Pr. Commissioner Of Income Tax, Noida v. Triveni Engineering And Industries Ltd

$~5 IN THE HIGH COURT OF DELHI AT NEW DELHI %Date of Decision: 03.09.2025 +ITA 303/2025 PR. COMMISSIONER OF INCOME TAX, NOIDA.....AppellantThrough:Mr. Puneet Rai, SSC, Mr. AshviniKr., Mr. Rishabh Nangia, Mr. Gibran,JSC.Through:Mr. Puneet Rai, SSC, Mr. AshviniKr., Mr. Rishabh Nangia, Mr. Gibran,JSC. versus TRIVENI ENGINEERING AND INDUSTRIES LTD .....Respondent Through:Mr. Rohit Jain, Mr. Saksham Singhal,Advs.Advs. CORAM:HON'BLE MR. JUSTICE V. KAMESWAR RAOHON'BLE MR. JUSTICE VINOD KUMAR V. KAMESWAR RAO, J.(ORAL) CM APPL. 49997/2025(condonation of delay) 1.For the reasons stated in the application, the delay of 15 days in filingthis appeal is condoned. 2.The application is disposed of. ITA 303/2025 3.This appeal under Section 260A of the Income Tax Act, 1961 (theAct) lays a challenge to an order dated 29.01.2025 passed by the IncomeTax Appellate Tribunal (ITAT) whereby it decided 12 ITAs relating toAssessment Years (AY) 2007-08 to 2011-12. 4.The three proposed substantial questions of law in the appeal arereproduced as under: “ i. Whether on the facts and circumstances of the case, the Ld.ITAT has erred in remanding the issue of taxability of subsidyand remission of statutory dues of Rs.110,90 ,94,770/- to theAssessing Officer and directing the AO to decide the issue onthe basis of outcome of the order of Hon’ ble Supreme Courtpending against decision of Hon’ ble Allahabad High Court inW.P. (C) No.2679/2008 ?ITAT has erred in remanding the issue of taxability of subsidyand remission of statutory dues of Rs.110,90 ,94,770/- to theAssessing Officer and directing the AO to decide the issue onthe basis of outcome of the order of Hon’ ble Supreme Courtpending against decision of Hon’ ble Allahabad High Court inW.P. (C) No.2679/2008 ? ii. Whether on the facts and circumstances of the case, the Ld.ITAT has failed to decide the issue of taxability of subsidy andremission of statutory dues on the incorrect premise that thesaid issue is pending before Hon ’ble Supreme Court?iii. Whether on the facts and circumstances of the case, the Ld.ITAT has erred in deleting the entire additions of Rs.6,89,80,258 /- on the issue of after sales expenses, wherein the assesseecompany themselves admit that the after sales expensesincurred during the year are only Rs.1 ,76,30,000/?”ITAT has failed to decide the issue of taxability of subsidy andremission of statutory dues on the incorrect premise that thesaid issue is pending before Hon ’ble Supreme Court?iii. Whether on the facts and circumstances of the case, the Ld.ITAT has erred in deleting the entire additions of Rs.6,89,80,258 /- on the issue of after sales expenses, wherein the assesseecompany themselves admit that the after sales expensesincurred during the year are only Rs.1 ,76,30,000/?” 5.Mr. Puneet Rai, learned Senior Standing Counsel for the appellantsubmits that the substantial question numbers (i) & (ii) are interconnected.The same relate to the action of the CIT (Appeals) partially reversing theAssesssing Officer’s (AO) finding, which rejected the assessee’s subsidyclaim of Rs. 1,10,90,94,770/- to the extent of Rs.1,04,70,00,000/- which leftthe tax payer as well as the department aggrieved. On question numbers (i)& (ii), the ITAT in paragraphs 4 to 8 of the impugned order stated as under: 5.Mr. Puneet Rai, learned Senior Standing Counsel for the appellantsubmits that the substantial question numbers (i) & (ii) are interconnected.The same relate to the action of the CIT (Appeals) partially reversing theAssesssing Officer’s (AO) finding, which rejected the assessee’s subsidyclaim of Rs. 1,10,90,94,770/- to the extent of Rs.1,04,70,00,000/- which leftthe tax payer as well as the department aggrieved. On question numbers (i)& (ii), the ITAT in paragraphs 4 to 8 of the impugned order stated as under: “4. It is in this factual backdrop that both parties are indeedad-idem during the course of hearing that the first and foremostcommon issue raised in the instant appeal is that of correctnessof the CIT(A)’s action partly reversing the Assessing Officer’sfindingrejectingtheassessee’ssubsidyclaimofRs.1,10,90,94,770/-; to the extent of Rs. 1,04,70,00,000/-; whichleaves the taxpayer as well as the department aggrieved.ad-idem during the course of hearing that the first and foremostcommon issue raised in the instant appeal is that of correctnessof the CIT(A)’s action partly reversing the Assessing Officer’sfindingrejectingtheassessee’ssubsidyclaimofRs.1,10,90,94,770/-; to the extent of Rs. 1,04,70,00,000/-; whichleaves the taxpayer as well as the department aggrieved. 5. Learned counsel reiterates the assessee’s stand all along thatthe above subsidy/ incentives receivable under the sugarindustrial promotion policy, 2004 is in the nature of a capita!receipt going by the “purpose test” in light of Sahney Steel andPress Works Ltd. & Others v. CIT (1997) 228 ITR 253 (SC);CIT v. Pony Sugar & Chemicals Ltd. (2008) 306 ITR 392 (SC);& CIT v. Chaphalkar Brothers (2018) 400 ITR 279 (SC). 