2

dated23.11.2021and22.04.2022 for the Assessment Year 2018-19 and 2019-20 respectively.Since the issues raised in both these appeals are identical, therefore, for the sake of convenience, these appeals are clubbed, heard and disposed of by this consolidated order.

2. In ITA No. 2/JP/2022, following grounds have beenraised by the assessee:

"1. That on the facts and in the circumstances of the case, the disal lowance, imposit ion of tax and interest with reference thereto, the quantif icat ion of taxable income and the tax liabil ity, has been grossly unjusti f ied, erroneous and unsustainable and necessary direct ion be given to the Ld. AO (CPC) to give appropriate relief in accordance with law.

2. That on the facts and in the circumstances of the case, the Ld. CIT(A) was not just if ied and grossly erred in confirming the addit ion of Rs. 10,38,973/- made by the Ld. AO(CPC) on account of payment made for employee's contribut ion to Provident Fund and ESI, despite that fact that it has been paid after thedue date as prescribed in the respective PF and ESI Acts but on or before the fi l ing of its original return of Income of the A.Y.2018-19.

3. That on the facts and in the circumstances of the case the Ld. AO(CPC) has wrongly enhanced interest u/s 234C of the Act by Rs. 16,539 as same has to be calculated on returned income instead of assessed income.

At the outset, the Ld. A/R for the assessee requested for permission to raise following addit ional Groundswhich were raised in Form 36 bearing No. 4 to 9 as under: -

4. On the facts and circumstances of the case, the appellant wishes to lodge claim for deduction of Education Cess on income tax and dividend distr ibution tax of Rs.1,38,93,503/- in computing tax l iabi l ity under the normal provision of the Act.

5. On the facts and circumstances of the case, the appellant wishes to lodge claim for deduction u/s 80JJAA of the Act amounting to Rs. 14,93,105/-in computing tax liabi l ity under the normal provision of the Act.

3

6. On the facts and circumstances of the case, the appellant wishes to lodge claim for deduction u/s 80-IA of the Act on account of generat ion of power in computing tax l iabi l ity under the normal provision of the Act.

7.On the facts and circumstances of the case, the appellant wishes to lodge claim of Export Incentives availed in the form of MEIS of Rs.2,89,31,297/-as capital receipt in computing tax liabil ity under the normal provision of the Act.

8. On the facts and circumstances of the case, the appellant wishes to lodge claim of disallowance made u/s 14A of the Act of Rs.67,01,184/- as an allowable business expenditure, as no disal lowance was required to be made as the appellant was having suff icient interest free funds to make such investment. Reliance is placed on Apex court judgement in the case of South Indian Bank Ltd. -vs.- CIT [2021] 130 taxmann.com 178 (SC)/[2021] 283 Taxman 178 (SC).

9.That in view of the judgment of Hon'ble Apex Court in the case of National Thermal Power Co. Ltd. -vs.- CIT [1998] 97 Taxmann 358 (SC) and other judicial pronouncements, the appellant is entit led to raise the above addit ional grounds of appeal before ITAT, since ITAT has jurisdict ion to consider new and/or addit ional claims/deductions subsequentlywhich was not claimed in return of income &/or before the Ld. AO &/or before the Hon'ble

CIT(A).

10. The appellant craves leave, to add, to amend, modify, rescind, supplement, or alter any of the grounds stated here in above, either before or at the t ime of hearing of this appeal.

2.1 In ITA No. 212/JP/2022 in AY 2019-20, following grounds have been raised by the assessee:

1 That the Ld. CIT(A) has erred in holding that by virtue of newly inserted Explanation 2 to clause (va) of sub sect ion (1) of section 36, the provisions of section 43B shall not apply and shall be deemed never to have been applied for the purpose of determining the due date under the said clause. The said f inding is i l legal and unjust if ied.

2 That the Ld. CIT(A) has erred in holding that by virtue of insertion of explanation 5 to section 5 to section 43B, the provisions of this section shall not apply and shall be deemed never to have been applied to a sum received by the assessee from any of his employees to which the provisions of sub clause

4

(x) of clause (24) of sect ion 2 applied. The said f inding is i l legal and unjusti f ied.

3 That the Ld. CIT(A) has erred in confirming the disal lowance of Rs. 1,77,450/- u/s 36(1)(va) of the Act in respect of employees contributions towards ESI/PF which was deposited before the due date of f i l ing return u/s 139(1) ignoring the decisions of the jurisdict ional high court and appellant tr ibunal. The disallowance confirmed is i l legal, unjust if ied and excessive. Further, following addit ional ground has also been fi led on 04-08-

2022

1.That On the facts and circumstances of the case, the appellant wishes to lodge claim of Export Incentives availed in the form of MEIS of Rs.2,50,31,247/-as capital receipt in computing tax liabil ity under the normal provision of the Act.

3. As regards to the admissibility of additional ground, the Ld. AR vide his argument has submitted that additional grounds raised are purely legal in nature and raised after keeping in view the judgement of Hon'ble Apex court in the case of National Thermal Power Co. Ltd. Vs Commissioner of Income Tax on 4 December, 1998, (229 ITR 383), wherein the additional ground filed by the assessee is accepted stating that where a tribunal is only required to consider a question of law arising from the facts, which are on records, there is no reason why such question should not be allowed to be raised where it is necessary to consider that question in order to correctly assess the tax liability of the assessee. The Hon'ble Apex Court stated that-

"6. In the case of Jute Corporation of India Ltd. v. C.I.T. this Court, while dealing with the powers of the Appellate Assistant Commissioner observed that an appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the

5

statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income-tax Officer. This Court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The Appellate Assistant Commissioner must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The Appellate Assistant Commissioner should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reason. The same observations would apply to appeals before the Tribunal also."

3.1 The Ld. AR also argued placing reliance on the decision of Hon'ble Tribunal in the case of Crystal Crop Protection Pvt. Ltd. vs. DCIT [ITA No. 1539/Del./2016], wherein Hon'ble Delhi ITAT admitted the additional ground with regard to excise duty subsidy as capital receipt. The Ld. AR emphasized on the fact that in case of Crystal crop additional grounds were raised first time before the Hon'ble ITAT only and also admitted by Hon'ble Tribunal.

3.2 We have heard the rival contentions and perused the material available on record. While dealing with the case of NTPC, the Hon'ble Apex Court enunciated that it would not be proper if the Tribunal is confined only to issues arising out of the appeal before the Commissioner of Income-tax (Appeals) and it amounts to taking too narrow a view of the powers of the Appellate Tribunal. Undoubtedly, the Tribunal will have the discretion to allow or not allow a new ground to be raised. But

6

where the Tribunal is only required to consider a question of law arising from the facts which are on record in the assessment proceedings, we fail to see why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liabil ity of an assessee. Thus, we find that the Courts have always upheld the powers of the Tribunal or rather directed the Tribunals to assess the correct tax liability of the assessee. In case the assessee has wrongly or owing to lack of knowledge pays tax on an item of amount which is not taxable in accordance with the provisions of the Income Tax Act, the assessee would have every right to pray for right taxation of his taxable income. Thus, it can be said that the claim of the assessee has to be considered based on the fact that whether the amounts in question or taxable or not.Therefore,the same are being admitted for adjudication.

