) HAVING REGARD TO THE ACCOUNTS THERE IS NO REAS ON AND BASIS IN R EACHING TO DIS SATISFACTION WITH THE CORRECTNESS OF THE CLAIM OF THE APPELLANT THAT NO EXPENDITURE WAS INCURRED IN RELATION TO DIVIDEND INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME; (II) THE DISALLOWANCE WORKED OUT BY THE AO U/S. 14A IS EXCESSIVE AND UNREASONABLE; AND (III) THE AO HAS COMMITTED CERTAIN MISTAKES IN WORKING OUT THE DISALLOWABLE PART OF SUCH EXPENSES. C) IN REACHING TO THE CONCLUSION AND CONFIRMING SUCH ADDITION THE ID. CIT(A) OMITTED TO CONSIDER RELEVANT FACTORS, CONSIDERATIONS, PRINCI PLES AND EVIDENCES WHILE HE WAS OVERWHELMED, INFLUENCED AND PREJUDICED BY IRRELEVANT CONSIDERATIONS AND FACTORS. 3 A . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 1,52,132/ - , MADE BY T HE AO TO THE INCOME OF THE APPELLANT BY WAY OF DISALLOWING PRIOR PERIOD EXPENDITURE. B) THE LD. CIT(A) FAILED TO APPRECIATE THAT THE EXPENSES HAVE BEEN CRYSTALLIZED DURING THE PREVIOUS YEAR AND AS SUCH DEDUCTION FOR THE SAME IS ALLOWABLE. 4. THE L D. CIT (A) ERRED IN HOLDING THAT LEVY OF INTEREST U/S.234B AND 234C OF THE INCOME TAX ACT, 1961 IS CONSEQUENTIAL. THE APPELLANT DENIES ITS LIABILITY FOR SUCH INTEREST. 5 . THE L D. CIT(A) ERRED IN HOLDING THAT THE GROUND RAISED DISPUTING INITIATION OF PENALTY PROC EEDINGS U/S.271(1)(C) OF THE INCOME TAX ACT, 1961 IS PREMATURE. THE APPELLANT DENIES ITS LIABILITY FOR SUCH PENALTY . 51 . FROM THE PERUSAL OF THE AFORESAID GROUNDS, IT IS QUITE CLEAR THAT THEY ARE SIMILAR TO GROUNDS RAISED IN AYS 2007 - 08 & 2008 - 09, THEREF ORE, IN VIEW OF THE FINDING GIVEN THEREIN, WHICH WILL APPLY MUTATIS MUTANDIS HERE IN THIS APPEAL ALSO BEING IDENTICAL ON FACTS, THE GROUNDS RAISED ARE DECIDED ACCORDINGLY. IN THE RESULT, GROUND NO. 1 IS ALLOWED IN FAVOUR OF THE ASSESSEE ; GROUND NO. 2 IS P ARTLY ALLOWED IN VIEW OF THE DIRECTIONS GIVEN IN AY 2008 - 09 ; GROUND NO. 3 IS SET ASIDE TO THE FILE OF THE AO IN VIEW OF THE DIRECTIONS GIVEN IN AY 2007 - 08 ; GROUND NO. 4 IS CONSEQUENTIAL AND GROUND NO.5 IS PREMATURE. THUS, THE APPEAL IS TREATED AS PARTLY AL LOWED FOR STATISTICAL PURPOSES . ITA NO. 6306 /MUM/2014 REVENUES APPEAL FOR AY 200 9 - 1 0 : 52 . THE FOLLOWING GROUNDS HAVE BEEN RAISED BY THE REVENUE: - M/S WELSPUN STEEL LTD ITA : 7630 /MUM/201 1 ITA : 8294 /MUM/201 1 ITA S : 6371 TO 6376 /MUM/2014 ITA S : 6304 TO 6308 /MUM/2014 21 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION BY WAY OF A SUM OF RS. 34,57,67,192/ - MADE BY THE AO RELATING TO INCENTIVES RECEIVED FROM GOVERNMENT AS REVENUE RECEIPTS. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF R S. 28,05,070/ - MADE BY THE AO TO THE BOOK PROFIT U/S 14A READ WITH RULE 8. 5 3 . FROM THE PERUSAL OF THE AFORESAID GROUNDS, THEY ARE SIMILAR TO GROUNDS RAISED IN AYS 2007 - 08 & 2008 - 09, IN VIEW OF THE FINDING GIVEN THEREIN, WHICH WILL APPLY MUTATIS MUTANDI S HERE IN THIS APPEAL ALSO BEING IDENTICAL ON FACTS, THEREFORE, GROUNDS ARE DECIDED ACCORDINGLY. 