Interest subsidy is capital receipt hence not taxable

Birla Corporation Limited Vs DCIT (ITAT Kolkata)

ITAT Kolkata held that interest subsidy received under the amended Rajasthan Investment Promotion Scheme, 2003 is capital receipt and hence the same is not chargeable to tax.

Facts-

The Department’s appeal relates to the assessee’s claim that interest subsidy, since renamed “Capital Investment Subsidy”, of Rs. 3,04,22,210/- received under the amended Rajasthan Investment Promotion Scheme, 2003 in respect of expansion undertaken at the assessee’s Chanderia Cement Works should be treated as a capital receipt. The AO held that the subsidy was incidental to carrying on of the business of the assessee and treated the same as revenue receipt. On appeal, the CIT(A) held it to be a capital receipt by following the Tribunal’s decision in assessee’s own case.

Conclusion-

We find that this Tribunal in assessee’s own case for AY 2010-11 dealt with this issue and decided in assessee’s favour observing that interest subsidy in question is a capital receipt not chargeable to tax.

Held that since the issues raised before us are squarely covered by the decision of this Tribunal in assessee’s own case for preceding assessment year i.e. AY 2010-11 and Revenue being unable to controvert this fact by placing any other binding precedence in its favour, we fail to find any infirmity in the finding of the CIT(A).

FULL TEXT OF THE ORDER OF ITAT KOLKATA

The captioned cross appeals pertaining to the Assessment Years (in short “AY”) 2011-12 & 2012-13 are directed against separate orders passed u/s 250 of the Income Tax Act, 1961 (in short the “Act”) by ld. Commissioner of Income-tax (Appeals)-6, Kolkata [in short ld. “CIT(A)”] dated 02.07.2018 which are arising out of the assessment orders framed u/s 143(3) of the Act.

2. Registry has informed that assessee’s appeals are time barred by 741 days. Condonation application has been filed by the assessee. After perusing the same, we find that the reason stated by the assessee for the said delay is for making claim of deduction of education cess in view of the judgment of Hon’ble Bombay High Court in the case of Sesa Goa Ltd. dated 28.02.2020. Though notice in respect of the Department’s appeal was received by the assessee on 14.02.2018, at that point of time assessee did not intend to file any cross appeal. But, due to later development arising out of the said judgment, assessee after taking advice from its consultant decided to file the cross appeals. Some part of delay is also on account of COVID-19 restrictions arising out of the outbreak of COVID-19. We therefore, find merit in the condonation application filed by the assessee and in the larger interest of justice condone the delay and admit the assessee’s appeal for adjudication.

3. The assessee has raised the following grounds of appeal:

Assessment Year 2011-12:

“1. For that education cess included in the liability for income tax is an allowable deduction under section 37(1) of the Income Tax Act, 1961 (in short “the Act”) and is not hit by section 40(a)(ii) of the Act.

2. For that the Commissioner of Income Tax (Appeals) erred in not directing the Assessing Officer to allow the deduction of actual payment made during the previous year relevant to the assessment year 2011-12 on account of leave liability, if the Hon’ble Supreme Court, in the case of CIT vs. Exide Industries Ltd., allow the appeal filed by the Department in their favour and deduction of provision made for Leave Liability is withdrawn, while remanding the matter to the Assessing Officer with a direction to await the decision of the Hon’ble Supreme Court in the case of Exide Industries Ltd. (supra) and decide the issue accordingly.

3. For that further and in any event, a direction may be given to the Assessing Officer to allow the deduction of actual payment made during the previous year relevant to the assessment year 2011-12 on account of leave liability under the provisions of section 43B(f) of the Act in the remand proceedings.”

Assessment Year 2012-13:

“1. For that education cess included in the liability for income tax is an allowable deduction under section 37(1) of the Income Tax Act, 1961 (in short “the Act”) and is not hit by section 40(a)(ii) of the Act.

2. For that the Commissioner of Income Tax (Appeals) erred in not directing the Assessing Officer to allow the deduction of actual payment made during the previous year relevant to the assessment year 2012-13 on account of leave liability, if the Hon’ble Supreme Court, in the case of CIT vs. Exide Industries Ltd., allow the appeal filed by the Department in their favour and deduction of provision made for Leave Liability is withdrawn, while remanding the matter to the Assessing Officer with a direction to await the decision of the Hon’ble Supreme Court in the case of Exide Industries Ltd. (supra) and decide the issue accordingly.

3. For that further and in any event, a direction may be given to the Assessing Officer to allow the deduction of actual payment made during the previous year relevant to the assessment year 2012-13 on account of leave liability under the provisions of section 43B(f) of the Act in the remand proceedings.”

3.1. The Revenue is in appeal before this Tribunal raising the following grounds:

Assessment Year 2011-12:

“1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred by allowing the claim of balance additional depreciation of Rs.1,43,97,535/-.

2. Whether on the facts and in the circumstances of the case, the Ld. CIT (A) has erred in holding that deduction u/s 80IA of the IT Act will be allowed as claimed by the assessee of Rs.95,02,42,853/-.

3. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that compensation paid Rs.35,79,586/- to obtain raw materials is Revenue Expenditure not Capital expenditure.

4. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) erred in holding that the amount received by the assessee of Rs.16,94,84,638/- as Industrial Promotion Assistance from the State Govt, is capital in nature as against revenue receipt as treated in the assessment order.

5. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) erred in holding that the amount received by the assessee for Rs.3,04,22,210/- as Interest Subsidy from the State Govt, is capital in nature as against revenue receipt as treated in the assessment order.

6. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in deleting the addition made by A.O u/s 14A under Rule 8D without appreciating the CBDT Circular N0-5/2014.

7. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that the impugned capital receipt is neither taxable under normal provisions of the Act nor under the MAT provision without considering that the accounts of the assessee company were prepared in accordance with the provisions of Companies Act and these incentives were credited to Profit & Loss Account, and this claim was not made through IT Return of Revised IT Return.

8. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law by deleting upward adjustment made to Book Profit for disallowance computed u/s. 14A read with rule 8D.

9. That the appellant craves for leave to add, delete and modify any of the grounds of appeal before or at the time of hearing.”

Assessment Year 2012-13:

“1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred by allowing the claim of balance additional depreciation of Rs.19,62,84,508/-.

2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A)has erred in holding that deduction u/s 80IA of the IT Act will be allowed as claimed by the assessee of Rs.109,92,96,346/-.

3. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that compensation paid Rs.30,64,547/- to obtain raw materials is Revenue Expenditure not Capital expenditure.

4. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) erred in holding that the amount received by the assessee of Rs.21,53,28,688/- as Industrial Promotion Assistance from the State Govt, is capital in nature as against revenue receipt as treated in the assessment order.

5. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) erred in holding that the amount received by the assessee for Rs.1,46,56,285/- as Interest Subsidy from the State Govt, is capital in nature as against revenue receipt as treated in the assessment order.

6. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in deleting the addition made by A.O u/s 14A under Rule 8D without appreciating the CBDT Circular No-5/2014.

7. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that the impugned capital receipt is neither taxable under normal provisions of the Act nor under the MAT provision without considering that the accounts of the assessee company were prepared in accordance with the provisions of Companies Act and these incentives were credited to Profit & Loss Account, and this claim was not made through IT Return of Revised IT Return.

8. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law by deleting upward adjustment made to Book Profit for disallowance computed u/s. 14A read with rule 8D.

9. That the appellant craves for leave to add, delete and modify any of the grounds of appeal before or at the time of hearing.”