6. Learned CIT(DR) on the other hand, strongly supports,the1"'assessment findings that the impugned subsidy in factdeserves to be treated as, a revenue receipt on “accrual” basisand, therefore, we ought to revive the entire addition ofRs.1,10,90,94,770/-. 7. Faced with this situation, learned counsel takes us to theassessment discussion in para 4 page 1 onwards dated31.12.2009 to buttress the point that the state governmentherein had revoked the sugar incentive promotion policy itselfw.e.f. 4.6.2007. And that this very issue had arisen between allthe similarly situated industrial undertakings against the Stateof Uttar Pradesh in the main writ petition WP(C) no. 2679 of2008 (pages 299 to 334), which stood allowed by the hon’blejurisdictionalhigh courtofjudicatureatAllahabad on12.02.2019. And that hon’ble supreme court’s interim order(s)dated 1.7.2019 and 9.7.2021 (pages 372-377) in the SpecialLeave Petition(s) “SLPs” preferred by the State of Uttar:Pradesh & others, has stayed the operation thereof and thematter is yet to be taken up thereafter for final adjudication asinformed to us by both the parties. 8. That being the case and despite the assessee having arguedin favour of the “purpose” test (supra), we are of theconsidered view that since the issue herein is very muchpending before their lordships for final adjudication, it wouldindeed be pre mature for us to apply “accrual” principle at thisstage for lack of any reasonable certainty in recognition ofrevenue as per Chainrup Sampatram v. CIT(1953) 24 ITR 481(SC). Their lordships have categorically held that a revenue receipt could be recognized as an income only in case therearise a reasonable certainty thereof. We reiterate that theRevenue’s clear cut case is that the same has indeed been notactually received all along as the dispute is pending beforehon’ble apex court. We, accordingly are of the considered viewthat the instant common first and foremost issue between theparties is required to be re-adjudicated by the learnedAssessing Officer after it is decided in the hon’ble supremecourt so as to avoid multiplicity of proceedings. We orderaccordingly. It is made clear tht the assessee indeed be atliberty to raise all legal and factual pleas in consequentialproceedings. receipt could be recognized as an income only in case therearise a reasonable certainty thereof. We reiterate that theRevenue’s clear cut case is that the same has indeed been notactually received all along as the dispute is pending beforehon’ble apex court. We, accordingly are of the considered viewthat the instant common first and foremost issue between theparties is required to be re-adjudicated by the learnedAssessing Officer after it is decided in the hon’ble supremecourt so as to avoid multiplicity of proceedings. We orderaccordingly. It is made clear tht the assessee indeed be atliberty to raise all legal and factual pleas in consequentialproceedings. This assessee’s instant substantive ground nos. 1 to 1.3 andRevenue’s corresponding first substantive ground herein arehereby accepted for statistical purposes in very terms.” 6.The only submission made by Mr. Rai is that, the ITAT instead ofremanding the matter back to the AO should have decided the issue. 7.He do concede that the observation made by the ITAT on the issuewith regard to the Sugar Industrial Promotion Policy, 2004, which hasbeen decided by the High Court of Judicature at Allahabad is pendingconsideration before the Supreme Court and the matter need to be finallyadjudicated. Until the adjudication is complete, the AO cannot decide theissue which arises for consideration for which the matter has been remandedback by the ITAT. 8.Mr. Rohit Jain, learned counsel for the respondent acknowledges thesubmission of Mr. Rai. He states that, as and when the Supreme Courtdecides the appeal, the decision shall be informed to the AO for him toproceed with the adjudication process in terms of the remand. 9.We say that, since the ITAT has remanded the matter back to the AO and in any case such adjudication shall depend upon the outcome of theSLP, the plea that the ITAT should have decided the issue, does not meritconsideration. 10.In so far as, the substantial question of law (iii) is concerned, Mr. Raihas drawn our attention to the conclusion drawn by the AO, in paragraph 6of the Assessment Order dated 31.12.2009, in the following manner:“6) After Sales Expenses & Others of Rs. 6.89,80.258/- Assessee has claimed After Sales Expenses of Rs. 6,89,80,258/-.In response to query, assessee submitted his reply that: “These expenses are on account of amounts provided for shortsupplies against orders executed and billed to the client in full.However, since the entire performance of the order was notcompleted, expenses for the material short delivered and costsIn connection with the services yet to be provided have beenaccounted for.” 6.1 Based on the above facts, it is evident thatthese expenses claimed by the assessee are notactualexpensesbutareinthenatureof"provision for expenses”. 