Tirupur Industrial Waste Water Recycling Co. Ltd., Tiruppur V. ITO, Tiruppur

ITA 824/CHNY/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7579 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 05-01-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 13-04-2015
• Court: TRIBUNAL
• Assessee Lawyers: T BANUSEKARC A
• Keywords: Business income; Depreciation; Business expenditure; Capital receipt; Unabsorbed depreciation; Revenue expenditure
• Section: 115JB

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , ! ' #! ' $ . %& ' () BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NOS.805 & 806 /MDS./2015 ( / ASSESSMENT YEARS :2010-11 & 2010-11) M/S.NOYYAL COMMON EFFLUENT TREATMENT CO. LTD., SHOP NO.247,PR.COMPLEX, BINNY COMPOUND MAIN ROAD, TIRUPUR 641 601. VS. INCOME TAX OFFICER, WARD I(2), TIRUPUR. PAN AACCN 2584 K ( *+ / APPELLANT ) ( ,-*+ / RESPONDENT ) ./ I.T.A.NOS.823 & 824 /MDS./2015 ( / ASSESSMENT YEARS :2010-11 & 2010-11) M/S.TIRUPUR INDUSTRIAL WASTE WATER RECYCLING CO. LTD., NO.275/2,KUPPANDAMALAYAM, VEERAPADI, TIRUPUR 641 605. VS. INCOME TAX OFFICER, WARD I(6), TIRUPUR. PAN AACCT 4121 C ( *+ / APPELLANT ) ( ,-*+ / RESPONDENT ) / APPELLANT BY : MR.T.BANUSEKAR,C.A / RESPONDENT BY : MR.DEBENDRA N.KAR,CIT, D.R ITA NOS.805, 806/MDS/2015 ITA NOS.823,824/MDS/2015 2 / DATE OF HEARING : 05.01.2016 /DATE OF PRONOUNCEMENT : 24.03.2016 . / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THESE APPEALS FILED BY THE DIFFERENT ASSESSEE ARE DIRECTED AGAINST THE DIFFERENT ORDER OF THE LEARNED COMMISSI ONER OF INCOME TAX(A)-3, COIMBATORE ALL THE ORDERS DATED 23.12.20 14. 2. THE TWO APPEALS BY THE ASSESSEE I.E ITA NOS.805 & 824/MDS./15 ARE TAKEN FIRST FOR ADJUDICATION. THE GROUND RAISED IN THESE APPEALS IS WITH REGARD TO THE ACTION OF THE L D.CIT(A) ON UPHOLDING THE TREATMENT OF INCOME FROM TRIAL RUN R ECEIPTS AS REVENUE RECEIPT INSTEAD OF CAPITAL RECEIPT AND ALSO WITH RE GARD TO TREATMENT OF SUBSIDY RECEIVED FROM GOVERNMENT OF INDIA AS A DEDU CTION FROM COST OF FIXED ASSET. THE OTHER TWO APPEALS I.E ITA NOS.8 06 & 823/MDS./15 IS WITH REGARD TO LEVY OF PENALTY ON THESE ADDITION S U/S.271(1)(C) OF THE ACT. 3.1 FIRST, WE CONSIDER THE ISSUE RELATED TO QUANTUM ADDITION IN ITA NO.805/MDS./2015: THE FACT OF THE CASE IS THAT THE ASSESSEE IS A COMP ANY FORMED WITH THE OBJECTIVE TO ENSURE ZERO LIQUID DISCHARGE OF EF FLUENT ITA NOS.805, 806/MDS/2015 ITA NOS.823,824/MDS/2015 3 WATER RELEASED BY DYEING AND BLEACHING FACTORIES OW NED BY THE SHARE HOLDERS OF THE COMPANY. THE ASSESSEE COMPANY WAS FO RMED AND INCORPORATED IN THE YEAR 2005 BY EXISTING FOUR EFFL UENT WATER TREATMENT COMPANIES WHO WERE IN THE BUSINESS OF RUNNING EFFLU ENT WATER TREATMENT PLANT. THESE COMPANIES JOINED TOGETHER CO NTRIBUTING A CAPITAL OF ` 50,00,000/- DIVIDED INTO 50,000 EQUITY SHARES WITH THE FACE VALUE OF ` 100/- EACH. FIVE INDIVIDUALS WHO ARE THE DIRECTORS OF THE ASSESSEE COMPANY HAVE TAKEN 200 EQUITY SHARES E ACH AND THE REMAINING EQUITY SHARES WERE ALLOTTED TO THE FOUR C OMPANIES. THE INDIVIDUALS, WHO ARE ALLOTTED EQUITY SHARES, ARE DI RECTORS IN THE FOUR COMPANIES ALSO. THE ERSTWHILE COMPANIES HAVE ALSO L EASED THEIR PREMISES TO THE ASSESSEE COMPANY ON A NOMINAL RENT. THE ASSESSEE COMPANY HAS INSTALLED NEW PLANT AND MACHINERIES IN THE LEASED PREMISES: APART FROM THE CAPITAL CONTRIBUTION THE A SSESSEE HAS AVAILED SECURED LOAN FROM BANKS FOR PURCHASE OF PLA NT AND RNACHINERY. THE ASSESSEE HAS ALSO RECEIVED CAPITAL SUBSIDY OF ` 19,19,00,000/ FROM THE GOVERNMENT ON VARIOUS DATES. THE ASSESSEE HAS CLARIFIED TO HAVE COMMENCED OPERATION OF TRIAL RUN OF THE NEW PLANT AND MACHINERY FROM OCTOBER 2008. THE ASSESSEE HAS CLAIMED ITA NOS.805, 806/MDS/2015 ITA NOS.823,824/MDS/2015 4 TO HAVE COMMENCED COMMERCIAL OPERATION OF THE COMPA NY FROM 24.03.2010. INCOME FOR THE CURRENT YEAR HAS BEEN AD MITTED FOR THE PERIOD 24.03.2010 TO 31.03.2010. THE DEPRECIATION F OR PLANT AND MACHINERIES HAS BEEN CLAIMED AT 50% OF ELIGIBLE DEP RECIATION ON THE COST OF PLANT AND MACHINERIES. 