4. In the cross appeals for AY 2011-12 & AY 2012-13 most of the issues raised by the Revenue are common, therefore, as agreed by both the parties, the same are taken up together and are being disposed off by this common order for the sake of convenience and brevity.

5. For the purpose of adjudication of the issues, we will take the facts for AY 2011-12. Brief facts of the case are that the assessee is a limited company engaged in manufacturing of cement, generation and selling of power, jute goods, auto trim parts, iron and steel castings. Return of income for AY 2011-12 was filed on 30.09.2011 declaring loss of Rs. 1,95,29,34,610/-. This return was further, revised on 22.05.2012. Case selected for scrutiny through CASS followed by serving of valid notices u/s 143(2) & 142(1) of the Act. Various details called for were filed by the assessee and ld. AO after considering the submissions of the assessee assessed the income at Rs. 3,17,91,06,973/- making various additions/disallowances. Book profit assessed at Rs. 4,27,46,49,075/-.

6. Aggrieved, the assessee preferred appeal before ld. CIT(A) and partly succeeded.

7. Aggrieved, now both assessee and Revenue are in appeal before this Tribunal.

8. The main appeals are of the Revenue. Therefore, issues raised by the Revenue are decided first. At the outset, ld. Counsel for the assessee submitted that most of the issues raised by the Revenue are squarely covered in favour of the assessee by the decision of this Tribunal in assessee’s own case for preceding years and copy of the decisions are placed on record.

9. Ld. D/R failed to controvert this fact that most of the issues have already been dealt in the past by this Tribunal.

Revenue’s common Ground no. 1 for AY 2011-12 & 2012-13 relating to the claim of additional depreciation of Rs.  1,43,97,535/- u/s 32(1)(iia):

10. We have heard rival contentions and perused the records placed before us. The first common ground raised in the Department’s appeal relates to the assessee’s claim for 50% initial depreciation u/s 32(1)(iia) of the Act amounting to Rs.1,43,97,535/- in respect of new plant and machinery purchased and installed in the preceding year but put to use for a period of less than 180 days in that year. In view of the second proviso to section 32(1) of the Act, for the assessment year 2010­11, the assessee claimed only 50% initial depreciation and the remaining 50% was claimed in the assessment year 2011-12. Ld. AO disallowed the claim on the ground that initial depreciation is available only in the year of purchase and cannot be claimed in the subsequent year. The ld. CIT(A) allowed the claim of the assessee by following the decision of this Hon’ble Tribunal in assessee’s own case for the assessment year 2007-08.

10.1. It is submitted that the identical claim of the assessee for the assessment year 2007-08 was allowed by the Hon’ble Tribunal by an order dated December 8, 2014 (page 83 at Pp 86-88 of Paper Book-paragraphs 10 at 15-18). The Hon’ble Tribunal also allowed the said claim for the assessment years 2008-09 and 2009-10 by a consolidated order dated August 25, 2017 (Page 140 at Pp 142­144 of Paper Book-paragraphs 7 at 7.2) and for the assessment year 2010-11 by an order dated September 13, 2017 (Page 180 at Pp 182-185 of Paper Book-paragraphs 46 at 52-53). The orders of this Hon’ble Tribunal for the assessment years 2008-09, 2009-10 and 2010-11 were passed after taking into consideration the judgment of the Hon’ble Karnataka High Court in CIT v. Rittal India (P) Limited, (2016) 380 ITR 423 (Karn). Subsequently, the Hon’ble Madras High Court in CIT vs. Shri T.P. Textiles (P.) Ltd., [2017] 394 ITR 483 (Mad) [Page 1 at Pp 4-8 of Compilation of Case Laws] has agreed with the Hon’ble Karnataka High Court. The issue is thus covered in favour of the assessee. We find that this Tribunal in assessee’s own case for AY 2010-11 dealt with this issue and decided in assessee’s favour observing as follows:

“52. Aggrieved by the order of CIT(A) the assessee has raised ground no. l before the Tribunal. At the time of hearing both the parties agreed that identical issue came up for consideration in assessee’s own case in ITA No.971/Kol/2012, 942/Kol/2013, 298 & 329/Kol/2013 for A.Y.2008-08 and 2009-10 order dated 25.8.2017. This Tribunal on the identical issue held as follows:

“7.2. We have heard the rival submissions and perused the materials available on record. We find that the issue under dispute is squarely covered in favour of the assessee by the decision of this tribunal in the case of Hindustan Gum & Chemicals Ltd vs DCIT in ITA Nos. 462 & 752/Kol/2014 for Asst Year 2008-09 vide order dated 8.3.2017 wherein it was held that:

6.3. We have heard the rival submissions. We find that the issue under dispute is squarely covered by the decision of the co-ordinate bench of this tribunal supra wherein it was held as under”

“4. Ground no. 1 relating 10 depreciation on plant and machinery which were put to use less than 180 days during the said financial year. During the previous assessment year (2006- 07) the assessee claimed 50% of depreciation and it was allowed. Now for the year under consideration, the assessee claimed further 10% depreciation to the extent of &. 20, 97, 495/- under second proviso to Sec. 32(l)(iia) of the Act. The AD denied the same on the ground that the Act does not have option where assessee can claim remaining depreciation in subsequent year. The CIT(A) confirmed the order of the AD. however, directed the AD to recalculate the amount of depreciation on written down value (WDV).

5. The Ld. AR before us submits that the case in hand is squarely covered by the decision of the Hon’ble Karnataka High Court in the case of CIT & Anr Vs. Rittal India Pvt. Ltd reported in (2016) 380ITR 423 (Karn).

6. The Ld. Sr. DR relied on the orders of the authorities below.

7. Heard both the parties and perused the relevant material on record. In this regard, we may refer to the decision of the Hon’ble High Court of Karnataka in the case of CIT and another vs. Rittal India Private Ltd (supra). The facts of the case therein are that the assessee being an existing industrial undertaking had acquired and installed new plant and machinery in the F. Y 2006-07 and claimed 50% of additional 20% depreciation i.e, 10% additional depreciation under section 32(l)(iia) of the Act in the corresponding assessment year 2007-OS for the reason that the new machinery was acquired after 01-10-2006. The relevant portions at page no ‘s at 9 and 10 of which is reproduced herein below for below for better understanding:

“The language used in clause (iia) of the said section clearly provides that “a further sum equal to 20 per cent, of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii)”. The word “shall” used in the said clause is very significant. The benefit which is to be granted is 20 per cent, additional depreciation. By virtue of the proviso referred to above, only 10 per cent, can be claimed in one year, if plant and machinery is put to use for less than 180 days in the said financial year. This would necessarily mean that the balance 10 per cent, additional deduction can be availed of in the subsequent assessment year, otherwise the very purpose of insertion of clause (iia) would be defeated because it provides for 20 per cent, deduction which shall be allowed.

It has been consistently held by this court, as well as the apex court, that the beneficial legislation, as in the present case, should be given liberal interpretation so as to benefit the assessee. In this case, the intention of the legislation is absolutely clear, that the assessee shall be allowed certain additional benefit, which was restricted by the proviso to only half of the same being granted in one assessment year, if certain condition was not fulfilled. But, that, in our considered view, would not restrain the assessee from claiming the balance of the benefit in the subsequent assessment year. The Tribunal, in our view, has rightly held, that additional depreciation allowed under section 32(1)(iia) of the Act is a one-time benefit to encourage industrialisation, and the provisions related it have to be construed reasonably, liberally and purposively to make the provision meaningful while granting the additional allowance. We are in full agreement with such observations made by the Tribunal.”