4. Brief Facts of the case for AY 2018-19 are that the assessee filed its return of income on 30.11.2018 declaring total income of Rs. 1,36,03,96,750/- which was processed U/s 143(1) and in terms of intimation dated 22.10.2019 issued by CPC, it made disallowance of Rs. 10,38,973/- towards employee's contribution towards ESI and PF.On appeal, the ld. CIT(A), has confirmed the disallowance made U/s 143(1) on account of assessee's failure to pay the employee's contribution of PF/ESI within the prescribed due dates as per Section 36(1) (va) of the Act. Against the said order, the assessee is in appeal before us.

7

5. During the course of hearingthe ld. AR submitted thatthe assessee-company deposited employee's contribution of PF/ESI though with a delay of few days from the due dates mentioned in therespective Acts, however the same was deposited well before the duedate of fil ing of return of income. It was submitted that the said fact isnot under dispute and where such contribution has been depositedbefore the due date of filing of the return of income, no disallowance u/s 36(1) (va) of the Act can be made and in support, reliance wasplaced on the Hon'ble Rajasthan High Court decision in case of CIT vs. Rajasthan State Beverages Corporation Ltd. [84 taxmann.com 173] and departmental SLP in the case of CIT vs. Rajasthan State Beverages Corpn. Ltd. wherein the case has been dismissed by the Hon'ble Apex court.It was further submitted that the explanation added to Section 36(1) (va) of the Act by the Finance Act,2021 will take effect from 1st April, 2021 and will apply from theassessment year 2021- 22 and subsequent assessment years and not tothe impugned assessment year. It was further submitted that theadjustment is beyond the scope of Section 143(1) of the Act. Reliance in this regard is placed on the decision of jurisdictional Tribunal in case of MurlidharHassani vs. DCIT [ITA No. 139/JP/2021] and Hon'ble Hyderabad Tribunal Crescent Roadways Private Limited vs. DCIT [ITA No. 1952/HYD/2018 at page no. 63 to 65 of PB. Further, reliance is placed on Hon'ble Delhi ITAT in the case of DCIT vs. Crescent EPC Projects and Technical Services Limited [ITA No. 399 / Del / 2019 at Page no. 66 to

8

71 of the PB. It was accordingly submitted that the adjustment so made andconfirmed by the ld. CIT(A) NFAC may be directed to be deleted.

6. Per contra, the ld. DR submitted that as per details furnished inthe tax audit report, the payment of employee's contribution of PF/ESIamounting to Rs. 10,38,973/- was not made within the prescribed duedate U/s 36(1) (va) of the Act and since these amounts were notdisallowed in the return of income filed by the assessee, the variancebetween the tax audit report and ITR has been duly flagged by the CPCin the computerized processing and disallowance U/s 143(1)(a)(iv) onthe basis of fact furnished by the assessee was made which clearly failswithin ambit of prima facie adjustment to be carried out U/s143(1)(a)(iv) of the Act. Further, reliance was placed on theamendment brought in by the Finance Act, 2021 wherein theexplanation to Section 36(1) (va) has been introduced. It was submittedfrom the said amendment,that the law is and has alwaysvery clear i.e. employee's contribution to specified fund will not beallowed as deduction U/s 36(1) (va) if there is delay in deposit even by a single day as per the due dates mentioned in the respectivelegislation. It is also clear that the amendments are onlydeclaratory/clarificatory in nature and are therefore, applicable withretrospective effect by necessary intendment of deeming natureexpressly stated therein. The ld. DR accordingly submitted that in viewof the unambiguous wording of the now amended provisions of Section36(1) and 43B, it is clear that the employee's contribution can beallowed

9

as a deduction only if it had been paid within the prescribeddue dates under the relevant welfare funds and this position of law isand has always been the case and the clarification brought about by theamendment clearly apply retrospectively. It was therefore rightly heldby the ld. CIT(A) that the disallowance made U/s 143(1) of the Act byCPC on account of assessee's failure to pay the employees' contribution of PF/ESI within the prescribed due dates as per Section 36(1) (va) isstrictly in accordance with law and clearly comes under the prima facieadjustments as envisaged U/s 143(1)(a)(iv) of the Act.

7. We have heard the rival contentions and pursued the materialavailable on record. It is admitted fact that the assessee has deposited PF & ESI amount before due date of filing of return of income. Now a question arises as to whether the same is allowable expenditure by virtue of amendment made by the Finance Act 2021. The identical issue has been dealt in the case of K.P. Airtech vs. DCIT (in ITA No. 41 &42/JP/2021 dated 16.08.2021whereinthe Coordinate Bench had extensively dealt with the identical matter relating to employee's contribution towards ESI/PF and our findings therein read as under:

"16. We have heard the rival contentions and perused the material available on record. On perusal of the audit report submitted by the assessee as part of his return of income, it is noted that the assessee has deposited the employees' contribution towards ESI and PF well before the due date of fil ing of return of income u/s 139(1) and the last of such deposits were made on 14.04.2018

10

whereas due date of filing the return for the impugned assessment year 2018-19 was 31.10.2018 and the return of income was also actually filed on the said date. Admittedly and undisputedly, the employees' contribution to ESI and PF which have been collected by the assessee from its employees have thus been deposited well before the due date of fil ing of return of income u/s 139(1) of the Act. The issue is no more res integra in light of series of decisions rendered by the Hon'ble Rajasthan High Court starting from CIT vs. State Bank of Bikaner & Jaipur (supra) and subsequent decisions.

17. In this regard, we may refer to the initial decision of Hon'ble Rajasthan High Court in case of CIT vs. State Bank of Bikaner & Jaipur wherein the Hon'ble High Court after extensively examining the matter and considering the various decisions of the Hon'ble Supreme Court and various other High Courts has decided the matter in favour of the assessee. In the said decision, the Hon'ble High Court was pleased to held as under:

"20. On perusal of Sec.36(1)(va) and Sec.43(B)(b) and analyzing the judgments rendered, in our view as well, it is clear that the legislature brought in the statute Section 43(B)(b) to curb the activities of such tax payers who did not discharge their statutory liability of payment of dues, as aforesaid; and rightly so as on the one hand claim was being made under Section 36 for allowing the deduction of GPF, CPF, ESI etc. as per the system followed by the assessee's in claiming the deduction i.e. accrual basis and the same was being allowed, as the liability did exist but the said amount though claimed as a deduction was not being deposited even after lapse of several years. Therefore, to put a check on the said

claims/deductions having been made, the said provision was brought in to curb the said activities and which was approved by the Hon'ble Apex Court in the case of Allied Motors (P) Ltd. (supra).