3.2 ON EXAMINATION OF BOOKS OF ACCOUNT, LD. ASSESSI NG OFFICER NOTICED THAT THE ASSESSEE HAS PREPARED AND FILED TW O ACCOUNTS FOR THE FINANCIAL YEAR UNDER CONSIDERATION, ONE FOR THE TRI AL PERIOD, ANOTHER FOR COMMERCIAL OPERATION. ACCOUNTS FOR THE PERIOD 01.04 .2009 TO 23.03.2010 WAS SHOWN AS TRIAL PERIOD AND FOR THE CO MMERCIAL OPERATION THE ACCOUNTING PERIOD WAS CLAIMED FROM 24 .03.2010 TO 31.03.2010. IT WAS ALSO NOTICED THAT THE ASSESSEE G ENERATED SURPLUS OF ` 4,64,47,766/- OUT OF THE GROSS RECEIPTS OF ` 40,25,08,572/- DURING THE TRIAL RUNOFF PERIOD UP TO 23.03.2010. THE ASSES SEE HAS ADMITTED GROSS RECEIPT OF ` 90,19,800/- FOR THE PERIOD 24.01.2010 TO 31.03.2010 RETURNING A NET LOSS OF ` 10,99,511/- WITH THE UNABSORBED DEPRECIATION OF ` 83,91,18,651/-. HOWEVER, THE SURPLUS GENERATED DURI NG TRIAL RUN HAS BEEN CAPITALIZED AND SHOWN UNDER THE HEAD RESE RVES AND ITA NOS.805, 806/MDS/2015 ITA NOS.823,824/MDS/2015 5 SURPLUS. WHEN CLARIFICATION WAS SOUGHT ON THE ISSU E, THE REPRESENTATIVE HAS STATED THAT THE EXPENSES HAS BEE N COLLECTED FROM THE SHAREHOLDERS FOR THE ESCALATION OF COST AND ALS O CONTRIBUTION BY THE SHARE HOLDERS AND THE SURPLUS ARISEN DURING THE TRIAL RUN HAS BEEN CAPITALIZED. THE WRITTEN SUBMISSION MADE BY THE ASS ESSEE DATED 05.02.2013 BEFORE AO HAS BEEN REPRODUCED BELOW: THE COMPANY WAS FORMED AS A SPECIAL PURPOSE VEHICL E WITH THE MAIN OBJECTIVE TO TAKE ON LEASE THE EFFLUENT TR EATMENT UNITS OF THE SHAREHOLDING COMPANIES AND TO MAKE ADDITIONA L INVESTMENT IN PLANT AND MACHINE OF THE SAME TO UPGR ADE THE QUANTITY AND QUALITY TO ACHIEVE ZERO LIQUID DISCHAR GE AS STIPULATED BY THE HIGH COURT. 3.3 THE COMPANY HAS ANNOUNCED THE COMMENCEMENT OF COMMERCIAL OPERATION DATE-COD AS 24.03.2010, AFTER, GETTING APPROVAL NOD FROM VARIOUS GOVERNMENT AUTHORITIES. I N THE MEANTIME TILL COD, THE COMPANY HAD TO CARRY OUT TRIAL RUNS AND TEST RUNS TO PROVE ITS PREPAREDNESS TO ACHIEVE ZERO LIQUID DISCH ARGE. WHILE DOING SO, THE COMPANY INCURRED VARIOUS OVERHEADS LIKE TRI AL/EXPERIMENTAL RUN EXPENDITURE, ADMINISTRATIVE EXPENSES, INTEREST AND FINANCIAL CHARGES AND DEPRECIATION. COLLECTIONS WERE MADE FR OM MEMBERS ITA NOS.805, 806/MDS/2015 ITA NOS.823,824/MDS/2015 6 TOWARDS SUCH OVERHEAD AND FOR ESCALATION OF PROJECT COST. AFTER DEDUCTING OVERHEADS FROM SUCH COLLECTION THE BALANC E REPRESENTING COLLECTIONS TOWARDS ESCALATION OF PROJECT COST WAS ACCOUNTED AS NON REFUNDABLE CONTRIBUTION OF CAPITAL NATURE FROM MEMB ERS OF PROMOTER COMPANIES AND SHOWN UNDER THE HEAD RESERVES AND SUR PLUS. THE ADDITIONAL PROJECT WORK AND ESCALATION COST ARE INC LUDED IN FIXED ASSET SCHEDULE WHICH IS FUNDED BY THE NON REFUNDABLE CONT RIBUTION AS MENTIONED ABOVE. DURING THE PERIOD PRIOR TO COD, TH ERE WAS, THEREFORE, NO SURPLUS OR DEFICIT TO BE CONSIDERED F OR ASSESSMENT PURPOSE. COPIES OF INVOICES INDICATING THE FACT THA T AMOUNTS COLLECTED FROM MEMBERS INCLUDE NOT ONLY CHARGES FOR OVERHEADS BUT ALSO TOWARDS ADDITIONAL PROJECT COST AND ESCALATION, IN PROJECT COST ARE ENCLOSED. 3.4 IT WAS ALSO SUBMITTED BY ASSESSEE BEFORE AO TH AT EVEN IF THE RECEIPTS FROM TRIAL RUNS AND EXPENDITURE INCURRED F ROM THE SAME ARE TO BE TREATED AS REVENUE, IGNORING THE NATURE OF EXCES S CAPITAL CONTRIBUTION FROM MEMBERS, THEN DEPRECIATION HAS TO BE ALLOWED, WHICH WILL ONCE AGAIN RESULT IN HUGE LOSS ONLY. ITA NOS.805, 806/MDS/2015 ITA NOS.823,824/MDS/2015 7 3.5 CONTRARY TO THE SUBMISSION MADE BY THE ASSESSEE AS REPRODUCED ABOVE, IT WAS NOTICED BY AO THAT THE CHA RGES COLLECTED FOR TREATMENT OF EFFLUENT WATER DURING THE PERIOD OF TR IAL RUN OFF WAS CLAIMED AS REVENUE EXPENSES BY THE PARTIES WHO HAS UTILISED THE FACILITY FOR THEIR WATER TREATMENT AND TDS HAS BEEN DEDUCTED BY THE PARTIES FOR THE AMOUNT PAID TO THE ASSESSEE COMPANY . IT WAS ALSO NOTICED THAT THE INVOICE ISSUED BY THE COMPANY FO R THE CHARGES LEVIED FOR THE TREATMENT OF EFFLUENT WATER IT IS ME NTIONED THAT TRIAL PROCESSING CHARGES OF DYEING EFFLUENT ON COMMITTED CAPACITY. IT IS ALSO LEARNT THAT THERE WAS SOME MINIMUM COMMITTED QUANTITY OF EFFLUENT WATER EVERY MONTH FROM EACH MEMBER USING T HE FACILITY. THE CHARGES LEVIED FOR MINIMUM QUANTITY HAS ALSO BEEN C LAIMED AS REVENUE, EXPENSES BY THE USERS AND THE CHARGES WE RE PAID TO THE ASSESSEE FOR DEDUCTING TDS IF THE SURPLUS CREATED BY THE TRIAL RUN IS CAPITALIZED AND KEPT AS RESERVE AND SURPLUS OF TH E COMPANY, THEN THE REVENUE EXPENSES CLAIMED BY MEMBERS WILL BECOME AN INVESTMENT IN THE COMPANY. AS SUCH, A CONSIDERATION PASSED FOR THE SAME SERVICES RENDERED, THERE CANNOT BE TWO DIFFERE NT TREATMENT, ONE ITA NOS.805, 806/MDS/2015 ITA NOS.823,824/MDS/2015 8 AS REVENUE EXPENSES AND THE CORRESPONDING ENTRY IN THE OTHER SIDE AS A CAPITAL RECEIPT. 