8. Heard both parties and perused the relevant material on record. By reading of Clause (iia) to sub-section (1) of section 32 provides for allowance of initial depreciation equal to 20% of the actual cost of new plant and machinery acquired and installed after March 31, 2005 with effect from the assessment year 2006-07 to those who engaged in the business of manufacture or production of any article or thing. Therefore, the assessee is entitled to claim 20% of depreciation equal to the actual cost of plant and machinery, but, whereas the 2nd proviso to section 32(1) of the Act restrains the authority to allow depreciation to 50% of such 20% if the subjected plant and machinery acquired during the previous year and is put 10 use for a period of less than 180 days in that previous year. According to AO in his order at page no-4 referred that the assessee put to use new plant and machinery for less than 1B0 days and confirmed by the CIT-A in para-8 of impugned order and it is a requirement under 2nd proviso to section 32(1) which lifts the restriction on AO allow the further depreciation of 10% of which remained unclaimed out of 20% as referred in Clause (iia) to sub-section (1) of section 32 of the Act. The facts of the present are similar to the decision supra relied on by the assessee. Therefore, we are of the view that the law laid down by the Hon’ble High Court of Karnataka in the case of CIT and another vs. Rittal India Private Lid supra is applicable to the present case, thus we hold that the assessee is entitled to claim remaining 50% depreciation of such 20% which is equal to the actual cost of new plant and machinery, accordingly ground no-I raised by the assessee is allowed.”

Respectfully following the same, we dismiss Ground No. 2 raised by the revenue”.

Respectfully following the said decision supra, we hold that the assessee is entitled for remaining portion of additional depreciation in the asst years 2008-09 and 2009-10 and accordingly the grounds raised by the assessee in this regard are allowed.”

53. Respectfully following the decision of the Tribunal the assessee is entitled to additional depreciation (remaining portion). Thus ground no. 1 raised by the assessee is allowed.”

10.2. Since the issues raised before us are squarely covered by the decision of this Tribunal in assessee’s own case for preceding assessment year i.e. for AY 2010-11 referred above and Revenue being unable to controvert this fact by placing any other binding precedence in its favour, we fail to find any infirmity in the finding of ld. CIT(A). Thus, common ground no. 1 for AY 2011-12 & AY 2012-13 raised by the Revenue is dismissed.

Revenue’s common Ground no. 2 for AY 2011-12 & 2012-13  relating to the deduction u/s 80IA of the Act in respect of thermal power plants for generating electricity:

11. We have heard rival contentions and perused the records placed before us. The second common ground raised in the Department’s appeal relates to the assessee’s claim for deduction under section 80IA in respect of the thermal power plants set up by it at Satna, M.P. and Chanderia, Rajasthan. The electricity generated by the two power plants was transferred to the assessee’s cement manufacturing units. Further, electricity was also sold to independent third parties during the year under reference. Having regard to the provisions of sub-section (8) of section 80IA of the Act, the electricity transferred from the power plants to the cement manufacturing units was valued by the assessee with reference to the amount charged by the concerned State Electricity Board in its bills raised upon the assessee. The assessee took into consideration the average rate charged by the State Electricity Board for the previous month even though the rates at which electricity was sold by the assessee to third parties were higher than the rate charged by the State Electricity Board.

11.1. Ld. AO, however, reworked the profits of the power plants for the assessment year under reference by substituting the value of electricity adopted by the assessee with much lower figures. Such lower figures were taken by the ld. AO from orders passed by the concerned State Electricity Regulatory Commission. For the State of Rajasthan, the ld. AO referred to an order dated November 16, 2010 passed by the Regulatory Commission of that State determining the annual fixed charges and energy charge in accordance with the statutory parameters and norms in respect of power generated by Rajasthan Rajya Vidyut Utpadan Nigam at its different generating stations and supplied to electricity distribution companies. The tariff was separately determined for each generating station based on different elements of cost incurred at each such station. For the State of Madhya Pradesh, the ld. AO referred to an order dated March 3, 2010 passed by the Regulatory Commission of that State determining, in accordance with the statutory parameters and norms, the fixed charges and energy charges for each generating station of the Madhya Pradesh Power Generating Company Limited which it could charge in respect of electricity supplied to electricity distribution companies. The working made by the ld. AO on such basis resulted in losses for both the power plants. As such, the ld. AO held that no deduction was available to the assessee under section 80IA. On appeal, the ld. CIT(A) accepted the assessee’s working and granted relief to it following the order dated August 25, 2017 of this Hon’ble Tribunal in the assessee’s own case for the assessment years 2008-09 and 2009-10.

11.2. It is submitted by ld. Counsel for the assessee that the question in controversy is covered by the said order dated August 25, 2017 of this Hon’ble Tribunal in the assessee’s own case for the assessment years 2008-09 and 2009-10 (Page 125 at pages 133 – 136 of Paper Book). In the said order, this Hon’ble Tribunal took note of the decision of the Hon’ble Calcutta High Court in CIT v. ITC Limited (2016) 236 Taxmann 612 (Calcutta) for the assessment year 2002-03 when the provisions of Indian Electricity Act, 1910 and Electricity (Supply) Act, 1948 were in force. It was noted that because of the provisions of the said legislation it was held by the Hon’ble High Court that a captive power plant could sell electricity only to a generating and distribution company or to a distribution company and such sale could only be made at the tariff determined by the State Regulatory Commission. It was on such basis that the Hon’ble High Court held that electricity generated and captively consumed could only be valued with reference to the price charged by a generating company to a distribution company or a generating and distribution company and that the price charged from the consumer by the distribution company was not relevant. This Hon’ble Tribunal considered the provisions of the Electricity Act, 2003, which came into force on June 10, 2003, repealed the previous legislation, and was in force during the previous years relevant to the assessment years 2008­09 and 2009-10. The sea change in the law brought about by the Electricity Act, 2003 was considered along with the regulations made by the Regulatory Commissions in the two States. It was noted that by reason of the 2003 legislation and regulations made thereunder, it was open to the assessee to sell electricity even to consumers and such sale could take place at mutually agreed rates notwithstanding the tariff fixed by the State Regulatory Commission. This Hon’ble Tribunal took note of the fact that in one of the years before it, the assessee in fact sold electricity at rates higher than that charged from it by the State Electricity Board. This Hon’ble Tribunal held that when it was permissible for the assessee to sell electricity to consumers at rates higher than that paid to the State Electricity Board, the prices charged by the State Electricity Board were a very good indication of the market value of electricity. This Hon’ble Tribunal thus concluded that the assessee did not commit any error in adopting such prices for working out the amount eligible for deduction under section 80IA of the Act.

11.3. The Hon’ble Tribunal by an order dated September 13, 2017 for the assessment year 2010-11 (Page 153, at Pp 159-162 of the Paper Book, paragraph 3 at paragraphs 13-16) followed the said decision for the assessment years 2008-09 and 2009-10 on this issue.