11

21. A conjoint reading of the proviso to Section 43-B which was inserted by the Finance Act, 1987 made effective from 01/04/1988, the words numbered as clause (a), (c), (d), (e) and (f), are omitted from the above proviso and, further more second proviso was removed by Finance Act, 2003 therefore, the deduction towards the employer's contribution, if paid, prior to due date of fil ing of return can be claimed by the assessee. In our view, the explanation appended to Section 36(1)(va) of the Act further envisage that the amount actually paid by the assessee on or before the due date admissible at the time of submitting return of the income under Section 139 of the Act in respect of the previous year can be claimed by the assessee for deduction out of their gross total income. It is also clear that Sec.43B starts with anotwithstanding clause & would thus override Sec.36(1)(va) and if read in isolation Sec. 43B would become obsolete. Accordingly, contention of counsel for the revenue is not tenable for the reason aforesaid that deductions out of the gross income for payment of tax at the time of submission of return under Section 139 is permissible only if the statutory liability of payment of PF or other contribution referred to in Clause (b) are paid within the due date under the respective enactments by the assessees and not under the due date of fil ing of return.

22. We have already observed that till this provision was brought in as the due amounts on one pretext or the other were not being deposited by the assessee's though substantial benefits had been obtained by them in the shape of the amount having been claimed as a deduction but the said amounts were not deposited. It is pertinent to note that the respective Act such as PF etc. also provides that the amounts can be paid later on subject to payment of interest and other consequences and to get benefit under the Income Tax Act, an assessee ought to have actually deposited the entire amount as also to adduce

12

evidence regarding such deposit on or before the return of income under sub-section (1) of Section 139 of the IT Act.

23. Thus, we are of the view that where the PF and/or EPF, CPF, GPF etc., if paid after the due date under respective Act but before filing of the return of income under Section 139(1), cannot be disallowed under Section 43B or under Section 36(1) (va) of the IT Act."

18. The said decision has subsequently been followed in CIT vs. Jaipur VidyutVitran Nigam Ltd. 363 ITR 307, CIT vs. Udaipur DugdhUtpadakSahakariSangh Ltd. 366 ITR 163, CIT vs Rajasthan State Beverages Corporation Limited (supra) and PCIT vs Rajasthan Renewable Energy Corporation Ltd. In all these decisions, it has been consistently held that where the PF and ESI dues are paid after the due date under the respective statues but before filing of the return of income under section 139(1), the same cannot be disallowed under section 43B read with section 36(1) (va) of the Act.

19. We further note that though the ld. CIT(A) has not disputed the various decisions of Hon'ble Rajasthan High Court and various other High Courts including Hon'ble Delhi High Court in case of CIT vs AIMIL Ltd 321 ITR 508 which were brought to his notice by the Ld. AR during the course of appellate proceedings but has decided to follow the decision of the Hon'ble Gujarat High Court in case of State Road Transport Corporation (supra). Given the divergent view taken by the Hon'ble Gujarat High Court as against consistent view of other High Courts including the Hon'ble Rajasthan High Court and the fact that the jurisdiction over the Assessing officer in the instant case lies with the Hon'ble Rajasthan High Court, in our considered view, the ld CIT(A) ought to have considered and followed the decision of the jurisdictional Rajasthan High Court, as evident from series of decisions referred supra, in the present case as the same is binding on all

13

the appellate authorities as well as the Assessing officer under its jurisdiction in the State of Rajasthan.

20. In light of aforesaid discussion and in the entirety of facts and circumstances of the case, the addition by way of adjustment while processing the return of income u/s 143(1) amounting to Rs 1,25,431/- so made by the CPC towards the delayed deposit of the employee's contribution towards ESI and PF though paid well before the due date of fil ing of return of income u/s 139(1) of the Act is hereby directed to be deleted as the same cannot be disallowed under section 43B read with section 36(1)(va) of the Act in view of the binding decision of the Hon'ble Rajasthan High Court.

21. Given that we have adjudicated on the merits of the case whereby we have directed to delete the addition so made, the other ground of appeal relating to adjustment while processing the return of income and issue of intimation u/s 143(1) by CPC has become academic in nature and we do not deem it necessary to adjudicate the same."

7.1 Recently, the Hon'ble Apex Court in the case of 'Checkmate Services P Ltd vs. Commissioner of Income Tax - 1', (SC) in Civil Appeal No. 2833 of 2016 dated 12/10/2022and reported in [2022] 143 taxmann.com 178 (SC) has observed as under:

"51. The analysis of the various judgments cited on behalf of the assessee i.e., Deputy Commissioner of Income-tax v. Aimil Ltd. 24; Commissioner of Income-Tax and another v. Sabari Enterprises25; Commissioner of Income Tax v. Pamwi Tissues Ltd. 26; Commissioner of Income-Tax, Udaipur v. Udaipur DugdhUtpadakSahakariSandh Ltd. 27 and NipsoPolyfabriks (supra) would reveal that in all these cases, the High Courts principally relied upon omission of second proviso to Section 43B (b). No doubt, many of these decisions also dealt with Section 36(va) with its explanation. However, the primary consideration in all the judgments, cited by the assessee, was that they adopted the approach indicated in the ruling in Alom Extrusions. As noticed

14

previously, AlomExtrutions did not consider the fact of the introduction of Section 2(24)(x) or in fact the other provisions of the Act.

52. When Parliament introduced Section 43B, what was on the statute book, was only employer's contribution (Section 34(1)(iv)). At that point in time, there was no question of employee's contribution being considered as part of the employer's earning. On the application of the original principles of law it could have been treated only as receipts not amounting to income. When Parliament introduced the amendments in 1988-89, inserting Section 36(1)(va) and simultaneously inserting the second proviso of Section 43B, its intention was not to treat the disparate nature of the amounts, similarly. As discussed previously, the memorandum introducing the Finance Bill clearly stated that the provisions - especially second proviso to Section 43B - was introduced to ensure timely payments were made by the employer to the concerned fund (EPF, ESI, etc.) and avoid the mischief of employers retaining amounts for long periods. That 24 Commissioner of Income-Tax Vs. Aimil Ltd., [2010] 321 ITR 508 (Delhi High Court). 25 Commissioner of Income-Tax and another Vs. Sabari Enterprises, [2008] 298 ITR 141 (Karnataka High Court). 26 Commissioner of Income Tax Vs. Pamwi Tissues Ltd., [2009] 313 ITR 137 (Bombay High Court). 27 Commissioner of Income-Tax, Udaipur v. Udaipur DugdhUtpadakSahakariSandh Ltd., [2013] 35 taxmann.com 616 (Rajasthan High Court). www.taxmann.com 32 Parliament intended to retain the separate character of these two amounts, is evident from the use of different language. Section 2(24)(x) too, deems amount received from the employees (whether the amount is received from the employee or by way of deduction authorized by the statute) as income - it is the character of the amount that is important, i.e., not income earned. Thus, amounts retained by the employer from out of the employee's income by way of deduction etc. were treated as income in the hands of the employer. The significance of this provision is that on the one hand it brought into the fold of "income" amounts that were receipts or deductions from employees income; at the time, payment within the prescribed time - by way of contribution of the employees' share to their credit with the relevant fund isto be treated as deduction (Section 36(1)(va)). The other important feature is that this distinction between the employers' contribution (Section 36(1)(iv)) and employees' contribution required to be deposited by the employer (Section 36(1)(va)) was maintained - and continues to be maintained. On the other hand, Section 43B covers all deductions that are permissible as expenditures, or out-goings forming part of the assessees' liability. These include liabilities such as tax liability, cess duties etc. or interest liability having regard to the terms of the contract. Thus, timely payment of these alone entitle an assessee to the benefit of deduction from the total income. The essential objective of Section 43B is to ensure that if assessees are following the mercantile method of accounting, nevertheless, the deduction of such liabilities, based only on book entries, would not be given. To pass muster, actual payments were a necessary pre-condition for allowing the expenditure.