3.6 IT WAS FOUND BY AO THAT THAT TILL THE COMPANY REACHED THE POINT OF ZERO DISCHARGE OF EFFLUENT WATER, THE COMPANY CO ULD NOT COMMENCE COMMERCIAL OPERATION AND HENCE TWO ACCOUNTS WERE PR EPARED, ONE FOR THE TRIAL RUN AND ANOTHER FOR COMMERCIAL OPERAT ION. IT IS A SETTLED POSITION OF LAW THAT A TECHNICAL PARAMETER OR A QUA LITY CHECK WHICH ARE MANDATORY REQUIREMENTS TO COMMENCE FULL COMMERCIAL OPERATION CANNOT COME IN THE WAY OF INCOME TAX PROVISION. THE RE IS NO DENYING THE FACT THAT THERE WERE RESTRICTIONS IMPOSED BY TH E POLLUTION CONTROL BOARD AND THE COURTS AT DIFFERENT POINT OF TIME, FO R RELEASING THE AFFLUENT WATER WITHOUT TREATING IT. BUT IT IS TO B E BORN IN MIND THAT THE REQUIREMENT TO SATISFY OTHER STATUTORY OBLIGATION D OES NOT TAKE AWAY THE RIGHTS OF THE DEPARTMENT TO COLLECT TAX AS PER THE PROVISIONS OF THE INCOME TAX ACT, 1961. THE ONLY ARGUMENT ADVANCED BY THE ASSESSEE WAS THAT THE COMMERCIAL OPERATION DID NOT COMMENCE. IT CANNOT BE ACCEPTED ESPECIALLY WHEN THE PARTIES WERE UTILIZING THIS FACILITY FOR TREATING THE AFFLUENT WATER ON PAYMENT OF A CONSIDE RATION FOR THE SERVICES UTILIZED. THE WATER THAT CAME FOR TREATMEN T WITH THE ITA NOS.805, 806/MDS/2015 ITA NOS.823,824/MDS/2015 9 ASSESSEES FACILITIES WAS THE EFFLUENT WATER RELEAS ED WHILE DOING THE PROCESSING WORK IN THE TEXTILE MANUFACTURING UNITS OF THE USERS. THE EXPENSES FOR TREATING THE WATER WAS CLAIMED AS REVE NUE EXPENSES WHICH WAS ALLOWED TO BE DEDUCTED FROM THEIR INCOME. IT DOES NOT MATTER WHO ARE THE CONTRIBUTORS FOR THE GENERATION OF INCOME, WHETHER THEY ARE THE SHARE HOLDERS OF THE CORNPANY, OR AN O UTSIDER. HERE, THE ASSESSEE HAS DONE THE SERVICES OF TREATING THE EFFL UENT WATER FOR WHICH THE MONEY HAS BEEN RECEIVED AT THE RATE OF ` 45/- PER 1000 LITRES OF EFFLUENT WATER AND THAT MONEY PAID TO THE ASSESSEE COMPANY HAS BEEN CLAIMED AS REVENUE EXPENSES WITH THEIR BUS INESS INCOME AND THE MINIMUM QUANTITY HAS ALSO BEEN FIXED FOR EV ERY MONTH FOR EVERY USER. COMPANY AND SHARE HOLDERS ARE TWO DIFFE RENT LEGAL ENTITIES THE TRANSACTION BETWEEN THEM ARE MERELY BU SINESS TRANSACTION. 3.7 IT WAS ALSO NOTICED BY AO THAT THE OSSESSEE H AS CLAIMED INTEREST PAYMENTS TO BANKS TO THE TUNE OF ` 13,46,57,665/- AND HAS CLAIMED EXPENSE ON REPAIRS AND MAINTENANCE OF ` 1,68,05,814/- IN THE SAID TRIAL RUN PERIOD DURING THE ASSESSMENT YEA R IN DISCUSSION. BEFORE THE MACHINERY IS PUT IN TO COMMERCIAL USE, T HE ASSESSEE IS NOT ITA NOS.805, 806/MDS/2015 ITA NOS.823,824/MDS/2015 10 ENTITLED TO CLAIM ANY EXPENSES IN THE REVENUE ACCOU NT EXCEPT WHERE THE ACT HAS SPECIFICALLY PROVIDED FOR. THE CLAIMS M ADE BY THE ASSESSEE AS DISCUSSED ABOVE IS AN EVIDENCE FOR THE COMMENCEMENT OF THE COMMERCIAL OPERATION BY THE ASSESSEE. SO FAR AS INTEREST PAYMENT IS CONCERNED, THE APPLICATION OF PROVISIONS OF S.36 (III) IS A SETTLED ISSUE IN VIEW OF THE HON. SUPREME COURT DEC ISION IN THE CASE OF CHALLAPALLY SUGAR LTD VS CIT(1975) REPORTED IN 9 8 ITR1 67(SC). THE ASSSSEE CANNOT TAKE TWO STANDS ONE FOR THE EXP ENSES CLAIMED AND ON OTHER FOR THE INCOME GENERATED BY THE SAME U NIT. HENCE, SURPLUS OF ` 4,64.47,766/- GENERATED DURING THE TRIAL RUN CANNOT BE TREATED AS CAPITAL. RECEIPT AND IT IS CERTAINLY A R EVENUE RECEIPT BY LL CCOUNTS. THE SURPLUS GENERATED AND KEPT UNDER THE HEAD RESERVES AND SURPLUS IS TREATED AS INCOME AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 3.8 IT IS ALSO NOTICED BY AO THAT THE ASSESSEE HA S RECEIVED SUBSIDY TO THE TUNE OF ` 19,19,00,000/- FROM THE GOVERNMENT . THE SUBSIDY WAS MEANT FOR MACHINERIES SUCH AS CETP, EVAPORATOR AND REVERSE OSMOSIS. COPY OF ONE OF THE LETTERS WRITTEN BY TAMI LNADU INDUSTRIAL DEVELOPMENT CORPORATION LIMITED TO THE TAMILNADU WA TER INVESTMENT ITA NOS.805, 806/MDS/2015 ITA NOS.823,824/MDS/2015 11 COMPANY LTD DATED 15.12.2006, CLEARLY MENTIONED THA T THE SANCTION OF ` 1000 LAKHS IS TO PART FINANCE THE PROJECT FOR SETTI NG UP CETPS/REVERSE OSMASIS/EVAPORATOR PLANTS AT TIRUPUR. 3.9 HENCE, IT IS EVIDENT FROM THE CONTENTS OF THE ABOVE CORNMUNICATION THAT THE SUBSIDY HAS BEEN GRANTED ON LY TO MEET OUT THE COST OF THE MACHINERY AND NOT FOR ANY OTHER PUR POSE AS SUCH THE CLAIM OF ASSESSEE ON THE ISSUE OF THE SUBSIDY RECEI VED IS NOT IN TUNE WITH THE PROVISIONS UNDER SECTION 43 EXPLANATION 10 TO SUB-SECTION(1) OF THE IT ACT 1961. HENCE COST OF PLANT-AND MACHINE RY HAS TO BE REDUCED TO AN EXTENT OF SUBSIDY OF ` 19,19 ,00,000/- RECEIVED BY THE ASSESSEE FROM THE GOVERNMENT FOR THE PURPOSE OF CLA IMING DEDUCTION ON DEPRECIATION. DURING THE COURSE OF ASSESSMENT P ROCEEDINGS , THE ASSESSEE HAS FURNISHED REVISED WORKING OF DEPRECIAT ION BY REDUCING THE COST OF PLANT AND MACHINERY TO AN EXTENT OF SUB SIDY RECEIVED. 3.9.1 FURTHER, THOUGH THE ASSESSEE CLAIMED DEPREC IATION AT 50%, ALLOWED THE DEPRECIATION 100% IN RESPECT OF PL ANT AND MACHINERY WHICH IS OPERATIVE FROM 01.04.2009 AND 50 % ON PLANT AND ITA NOS.805, 806/MDS/2015 ITA NOS.823,824/MDS/2015 12 MACHINERY WHICH ARE INSTALLED ON 21.01.2010. AGAINS T THIS, THE ASSESSEE WAS IN APPEAL BEFORE THE CIT(A). 