5 4 . IN THE RESULT, GROUND NO. 1 IS DISMISSED AND GROUND NO. 2 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ITA NO. 637 5 /MUM/2014 ASSESSEES APPEAL FOR AY 20 1 0 - 11 : 5 5 . IN ITS APPEAL, THE ASSESSEE HAVE RAISED FOLLOWING GROUNDS OF APPEAL: - THE GROUND OR GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO ONE ANOTHER. 1.A) ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A), HAVING ACCEPTED THE CLAIM OF THE APPELLANT IN RESPECT OF INCENTIVES OF 19,8571,842 / - GRANTED BY THE GOVERNMENTS FOR SETTING UP A UNIT IN KUTCH DISTRICT AS CAPITAL RECEIPTS, ERRED IN HOLDING THAT SUCH INCENTIVES SHALL BE REDUCED FROM THE COST OF THE ASSET AND DEPRECIATION THER EON BE ALLOWED ON NET VALUE/COST OF ASSET IN TERMS OF EXPLANATION 10 TO SECTION 43(1). B) THE LD. CIT(A) FAILED TO APPRECIATE THAT: - (I) THE OBJECT BEHIND GRANT OF THESE SUBSIDIES SHOWS BEYOND DOUBTS THAT THESE SUBSIDIES ARE NOT INTENDED TO MEET, DIRECTL Y OR INDIRECTLY, THE COST OF NEW INVESTMENT NOR RELATABLE TO ASSETS ACQUIRED; (II) WHERE SUBSIDY RECEIVED ON CAPITAL ACCOUNT IS NOT AT ALL INTENDED TO MEET, DIRECTLY OR INDIRECTLY, THE COST OF ASSETS, IRRESPECTIVE OF THE FACT THAT SUBSIDY GIVEN IS QUANTI FIED WITH REFERENCE TO THE COST OF VARIOUS ASSETS, THEN SUCH SUBSIDY IS NOT REQUIRED TO BE REDUCED FROM THE COST OF VARIOUS ASSETS SINCE THE SUBSIDIES ARE RECEIVED FOR ENCOURAGING INVESTMENT IN BACKWARD AREA; AND (III) IN THE CASES OF SUBSIDIES BY WAY OF INCENTIVE/SUBSIDY IN THE FORM OF REIMBURSEMENT OF TAX GIVEN TO THE UNITS FOR THE REASON OF PROMOTION OF INDUSTRIAL DEVELOPMENT IN THE STATE OR FOR ECONOMIC DEVELOPMENT OF CERTAIN INDUSTRIES IN A STATE OR FOR GENERATION OF EMPLOYMENT AND NOT TO REIMBURSE T HE COST OF ANY FIXED ASSET, THE AMOUNT SO RECEIVED CANNOT BE REDUCED FROM THE ACTUAL COST. M/S WELSPUN STEEL LTD ITA : 7630 /MUM/201 1 ITA : 8294 /MUM/201 1 ITA S : 6371 TO 6376 /MUM/2014 ITA S : 6304 TO 6308 /MUM/2014 22 C) IN REACHING TO THE CONCLUSION AND HOLDING SO, THE LD. CIT(A) OMITTED TO CONSIDER RELEVANT FACTORS, CONSIDERATIONS, PRINCIPLES AND EVIDENCES WHILE HE WAS OVERWHELMED, INFLUENCED AND PREJUDICED BY IRRELEVANT CONSIDERATIONS AND FACTORS. 2.A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.2,25,70,060/ - MADE BY THE AO TO THE INCOME OF THE A PPELLANT BY WAY OF DISALLOWING CERTAIN EXPENDITURE CLAIMED TO HAVE BEEN INCURRED RELATING TO EXEMPT INCOME INVOKING THE PROVISIONS OF SECTION 14A. B) THE L D. CIT(A) FAILED TO APPRECIATE THAT - (I) HAVING REGARD TO THE ACCOUNTS THERE IS NO REAS ON AND BASI S IN REACHING TO DIS SATISFACTION WITH THE CORRECTNESS OF THE CLAIM OF THE APPELLANT THAT NO EXPENDITURE WAS INCURRED IN RELATION TO DIVIDEND INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME; (II) THE DISALLOWANCE WORKED OUT BY THE AO U/S. 14A IS EXCESSI VE AND UNREASONABLE; AND (III) THE AO HAS COMMITTED CERTAIN MISTAKES IN WORKING OUT THE DISALLOWABLE PART OF SUCH EXPENSES. C) IN REACHING TO THE CONCLUSION AND CONFIRMING SUCH ADDITION THE ID. CIT(A) OMITTED TO CONSIDER RELEVANT FACTORS, CONSIDERATIONS, PRINCIPLES AND EVIDENCES WHILE HE WAS OVERWHELMED, INFLUENCED AND PREJUDICED BY IRRELEVANT CONSIDERATIONS AND FACTORS. 3A. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 84,475/ - , MADE BY THE AO TO THE INCOME OF THE APPELLANT BY WAY OF DISALLOWING PRIOR PERIOD EXPENDITURE. B) THE LD. CIT(A) FAILED TO APPRECIATE THAT THE EXPENSES HAVE BEEN CRYSTALLIZED DURING THE PREVIOUS YEAR AND AS SUCH DEDUCTION FOR THE SAME IS ALLOWABLE. 4. THE L D. CIT(A) ERRED IN HOLDING THAT LEVY OF INTEREST U/S.234B AND 234C OF THE INCOME TAX ACT, 1961 IS CONSEQUENTIAL. THE APPELLANT DENIES ITS LIABILITY FOR SUCH INTEREST. 5. THE L D. CIT(A) ERRED IN HOLDING THAT THE GROUND RAISED DISPUTING INITIATION OF PENALTY PROCEEDINGS U/S.271(1)(C) OF THE INCOME TAX ACT, 1961 IS PREMATURE. THE APPELLANT DENIES ITS LIABILITY FOR SUCH PENALTY . 56 . FROM THE PERUSAL OF THE AFORESAID GROUNDS, THEY ARE SIMILAR TO GROUNDS RAISED IN AYS 2007 - 08, 2008 - 09 & 2009 - 10, IN VIEW OF THE F INDING GIVEN THEREIN, WHICH WILL APPLY MUTATIS MUTANDIS HERE IN THIS APPEAL ALSO BEING IDENTICAL ON FACTS, THEREFORE, GROUNDS ARE DECIDED ACCORDINGLY. 57 . IN THE RESULT, GROUND NO. 1 IS ALLOWED IN FAVOUR OF THE ASSESSEE, GROUND NO. 2 IS PARTLY ALLOWED IN VIEW OF THE DIRECTIONS GIVEN IN AY 2008 - 09, GROUND NO. 3 IS SET ASIDE TO THE FILE OF THE AO M/S WELSPUN STEEL LTD ITA : 7630 /MUM/201 1 ITA : 8294 /MUM/201 1 ITA S : 6371 TO 6376 /MUM/2014 ITA S : 6304 TO 6308 /MUM/2014 23 IN VIEW OF THE DIRECTIONS GIVEN IN AY 2007 - 08 AND IT IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES AND GROUND NO. 4 IS CONSEQUENTIAL AND GROUND NO. 5 IS PREMATURE . ITA NO. 630 7 /MUM/2014 REVENUES APPEAL FOR AY 20 1 0 - 1 1 : 58 . THE FOLLOWING GROUNDS HAVE BEEN RAISED BY THE REVENUE: - WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION BY WAY OF DISALLOWIN G A SUM OF RS. 19 , 8 5,7 1 , 84 2/ - MADE BY THE AO RELATING TO INCENTIVES RECEIVED FROM GOVERNMENT AS REVENUE RECEIPTS. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN D ELETING THE ADDITION OF DISALLOWANCE OF RS. 2 ,2 5,70,060/ - MADE BY THE AO TO THE BOOK PROFIT U/S 14A READ WITH RULE 8. 59 . FROM THE PERUSAL OF THE AFORESAID GROUNDS, THEY ARE SIMILAR TO GROUNDS RAISED IN AYS 2007 - 08 , 2008 - 09 & 2009 - 10 , IN VIEW OF THE FINDING GIVEN THEREIN, WHICH WILL APPLY MUTATIS MU TANDIS HERE IN THIS APPEAL ALSO BEING IDENTICAL ON FACTS, THEREFORE, GROUNDS ARE DECIDED ACCORDINGLY. 