15

53. The distinction between an employer's contribution which is its primary liability under law - in terms of Section 36(1)(iv), and its liability to deposit amounts received by it or deducted by it (Section 36(1)(va)) is, thus crucial. The former forms part of the employers' income, and the later retains its character as an income (albeit deemed), by virtue of Section 2(24)(x) - unless the conditions spelt by Explanation to Section 36(1)(va) are satisfied i.e., depositing such www.taxmann.com 33 amount received or deducted from the employee on or before the due date. In other words, there is a marked distinction between the nature and character of the two amounts - the employer's liability is to be paid out of its income whereas the second is deemed an income, by definition, since it is the deduction from the employees' income and held in trust by the employer. This marked distinction has to be borne while interpreting the obligation of every assessee under Section 43B.

54. In the opinion of this Court, the reasoning in the impugned judgment that the non- obstante clause would not in any manner dilute or override the employer's obligation to deposit the amounts retained by it or deducted by it from the employee's income, unless the condition that it is deposited on or before the due date, is correct and justified. The non-obstante clause has to be understood in the context of the entire provision of Section 43B which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest payment and other statutory liability. In the case of these liabilities, what constitutes the due date is defined by the statute. Nevertheless, the assessees are given some leeway in that as long as deposits are made beyond the due date, but before the date of filing the return, the deduction is allowed. That, however, cannot apply in the case of amounts which are held in trust, as it is in the case of employees' contributions- which are deducted from their income. They are not part of the assessee employer's income, nor are they heads of deduction per se in the form of statutory pay out. They are others' income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law. They have to be deposited in terms of such welfare enactments. It is upon deposit, in terms of those enactments and on or before the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed an income, is treated as a deduction. Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. If such www.taxmann.com 34 interpretation were to be adopted, the non-obstante clause under Section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee's contribution on or before the due date as a condition for deduction."

7.2 In the instant case, admittedly and undisputedly, the employees' contribution to ESI and PF collected by the assessee from its employeeshave been deposited well before

16

the due date of fi ling of return ofincome u/s 139(1) of the Act. Further, the Ld. DR has referred to theexplanation to section 36(1) (va) and section 43B by the Finance Act,2021 and has also referred to the rationale of the amendment asexplained by the Memorandum in the Finance Bill, 2021. Wefind that there are express wordings in the said memorandum whichsays

"these amendments will take effect from 1^stApril, 2021 and willaccordingly apply to assessment year 2021-22 and subsequentassessment years". In the instant case, the impugned assessment year is assessment year 2018-19 and therefore, the said amended provisionsmaynot be applied in the instant case.

7.3 However, The Hon'ble Apex Court in the case of

"Checkmate Services P Ltd vs. Commissioner of Income Tax - 1", (Supra) deliberated on the issue and clarified thatthe non- obstante clause in section 43B would not in any manner dilute or override the employer's obligation under section 36(1)(va) to deposit the amounts retained by it or deducted by it from the employee's income, unless the condition that it is deposited on or before the due date, is correct and justified. The non-obstante clause has to be understood in the context of the entire provision of Section 43B which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest payment and other statutory liabil ity. In the case of these liabil ities, what constitutes the due date is defined by the statute. Nevertheless, the assessees are given some leeway

17

in that as long as deposits are made beyond the due date, but before the date of filing the return, the deduction is allowed. That, however, cannot apply in the case of amounts which are held in trust, as it is in the case of employees' contributions- which are deducted from their income. They are not part of the assessee employer's income, nor are they heads of deduction per se in the form of statutory pay out.They are others' income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law.They have to be deposited in terms of such welfare enactments. It is upon deposit, in terms of those enactments and on or before the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed an income, is treated as a deduction. Thus, it is an essential condit ion for the deduction that such amounts are deposited on or before the due date. If such interpretation were to be adopted, the non-obstante clause under Section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee's contribution on or before the due date as a condition for deduction.

7.4 In light of the aforesaid discussions and in the entirety of factsand circumstances of the case and Respectfully following the Hon'ble Apex Court(supra), the addition by way ofadjustment while processing the return of income u/s 143(1) amountingto Rs. 10,38,973/- so made by the CPC towards the

18

deposit of theemployee's contribution towards ESI and PF though paid before thedue date of filing of return of income u/s 139(1) of the Act is heresustained.

Section 234C

8. During the course of hearing, the ld. AR submitted that the Assessing Officer has completed the assessment at Rs.1,36,14,35,720/- which has got increased from Rs.1,36,03,96,750/. Although the assessee has computed the interest under section 234C of the I.T. Act at Rs.32,83,850/- on the basis of the returned income, the interest u/s 234C of the Act has been wrongly enhanced by Rs. 16,539/- in the order passed by the Assessing officer. Since, the assessed income has been determined at a f igure which is morethan the returned income, therefore interest under section 234C of the I.T. Act has to be computed on the basis of returned income.Also, as per Explanation to section 234C (1) of the I.T. Act, "tax due on returned income" means the tax chargeable on the total income declared in the return of income furnished by the assessee for the relevant assessment year. As per the provisions of the Act, the assessee is l iable to interest under section 234C of the I.T. Act for deferment of advance tax on the returned income.In light of the aforesaid discussions,and as per the provisions of section 234C,the law is clear regarding the chargeability of interest under section 234C of the I.T. Act in a case where the assessment is completed at a

19

figure more than the returned income, therefore, this ground of appeal of the assessee is allowed.

Additional Ground No. 1 -Claim of Education Cess as an allowable expenditure

9. During the course of hearing, the ld. AR submitted thatthe assessee company has debited to its profit and loss account education cess relating to income tax amounting to Rs. 1,38,93,503/-. However, the same was offered to tax while filing return of income. In support, the reference is drawn on the provision of section Sec. 40(a)(i i) of the Income Tax Act,1961(hereinafter referred to as "the Act") which disallows any rate or taxes levied on the profits or gains of business from being claimed as business expenditure of the company. Education Cess paid on income tax does not come within the purview of the above definition as it is levied on amount of income tax & not on profits of the business. The Ld. AR made a Reference in this regard to the CBDT Circular No. 91/58/66 - ITJ (19) dated 18-05-1967, wherein it has been clarified that the effect of the omission of the word 'cess' from Sec. 40(a)(ii) of the Act, is that only taxes paid are to be disallowed. Further, The AR placed reliance on the decision of Hon'ble Rajasthan High Court in the case of "Chambal Fertilisers and Chemicals Ltd -vs.-JCIT", (ITA No. 52/2018, dated 31-07- 2018) at page no. 72 to 83 of PB.