11.4. It is further submitted that against the said decision of the Hon’ble Tribunal dated August 25, 2017 for the assessment years 2008-09 and 2009-10 the department preferred appeal before the Hon’ble Calcutta High Court under section 260A of the Act, being ITA No. 125/2019 (Question (iii)-Page 11 at page 25 of the Compilation of Case Laws). The Hon’ble High Court, by an order dated September 12, 2019 (Page 9-10 of the Compilation of Case Laws) was pleased not to admit the appeal on this issue. The department also preferred appeal against the decision of the Hon’ble Tribunal dated September 13, 2017 for the assessment year 2010-11 before the Hon’ble Calcutta High Court under section 260A of the Act, being ITA No. 124/2019 (Memorandum of appeal at Page 31-35 of the Compilation of Case Laws). A supplementary affidavit was filed in the said appeal reformulating the questions (page 36 at pages 42 – 44 of the Compilation of Case Laws). It would appear from the order of admission dated March 11, 2020 (page 29 of the Compilation of Case Laws) that the question admitted with reference to section 80IA is only in relation to sale of electricity by the assessee to Indian Energy Exchange and Rajasthan Power Procurement Centre. We find that this Tribunal in assessee’s own case for AY 2010-11 dealt with this issue and decided in assessee’s favour observing as follows:

“13. At the time of hearing the parties agreed that identical issue has already been decided in assessee’s own case and in this regard filed a copy of the order of ITAT for A.Y.2008-09 and 2009-10 in ITA No.971/Kol/2012, 942/Kol/2013, 298/Kol/2013 and 329/Kol/2013 dated 25.8.2017. We have already seen that while deciding the issue of deduction u/s.80IA of the Act, the CIT(A) in the impugned order had followed the order of the CIT(A) in Assessee’s own case on an identical issue in AY 09-10. The order of the CIT(A) for AY 09-10 was based on a decision of the Hon’ble ITAT Kolkata Bench in the case of ITC Ltd., for AY 2002-03. When the appeal of the Revenue in Assessee’s case for AY 09-10 was heard by the Tribunal, the revenue pointed out before the Tribunal that the very basis of allowing relief to the Assessee was the decision of the Tribunal in the case of ITC Ltd., and that the Hon’ble Calcutta High Court had reversed the order of the Tribunal in the case of ITC Ltd., reported in CIT v ITC Ltd., (2016) 236 Taxman 612 (Cal). In ITC’s case (supra) it was held by the Hon’ble Calcutta High Court, that the quantum of benefit u/s 80IA of the Act was to be worked out with reference to the market rate at which electricity could have been sold to the distribution licensee by a generating company and that benefit cannot be claimed on the basis of rate chargeable by the distribution licensee from the consumer. The Assessee however pointed out to the Tribunal that the view taken by the Hon’ble Calcutta High Court in the case of ITC Ltd. (supra) was taken on the basis of the provisions of Indian Electricity Act, 1910 and Electricity (Supply) Act, 1948 that were in force up to the year 2003. It was pointed out before the Tribunal that The Electricity Act, 2003 (hereinafter referred to as “the 2003 Act”) repealed the erstwhile legislation and the new legislation came into force on June 10, 2003. The 2003 Act was applicable and in force during the previous years relevant to the Asst Years 2009-10. It was also pointed out before the Tribunal as per the provisions of the 2003 Act and the regulations made in terms thereof by the States of Madhya Pradesh and Rajasthan, it was open to an assessee having a captive power plant to sell electricity even to a consumer at a mutually agreed rate. In other words, under the provisions of the 2003 Act and the regulations made there under it is not the position that a captive power plant can sell electricity only to a distribution company or a company which is engaged in both generation and distribution. The Tribunal after making reference to the various provisions of the Electricity Act 2003 and the determination of Tariff under the new legislation in the state of Rajasthan and Madhya Pradesh, as claimed by the Assessee before the AO, came to the following conclusions:

“5.6. We have heard the rival submissions and perused the materials available on record including the paper book and the relevant provisions of the Electricity Act, 2003 as detailed supra. We find that the main thrust of order of Id CITA was by placing reliance on the decision of this tribunal in the case of ITC Ltd, which was modified by the Hon’ble Jurisdictional High Court. The Id AR fairly brought to our attention the decision of Hon’ble Jurisdictional High Court in the case of ITC Ltd before us and had duly distinguished the same as not applicable to the facts of the instant case, as admittedly, the Asst Year before Hon’ble Calcutta High Court in ITC Ltd was Asst Year 2002­03. The said decision in ITC Ltd for Asst Year 2002-03 was rendered by taking into account the relevant provisions of Indian Electricity Act, 1910 and Electricity (Supply) Act, 1948. These Acts were repealed and a new Electricity Act 2003 was introduced with effect from 10.6.2003. Hence for the Asst Years 2008-09 and 2009-10 (i.e. the years under appeal before us), the assessee would be governed by the provisions of Electricity Act, 2003.

5.6.1. We have already seen that the ITC’s case in Hon’ble Calcutta High Court, proceeded on the basis that the open market for the captive power plant was only a distribution company or a company engaged both in generation and distribution and that the rate at which electricity could be sold by the captive power plant was the one fixed by the tariff regulatory commission. However, such position has undergone sea change inasmuch as during the relevant previous years it was open to the assessee to sell even to a consumer and the price for sale to a distribution company or to a consumer that could be mutually agreed upon notwithstanding the tariff fixed by the State Regulatory Commission. We find that during the previous year relevant to the Asst Year 2009-10, the assessee in fact sold electricity at rates higher than that charged from it by the State Electricity Board. The assessee nevertheless made the computation for the purpose of section 80IA of the Act with reference to the price charged from it by the State Electricity Board. In such circumstances, we hold that, when it was permissible for the assessee to sell electricity to consumers and distribution licensees at rates higher than that paid by it to the State Electricity Board, the price charged by the State Electricity Board would be a very good indication of the market value of electricity and the assessee did not commit any error in adopting such price for working out the amount eligible for deduction u/s 80IA of the Act.”

14. After coming to the conclusion that the decision of the Hon’ble Calcutta High Court in the case of ITC Ltd. (supra) would not be applicable to the case of the Assessee, the Tribunal thereafter went into the question as to what would be appropriate rate to the adopted as sale price by the TPP unit of the Assessee to its Cement manufacturing units. The Tribunal thereafter referred to the decision of the Hon’ble Supreme Court in the case of Thiru Arooran Sugars Ltd. v CIT, (1997) 227 ITR 432 (SC), as to the meaning of the word “Market Price” wherein in the context of market price of sugarcane which was also a commodity whose price was subject to control by the Government held that the price at which a manufacturer buys sugarcane must be taken to be the market price. The Hon’ble Supreme held that if the price is controlled by the Sugarcane Control Order, the controlled price will be taken as the market price, because it is at this price that a willing buyer and a willing seller are expected to transact business. The Tribunal agreed with the submission of the Assessee that as held in the aforesaid judgment of the Hon’ble Supreme Court, the price paid by an assessee for purchase of raw material represents the market price of such raw material produced by the assessee. The said judgment was held not to apply in ITC’s case because the Hon’ble Court was of the view that electricity could not be sold to the consumer because of specific prohibition in the erstwhile Electricity Act and as such the price to the consumer could not be taken into account. We find that that is not the position in the instant case. The Tribunal also held that the method adopted by the assessee viz. to take the average rate charged by the State Electricity Board for the previous month is quite appropriate and reasonable for determining the market value for the month of supply. The tribunal held that the annual weighted average adopted by the Id CITA would result in variations occurring during the year at different times being made applicable uniformly for the whole year and therefore the assessee’s method is more appropriate as it factors in variations as and when they take place.

15. On the issue whether electricity duty and cess has to be excluded from the price while determining profits derived from the business, the Tribunal held that they are also to be considered as part of the price. The following were the relevant observations of the Tribunal:

“5.6.5. Exclusion of Electricity Duty and Cess as directed bv Id CITA Now coming to the decision of the Id CITA to exclude electricity duty and cess, we find that the same has been addressed by the Hon’ble Gujarat High court in the case of CIT vs Shah Alloys Ltd in Tax Appeal No. 2092 of 2010 dated 22.11.2011, which approved the view taken by the Ahmedabad Tribunal in ITA Nos.844, 2072 and 2073/Ahd/2006 dated 8.1.2010, that the price charged by the Electricity Board inclusive of the amount of Electricity Duty represented the market value even though the assessee was not required to charge electricity duty.

