DCIT v. Sudal Industries Limited

Case snapshot

Sections / provisions: sec 36(1)(iii); sec 145 & sec 4

Questions before the Court / Tribunal

• Disallowance of interest under section 36 (1)(iii) – Deposit for premises -Related party – assessee has interest free funds available with it in the form of share capital and free reserve : No disallowance : Dies written off- no sale of Dies during the year – valuation increase/decrease in the dies is not at all revenue expenditure- Assessee never claim it is a deduction – merely adjustment . State Government subsidy- Amount received as Grant AO treating the same as Business Income – State Government subsidy for expansion of capacity in the form of Octroi duty refund – the object of the scheme and stated that it…
• What factual, statutory and procedural conditions control the relief?
• How does the operative order apply to the parties and the challenged proceeding?

Material facts and procedural background

ITA No. 7271/Mum/2018 ( Assessment Year 2013-14) The Dy. Commissioner of Sudal Industries Limited Income Tax, Central Circle 26, Nariman Bhavan, 227, 3(3)(2), room No. 638, 6 t h Vs. Nariman Point, Floor, Aayakar Bhavan, M.K. Mubai-400 021 Road, Mumbai-400 020 (Appellant) (Respondent) PAN No. AAACS0705K ITA Nos. 129/Mum/2019 ( Assessment Year 2013-14) ITA Nos. 130/Mum/2019 ( Assessment Year 2014-15)

The Dy. Commissioner of Sudal Industries Limited Income Tax, Central Circle 26, Nariman Bhavan, 227, 3(3)(2), room No. 638, 6 t h Nariman Point, Vs. Floor, Aayakar Bhavan, M.K. Mubai-400 021 Road, Mumbai-400 020 (Appellant) (Respondent) Assessee by : Shri Ajay Singh,AR Revenue by : Shri Hoshang B. Irani, DR

01. These are three appeals pertaining to the same assessee, and therefore same are disposed of by this common order.

AY 2013-14 ITA No 7271/M/2018 [By AO] ITA No 129/M/2019 [By Assessee]

02. ITA No. 129/Mum/2019 is filed by the assessee for A.Y. 2013-14 against the order of the learned Commissioner of Income-tax (Appeals)-8, Mumbai [CIT (A)] dated 22.10.2018 and ITA No.7271/Mum/2018 for A.Y. 2013-14 is field by the learned Dy. Commissioner of Income Tax-3(3)(2) (the learned Assessing Officer) against the same order of learned CIT (A).

Appellant / assessee submissions

“1. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in confirming the order of learned assessing officer with regards to disallowance of interest of Rs. 21,36,252/- on account of provisions of section 36 (1)(iii) of the Income Tax Act, 1961. It is submitted that the Hon'ble CIT(A) has made such arbitrary disallowance without considering the facts and circumstances of the case and stating the arguments of the appellant are hypothetical in nature. It is therefore prayed that disallowance of interest of Rs. 21,36,252/- is unjustified, unwarranted and shall be deleted and necessary direction shall be given in this regard.

2. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in confirming the addition of Rs.1,32,07,000/- being amount received as Grant by treating the same as Business Income. It is submitted that the Hon'ble CIT(A) erred in treating the Grant as revenue in nature instead as capital in nature as treated by the appellant. It is therefore prayed that addition of Grant received of Rs. 1,32,07,000/- shall be deleted and necessary direction shall be given in this regard.”

21,36,252/–. The assessee before learned CIT (A) submitted that it has its own fund of ₹27.38 crores, on which no interest is paid and further, interest free deposit for premises is given of ₹1,78,02,100/- for business purposes. The learned CIT (A) rejected the same holding that it is merely a hypothetical concept.

was further reduced on account changes in inventory. Accordingly, consumption of raw material of ₹68,53,74,457/- was claimed. He further referred to the copy of the valuation report of Dies as on 31st Marc, 2013 paced at page no. 184 of the Paper Book. He therefore submitted that the LD CIT [A} has correctly deleted the addition.

Revenue / respondent submissions

The packaged judgment does not separately label the respondent's submissions in an independently extractable passage. No contention is inferred; read the full order.

Court / Tribunal analysis and reasoning

022. We have carefully considered the rival contention and perused the orders of the lower authorities. We find that the coordinate bench has decided this issue in case of ACIT versus MSS India Pvt Ltd ITA No.1909/PUN/2016 dated 2/1/2019 as under:-

“7. Both sides heard. Orders of the authorities below perused. The solitary issue raised by the Revenue in appeal is against CIT(A) allowing incentive received by the assessee from Govt. of Maharashtra in the form of Octroi refund as capital subsidy. It is an admitted fact that ITA No.1909/PUN/2016 MSS India Pvt. Ltd., the assessee has received incentive in the form of Octroi refund under Govt. of Maharashtra Package Scheme of Incentives, 2007. We find that the Coordinate Bench of the Tribunal in the case of ACIT Vs. M/s.Universal Construction Machinery and Equipments Ltd. (supra) in an identical set of facts has held subsidy received by the assessee under Package Scheme of Incentives, 2007 as capital in nature. Relevant extract of the order of Tribunal reads as under: "5. We have heard the submissions made by Id. DR and have perused the material available on record. Before the Assessing Officer the assessee has submitted that during the period relevant to the assessment year 2012-13 has received subsidy of `13,37,61,000/- up to 31-03-2012 and the balance amount of `2,36,05,000 / - is stated to be receivable as on 31-03-2012. The subsidy was