3.9.2 THE SAME IS THE POSITION IN OTHER APPEAL ALS O. 4.1 ON APPEAL LD.CIT(A) OBSERVED THAT THE ASSESSEE HAS CHALLENGED THE ADDITION MADE BY THE ASSESSING OFFIC ER ON THREE ISSUES NAMELY: (I) TREATMENT OF CAPITAL SUBSIDY RECEIVED. (II) THE YEAR OF CAPITAL SUBSIDY RECEIVED AND THE C LAIM THEREOF. (III) THE TREATMENT RELATING TO SO CALLED TRIAL RUN I.E. WHETHER THE SAME IS CAPITAL RECEIPT OR REVENUE RECEIPT. AS REGARDS THE CAPITAL SUBSIDY RECEIVED FROM THE GO VERNRNENT, THE CIT(A) OBSERVED THAT IT IS EVIDENT FROM THE LETTER SUBMITTED BY THE TAMIL NADU INDUSTRIAL CORPORATION LIMITED TO THE T AMILNADU WATER INVESTMENT CO LTD DATED 15.12.2006 THAT THE SANCTI ON OF ` 1,000 LAKHS IS TO PART FINANCE THE PROJECT FOR SETTING UP CETPS/REVERSE/EVAPORATOR PLANTS AT TIRUPUR. THEREF ORE, FROM THE ABOVE IT IS CLEAR THAT THE CAPITAL SUBSIDY FROM THE GOVERNMENT WAS GRANTED ONLY TO MEET OUT THE COST OF MACHINERY SUCH A CEPT, ITA NOS.805, 806/MDS/2015 ITA NOS.823,824/MDS/2015 13 EVAPORATOR AND REVERSE OSMOSIS AND NOT FOR ANY OTHE R PURPOSE. IT IS WELL SETTLED LAW THAT COST OF PLANT AND MACHINERY H AS TO BE REDUCED TO AN EXTENT OF THE SUBSIDY RECEIVED BY THE ASSESSES F ROM THE GOVERNMENT TO THE PURPOSE OF CLAIMING DEDUCTION ON DEPRECIATION THEREFORE, THE ACTION OF THE ASSESSING OFFICER IS IN REDUCING THE CAPITA SUBSIDY FROM THE COST OF PLANT AND MACHINERI ES AND REDUCED WORKING A DEPRECIATION IS IN ORDER. 4.2 WITH REGARD TO THE POINT THAT THE CAPITAL SUB SIDY WAS RECEIVED IN THE EARLIER YEAR WAS NOT BROUGHT BEFORE THE ASSESSI NG OFFICER, FURTHER, IT DID NOT FORM PART OF THE GROUNDS OF APPEAL BEFOR E THE CIT(A). THE ASSESSEE HAS NOT RECORDED THE RECEIPT OF SUBSIDY I N THE PUBLISHED RESULTS OF THE COMPANY FOR A.Y. 2009-10. THE ASSESS EE HAS ALSO NOT REDUCED THE CAPITAL SUBSIDY RECEIVED IN WORKING OF THE DEPRECIATION IN THE EARLIER YEARS I.E. A.Y. 2009-10. IN THE ABSENCE OF ANY EVIDENCE REGARDING RECEIPT OF CAPITAL SUBSIDY EARLIER, GRANT OF CLAIM OF THE ASSESSES WAS NOT ENTERTAINED BY THE CIT(A). 4.3 IT IS CLEAR THAT THE ASSESSEE HAS OFFERED SERV ICES OF WASTE WATER TREATMENT TO SEVERAL PERSONS WHO ARE SHARE HO LDERS OF THE ITA NOS.805, 806/MDS/2015 ITA NOS.823,824/MDS/2015 14 COMPANY. THE ASSESSEE HAD RECEIVED AMOUNT AT THE RA TE OF ` 45/- PER 1000 LITRES OF EFFLUENT WATER TREATED. THE PERSONS WHO HAVE UTILIZED THE SERVICES HAVE TREATED IT AS REVENUE RECEIPTS AN D TDS HAS BEEN DEDUCTED ON THE SAME. IT IS EVIDENT THAT SERVICES W ERE RENDERED BY THE ASSESSEE TO THE SATISFACTION OF THE USERS. FURT HER ON ANALYZING THE ROLE OF TNPCB, IT IS SEEN THAT THE CONDITIONS LAID OUT BY THEM HAS TO GO WITH CERTAIN MINIMUM STANDARDS FOR TREATING THE EFFLUENTS TILL SUCH TIME THE MINIMUM STANDARDS ARE ACHIEVED, THE ASSESS EE CANNOT GO IN A LARGE SCALE OPERATION. IN OTHER WORDS, THE SER VICE IS TO ENSURE MINIMUM STANDARDS FOR EFFLUENT TREATMENT. HENCE, IT CANNOT BE ARGUED THAT COMMERCIAL PRODUCTION COMMENCES AFTER CERTIFIC ATION. 4.4 FURTHER, THE ASSESSING OFFICER CLEARLY STATED IN PARS 5.1 OF THE ASSESSMENT ORDER THAT TRIAL PROCESSING CHARGES OF DYEING EFFLUENT ON COMMITTED CAPACITY. FROM THIS OBSERVATION OF T HE ASSESSING OFFICER, IT IS APPARENT THAT THE SUBMISSIONS OF THE ASSESSEE WAS CONSIDERED, THEREBY CAME TO A CONCLUSION THAT THE RECEIPTS ARE REVENUE IN NATURE. ON HIRING A TAXI WHEREIN THE MIN IMUM CHARGE IS PAID TO TAXI DRIVER. THE DISTANCE TRAVELLED BY THE TAXI MAY BE LESS THAN ITA NOS.805, 806/MDS/2015 ITA NOS.823,824/MDS/2015 15 THE MINIMUM KM BUT THE HIRER HAS TO PAY THE CHARGES FOR THE MINIMUM NUMBER OF KILOMETERS. SIMILARLY, EVEN IF TH E ASSESSEE HAS NOT TREATED FULL CAPACITY, EVEN MINIMUM CAPACITY OF THE PLANT IS SUFFICIENT FOR COMMENCEMENT OF THE BUSINESS. JUST B ECAUSE THE TAXI HAS NOT RUN FOR THE MINIMUM KILOMETER, THE TAXI OWN ER CANNOT CLAIM THAT THE CAR WAS NOT PUT TO USE. THEREFORE, IT HAS TO BE CONCLUDED THAT BY PAYING THE MINIMUM AMOUNT BY EACH OF THE PERSONS WHO AVAILED THE WATER TREATMENT FACILITY, THE BUSINESS OF THE A SSESSEE HAS COMMENCED AND SUCH RECEIPTS WILL HAVE TO BE TAKEN A S REVENUE RECEIPTS. 