5.6.6. In view of our aforesaid findings, we direct the Id AO to accordingly modify the earlier years profits also which were modified by him, in the same lines as directed for Asst Years 2008-09 and 2009-10 herein. Accordingly, the grounds raised by the assessee in this regard deserve to be allowed and that of the revenue deserve to be dismissed.”

16. The aforesaid decision of the tribunal would apply to the present AY also. Respectfully following the order of the Tribunal we allow grounds 2 to 4 & 6 raised by the assessee in its appeal and dismiss ground no. l raised by the revenue in its appeal.”

11.5. Since the issues raised before us are squarely covered by the decision of this Tribunal in assessee’s own case for preceding assessment year i.e. AY 2010-11 and Revenue being unable to controvert this fact by placing any other binding precedence in its favour, we fail to find any infirmity in the finding of ld. CIT(A). Thus, common ground no. 2 for AY 2011-12 & AY 2012-13 raised by the Revenue is dismissed.

Revenue’s common Ground no. 3 for AY 2011-12 & 2012-13  relating to the claim of compensation paid for obtaining limestone connected to mining activity:

12. We have heard rival contentions and perused the records placed before us. The third common ground in the Department’s appeal relates to disallowance of the assessee’s claim for deduction of Rs.35,79,586/- on proportionate basis of the compensation paid in connection with the mining activity for obtaining limestone used as raw material for manufacture of cement. Compensation of Rs.17,92,420/- relates to the assessee’s Satna Cement Works and the balance amount of Rs.17,87,166/- relates to its Birla Cement Works.

12.1. For obtaining limestone, which is the main raw material for manufacture of cement, the assessee is required to pay rent/royalty to the State Government in terms of the mining lease. Such rent/royalty paid to the State Government is debited to the profit and loss account. In terms of the mining lease and requirement of the relevant State Land Revenue law, in addition to the rent/royalty, the assessee is also required to pay compensation as determined by the local authority/court to the persons whose rights are infringed because of the mining activity. No interest in land is acquired by payment of such compensation. Compensation has to be paid in order to obtain the raw material for the assessee’s business, thereby facilitating the carrying on of its business. The assessee has been following the practice of claiming the amount of compensation proportionately over the period of the mining lease in order to avoid any distortion due to claim of the entire amount of compensation in the year of payment. The ld. AO, however, sought to treat such compensation as capital expenditure. The ld. CIT(A) granted relief to the assessee following the orders of this Hon’ble Tribunal in the assessee’s case for the assessment years 2006-07 to 2010-11.

12.2. The identical disallowance was made in the assessment year 2006-07. Relief was granted to the assessee on first appeal by order dated July 9, 2010 against which the revenue preferred further appeal before this Hon’ble Tribunal, being ITA No. 1936 (Kol) of 2010. The said appeal was rejected by the Hon’ble Tribunal by order dated July 29, 2011 (Page 66 at Page 73 of the Paper Book – paragraphs 10 at 15). This Hon’ble Tribunal also rejected the Department’s appeal for the assessment years 2007-08 (Pages 97­98 of the Paper Book, paragraphs 33 at 34) and assessment years 2008-09 and 2009-10 (Page 106 at Pp 107-108 of the Paper Book, paragraphs 2 at 2.2), by following its order for the assessment year 2006-07. The Hon’ble Tribunal dismissed the Department’s appeal for the assessment year 2010-11 (Page 163 at Pp 164-165 of the Paper Book-paragraphs 18 at 22-23) by following its order for the assessment years 2008-09 and 2009-10.

12.3. The Department preferred appeals before the Hon’ble Calcutta High Court against the orders of this Hon’ble Tribunal for the assessment years 2007-08 [ITAT 80/2015 and GA 1714/2015 – Page 47 at 52 – Question 2(c) of the Compilation of Case Laws] and for the assessment year 2010-11 [ITA 124/2019-Supplementary Affidavit affirmed by the Department – Page 36 at Page 43 – Question 14(c) of the Compilation of Case Laws]. The Hon’ble High Court, by orders dated September 26, 2019 (Pages 45-46 of the Compilation of Case Laws) and March 11, 2020 (Page 29 at Page 30 of the Compilation of the Case Laws) respectively, was pleased not to admit the said appeals filed by the department on this issue for the assessment years 2007-08 and 2010-11. Further, this issue was not raised by the department before the Hon’ble Calcutta High Court in ITA No. 125/2019 preferred for the assessment years 2008-09 and 2009-10 (Page 11 at Pp 23-25 of the Compilation of Case Laws). We find that this Tribunal in assessee’s own case for AY 2010-11 dealt with this issue and decided in assessee’s favour observing as follows:

“19. We have already seen that the Assessee is also in the business of manufacturing of cement. Limestone is the main raw material for manufacture of cement. The Assessee obtained mining lease from the State Government for quarrying limestone. It had to pay royalty to the State Government in terms of the mining lease. The terms of the mining lease also provided that over and above the royalty payable to the State Government, the Assessee is also required to pay compensation as determined by the local authority/court to the persons whose rights are infringed because of the mining activity. The Assessee claimed the compensation so paid was a revenue expenditure and allowable as a deduction while computing income from business. It was the plea of the Assessee that by incurring these expenses, no interest in land and that compensation has to be paid in order to obtain the raw material for the assessee’s business, thereby facilitating the carrying on of its business. The AO however found that in earlier years such claims were disallowed treating it as capital in nature as a part of acquisition of the leasing right over and above the fees paid to Govt. The AO accordingly did not accept the claim of the assessee and disallowed the claim of the Assessee for deduction and added the sum of Rs. 23,71,340/- to the total income of the Assessee.

20. Aggrieved by the order of the AO, the Assessee preferred appeal before the CIT(A). Before CIT(A), the Assessee contended that identical disallowance was made in the assessment year 2006-07 and in first appeal, the CIT(A) by order dated July 9, 2010 deleted the addition made by the AO. Against the said order, the revenue preferred further appeal before the Hon’ble Tribunal, being ITA No. 1936 (Kol) of 2010. The said appeal has since been rejected by the Hon’ble Tribunal by order dated July 29,2011 (Page 71 to 87 the Paper Book – paragraphs 10-15 at page-77 to 84). The said decision was rendered after considering the judgment of the Hon’ble Supreme Court in Enterprising Enterprises v Deputy Commissioner, (2007) 293 ITR 437 (SC). The said order of the Hon’ble Tribunal has been followed in first appeal for the assessment years 2007-08 (page 3, para 4), 2008-09 (page 55, para 4) and 2009- 10 (page 110, para 5). It was submitted that in this year also, the compensation amount of Rs.23,71,3401-should be held to be revenue in nature and an admissible deduction.

21. The CIT(A) deleted the addition made by the AO by following the order of the Tribunal in ITA No. 1936/Kol of 2010. Aggrieved by the order of the CIT(A), the revenue has raised Gr.No.2 before the Tribunal.