60 . IN THE RESULT, GROUND NO. 1 IS DISMISSED AND GROUND NO. 2 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ITA NO. 637 6 /MUM/2014 ASSESSEES APPEAL FOR A Y 20 11 - 12 : 61 . IN ITS APPEAL, THE ASSESSEE HAVE RAISED FOLLOWING GROUNDS OF APPEAL: - THE GROUND OR GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO ONE ANOTHER. 1.A) ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A), HAVING ACCEPTED THE CLAIM OF THE APPELLANT IN RESPECT OF INCENTIVES OF 21,07,33,204 / - GRANTED BY THE GOVERNMENTS FOR SETTING UP A UNIT IN KUTCH DISTRICT AS CAPITAL RECEIPTS, ERRED IN HOLDING THAT SUCH INCENTIVES SHALL BE REDUCED FROM THE COST OF THE ASSET AND DEPRECIATION THEREON BE ALLOWED ON NET VALUE/COST OF ASSET IN TERMS OF EXPLANATION 10 TO SECTION 43(1). B) THE LD. CIT(A) FAILED TO APPRECIATE THAT: - (I) THE OBJECT BEHIND GRANT OF THESE SUBSIDIES SHOWS BEYOND DOUBTS THAT THESE SUBSIDIES ARE NOT INTENDED TO MEET, DI RECTLY OR INDIRECTLY, THE COST OF NEW INVESTMENT NOR RELATABLE TO ASSETS ACQUIRED; (II) WHERE SUBSIDY RECEIVED ON CAPITAL ACCOUNT IS NOT AT ALL INTENDED TO MEET, DIRECTLY OR INDIRECTLY, THE COST OF ASSETS, IRRESPECTIVE OF THE FACT THAT SUBSIDY GIVEN IS Q UANTIFIED WITH REFERENCE TO THE COST OF VARIOUS ASSETS, THEN SUCH SUBSIDY IS NOT REQUIRED TO BE REDUCED M/S WELSPUN STEEL LTD ITA : 7630 /MUM/201 1 ITA : 8294 /MUM/201 1 ITA S : 6371 TO 6376 /MUM/2014 ITA S : 6304 TO 6308 /MUM/2014 24 FROM THE COST OF VARIOUS ASSETS SINCE THE SUBSIDIES ARE RECEIVED FOR ENCOURAGING INVESTMENT IN BACKWARD AREA; AND (III) IN THE CASES OF SUBSIDIES BY W AY OF INCENTIVE/SUBSIDY IN THE FORM OF REIMBURSEMENT OF TAX GIVEN TO THE UNITS FOR THE REASON OF PROMOTION OF INDUSTRIAL DEVELOPMENT IN THE STATE OR FOR ECONOMIC DEVELOPMENT OF CERTAIN INDUSTRIES IN A STATE OR FOR GENERATION OF EMPLOYMENT AND NOT TO REIMBU RSE THE COST OF ANY FIXED ASSET, THE AMOUNT SO RECEIVED CANNOT BE REDUCED FROM THE ACTUAL COST. C) IN REACHING TO THE CONCLUSION AND HOLDING SO, THE LD. CIT(A) OMITTED TO CONSIDER RELEVANT FACTORS, CONSIDERATIONS, PRINCIPLES AND EVIDENCES WHILE HE W AS OVERWHELMED, INFLUENCED AND PREJUDICED BY IRRELEVANT CONSIDERATIONS AND FACTORS. 2.A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.12,33,67,994/ - MADE BY THE AO TO THE INCOME OF TH E APPELLANT BY WAY OF DISALLOWING CERTAIN EXPENDITURE CLAIMED TO HAVE BEEN INCURRED RELATING TO EXEMPT INCOME INVOKING THE PROVISIONS OF SECTION 14A. B) THE L D. CIT(A) FAILED TO APPRECIATE THAT - (I) HAVING REGARD TO THE ACCOUNTS THERE IS NO REAS ON AND B ASIS IN REACHING TO DIS SATISFACTION WITH THE CORRECTNESS OF THE CLAIM OF THE APPELLANT THAT NO EXPENDITURE WAS INCURRED IN RELATION TO DIVIDEND INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME; (II) THE DISALLOWANCE WORKED OUT BY THE AO U/S. 14A IS EXCE SSIVE AND UNREASONABLE; AND (III) THE AO HAS COMMITTED CERTAIN MISTAKES IN WORKING OUT THE DISALLOWABLE PART OF SUCH EXPENSES. C) IN REACHING TO THE CONCLUSION AND CONFIRMING SUCH ADDITION THE ID. CIT(A) OMITTED TO CONSIDER RELEVANT FACTORS, CONSIDERATION S, PRINCIPLES AND EVIDENCES WHILE HE WAS OVERWHELMED, INFLUENCED AND PREJUDICED BY IRRELEVANT CONSIDERATIONS AND FACTORS. 