sanctioned to the assessee under the Package Scheme of Incentives, 2007 of the State Government, against investment of Rs.26.77 crores made by the assessee in land, factory building, plant and machinery, electrical installation etc. The Commissioner of Income Tax (Appeals) granted relief to the assessee by following the order of Tribunal in the case of M/ s. John Deere Equipments Pvt. Ltd. Vs. Dy. Commissioner of Income Tax (supra). We find that the Co-ordinate Bench of the Tribunal in the aforesaid case has placed reliance on the decision in the case of Commissioner of Income Tax Vs. Reliance Industries Ltd. reported as 339 ITR 632, wherein subsidy sanctioned to the assessee under similar Package Scheme of Incentives, 1993 was held to be capital in nature. The Id. DR has failed to controvert the findings of Commissioner of Income Tax (Appeals). In the absence of any contrary material on record, we uphold the findings of First Appellate Authority in deleting the addition in respect of subsidy received by the assessee holding it to be capital in nature. Accordingly, the appeal of the Revenue is dismissed being devoid of any merit." 8. The ld. DR has failed to convert the findings…

026. We find that ground number [I] of the appeal is identical to ground number 1 of the appeal of the assessee for assessment year 2013 – 14 and ground number [2] of the appeal is identical to ground number [2] of the appeal of the assessee for assessment year 2013 – 14. For the reasons given by us, while deciding those grounds by these impugned order squarely apply to these two grounds in the appeal for assessment year 2014 – 15. There is no change in the facts and circumstances of the case.

Operative decision and relief

sanctioned to the assessee under the Package Scheme of Incentives, 2007 of the State Government, against investment of Rs.26.77 crores made by the assessee in land, factory building, plant and machinery, electrical installation etc. The Commissioner of Income Tax (Appeals) granted relief to the assessee by following the order of Tribunal in the case of M/ s. John Deere Equipments Pvt. Ltd. Vs. Dy. Commissioner of Income Tax (supra). We find that the Co-ordinate Bench of the Tribunal in the aforesaid case has placed reliance on the decision in the case of Commissioner of Income Tax Vs. Reliance Industries Ltd. reported as 339 ITR 632, wherein subsidy sanctioned to the assessee under similar Package Scheme of Incentives, 1993 was held to be capital in nature. The Id. DR has failed to controvert the findings of Commissioner of Income Tax (Appeals). In the absence of any contrary material on record, we uphold the findings of First Appellate Authority in deleting the addition in respect of subsidy received by the assessee holding it to be capital in nature. Accordingly, the appeal of the Revenue is dismissed being devoid of any merit." 8. The ld. DR has failed to convert the findings…

024. In the result, appeal filed by the assessee for assessment year 2013 – 14 is allowed.

029. Accordingly, appeal of the assessee for assessment year 2014 – 15 is allowed.

030. In the result, appeal filed by the learned assessing officer for assessment year 2013 – 14 is dismissed and appeal filed by the assessee for the same year as well as for the assessment year 2014 – 15 is allowed.

Ratio and legal principle

• The packaged judgment addresses Disallowance of interest under section 36 (1)(iii) – Deposit for premises -Related party – assessee has interest free funds available with it in the form of share capital and free reserve : No disallowance : Dies written off- no sale of Dies during the year – valuation increase/decrease in the dies is not at all revenue expenditure- Assessee never claim it is a deduction – merely adjustment . State Government subsidy- Amount received as Grant AO treating the same as Business Income – State Government subsidy for expansion of capacity in the form of Octroi duty refund – the object of the scheme and stated that it…. The precise proposition must be read with the Court/Tribunal's reasoning and operative directions.
• Reliance depends on matching the statutory version, jurisdiction, procedural stage and material evidence recorded in the judgment.

Why this judgment matters

This decision is relevant to practitioners and affected parties dealing with disallowance of interest under section 36 (1)(iii) – deposit for premises -related party – assessee has interest free funds available with it in the form of share capital and free reserve : no disallowance : dies written off- no sale of dies during the year – valuation increase/decrease in the dies is not at all revenue expenditure- assessee never claim it is a deduction – merely adjustment . state government subsidy- amount received as grant ao treating the same as business income – state government subsidy for expansion of capacity in the form of octroi duty refund – the object of the scheme and stated that it… Its value lies in showing how the adjudicating forum connected the applicable rule to the proved facts and procedural posture.

Practitioner action points

• Match the statutory version, jurisdiction, procedural stage and decisive evidence before relying on the result.
• Verify current appellate, review and SLP history and any later amendment or controlling authority.
• Attach the complete judgment to the working paper or filing and cite the paragraph/page supporting the proposition.

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Section / provision impact

• sec 36(1)(iii) - apply the exact version considered in the judgment.
• sec 145 & sec 4 - apply the exact version considered in the judgment.

Case network

Similar issue / useful comparison

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Different outcome / possible distinction

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• Zainul Abedin Ghaswala v. NFAC - Operative order controls

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