4.5 FOR EXAMPLE, IN A SPINNING MILL, IF YARN IS P RODUCED DURING TRIAL PERIOD AND IS SOLD, THE RECEIPT IS TO BE TREATED AS INCOME. IF THE YARN, PRODUCED IS NOT UP TO THE MINIMUM QUALITY, IT IS TO BE TREATED AS SALE OF WASTE AND ONCE SOLD; IT HAS TO BE TAKEN AS INCOM E. IN OTHER WORDS, IF RECEIPTS ARE FOR CERTAIN SERVICES RENDERED DURIN G THE TRIAL PRODUCTION, THE SAME WILL HAVE TO BE TREATED AS REVENUE RECEIPT S IF THE CUSTOMER PAYS FOR IT. AGAINST THIS FINDING OF CIT(A) THE A SSESSEE IS IN APPEAL BEFORE US. ITA NOS.805, 806/MDS/2015 ITA NOS.823,824/MDS/2015 16 5.1 BEFORE US, LD.A.R FURTHER SUBMITTED THAT THE CAPITAL SUBSIDY WAS RECEIVED DURING THE F.Y 2008-09 IN WHICH YEAR A LSO THERE WAS TRIAL/EXPERIMENT OPERATIONS FROM OCTOBER 2008. HENC E, THIS ISSUE DOES NOT RELATE TO THE YEAR UNDER APPEAL (A.Y 2010- 11). TRIAL OPERATIONS WERE CONDUCTED FROM 2008 PENDING COMPLET ION OF PERFORMANCE TEST AND FOR DEMONSTRATING COMPLIANCE O F ZLD NORMS. SINCE NECESSARY PERMISSION WAS NOT FORTHCOMING FROM TNPCB, THE HIGH COURT OF MADRAS WAS APPROACHED BY WAY OF WRIT PETITIONS TO PERMIT THE COMPANY TO RUN THE UNIT ON TRIAL BASIS FOR DEMONSTRATION AND FOR DIRECTION TO TNPCB TO DISPOSE OF THE COMPAN YS APPLICATION. THE HIGH COURT WAS PLEASED TO PASS AN INTERIM ORDER PERMITTING THE COMPANY TO RUN THE UNIT ON TRIAL BASIS FOR DEMONSTR ATION. 5.2 FURHER, LD.A.R SUBMITTED THAT AFTER INITIATING ALL REQUIRED STEPS INCLUDING RECTIFICATION AND STABILIZATION OF THE PL ANT AS A PRELUDE TO ACHIEVE COMMERCIAL OPERATIONS, CONSENT TO OPERATE ( CTO) FROM TNPCB WAS OBTAINED ON 07.012010 COMMERCIAL OPERATIO NS WERE COMMENCED FROM 24.03.2010. TILL 24.03.2010 TRIAL OP ERATIONS WERE SUMMARIZED AN PER STATEMENT OF INCIDENTAL EXPENDITU RE PENDING ITA NOS.805, 806/MDS/2015 ITA NOS.823,824/MDS/2015 17 CAPITALIZATION. THE GROSS COLLECTIONS OR RS. 27.06 CRORES REPRESENTED COLLECTIONS TOWARDS OVERHEADS AND FOR ESCALATION OF PROJECT COST, FROM OUT OF THE TOTAL COLLECTIONS A SUM OF RS. 4.64 CRORES WAS APPROPRIATED TOWARDS CONTRIBUTION FOR COST OF ADDIT IONAL WORK AND ESCALATION IN PROJECT COST. THIS AMOUNT IS SHOWN AS NON REFUNDABLE CONTRIBUTION OF CAPITAL NATURE FROM MEMBERS OF PRO MOTER COMPANIES TOWARDS COST OF ADDITIONAL WORK AND ESCALATION IN P ROJECT COST AND SHOWN UNDER RESERVES SURPLUS. 5.3 THE LD.A.R EXPLAINED IN DETAIL ABOUT SCHEDULE 1 8 FORMING PART OF ANNUAL ACCOUNTS, WHICH IS ALSO HIGHLIGHTED IN TH E AUDITORS REPORT ON ACCOUNTS. FURTHER DURING THE TRIAL EXPERIMENTAL OPERATIONS, BILLS WERE RAISED BASED ON COMMITTED QUANTITY OF EFFLUENT AND NOT ON THE BASIS OF ACTUAL EFFLUENT TREATED. THIS FACT WILL PR OVE THAT THE AMOUNTS COLLECTED WERE NOT ONLY FOR THE TRIAL RUN TREATMENT OF EFFLUENT BUT ALSO FOR THE OVER RUN OF COST OF THE PROJECT. IN NO RMAL CIRCUMSTANCES ONE WOULD PAY ONLY FOR THE ACTUAL SERVICES AND NOTH ING MORE UNLESS THERE IS AN AGREEMENT AS TO SOME OTHER COMPONENT FO R WHICH ALSO ONE HAD TO PAY. ITA NOS.805, 806/MDS/2015 ITA NOS.823,824/MDS/2015 18 5.4 THE LD.A.R FURTHER SUBMITTED THAT AS PER PAR A 9.4 OF AS-10 EXPENDITURE INCURRED ON TEST RUNS AND EXPERIMENTAL PRODUCTIONS HAS TO BE CAPITALIZED AS AN INDIRECT ELEMENT OF CONSTRU CTION COST. AS-10 IS SILENT ABOUT TREATMENT OF INCOME EARNED DURING TRIA L OPERATIONS. THEREFORE, REFERENCE HAS TO BE MADE TO INDIAN AS.18 . HE DRAWS OUR ATTENTION TO PARA 17 (E) OF INDIAN AS-16 STATES AS UNDER:- COST OF TESTING WHETHER THE ASSET IS FUNCTIONING P ROPERLY AFTER DEDUCTING THE NET PROCEEDS FROM SELLING ANY I TEMS PRODUCED WHILE BRINGING THE ASSET TO THAT LOCATION AND CONDITION (SUCH AS SAMPLES PRODUCED WHEN TESTING EQUIPMENTS). FURTHER THE LD.A.R PLACED RELIANCE ON THE FOLLOWING JUDGEMENTS. 1. BOGAIGAON REFINERY & PETROCHEMICALS V. CIT [200 1] 251 ITR 0329 (SC) 2. SASISRI EXTRACTIONS LTD V. ACIT [2008] 119 TTJ 0 976 (VIS) 3. CIT VS. RASOI LTD [2014] 40 CCH 0685 (KOL. TRIB. ) 5.5 REGARDING TREATMENT OF SUBSIDY, THE LD.A.R SUB MITTED THAT THE ASSESSEE RECEIVED A SUM OF ` 19.19 CRORES FROM GOVERNMENT OF INDIA ITA NOS.805, 806/MDS/2015 ITA NOS.823,824/MDS/2015 19 VIDE MINISTRY OF COMMERCE LETTER DATED 11.09.2007. ACCORDING TO THE LD.A.R , IT IS A CAPITAL RECEIPT CANNOT BE DEDUCTED FROM THE COST OF MACHINERY. ACCORDING TO THE LD.A.R EXPLANATION 10 TO SEC.43(I) CANNOT BE APPLIED AND THE COST OF PLANT AND MACHIN ERY CANNOT BE REDUCED BY A TUNE OF ` 19.19 CRORES SO AS TO REDUCE THE DEPRECIATION AVAILABLE TO THE ASSESSEE. FOR THIS PURPOSE, HE RE LIED ON THE JUDGEMENT OF SUPREME COURT IN THE CASE OF CIT VS. P .J.CHEMICALS LTD. REPORTED IN (1994) 210 ITR 0830(SC), ALSO DECI SIONS OF TRIBUNAL IN THE CASE OF DCIT VS.RASOI LTD., REPORTED IN (201 4) 65 SOT 0058(KOLKATA)(URO) AND OF PUNE BENCH, TRIBUNAL IN M /S.SOHAM ELECTROPLAST PVT. LTD., VS. ITO IN ITA NO.1578/PUNE /2008 FOR ASSESSMENT YEAR 2005-06 VIDE ORDER DATED 28.10.2010 . 