22. At the time of hearing, it was brought to our notice that identical issue was considered by the Tribunal in assessee’s own case for A.Y.2008-09 and 2009-10 in ITA Nos. 971/Kol/2012 & 298/Kol/.2013 and this tribunal on an identical issue held as follows:

“2.2. We have heard the rival submissions. We find that the issue under dispute is squarely covered by the decision of this tribunal in assessee’s own case for the Asst Year 2006-07 wherein it was held that

“We have heard the parties and perused the material placed on record. The I A. Counsel for the assessee has elaborated the facts of the case making reference of several decisions of Tribunal and Hon’ble Supreme Court and High Courts. After careful consideration of the same and evidences filed on record and in the paper book, we find that the assessee is required to pay compensation as determined by the local authority/ court to the persons whose rights are infringed because of the mining activity. We also observe that Ld. CIT(A) has properly analysed the facts of the present case and distinguished the facts decided by the Hon’ble Apex Court in the case of Enterprising Enterprises vs. DCIT (supra) and then only had come to a conclusion that the compensation was paid for the damaged caused on the infringement of right of the land owner. He has also analysed that the payments are progressively distributed as they work, as they proceed year by year, going on with their work and the payments are in the nature of incidental expenditure to conduct the mine and the business operations. He, therefore, held that the payment of compensation to persons whose rights are infringed by the mining activity is revenue in nature. We, therefore, find no infirmity in the order of the Ld. CIT(A) on this issue and confirmed the same. Ground no. 1 of the Revenue’s appeal is thus dismissed.”.

The facts in the years under dispute is also analogous to that in earlier years and hence respectfully following the order of this tribunal supra, we don’t find any infirmity in the order of the Ld. CITA in this regard. Accordingly, the grounds raised by the revenue in this regard are dismissed.

23. Following the aforesaid decision, we uphold the order of CIT(A) and dismiss ground no.2 raised by the revenue.”

12.4. Since the issues raised before us are squarely covered by the decision of this Tribunal in assessee’s own case for preceding assessment year i.e. AY 2010-11 and Revenue being unable to controvert this fact by placing any other binding precedence in its favour, we fail to find any infirmity in the finding of ld. CIT(A). Thus, common ground no. 3 for AY 2011-12 & AY 2012-13 raised by the Revenue is dismissed.

Revenue’s common Ground no. 4 for AY 2011-12 & 2012-13 relating to the treating of industrial promotion assistance from the State Government as capital receipt:

13. We have heard rival contentions and perused the records placed before us. The fourth common ground of the Department’s appeal relates to the assessee’s claim that industrial promotion assistance of Rs.16,94,84,638/- received from the West Bengal State Government is a capital receipt and cannot be subjected to tax. The said amount was received by the assessee in terms of the West Bengal Incentive Scheme, 2000 (hereinafter referred to as “the 2000 Scheme”) for expansion undertaken at the assessee’s Durgapur Cement Works involving an investment of about Rs.100 crore.

13.1. The material facts are that the assessee undertook expansion at its cement unit in Durgapur, West Bengal at a cost of about Rs.100 crore and increased the manufacturing capacity from 0.6 million tonnes per annum to 1.6 million tonnes per annum. The expansion was practically a new unit. Commercial production post-expansion commenced in December, 2005. The said expansion undertaken by the assessee qualified as a Mega Project under the 2000 Scheme because of the extent of investment. In terms of the 2000 Scheme, the assessee was entitled to industrial promotion assistance which was quantified at 75% of the sales tax paid in the preceding year. The amount of assistance was to be adjusted against the sales tax liability of the year in which the assistance was claimed. Such industrial promotion assistance was available to the assessee for ten years. The assessee’s contention was that the object for which the assistance was granted under the provisions of the 2000 Scheme was to enable the setting up of a new unit or expansion of an existing unit and that the assistance was on capital account. Measurement of the amount of assistance with reference to the sales tax paid and payment of the assistance by way of adjustment against the sales tax liability merely related to the form or mechanism through which the assistance was granted and did not determine the character of the subsidy. The amount of sales tax paid was only the measure for determining the quantum of assistance. Further, the time of payment of the assistance was also of no relevance.

13.2. The ld. AO, however, took the view that the assistance was in the form of relaxation of tax and supplemented the assessee’s trade receipts and profits and was a revenue receipt. On appeal, the ld. CIT(A) accepted the assessee’s claim following the decisions of the Hon’ble Tribunal in the assessee’s own case for the assessment years 2008-09 to 2010-11.

13.3. It is submitted that the identical question fell for consideration in the assessee’s own case for the assessment years 2008-09 and 2009-10 and was decided in assessee’s favour by this Hon’ble Tribunal by a consolidated order dated August 25, 2017 (Page 115 at Pp 122-125 of Paper Book-paragraphs 4 at 4.3) and for the assessment year 2010-11 by an order dated September 13, 2017 (Page 165 at Pp 168-171 of Paper Book-paragraphs 25 at 29­30). The Department had preferred appeal against the said order dated August 25, 2017 passed by this Hon’ble Tribunal for the assessment years 2008-09 and 2009-10 before the Hon’ble Calcutta High Court under section 260A of the Act being ITA No. 125/2019, GA No. 3548/2018 (Page 11 at Pp 23-24 – Question 10(i) of the Compilation of Case Laws). The Hon’ble High Court by an order dated September 12, 2019 was pleased not to admit the said question (Page 9-10 of the Compilation of Case Laws).

13.4. The identical question involving the 2000 Scheme came up for consideration recently before the Hon’ble Calcutta High Court in PCIT vs. Budge Budge Refineries Limited, (2022) 139 taxmann.com 124 (Calcutta) and the revenue’s appeal against the order of the Hon’ble Tribunal was dismissed. We find that this Tribunal in assessee’s own case for AY 2010-11 dealt with this issue and decided in assessee’s favour observing as follows:

“29. At the time of hearing, it was agreed by both the parties that identical issue was considered by this Tribunal in assessee’s ow case in A.Y.2008-09 and 2009-10 in ITA Nos. 971/Kol/2012 and ITA No.942/Kol/2013, 298/Kol/2013 and 329/Kol/2013 and this tribunal in its order dated 25.8.2017, on the aforesaid issue held as follows:

“4.3. We have heard the rival submissions and perused the materials available on record including the paper book containing the entire West Bengal Incentive Scheme 2000 and eligibility certificate issued by the competent authority approving the expansion of existing unit thereby approving the fact of assessee falling under the category of ‘Mega Unit’ under the said scheme. We find that Subsidy could be reduced from the cost only if it is found that the cost for acquiring the asset was directly or indirectly met out of the subsidy. In order to apply the proviso, it is necessary to show that the subsidy had been directly or indirectly used to acquire the asset though it may not be possible to exactly quantify the amount directly or indirectly used for acquiring the asset. For the purpose of applying the proviso, also it has to be found that the asset was acquired by directly or indirectly using the subsidy. It is apparent from the provisions of the 2000 Scheme and the certificate of registration and eligibility certificate that the assistance was to be made available after the commencement of commercial production without any financial cap and was to be adjusted against the sales tax liability of the year of claim. The industrial promotion assistance was clearly not used directly or indirectly to acquire the assets nor any part of the cost of the assets was met directly or indirectly from the industrial promotion assistance. We find that the issue under dispute is squarely covered by the decision of this tribunal in assessee’s own case for Asst Year 2007-08 in ITA No. 683 & 581 /Kol/2011 dated 8.12.2014 wherein the grounds raised by the assessee as well as by the revenue were as under:

Assessee Ground No. 1

That on the facts and circumstances of the case, the learned CIT(Appeals) though holding that sales-tax incentive of Rs. 1238000 allowed by the State Govt, is the nature of capital receipt but erred in directing the Assessing Officer (AO) for reducing the same from the cost of Fixed Assets for the purpose of computing depreciation by applying the Explanation 10 to Sec. 43(1) of I.T.Act.

Revenue Ground No. 2

That Ld.CIT(A)-VI Kolkata has erred in law as well as on facts by deleting the addition made by the AO on account of Sales Tax Subsidy received by the assessee as revenue income of Rs 12,38,000/-.