20

10. We have heard the rival submissions and perused the material available on record. The assessee has paid education cessof Rs. 1,38,93,503/-. The assesse has filed an additional ground claiming deduction of education cess based on the decision of "Chambal Fertil isers and Chemicals Ltd - vs.-JCIT", wherein the same issue has been decided in favor of the company and it has been particularly held that education cess is an allowable expenditure.However, education and Secondary HigherEducation Cess were held to be allowable expenses and no addition was warrantedunder section 40(a)(ii) as per the law stood before the enactment of Finance Act 2022.Subsequently, the Finance Act, 2022 brought about a retrospective amendment inthe Income Tax Act whereby the "Education and Secondary Higher Education Cess" ('Education Cess') paid by an assessee is clarified to be a disallowable expense. TheFinance Act 2022 has amended section 40 by inserting Explanation 3 with effectfrom 1-4-2005 to provide that the term 'tax' shall include and shall be deemed tohave always included any surcharge or cess. In l ight of the amendment effectedretrospectively, it is held that Education cess is not an allowable Expense and theadditional ground raised by the assesse is dismissed.

Additional Ground No. 5 - Claim of deduction u/s 80JJAA

11. Again, during the course of hearing, the ld. AR submitted thatthe assessee had net increase of 2 employees from the end of F.Y.2016-17 to F.Y. 2017-18. Therefore, the Assessee

21

Company was eligible for claiming deduction u/s 80JJAA of the Act in A.Y. 2018-19 and lodged the said claim by way of additional ground. Accordingly, the assessee was eligible to claim the deduction of Rs. 55,798/- i.e. (30% of Rs. 1,85,994/- ) on employees who joined in FY 2017-18 and who have worked for more than 240 days and having average salary below Rs.25,000 per month as per the provisions of section 80JJAA of the Act which provides that

A person who is having income from business and is liable for tax audit under section 44AB of the Act and is providing employment to new additional employees can claim deduction u/s 80JJAA of the Act of an amount equal to 30 per cent of additional employee cost incurred in the course of such business in the previous year, for 3 assessment years including the assessment year relevant to the previous year in which such employment is provided.

However, no claim was made in the return of income. In support of the claim, reliance was also placed on the decision of International Tractors Limited vs. DCIT (435 ITR 85) Delhi high Court atpage no. 87 to 94 of PBwherein it has been held that if a fresh claim of deduction u/s 80JJAA is otherwise sustainable in law, appellate authorities are empowered to entertain the same.

12. Further, the Ld. AR made a reference to the 2nd proviso to clause (i i) of Explanation to Sec. 80JJAA of the Act, inserted vide Finance Act, 2018 w.e.f. A.Y. 2019-20, which provides that where an employee is employed during the

22

previous year for a period of less than 240 days but is employed for a period of 240 days in the immediately succeeding year then the said employee shall be deemed to be employed in the succeeding year and provisions of Sec. 80JJAA would accordingly apply.Even though 2nd proviso to clause (ii) of Explanation to Sec. 80JJAA of the Act is applicable from A.Y.2019-20 onwards as it was inserted vide Finance Act, 2018, still, assessee company is of the view that the said proviso is applicable retrospectively and therefore, benefit of same can be taken in the captioned Assessment Year as well.Accordingly, the assessee was eligible to claim the deduction of Rs. 14,37,307/- i.e. (30% of Rs. 47,91,024/-) on Salary to new employees who joined in FY 2016-17 and who have worked for less than 240 days in F.Y.2016-17 but have worked for more than 240 days in F.Y.2017-18.In support of this, reliance was invited on the decision of Delhi ITAT- L.G. Electronics India Pvt. Ltd -vs.- ACIT [ITA No. 6253/2012] wherein Hon'ble ITAT has analyzed that the legislative intent behind the introduction of the said 2nd proviso and has held that the aforesaid amendment is clarificatory in nature and is intended to remove the anomaly so as to advance legislative intention of providing incentive to new worker employed and must be given retrospective effect.Further, attention is invited on the recent decision the Bangalore ITAT in the case of Texas Instruments (India) Private Limited -vs.- ACIT {IT(TP)A No.169/Bang/2014} wherein the same view has been upheld in the view of Delhi ITAT in the case of L.G. Electronics India Pvt Ltd -vs.- ACIT [ITA No. 6253/2012]. The assessee submitted

23

the details of each new regular workmen with their respective dates of joining service along with their employee ID, allowable additional wages paid during the year, number of days worked etc. alongwith the executive summary at page no. 3 to 4 of the Executive summary. The assessee also submitted copy of Form 10DA certifying the claim at page no. 84 to 86 of the PB.

13. Thus, it is evident from the facts on record that the assessee was eligible to claim the deduction u/s 80JJAA of the Act, amounting to Rs. 14,93,105/-.The said amount pertained to deduction in respect of additional wages paid in financial years F.Y.2016-17 and F.Y. 2017-18.Before us, the ld. AR contended that the decision taken in the case of International Tractors Limited vs. DCIT (435 ITR 85)by Hon'ble Delhi high court is applicable in the assessee company case. The view taken in the International Tractors Limited vs. DCIT is as follows:

"6.7.2 Regarding the claim under section 80JJAA, the appellant filed before me, a copy of the audit report in prescribed form no. 1ODA, which was duly certified by Chartered Accountant. According to the same, the appellant had employed new regular workmen numbering 543 over and above the existing employees numbering 1262. The additional wages paid to the regular workmen by the appellant amounted to Rs. 3,54,57,213/-. The appellant had claimed 30% of the same in the current year as per section 80JJAA amounting to Rs. l,07,33,164/-. Before me, the Ld. Counsel also furnished details of each such new regular workmen along with their respective dates of joining service, period of service during the current year, respective bank accounts in

24

which remuneration was paid and had thereby given breakup of the allowable additional wages paid during the year. On examination of the same, I hold that the claim by the appellant under section 8JJAA was correct, accordingly, the same is being allowed.

15. In our view, unless the Tribunal would have reached to a conclusion and expressed its clear view, in that respect, as to what was wrong or missing in the examination made by the CIT(A), a remand was not called for. We agree with Mr. Seth's contention that the CIT(A) in the exercise of its powers under section 250(4) of the Act was entitled to seek production of documents and/or material to satisfy himself as to whether or not the deductions claimed were sustainable/viable in law. This was, however, a case where the details were placed before the AO, who declined to entertain the claims only on the ground that they did not form part of assessee's original return and that the assessee had not made a course correction by filing a revised return.