6. ON THE OTHER HAND, LD.D.R SUBMITTED THAT THE CL AIM OF ASSESSEE THAT FROM OCTOBER, 2008 TO MARCH, 2010 IS A TRIAL RUN PERIOD CANNOT BE ACCEPTED. THE ASSESSEE RUNNING THE UNIT IN A CO MMERCIAL MANNER UN-AUTHORIZEDLY, THOUGH THERE IS NO PERMISSION FROM THE POLLUTION CONTROL BOARD (PCB). THE ASSESSEE FIXED THE RATES FOR TREATMENT OF EFFLUENT WATER ON COMMERCIAL BASIS THAT ITSELF SHOW S THAT THE ITA NOS.805, 806/MDS/2015 ITA NOS.823,824/MDS/2015 20 ASSESSEE IS CARRYING ON THE BUSINESS IN A COMMERCIA L MANNER AND IT IS TO BE TREATED AS BUSINESS INCOME OF THE ASSESSEE . ACCORDING TO THE LD.D.R, INDIAN AS-10 IS NOT APPLICABLE. FURTHE R, HE SUBMITTED THAT ASSESSEE TREATING THE EXPENDITURE INCURRED FOR EARN ING THE INCOME DURING THE PERIOD AS A REVENUE EXPENDITURE AND GENE RATION OF INCOME TREATED BY THE ASSESSEE NOT AS INCOME WHICH IS CONT RARY TO EACH OTHER. HE ALSO SUBMITTED THAT THE ASSESSEE CLAIMED INTEREST PAID TO BANK, REPAIRS AND MAINTENANCE DURING THE SAID TRIAL PERIOD AS A BUSINESS EXPENDITURE. BEFORE THE MACHINERY PUT INT O USE TO COMMERCIAL USE, THE ASSESSEE IS NOT ENTITLED TO CLA IM ANY EXPENDITURE IN THE REVENUE ACCOUNT EXCEPT THE ACT IS SPECIFICAL LY PROVIDED FOR. HE RELIED ON THE JUDGEMENT OF SUPREME COURT IN THE CAS E OF CHALLAPALLY SUGAR LTD. VS. CIT REPORTED IN 98 ITR 67(SC). 7. REGARDING THE TREATMENT OF SUBSIDY, HE SUBMITTE D THAT THE ASSESSEE RECEIVED THE SUBSIDY FOR SETTING UP A PROJ ECT AS PER THE SANCTIONED LETTER DATED 11.09.2007 FROM THE MINISTR Y OF COMMERCE AND INDUSTRY, GOVERNMENT OF INDIA. AS SUCH, THE CL AIM OF ASSESSEE ITA NOS.805, 806/MDS/2015 ITA NOS.823,824/MDS/2015 21 THAT SUBSIDY CANNOT BE DEDUCTED FROM THE COST OF PL ANT AND MACHINERY IS NOT CORRECT. HE RELIED ON THE FOLLOWING JUDGEMEN TS. 1. DCIT V. DALMIA CEMENT (BHARAT) LTD., REPORTE D IN [2008] 307 ITR 36 (AT) (DELHI TRIBUNAL) 2. M/S. ALFA LAVAL INDIA LTD. V. DCIT REPORTED I N [2008] 298 ITR 333 (AT)(ITAT)(PUNE). 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. REGARDING THE RECEIPT OF INCOME DURING TH E PERIOD TRIAL RUN, THE ASSESSEE GENERATED INCOME BY OPERATION OF PLANT AND MACHINERY INSTALLED IN THE UNDERTAKING OF THE ASSESSEE.WHILE THE PLANT WAS RUN IN THE SAID WAY, THE ASSESSEE GENERATED SURPLUS INC OME TO THE TUNE OF ` 4,64,47,766/- AND GROSS RECEIPT WAS ` 40,25,08,572/-. ACCORDING TO THE ASSESSEE, THIS INCOME IS DURING THE TRIAL RU N AS A CAPITAL RECEIPT, NOT LIABLE TO TAX. HOWEVER, THE AO TREATE D THE SAME AS REVENUE RECEIPT AND THE SAME WAS CONFIRMED BY THE C IT(A). THE CONTENTION OF THE LD.A.R IS THAT THE ABOVE INCOME S HOULD BE TREATED AS A CAPITAL RECEIPT, NOT AS A REVENUE RECEIPT. IN OU R OPINION FOR JUDGING THE NATURE OF THE PARTICULAR RECEIPT, WHAT IS REQUI RED TO BE SEEN IS ITA NOS.805, 806/MDS/2015 ITA NOS.823,824/MDS/2015 22 MERELY WHETHER RECEIPT AROSE TO THE ASSESSEE ON ACC OUNT OF TREATING THE EFFLUENT WATER FROM ITS CUSTOMER. THE PROCESS OF TREATING THE EFFLUENT WATER MAY BE UN-AUTHORIZED I.E. WITHOUT T HE PERMISSION FROM THE PCB. THAT BY ITSELF, HOWEVER WOULD NOT DETRACT ED OF THE ACTUAL CHARACTER OF THE RECEIPT AND THE RECEIPT WILL HAVE BE TREATED AS A REVENUE RECEIPT ONLY. MORE SO, THE ASSESSEE ALREAD Y CLAIMED THE EXPENDITURE INCURRED TO EARN THIS INCOME AS A REVEN UE EXPENDITURE AS RECORDED BY THE AO IN HIS ORDER AT PARA-6, THE ASSE SSEE CANNOT TAKE TWO STANDS , ONE FOR EXPENSES, ANOTHER FOR THE INCO ME GENERATED BY THE SAME UNIT, HENCE SURPLUS INCOME GENERATED DURIN G THE RUNNING OF THE UNIT UN-AUTHORIZEDLY WITHOUT REQUISITE PERMISSI ON TO BE TREATED AS A REVENUE RECEIPT. IN OUR OPINION, THE DEFINITION OF INCOME IN SECTION 2(24) IS AN INCLUSIVE DEFINITION. IT ADDS SEVERAL A RTIFICIAL CATEGORIES TO THE CONCEPT OF INCOME BUT ON THAT ACCOUNT THE EXPRE SSION INCOME DOES NOT LOSE ITS NATURAL CONNOTATION. ANYTHING WHI CH CAN PROPERLY BE DESCRIBED AS INCOME IS TAXABLE UNDER THE ACT. EVEN IF A RECEIPT DOES NOT FALL WITHIN THE AMBIT OF ANY OF THE SUB-CLAUSES IN SECTION 2(24), IT ITA NOS.805, 806/MDS/2015 ITA NOS.823,824/MDS/2015 23 MAY STILL BE INCOME IF IT PARTAKES OF THE NATURE O F THE INCOME. THE IDEA BEHIND PROVIDING INCLUSIVE DEFINITION IN SECTI ON 2(24) IS NOT TO LIMIT ITS MEANING BUT TO WIDEN ITS NET. THE WORD INCOME IS OF WIDEST AMPLITUDE, AND IT MUST BE GIVEN ITS NATURAL AND GRA MMATICAL MEANING. THE SCHEME OF SECTION 2(24) READ WITH SECTIONS 4 AN D 10, SEEMS TO BE THAT GIVEN ITS ORDINARY NATURAL MEANING THE WORD INCOME WILL TAKE IN ANY MONETARY RETURN COMING IN. IT WILL TAKE IN VOLUNTARY AND GRATUITOUS PAYMENTS, WHICH ARE CONNECTED OR LINKED WITH THE OFFICE, VOCATION OR OCCUPATION. INCOME UNDER THE ACT CONNO TES A PERIODICAL A MONETARY RETURN COMING IN WITH SOME SORT OF REGUL ARITY OR DEFINITE SOURCE. THE SOURCE IS NOT NECESSARILY ONE, WHICH IS ACCEPTED TO BE CONTINUOUSLY PRODUCTIVE BUT IT MUST BE ONE WHOSE OB JECT IS THE PRODUCTION OF A DEFINITE RETURN. AT THE SAME TIME, IT CANNOT HE SAID THAT THE RECEIPT, WHICH IS NOT PERIODICAL OR WHICH IS NO T REGULATED BUT OF ONE TIME RECEIPT, CANNOT