3. THE L D. CIT(A) ERRED IN HOLDING THAT LEVY OF INTEREST U/S.234B AND 234C OF THE INCOME TAX ACT, 1961 IS CONSEQUENTIAL. THE APPELLAN T DENIES ITS LIABILITY FOR SUCH INTEREST. 4. THE L D. CIT(A) ERRED IN HOLDING THAT THE GROUND RAISED DISPUTING INITIATION OF PENALTY PROCEEDINGS U/S.271(1)(C) OF THE INCOME TAX ACT, 1961 IS PREMATURE. THE APPELLANT DENIES ITS LIABILITY FOR SUCH PENALTY . 62 . FROM THE PERUSAL OF THE AFORESAID GROUNDS, THEY ARE SIMILAR TO GROUNDS RAISED IN AYS 2007 - 08, 2008 - 09, 2009 - 10 & 2010 - 11, IN VIEW OF THE FINDING GIVEN THEREIN, WHICH WILL APPLY MUTATIS MUTANDIS HERE IN THIS APPEAL ALSO BEING IDENTICAL ON FACTS, THE REFORE, GROUNDS ARE DECIDED ACCORDINGLY. 6 3 . IN THE RESULT, GROUND NO. 1 IS ALLOWED IN FAVOUR OF THE ASSESSEE, GROUND NO. 2 IS PARTLY ALLOWED IN VIEW OF THE DIRECTIONS M/S WELSPUN STEEL LTD ITA : 7630 /MUM/201 1 ITA : 8294 /MUM/201 1 ITA S : 6371 TO 6376 /MUM/2014 ITA S : 6304 TO 6308 /MUM/2014 25 GIVEN IN AY 2008 - 09, GROUND NO. 3 IS CONSEQUENTIAL AND GROUND NO. 4 IS PREMATURE. IT A NO. 6308 /MUM/2014 REVENUES APPEAL FOR AY 20 11 - 12 : 64 . THE FOLLOWING GROUNDS HAVE BEEN RAISED BY THE REVENUE: - WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION BY WAY OF DISALLOWING A SUM OF RS. 21,07,33,204/ - MADE BY THE AO RELATING TO INCENTIVES RECEIVED FROM GOVERNMENT AS REVENUE RECEIPTS. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF DISALLOWANCE OF RS. 12,33,67,9 94/ - MADE BY THE AO TO THE BOOK PROFIT U/S 14A READ WITH RULE 8 AS IT IS EXEMPT INCOME U/S 10 OF W.T. ACT. 6 5 . FROM THE PERUSAL OF THE AFORESAID GROUNDS, THEY ARE SIMILAR TO GROUNDS RAISED IN AYS 2007 - 08, 2008 - 09, 2009 - 10 & 2010 - 11, IN VIEW OF THE FINDI NG GIVEN THEREIN, WHICH WILL APPLY MUTATIS MUTANDIS HERE IN THIS APPEAL ALSO BEING IDENTICAL ON FACTS, THEREFORE, GROUNDS ARE DECIDED ACCORDINGLY. 66 . IN THE RESULT, GROUND NO. 1 IS DISMISSED AND GROUND NO. 2 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. OR DER PRONOUNCED IN THE OPEN COURT ON 18 TH DECEMBER , 2015 . SD/ - SD/ - ( ) ( ) (RAMI T KOCHAR ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 18 TH DEC EMBER , 2015 / COPY TO: - 1 ) / THE APPELLANT. 2 ) / THE RESPONDENT. 3) THE CIT ( A) - 18 , MUMBAI. 4 ) THE CIT 7 , MUMBAI. 5 ) , , / THE D.R. G BENCH, MUMBAI. M/S WELSPUN STEEL LTD ITA : 7630 /MUM/201 1 ITA : 8294 /MUM/201 1 ITA S : 6371 TO 6376 /MUM/2014 ITA S : 6304 TO 6308 /MUM/2014 26 6 ) \ COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . *CHAVAN, SR.PS