15.1 This view was based, as noticed above, on the judgment of the Supreme Court rendered in Goetze (India) Ltd. (supra). The CIT(A), squarely, dealt with this and concluded, that a fresh claim could be entertained. Therefore, the Tribunal, as noticed above, has accepted this view of the CIT(A) and the revenue has not come up in appeal before us assailing this conclusion of the Tribunal.

17. Therefore, in our view, the judgment of the Tribunal deserves to be set aside. The fresh claims made by the assessee, as allowed by the CIT(A), will have to be sustained. It is ordered accordingly.

14. Further, the ld. AR contended that due to the amendment in section 80JJAA of the Act, the assessee is very much entitled for the claim of deduction and mentioned the view taken by L.G. Electronics as follows:

25

99. In our considered opinion, this amendment i.e. second proviso is clarificatory in nature and is intended to remove the anomaly so as to advance legislative intention of providing incentive to new worker for more than 300 days and must be given retrospective effect. For this proposition, we draw support from the judgment of the Hon'bleSupreme Court in the case of Allied Motors Pvt. Ltd Vs. CIT 224 ITR 677 [SC]. The relevant finding of the Hon'ble Supreme Court reads as under:

"In the case of Goodyear India Ltd. v. State of Haryana and Anr. (188 ITR 402) this court said that the rule of reasonable construction must be applied while construing a statute. Literal construction should be avoided if it defeats the manifest object and purpose of the Act.

Therefore, in the well-known words of Judge learned Hand, one cannot make a fortress out of the dictionary; and should remember that statutes have some purpose and object to accomplish whose sympathetic and imaginative discovery is the surest guide to their meaning. In the case of R.B. Jodha Mal Kuthiala v. Commissioner of Income-tax, Punjab, Jammu & Kashmir and Himachal Pradesh (82 ITR 570), this Court said that one should apply the rule of reasonable interpretation. A proviso which is inserted to remedy unintended consequences and to made the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the section as a whole.

This view has been accepted by a number of High Court. In the case of Commissioner of Income-Tax v. ChandulalVenichand ([1994] 209 ITR 7), the Gujarat High Court has heldthat he first proviso to section 43B is retrospective and sales-tax for the last quarter paid before the filing of the return for the assessment year is deduct able. This decision deals

26

with assessment year 1984-85. The Calcutta High Court in the case of Commissioner Of Income-Tax v. Sri Jagannath Steel Corporation. ([1991] 191 ITR 676), has taken a similar view holding that the statutory liability for sales-tax actually discharge after the expiry of accounting year in compliance with the relevant stature is entitled to deduction underSection 43B. The High Court has held the amendment tobe clarificatory and, therefore, retrospective. The Gujarat High Court in the above case held the amendment to be curative and explanatory and hence retrospective. The Patna High Court has also held the amendment inserting the first proviso to be explanatory in the case of Jamshedpur Motor Accessories Stores v. union of India and Ors. ([1991] 189 ITR 70.), It was held that amendment inserting first proviso to be retrospective. The special leave petition from this decision of the Patna High Court was dismissed. The view of the Delhi High Court, therefore, that the first proviso to section 43B will be available only prospectively does not appear to be correct. As observed by G.P. Singh in hisPrinciples of statutory Interpretation, 4th Edn. Page 291, "It is well settled that if a statute curative or merely declaratory of the previous law retrospective operation is generally intended." In fact, the amendment would not serve its object in such a situation unless it is construed as retrospective. The view, therefore, taken by the Delhi High Court cannot be sustained."

100. Similar view was taken by the Hon'ble Supreme Court in the case of 'CIT Vs. Alom Extrusions Ltd', 319 ITR 306 wherein the Hon'ble Supreme Court held that where a proviso in section is inserted to remedy unintended consequences to make section workable the proviso which supplies obvious omission therein in required to be read retrospectively in operation particularly to give effect to section as a whole.

27

101. Same view was followed by the Hon'ble Supreme Court in the case of CIT Vs. Kolkata Export Company 404

ITR 654.

102. Respectfully following the ratio laid down by the Hon'ble Supreme Court [supra] we direct the Assessing Officer to allow claim of deduction u/s 80JJAA of the Act as claimed by the assessee.

15. In view of the aforesaid discussions and in the entirety of factsand circumstances of the case and following the consistent decisionstaken by the various judiciaries, the assessee is eligible toclaim of deduction u/s 80JJAA of the Act. Accordingly, we direct the Assessing Officer to allow claim of deduction u/s 80JJAA of the Act as claimed by the assessee as per the Form 10DA.

Additional Ground No. 6 - Claim of deduction u/s 80-IA on power generation in the form of Steam and heat

16. During the course of hearing, the ld. AR submitted that the Assessee company has 4 units of Thermal Fluid Heater which generate Power in the form of heat and one unit of Boiler which generate power in the form of Steam. The undertaking generating power in the form of Heat Energy&Steam and is a separate and independent undertakings having its own assets andliabilities.Power in the form of Heat & steam was generated by the captive power plant and consumed in the manufacture of Coated Textile Fabrics.The said power generating unit is eligible for claiming deduction in terms of Section 80-IA(4)(iv).However, no claim

28

was made in the return of income. Now, Appellant company has lodged the said claim by way of additional ground. Computation of profit, Balance Sheet, Profit & Loss A/c and Chartered Accountant's Certificate in Form 10CCB for Power Generating Unit No. I, II, III, IV and V are enclosed at page no. 105 to 183 of PB, on the basis of which the calculation has been arrived. The assessee has also submitted copy of Chartered Engineer Certificate stating total energy generated by the assessee at Page no. 184 to 188

17.Section 80-IA of the Income Tax Act, 1961 provides for deduction in respect of profits and gains from undertakings or enterprises engaged in infrastructure development, generation/distribution of power, etc. The said section provides that an undertaking which is set up in any part of India for the generation or generation and distribution of power, if it begins to generate power at any time during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March, 2017 is eligible for tax holiday u/s 80- IA. Therefore, deduction under section 80IA is available in respect of profit or gains derived from the business of generation of 'power'. In support of this, the assessee reliance is drawn at page no. 214 of the PB, on the decision of Apex Court in the case of CIT-vs.- Tanfac Industries Ltd (SLP No. 18537 of 2009) wherein it was specifically upheld that assessee is entitled to deduction u/s 80-IA on the value of steam used for captive consumption. Further, reliance was also placed on the decision of Hon'ble jurisdictional ITAT in

29

the case of DCIT -vs.- Maharaja Shree Umaid Mills Ltd (2009)

120 TTJ 711 (JP), at page no. 215 to 218 of PB. Further, it is pertinent to note that the department has not gone to High Court in this case.

18. It has also been submitted that TFH generates Heat energy in the form of Kilocalories/hour and thereafter the same has been converted into the KWH. In respect of steam unit, the assessee has submitted total steam generated. Copy of technical Certificates obtained from Independent Chartered Engineer in respect of generation of power and steam is attached at page no. 184 to 188 of PB which were duly issued after proper verif ication of records by the Chartered engineer.