BE CONSIDERED AS INCOME. THE S OURCE NEED NOT BE CONTINUOUSLY PRODUCTIVE AND IT IS SUFFICIENT IF THE INCOME IS FLOWING FROM SOME EXERCISE OR OPERATION BY THE APPELLANT AN D IN ORDINARY PARLANCE WHICH CAN BE CONSIDERED AS INCOME. TO CONS TITUTE INCOME, THE RECEIPT NEED NOT NECESSARILY HAVE THEIR ORIGIN IN BUSINESS ACTIVITY ITA NOS.805, 806/MDS/2015 ITA NOS.823,824/MDS/2015 24 OR INVESTMENT OR UNDER AN ENFORCEABLE OBLIGATION. T HE CONCLUSION IN CONSTRUING THE WORD INCOME ONE HAS TO ASK WHETHER HAVING REGARD TO ALL THE CIRCUMSTANCES SURROUNDING THE PARTICULAR PA YMENT AND RECEIPT IN QUESTION, WHAT IS RELEVANT IS OF THE CHARACTER O F INCOME ACCORDING TO THE ORDINARY MEANING OF THAT WORD IN THE COMMON LANGUAGE OR WHETHER IT IS MERELY A CASUAL RECEIPT. THE WORD IN COME IS OF ELASTIC IMPORT AND IT IS EXTENDED MEANING ARE NOT CONTROLLE D OR LIMITED BY THE USE OF THE WORDS PROFIT AND GAINS. THE DIVERSE FO RMS WHICH INCOME MAY ASSUME CANNOT EXHAUSTIVELY BE ENUMERATED AND SO IN EACH CASE THE DECISION OF THE QUESTION AS TO WHETHER ANY NUMBER OF RECEIPT IS INCOME OR NOT MUST DEPEND UPON THE NATURE OF THE RECEIPT AND THE SCOPE OF RELEVANT TAXING PROVISION. IN THE PRESENT CASE, THE INCOME EARNED BY THE ASSESSEE BY OPERATION OF PLANT AND MA CHINERY FOR TREATING THE EFFLUENT WATER AND COLLECTED THE INCOM E FROM THE CUSTOMER ON COMMERCIAL BASIS AND IT CANNOT BE CONSI DERED AS A CAPITAL RECEIPT AS THE ASSESSEE OPERATED THE PLANT AND MACHINERY WITHOUT THE REQUISITE PERMISSION AND IT IS TO BE RE VENUE RECEIPT TO BE CONSIDERED FOR LEVYING THE TAX AFTER GIVING NECESSA RY DEDUCTION FOR ITA NOS.805, 806/MDS/2015 ITA NOS.823,824/MDS/2015 25 EARNING THAT INCOME. ACCORDINGLY, THIS GROUND RAI SED BY THE ASSESSEE IS DISMISSED. 9. REGARDING THE RECEIPT OF SUBSIDY, THE SUBSIDY W AS SANCTIONED BY THE GOVERNMENT OF INDIA FOR SETTING UP OF COMMON EFFLUENT TREATMENT WATER AT TRIPUR AND THUS, IT AMOUNTS TO B EARING THE PART OF THE COST OF PLANT AND MACHINERY BY GOVERNMENT OF IN DIA THROUGH SUBSIDY AND IT IS NOT FOR CARRYING ON THE BUSINESS OF THE ASSESSEE RATHER THAN SETTING UP OF THE INDUSTRY. HENCE, IN OUR OPINION THE COST OF FIXED ASSET TO BE REDUCED TO THAT EXTENT OF SUBS IDY RECEIVED BYTHE ASSESSEE. IN VIEW OF EXPLANATION-10 TO SEC.43(1) O F THE ACT, WHICH READS AS FOLLOWS:- SEC.43(1) : EXPLANATION 10 WHERE A PORTION OF THE COST OF AN ASSET ACQUIRED BY THE ASSESSEE HAS BEEN MET DIRECTLY OR INDIRECTLY BY THE CENTRAL GOVERNMENT OR A STATE GOVERNMENT OR ANY AUTHORITY E STABLISHED UNDER ANY LAW OR BY ANY OTHER PERSON, IN THE FORM O F A SUBSIDY OR GRANT OR REIMBURSMENT (BY WHATEVER NAME CALLED), TH EN, SO MUCH OF THE COST AS IS RELATABLE TO SUCH SUBSIDY OR GRANT O R REIMBURSEMENT SHALL NOT BE INCLUDED IN THE ACTUAL COST OF THE ASS ET TO THE ASSESSEE : PROVIDED THAT WHERE SUCH SUBSIDY OR GRANT OR REIMBURSEMENT IS OF SUCH NATURE THAT IT CANNOT BE DIRECTLY RELATABLE TO THE ASSET ACQUIRED, SO MUCH OF THE AMOUNT WHICH BEARS TO THE TOTAL SUBS IDY OR ITA NOS.805, 806/MDS/2015 ITA NOS.823,824/MDS/2015 26 REIMBURSEMENT OR GRANT THE SAME PROPORTION AS SUCH ASSET BEARS TO ALL THE ASSETS IN RESPECT OF OR WITH REFERENCE TO W HICH THE SUBSIDY OR GRANT OR REIMBURSEMENT IS SO RECEIVED, SHALL NOT BE INCLUDED IN THE ACTUAL COST OF THE ASSET TO THE ASSESSEE. SINCE THE SUBSIDY RECEIVED FOR SETTING UP OF INDUST RIES BY INSTALLING PLANT AND MACHINERY WOULD DEFINITELY REDUCE THE COS T OF THE PLANT AND MACHINERY FROM THE SIDE OF THE ASSESSEE AND IT IS T O BE REDUCED FROM THE COST OF PLANT AND MACHINERY IN TERMS OF ABOVE E XPLANATION TO SEC.43(1) OF THE ACT. BEING SO, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LOWER AUTHORITIES. THE SAME IS CONFIR MED. THIS GROUND OF ASSESSEE IS DISMISSED IN ITA NO.805/MDS./2015. THE FACTS IN ITA NO.824/MDS/2015 ARE AS IN ITA NO.805/MDS./2015. HENCE, APPLYING THE ALL FINDINGS IN ITA NO.805/MDS./2015, THE APPEA L OF ASSESSEE IN ITA NO.824/MDS./2015 IS ALSO DISMISSED. PENALTY U/S.271(1)(C) OF THE ACT . 