The decision rendered thereon by this tribunal is as under:

7. We have heard rival contentions on this issue and gone through the facts and circumstances of the case. We find that the facts are discussed in detail and which are undisputed. It is admitted that the assessee’s issue of Sales Tax Incentive is capital in nature for the reason that the very scheme under which the expansion of the unit and subsidy under Rajasthan Sales Tax Scheme, 1998 was received explains the purpose of the scheme as incurring capital expenditure for installation of plant and machinery and for eligible for fixed capital investment. Even the issue of assessee is covered in its favour by Tribunal’s decision in assessee’s own case all along from AYs 2002­03 to 2006-07. It is not brought to our notice by the Revenue that the matter has been decided by Hon’ble Calcutta High Court, despite a query from the Bench. In such circumstances, and taking a consistent view, we hold that the CIT(A) has rightly treated the sales tax subsidy receipt as ‘capital in nature’.

8. In respect to the issue of application of Explanation-10 to Sec.43(1) of the Act we find from the facts of the case that the Rajasthan Govt, has framed a incentive scheme i. e., R.S.T/C.S.T. Exemptions Scheme 1998 for encouragement of setting up of industrial project or expansion of existing industrial projects. It is also a fact that the maximum limit of the subsidy was restricted with reference to the value of fixed capital investment in land, building, plant & machinery but no part of the subsidiary was specifically intended to subsidize the cost of the any fixed assets, therefore, it cannot be said that subsidy was to meet a portion of cost of asset. According to us, assessee has rightly not reduced the amount of subsidy received from the actual cost/WDV of the fixed assets while claiming depreciation. It is also a fact that revenue during scrutiny assessments of the assessee for AY s 2002-03 to 2006-07 added the subsidy amount as revenue receipt but Tribunal has considered the receipt as ‘capital’, accepting the contention of the assessee. Even Hon’ble Supreme Court in the case of PJ. Chemicals. Ltd. (supra) has considered this issue and held that where Government subsidy is intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, the specified percentage of the fixed capital cost, which is the basis for determining the subsidy, being only a measure adopted under the scheme to quantify the financial aid, is not a payment, directly or indirectly, to meet any portion of the actual cost. Therefore, the said amount of subsidy cannot be deducted from the actual cost under sec. 43(1) for the purpose allowing depreciation. It is further held that if Government subsidy is an incentive not for the specific purpose of meeting a portion of the cost of the assets, though quantified as a percentage of such cost, it does not partake the character of payment intended either directly or indirectly to meet the “actual cost”. By implication, the above judgment also provides that if the subsidy is intended for meeting a portion of the cost of the assets, then such subsidy should be deducted from the actual cost, for the purpose of computing depreciation. As per Hon’ble Supreme Court, law is that if the subsidy is asset-specific, such subsidy goes to reduce the actual cost. If the subsidy is to encourage setting up of the industry, it does not go to reduce the actual cost, even though the amount of subsidy was quantified on the basis of the percentage of the total investment made by the assessee. The law is already settled on the subject. Now, the only wavering is with reference to Explanation 10 provided under sec.43(l) of the Act. The said Explanation provides that 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 established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee. It is further, provided thereunder, that where such subsidy or grant or reimbursement of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee. In order to invoke Explanation 10, it is necessary to show that the subsidy was directly or indirectly used for acquiring an asset. This is again a question of fact. The relatable subsidy to such asset can be reduced from the cost only if it is found that the cost for acquiring that asset was directly or indirectly met out of the subsidy. Likewise in the proviso, it is necessary to show that the subsidy has been directly or indirectly used to acquire an asset but it is not possible to exactly quantify the amount directly or indirectly used for acquiring the asset. Here also, a finding of fact is necessary that an asset was acquired by directly or indirectly using the subsidy. The above Explanation and the proviso thereto do not dilute the finding of the Hon’ble Supreme Court in the case of P. J. Chemicals Ltd.(supra) that asset-wise subsidy alone can be reduced from the actual cost. The above Explanation and the proviso therein to explain the law. They are not bringing any new law different from the law considered by Hon’ble Supreme Court in the above cases.

9. In view of the above facts and circumstances of the case and legal position explained by Hon’ble Supreme Court in the case of P.J. Chemicals Ltd. (supra), we are of the vie that subsidy receipt should not be reduced from the actual cost of fixed assets for computing depreciation under the provisions of the Act. Accordingly, this issue of revenue’s appeal is dismissed and that of the assessee is allowed”.

Respectfully following the aforesaid decision of this tribunal supra, we hold that the IPA received by the assessee would have to be construed as a Capital Receipt and the same need not be reduced from the cost of assets in terms of Explanation 10 to Section 43(1) of the Act. Accordingly, the grounds raised by the revenue are dismissed and grounds raised by the assessee are allowed.

30.  Respectfully following the aforesaid decision, we hold that the subsidy in question is a capital receipt and not chargeable to tax. Ground no.3 raised by the revenue is dismissed. We also hold that capital receipt need not be reduced from the cost of the assets and under Explanation 10 to section 43(1) of the Act. We accordingly allow ground no.7 raised by the assessee in its appeal.”

13.5. Since the issues raised before us are squarely covered by the decision of this Tribunal in assessee’s own case for preceding assessment year i.e. AY 2010-11and Revenue being unable to controvert this fact by placing any other binding precedence in its favour, we fail to find any infirmity in the finding of ld. CIT(A). Thus, common ground no. 4 for AY 2011-12 & AY 2012-13 raised by the Revenue is dismissed.

Revenue’s common Ground no. 5 for AY 2011-12 & 2012-13 relating to the claim of interest subsidy from the State Government as a capital receipt:

14. We have heard rival contentions and perused the records placed before us. The fifth common ground in the Department’s appeal relates to the assessee’s claim that interest subsidy, since renamed “Capital Investment Subsidy”, of Rs. 3,04,22,210/-received under the amended Rajasthan Investment Promotion Scheme, 2003 (hereinafter referred to as “the 2003 Scheme”) in respect of expansion undertaken at the assessee’s Chanderia Cement Works should be treated as a capital receipt. The ld. AO held that the subsidy was incidental to carrying on of the business of the assessee and treated the same as revenue receipt. On appeal, the ld. CIT(A) held it to be a capital receipt by following this Hon’ble Tribunal’s decision in assessee’s own case for the assessment year 2008-09 and 2009-10.

14.1. It is submitted that this question is concluded in the assessee’s favour by the decision of the Hon’ble Tribunal in assessee’s own case for the assessment year 2007-08 in ITA as 683 and 581/Kol/2011 decided on December 8, 2014 (page 77 at pages 88 – 94 of the Paper Book). After considering the provisions of the 2003 Scheme, the Hon’ble Tribunal held that the assistance granted under the scheme was to enable the setting up of a new unit or expansion of an existing unit and was a capital receipt. The said decision was rendered after taking into consideration the judgment of the Hon’ble Supreme Court in CIT v. Ponni Sugar and Chemicals Limited, (2008) 306 ITR 392 (SC). The said decision for the assessment year 2007-08 was followed in the assessee’s own case for the assessment years 2008-09 and 2009-2010 decided by a consolidated order dated August 25, 2017 (Page 137 at pages 139-140 of the Paper Book – paragraphs 6 at 6.2). In the order dated August 25, 2017, the Hon’ble Tribunal also considered the judgment of the Hon’ble Jammu & Kashmir High Court in Shree Balaji Alloys v. CIT, (2011) 333 ITR 335 (J & K) and the judgment of the Hon’ble Supreme Court on appeal therefrom reported as CIT v. Shree Balaji Alloys, (2017) 80 taxmann.com 239 (SC) as also the judgment of the Hon’ble Supreme Court in CIT v. Meghalaya Steels Limited, (2016) 383 ITR 217 (SC).The order dated August 25, 2017 for the assessment years 2008-09 and 2009-10 was followed by the Hon’ble Tribunal for the assessment year 2010-11 decided by an order dated September 13, 2017 (Page 190 at pages 193-194 of the Paper Book – paragraphs 68 at 73-74). A still later decision in the assessee’s favour is that of the Hon’ble Calcutta High Court in PCIT v. Ankit Metal and Power Limited, (2019) 416 ITR 591 (Cal) (Page 76 at Pp 84,86-87 of the Compilation of Case Laws). It is submitted that this ground is covered in favour of the assessee. We find that this Tribunal in assessee’s own case for AY 2010-11 dealt with this issue and decided in assessee’s favour observing as follows:

“73. At time of hearing, it was agreed by the parties before us that identical issue arose for consideration in Assessee’s own case for AY 2009-10 and in that year, the Hon’ble Tribunal in ITA No. 942/Kol/2013 and ITA No.329/Kol/2013 by its order dated 25.8.2017, held that the interest subsidy in question received under the very same scheme as in the present year, was a capital receipt not chargeable to Tax. The following were the relevant:

“6.2 We have heard the rival submissions and perused the materials available on record. The ld. AR drew our attention to page 77 of Supplementary Paper Book Volume III to the order dated 7.6.2007 passed by the Commercial Taxes Officer, Special Circle Bhilwara, Government of Rajasthan, sanctioning a sum of Rs 15,91,813/-towards Interest Subsidy to the assessee. The said order also clearly mentioned that the said interest subsidy of Rs 15,91,813/- would not be paid to the assessee in cash and instead the same would get adjusted with the sales tax liability payable by the assessee. Based on this, the ld. AR argued that the interest subsidy also takes the character of sales tax subsidy and hence to be treated as capital receipt. We find that this issue was subject matter of adjudication in assessee’s own case for the Asst Year 2007-08 in ITA No. 686 & 581/Kol/2011 dated 8.12.2014 wherein it was held that the said interest subsidy would have to be treated as a capital receipt but with a direction to reduce the same from the cost of assets as per Explanation 10 to section 43(1) of the Act. Later this order was modified by this tribunal in ITA No. 683/Kol/2011 (assessee appeal) dated 9.7.2015 for Asst Year 2007-08, wherein the issue as to whether the said interest subsidy is to be reduced from the cost of assets as per Explanation 10 to section 43f 11 of the Act was restored back to the file of the ld. CITA for fresh adjudication. We find that with regard to treatment of Industrial Promotion Assistance (IPA) as capital receipt or revenue receipt supra in Para 4 above, we have already held it to be a capital receipt and the same need not be reduced from the cost of assets as per Explanation 10 to Section 43(1) of the Act. We find that the subsidy amount was adjusted against the sales tax liability and was not used directly or indirectly to acquire the assets and hence the cost of assets cannot be reduced by the amount of subsidy. We also find that the Hon’ble Jammu and Kashmir High Court in the case of Shree Balaji Alloys vs. CIT, (2011) 333 ITR 335 (J&K) at page 346 held interest subsidy to be a capital receipt. On further appeal by the revenue, the Hon’ble Supreme Court by an order dated 19.4.2016 in Civil Appeal No.10061 of 2011 held that the interest subsidy was a capital receipt in view of its decision in Ponni Sugars (supra) and further held that even if it was treated as a revenue receipt, then the assessee was entitled to deduction under section 80IB/80IC as profits derived from eligible business according to its judgment in CIT v Meghalaya Steels Ltd., (2016) 383 ITR 217 (SC). Hence respectfully following the said decision of the Hon’ble Supreme Court in Balaji Alloys supra, we hold that the interest subsidy is to be treated only as a capital receipt and accordingly the grounds raised by the assessee in this regard are allowed.”

74. Respectfully following the decision of the Tribunal in Assessee’s own case, we hold that the interest subsidy in question is a capital receipt not chargeable to tax. Thus, ground nos. 10 and 11 raised by the assessee are allowed.”

14.2. Since the issues raised before us are squarely covered by the decision of this Tribunal in assessee’s own case for preceding assessment year i.e. AY 2010-11and Revenue being unable to controvert this fact by placing any other binding precedence in its favour, we fail to find any infirmity in the finding of ld. CIT(A). Thus, common ground no. 5 for AY 2011-12 & AY 2012-13 raised by the Revenue is dismissed.

Revenue’s common Ground no. 6 for AY 2011-12 & 2012-13 relating to the disallowance u/s 14A of the Act read with Rule 8D of the Rules:

15. We have heard rival contentions and perused the records placed before us. The sixth common ground of the department’s appeal relates to disallowance under section 14A read with rule 8D. The assessee has filed an additional ground in its appeal in respect of the disallowance under the said provisions. As such, both the said grounds can be conveniently taken up together.

15.1. The assessee was in receipt of exempt income of Rs.12,84,34,263/- by way of dividend on its investment in shares and units of mutual funds. The assessee offered a disallowance of Rs. 6,40,792/- as expenditure incurred in relation to the exempt income. The disallowance offered by the assessee comprised salary and other employee related costs on proportionate basis as also establishment expenses. The ld. AO invoked rule 8D and worked out the disallowance at the rate of 0.5% of the average of the opening and closing values of investment amounting to Rs. 5,77,72,000/-. After deducting the disallowance of Rs. 6,40,792/-made by the assessee, the ld. AO disallowed Rs.5,71,31,208/-. On appeal, the ld. CIT(A) following the decisions of the Hon’ble Tribunal in the assessee’s own case for the assessment years 2008-09 to 2010-11 directed the ld. AO to consider all investments (excluding investments in subsidiary companies) which yielded dividend income for computing the disallowance under section 14A read with rule 8D(2)(iii).

15.2. Before us, ld. Counsel for the assessee stated that the material facts are that the assessee is in the business of manufacturing cement, jute goods, vinoleum, auto trim parts, etc. From time to time, the assessee makes investments out of its own funds in shares of companies and units of mutual funds. The assessee does not borrow any funds for making such investments. The mutual fund investments of the assessee are not in equity-oriented funds as defined in the explanation to section 10(38) of the Act and disposal/redemption thereof attracts capital gains tax. Substantial part of the mutual fund investments of the assessee are in growth schemes which do not provide for payment of any dividend during the currency of the scheme. Only some of the mutual fund schemes in which the assessee invests provide forpayment of dividend. Such dividend is usually reinvested in the respective schemes without being actually received by the assessee. The assessee receives dividend warrants only in respect of some of its investments in mutual funds and in respect of the shares held by it in companies. The only activity in relation to such dividend income is deposit of the warrants received in the bank account.

15.3. Further it is submitted that during the relevant previous year, there was no change in the share investments of the assessee. In respect of its share investments, the assessee received 7 dividend warrants for an aggregate sum of Rs. 1,17,21,334 /- which were deposited in the assessee’s bank account for the purpose of encashment. The rest of the dividend income of Rs. 11,67,12,929/-was from investment in schemes of mutual funds providing for declaration of dividend. Out of the said amount, a sum of Rs.10,29,03,619/- was reinvested in units without physically receiving the warrants. Only 11 warrants for an aggregate sum of Rs. 1,38,09,310/- were physically received and had to be deposited in the bank. Break-up as on March 31, 2011 and March 31, 2010 of the assessee’s investments which yielded dividend during the year and those which did not yield or were incapable of yielding dividend is tabulated under:

(Rs. in lakh)