19. It was also submitted that the word power is not defined under the Act. Taking the reference of Hon'ble Apex Court in the case of Tanfac Industries (Supra), Mumbai Tribunal in the case of DCIT- vs.- Saf Yeast Company Private Ltd. (ITA No. 1634-1637/Mum/2015, Date of order 24-11-2017) at page no. 219 to 251 of PB has held that the term 'Power' has not been defined to mean electrical power to the exclusion of other forms of power and the term has to be understood in its natural meaning. ITAT further stated that legislature has clearly provided benefit of deduction u/s 80-IA of the Act for generation of any form of power generated by an undertaking. ITAT finally held that boilers being a separate undertaking, the assessee has generated steam power from various sources is entitled for deduction u/s 80-IA of the Act. The same view has

30

been upheld by Hon'ble Tribunal inDCW Ltd. -vs.- Addl. CIT (2010) 42 DTR 369 (Mum) and CIT - vs.- Jay Chemicals [ITA No. 2693/Ahd/2014 dtd. 26-03-2019.

19.1 Further, as regard the quantum of deduction, the assessee has taken electricity rate of Jaipur VidyutVitran Nigam Limited as base for computing the rates.The rate has been taken as 50% of average landed cost of electricity from Grid including steam also.Thetotal amount of heat is to be converted from KCL to KWH.Copy of electricity bills of Jaitpura and Dhodsar unit along with calculation of landed cost are attached at Page no. 189 to 213 of the PB.As On conservative approach actual efficiency of plant assumed to 65% of capacity. The same has also been mentioned in notes to accounts attached with the Balance sheets at Page no. 105 to 139 of PB. In support of the claim, reliance is drawn on the decision of Mumbai Tribunal in case of DCIT- vs.- Saf Yeast Company Private Ltd. (ITA No. 1634-1637/Mum/2015, Date of order 24-11-2017) and Hon'ble Delhi ITAT in recent case of Shahi Exports Pvt. Ltd. vs. ACIT [843/DEL/2021]wherein claim of deduction u/s 80IA has been allowed by Hon'ble Tribunal stating that the counsel has applied the rate which it has charged to the electricity board whereas the rate should have been the rate charged by the electricity board to its consumers, therefore assessee is directed to furnish the rates charged by the electricity board to its consumers.

31

20. The underlying facts in this issue are that the assessee is having 5 units in relation to generation of power have been installed for captive consumption. On the generation of steam& heat, which isconsidered as power, in view of various judgements of the Tribunal and Hon'ble High Courts, the assessee claimed deduction under section 80IA of the Act. For the purpose of claimingdeduction under section 80IA of the Act, the assessee converted heat into KWH based on chartered engineer's certificate as per technical formula. On the basis of suchconversion, total electrical units so generated were worked out. We are of the considered view that this contention of the ld. counsel for the assessee is correct. The counsel has applied the rate which it has charged to the electricity board (including all expenses i.e. landed cost) whereas the rate should have been the rate charged by the electricity board to its consumers. We, therefore, set asidethis issue to the file of the Assessing Officer with a directionto verify the rates charged bythe electricity board to its consumers and to compute the deduction after taking into consideration of total number of power generated into KWH/steam as per the Technical Certificate issued by the Chartered Engineer andcompute the deduction accordingly. For the purpose of computation of deduction on Steam, the assessee has taken 50% of landed cost which is supported by Delhi ITAT in the case of Shahi Export and found correct. Therefore, additional Ground is allowed for statistical purposes.

32

Incentive received under Merchandise Export from India Scheme (MEIS)

21. During the course of hearing, the ld. AR has taken yet another additional ground and submitted that the assessee company had received export incentives in form of the Merchandise Exports from India Scheme (MEIS) amounting to Rs. 2,89,31,297/-. Copy of ledger account is submitted at Page No. 268 to 273. The assessee has paid taxes on the same in fi ling return of income. However, by way of additional ground, the same was claimed as Capital receipt not chargeable to tax. Further, the Ld. AR submitted that the export incentives as per the Foreign Trade Policy in the form of MEIS are incentives granted in form of Reward only.The MEIS was launched as a part of the new Foreign Trade Policy and is applicable from 2015 to 2020. Relevant Para showing the Objective of the scheme reads as under:

The FTP - 2015-20 launched on April 1 2015 introduced a slew of measures by providing a framework for increasing exports of goods and services, generation of employment and increasing value addition, in keeping with the 'Make in India' vision of our Hon'ble Prime Minister. The Policy was far reaching in nature and incorporated various export friendly innovations and simplifications. These included simplification and merger of reward schemes, introducing new schemes for promotion of Merchandise and services exports, incentivizing e-commerce exports, encouraging procurement of capital goods from indigenous manufacturers under the EPCG scheme etc.

3.03 Objective

33

The objective of Merchandise Exports from India Scheme is to promote the manufacturing and export of notified goods/products

3.04 Entitlement under MEIS Exports of notified goods/products with ITC[HS] code, to notified markets as listed in Appendix 3B, shall be rewarded under MEIS. Appendix 3B also lists the rate(s) of rewards on various notified products [ITC (HS) code wise]. The basis of calculation of reward would be on realised FOB value of exports in free foreign exchange, or on FOB value of exports as given in the Shipping Bills in free foreign exchange, whichever is less, unless otherwise specified.

22. It is evident from the policy, that objective of MEIS is to promote the manufacture and export of notified goods/product. The same has been granted as a Reward to the eligible exporters under the FTP Policy and that MEIS is a 'reward' granted to the eligible exporters as a recognition for increase in exports.

23. Further, there is a marked difference between the term assistance and reward. Scrips is not an assistance received by the assessee for export under the scheme of Government of India but is a reward for efforts undertaken to enhance exports. Thus, the reward given under the said policy do not fall in the income definition and hence not chargeable to tax. Considering the objective being promotion of manufacturing

34

and export of notified good and incentive in the form of Reward, and considering the purpose test of the scheme, the aforesaid reward is not chargeable to tax being capital in nature under normal provisions of the Act. However, the appellant in the original return of income has offered the said reward as taxable and before us, the same has been treated as capital receipt. In support, the Ld. AR further placed reliance on the decision of Hon'ble Jammu & Kashmir High Court in the case of 'Shree Balaji Alloys vs. CIT', [333 ITR

335] wherein it was held that Excise duty refund, Interest subsidy and Insurance subsidy received with the object of creating avenues for perpetual employment, to eradicate the social problem of unemployment in the state by accelerated industrial development is capital receipt. Further, SLP filed against the aforesaid order of Shree Balaji Alloys vs. CIT has been dismissed by Hon'ble Apex court. Reliance was also placed on the decision of Hon'ble jurisdictional HC in the case of PCIT vs. M/s Nitin Spinners Limited (116 taxmann.com 26) at page no. 279 to 282 of PB.