10. NOW COMING TO ITA NOS.806 & 823/MDS./15 IS WITH REGARD TO LEVY OF PENALTY ON THESE ADDITIONS U/S.271(1)(C) OF THE ACT. 11. IN THESE TWO APPEALS, THE LD. ASSESSING OFFICE R LEVIED PENALTY ON ACCOUNT OF TREATMENT OF TRIAL RUN RECEIPTS WRON GLY TREATED BY THE ASSESSEE AS CAPITAL RECEIPTS INSTEAD OF REVENUE REC EIPTS AND ALSO ON ACCOUNT OF TREATMENT OF SUBSIDY, WHICH WE DISCUSSED EARLIER ITA NOS.805, 806/MDS/2015 ITA NOS.823,824/MDS/2015 27 PARAGRAPHS WHILE ADJUDICATING THE QUANTUM ADDITIONS . ACCORDING TO THE LD.A.R, FOR BOTH THE ASSESSEES CASE THERE IS RETURNED LOSS OF INCOME EVEN U/S.115JB OF THE ACT WHILE COMPUTING BO OK PROFIT, PENALTY CANNOT BE LEVIED. FURTHER HE SUBMITTED THA T THERE IS NO CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE P ARTICULARS OF INCOME. HE RELIED ON THE JUDGMENTS OF SUPREME COURT IN THE CASE OF M/S.RELIANCE PETRO PRODUCTS PVT LTD IN [2010]322 IT R 158(SC) WHEREIN HELD THAT MERELY BECAUSE THE ASSESSEE CLAIM ED DEDUCTION OF INTEREST EXPENDITURE WHICH HAS NOT BEEN ACCEPTED BY THE REVENUE AUTHORITIES, PENALTY U/S.271(1)(C) OF THE ACT IS NO T ATTRACTED; MERE MAKING OF THE CLAIM, WHICH IS NOT SUSTAINABLE IN LA W, BY ITSELF, WILL AMOUNT TO FURNISHING INACCURATE PARTICULARS OF INC OME REGARDING THE INCOME OF ASSESSEE. FURTHER, LD.A.R PLACED RELIANC E IN THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. NALWA SONS INVESTMENTS LTD., REPORTED IN [2010] 327 ITR 543 W HEREIN HELD THAT WHEN THE TAX PAYABLE ON INCOME COMPUTED UNDER NORMA L PROCEDURE IS LESS THAN TAX PAYABLE UNDER THE DEEMED PROVISION S OF THE SECTION 115JB OF THE ACT, THEN PENALTY U/S.271(1)(C) OF THE ACT COULD NOT BE ITA NOS.805, 806/MDS/2015 ITA NOS.823,824/MDS/2015 28 IMPOSED WITH REFERENCE TO ADDITIONS/DISALLOWANCES M ADE UNDER THE NORMAL PROVISIONS. 12. ON THE OTHER HAND, LD.D.R SUBMITTED THAT EVEN ASSESSMENT RESULTED IN LOSS, THE PENALTY COULD BE LEVIED. FOR THIS PURPOSE HE RELIED ON THE JUDGMENT OF SUPREME COURT IN THE CAS E OF CIT VS. GOLD COIN HEALTH FOOD PVT LTD. (304 ITR 308) WHEREIN HEL D THAT EVEN WHERE THE ASSESSED INCOME AND RETURNED INCOME BOTH ARE AT LOSS, PENALTY COULD BE LEVIED U/S.271(1)(C) OF THE ACT. ACCORDING TO THE LD.D.R, EVEN IF THE LOSSES HAS BEEN REDUCED BY AO F ROM THE RETURNED LOSS OF INCOME, THEN IT WOULD AMOUNT TO CONCEALMEN T OF INCOME AND THAT PORTION OF INCOME SHOULD BE CONSIDERED AS A CO NCEALMENT OF INCOME AND THAT TAX ON SAID AMOUNT WOULD BE TREATED AS THE AMOUNT OF TAX SOUGHT TO BE EVADED. FURTHER, HE SUBMITTED THAT THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. NAL WA SONS INVESTMENTS LTD., REPORTED IN [2010] 327 ITR 543 I S NOT APPLICABLE IN VIEW OF THE EXPLANTION-4 TO SEC.271(1)(C) OF THE AC T INSERTED WITH EFFECT FROM 01.04.2003 BY FINANCE ACT, 2002 AND THI S JUDGEMENT CIT VS. NALWA SONS INVESTMENTS LTD., RELATED TO ASSESS MENT YEAR 2001- ITA NOS.805, 806/MDS/2015 ITA NOS.823,824/MDS/2015 29 02, BEING SO, IT HAS NO APPLICATION. HE RELIED ON THE FOLLOWING CASE LAWS. I) UOI AND OTHERS V. DHARMENDRA TEXTILES PROCESSORS AND OTHERS REPORTED IN 306 ITR 277(SC) II) CIT V. ESCORTS FINANCE LTD. [2010] REPORTED I N 328 ITR 044(DEL.) III) CIT V. ZOOM COMMUNICATION P. LTD. REPORTED IN [2010] 327 ITR 510(DEL.) 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, THE CLAIM OF ASSESSEE IS THA T THERE IS NO CONCEALMENT OF INCOME BECAUSE OF WRONG TREATMENT OF INCOME BY THE ASSESSEE, THOUGH AO CHANGED THE TREATMENT OF THE IN COME AS REVENUE RECEIPT INSTEAD OF CAPITAL RECEIPT. IN THAT PROCESS THE DEPRECIATION GRANTED TO THE ASSESSEE HAS BEEN INCRE ASED AND INCOME ASSESSED WILL BE GONE UP AND THERE IS NO REVENUE LO SS TO THE DEPARTMENT. THE A.R SUBMITTED THAT FINALLY THE AS SESSED LOSS IS MORE THAN THE RETURNED LOSS, EXPLANATION-4 TO SEC.2 71(1)(C) OF THE ACT CANNOT BE PUT IN USE TO QUANTIFY THE PENALTY BASED ON TAX SOUGHT TO BE EVADED WHICH IN THE CASE OF ASSESSEE, AND IT IS NIL. WE FIND FORCE IN THE ARGUMENT OF THE LD.A.R, THOUGH THE ASS ESSEE TREATED THE TRIAL RUN RECEIPT AND SUBSIDY RECEIVED AS A CAPITAL RECEIPT, THE AO TREATED THE TRIAL RUN RECEIPT AS REVENUE RECEIPT, T HEREBY INCREASING ITA NOS.805, 806/MDS/2015 ITA NOS.823,824/MDS/2015 30 THE INCOME OF ASSESSEE AND ALSO DEDUCT THE SUBSIDY RECEIPT FROM THE COST OF FIXED ASSET. THEREAFTER, HE RECOMPUTED THE DEPRECIATION, FINALLY RESULTED INCREASE IN LOSS, THEN RETURNED LO SS BY THE ASSESSEE. THERE IS NO ANY REVENUE LOSS TO THE DEPARTMENT AND THIS IS ONLY A TECHNICAL BREACH, WHICH CANNOT BE REASON TO LEVY PE NALTY. ACCORDINGLY, PLACING RELIANCE IN THE JUDGMENT OF AP EX COURT IN THE CASE OF M/S.RELIANCE PETRO PRODUCTS PVT LTD IN [201 0]322 ITR 158(SC), WE ARE INCLINED TO DELETE THE PENALTY. TH E APPEAL OF THE ASSESSEES ARE ALLOWED. 14. IN THE RESULT, THE APPEALS IN ITA NOS.805 & 824 /MDS./15 ARE DISMISSED AND THE PENALTY APPEALS IN ITA NOS.806 & 823/MDS./15 ARE ALLOWED. ORDER PRONOUNCED ONTHURSDAY , THE 24 TH OF MARCH,2016 AT CHENNAI. SD/- SD/- ! ' # . $ %& ' ( DUVVURU RL REDDY ) ) ( ( () * + ) ) ! CHANDRA POOJARI ', JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE MARCH,2016 . K S SUNDARAM. ITA NOS.805, 806/MDS/2015 ITA NOS.823,824/MDS/2015 31 -.,, /0,10 /COPY TO: , 1. /APPELLANT 2. /RESPONDENT 3. , 2,!' /CIT(A) 4. , 2 /CIT 5. 034, 5 /DR 6. 4&,6 /GF