24. The underlying facts in this issue are that appellant had received export incentives in form of the Merchandise Exports from India Scheme (MEIS) amounting to Rs. 2,89,31,297/- and claiming it as capital receipt treating the same as reward. This is not an assistance in any form rather reward granted to export of certain goods as per the FTP. As the same does not fall within the definition of income and hence it is not chargeable to tax. In this regard, we may refer to the decision

35

of Hon'ble jurisdictional High court as referred by the Ld. AR in the case of PCIT vs. M/s Nitin Spinners Limited (116 taxmann.com 26) wherein it has been held that incentive under Focus Market Scheme as per Foreign Trade Policy was a capital receipt since the Central Government gave the subsidy to enhance Indian Export potential in the International Market and it was not granted to meet the cost of expenditure to meet the competition of the Indian Textile market. Further the SLP filed by the department against the above decision was dismissed by Hon'ble Supreme Court in 2021 (130) Taxmann.com 402.

25. In the backdrop of the aforesaid discussions and the facts and circumstances of the case,the claim of the assessee that MEIS is capital receipt being given in the form of Reward and is not assistance is correct and hence the additional ground raised by the assessee is allowed.

Section 14A

26. During the course of hearing, the ld. AR has taken an additional ground and submitted that the assessee companyhas earned an exempt income of Rs. 6,38,93,388/- in the form of dividend income and made addition of Rs. 67,01,184/-- in computation of income as per section 14A of the Act r.w.r. 8D of IT. By way of additional ground, the assessee has submitted that the assessee is having sufficient interest free fund and does not have any borrowing, and so the addition made in return of income is not correct. Reliance is

36

placed in the case of South India bank Ltd. -vs.- CIT (2021)

130 Taxmann. Com 178 (SC).

27. We have considered the rival submission as well as relevant material on record. The assessee Company had sufficient interest free funds as on 31-03-2017 and 31-03- 2018, Rs. 39,199.14/- lacs and Rs. 45,346.92/- lacs respectively in the form of Reserves and Surplus which has been shown at APB, Pgs. 1 to 59 and it was submitted that for the purpose of making Investments bearing exempt income which clearly proves that investment is made out of free reserve and Surplus i.e. interest free funds in the form of share capital and reserve & surplus available.Since, share capital and reserve & surplus were sufficient to cover the cost price of the investments. Therefore, no disallowance is sustainable as the assessee has not incurred any expenditure to earn the said exempt income.The AR also relied on the decision of the Apex court in the case of South Indian Bank Ltd. -vs.- CIT [2021] 130 taxmann.com 178 (SC)/ [2021] 283 Taxman 178 (SC) at APB, Pg. no. 301 to 309. Further, reliance was also placed on the jurisdictional ITAT in the case of ACIT vs. A U Financiers (India) P Ltd. [102 taxmann.com 290 (Jaipur)] wherein Hon'ble Tribunal has held that where assessee-company had sufficient interest free funds to meet its investments yielding exempt dividend income, disallowance made under section 14A read with rule 8D was unjustified at Page no. 310 to 321 of the PB.

37

28. In case of ACIT vs. A U Financiers (India) P Ltd. Hon'ble jurisdictional Tribunal has held as under:

27. We have heard the rival contentions and purused the material available on record. Undisputedly, in the earlier years, the matter has been decided in favour of the assessee company and thus, what has to be seen is the fresh investments which have been made during the year. On perusal of financial statements, we find that the fresh investments have been made in subsidiary company M/s AU Housing Finance Limited and M Power Micro Finance Private limited besides investments under PTC. The investments in subsidiary companies have been made out of fresh capital raised during the year and further, there has been no dividend income in respect of investment in subsidiary during the year and hence, the said investment will not form part of disallowance under section 14A read with Rule 8D. In respect of fresh investments under PTC amounting to Rs 17.07 Crores during the year, the assessee company has sufficient interest free funds and it has been stated that tax has already been paid by the assessee company. In light of the same, following the order of the Coordinate Benches in the earlier year, the AO was not justified in making disallowance U/s. 14A of the Act r.w. Rule 8D amounting to Rs. 72,22,530/- and thus the same is hereby deleted. Hence, this ground of appeal is hereby dismissed.

29. Similarly, in case of South Indian Bank Ltd. -vs.- CIT [2021], Hon'ble Apex court has held as under:

■ Where the assessee has mixed fund made up partly of interest free funds and partly of interest-bearing funds and payment is made out of that mixed fund, the investment must be considered to have been made out of the interest free fund. To put it another way, in respect of payment made out of mixed fund, it is the assessee who has such right of appropriation and also the right to assert from what part of the fund a

38

particular investment is made and it may not be permissible for the revenue to make an estimation of a proportionate figure. [Para 17]

■ The disallowance would be legally impermissible for the investment made by the assessee's in bonds/shares using interest free funds, under section 14A. In other words, if investments in securities is made out of common funds and the assessee has available, non- interest-bearing funds larger than the investments made in tax-free securities then in such cases, disallowance under section 14A cannot be made. [Para

20]

■ The proportionate disallowance of interest is not warranted, under section 14A for investments made in tax-free bonds/securities which yield tax-free dividend and interest to assessee banks where, interest free own funds available with the assessee, exceeded their investments. [Para 27]

30. In view of the above,we find merit in the contention of the Ld. AR and direct the AO to delete the addition made u/s 14A of the Act. We order accordingly.

31. Since, the facts of appeal in ITA No. 212/Jpr/2022 filed by the assessee for Assessment Year 2019-20, in respect of the grounds No.1 to 3 pertain to ESI PF disallowance and Additional Ground No. 1 pertains to claim of incentive received under MEIS as capital receipt are identical to the grounds of appeal filed by the assessee for Assessment Year 2018-19, in mutatis mutandis . Hence, our observation and finding given in respect of those grounds and additional ground in ITA No. 02/Jpr/2022 for the Assessment Year 2018-19 shall apply to ITA No. 212/Jpr/2022 for the Assessment Year 2019-20,in mutatis mutandis.

39

32. In the Backdrop of the aforesaid discussion, both the subject appeals of the assesse are disposed of in the terms indicated as above. Order pronounced in the open court on 9 /11/2022. Sd/- Sd/-

¼lanhixkls kbZ½ ¼MkWa- ,e- ,y- ehuk ½

(Sandeep Gosain) (Dr. M.L. Meena)

U;kf;dlnL;@Judicial Member ys[kklnL;@Accountant Member Tk;ijq @Jaipur

fnukad@Dated:- 9/11/2022.

vkns'k dh izfrfyfivxszf'kr@Copy of the order forwarded to:

1. vihykFkh@Z The Appellant-

2. izR;FkhZ@The Respondent-

3. vk;djvk;qDr@CIT

4. vk;djvk;qDr@CIT(A)

5. foHkkxh; izfrfuf/k] vk;djvihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur

6. xkMZQkbZy@Guard File {ITA No. 2/JP/2022} vkn's kkuqlkj@By order,

lgk;dita hdkj@Asst. Registrar