6.2 Before coming to the contention of theassessee,definitionof“provision”istobeunderstood:-6.3 A provision is an amount set aside out ofprofitsandothersurplusesprovidedfordiminution in the value of assets or any knownliabilityofwhichtheamountcannotbedetermined with substantial accuracy. According to clause 7(1)(a) of part III of scheduleVI to the Companies Act, 1956, “ provision" means 6 any amount written off or retained byway of providing for depreciation, renewals ordiminution in value of assets, or retained by wayof providing for any known liability of which theamount cannot be determined with substantialaccuracy.” Any amount set-aside to provide for any knownliabilityofwhichtheamountcannotbedeterminedwithsubstantialaccuracyisaprovision; 6.2 Before coming to the contention of theassessee,definitionof“provision”istobeunderstood:-6.3 A provision is an amount set aside out ofprofitsandothersurplusesprovidedfordiminution in the value of assets or any knownliabilityofwhichtheamountcannotbedetermined with substantial accuracy. According to clause 7(1)(a) of part III of scheduleVI to the Companies Act, 1956, “ provision" means 6 any amount written off or retained byway of providing for depreciation, renewals ordiminution in value of assets, or retained by wayof providing for any known liability of which theamount cannot be determined with substantialaccuracy.” Any amount set-aside to provide for any knownliabilityofwhichtheamountcannotbedeterminedwithsubstantialaccuracyisaprovision; 6.4 From the above definition, it is evident that incase of a provision, it is not possible to predictany certainty as to when and to what extent aliability would materialize resulting in businessexpenditure. As per Section 37(1) of the incomeTax Act only those expenses which have beenincurred wholly and exclusively for the purposeof business are allowed as deduction. In theinstant case, setting aside Rs. 6,89,80,258/- is justa provision for liability which has not matured,therefore, the same cannot be treated as anexpense which have been incurred wholly andexclusively for the purpose of business. 6.5 It is pertinent to mention here that Hon’bleSupremeCourtinthecaseofBharatEarthmovers ltd. Vs, CIT (2000) held that “if abusiness liability has definitely arisen in theaccounting year, the deduction should be allowedalthough the liability may have to be qualifiedand discharged at a future date* but in case ofassessee, there is no definite element to theliability that assessee has claimed to be a definiteliability. Hence, a sum of Rs, 6,89,80,258/- isdisallowed by invoking the provisions of Section 37(1) of the Act, Since I am satisfied that the assessee hasfurnished inaccurate particulars, penalty u/s271(1)(C) is being initiated separately. (Addition : Rs. 6,89,80,258/-)” 11.In the appeal filed by the respondent, the CIT (Appeals) vide its orderdated 27.01.2016 has in paragraph 14, held that: “14. The Id. A.O. disallowed an amount of Rs .6,89,80,258/-treating the same as provision and not the liability havingactually accrued, The appellant in its grounds at para 6.1 onpage 14 of its paper book filed with appeal memo has admittedthat out of the expenditure of Rs. 6.89 crores an amount of Rs.5.1350 Crores only was provision and the balance of Rs.1.7630Crores was actual expense. The ground taken by the appellantIn its appeal memo settles the dispute. The disallowance to theextent Rs. 5.1350 Crores is therefore confirmed being theprovision and for which the liability has not yet arisen. Theamount for Rs. 1.7630 Crores which admittedly representedactual expenses is allowed and addition to that extend isdeleted. The appellant gets relief to the extent of Rs. 1.7630Crores out of the disallowance of Rs. 6,89,80,258/-.” 12.Both the parties herein, filed appeals before the ITAT to the extentthey were aggrieved by the conclusion drawn by the CIT (Appeals).13.We find that the ITAT in the impugned order while rejecting theappeal of the Revenue and allowing the appeal of the respondent herein, hasin paragraphs 9 to 14, held that: “9. Next comes the assessee’s and Revenue’s respective secondsubstantive ground that the learned CIT(A) has erred in lawand on facts in restricting the Assessing Officer’s actiondisallowing after sales expenses etc. from Rs. 6,89,80,258/-made in the course of assessment to Rs. 5,13,56,000/-, in thelower appellate discussion, reading as under: “14. The Id. A.O. disallowed an amount of Rs.6,89,80,258/- 12.Both the parties herein, filed appeals before the ITAT to the extentthey were aggrieved by the conclusion drawn by the CIT (Appeals).13.We find that the ITAT in the impugned order while rejecting theappeal of the Revenue and allowing the appeal of the respondent herein, hasin paragraphs 9 to 14, held that: “9. Next comes the assessee’s and Revenue’s respective secondsubstantive ground that the learned CIT(A) has erred in lawand on facts in restricting the Assessing Officer’s actiondisallowing after sales expenses etc. from Rs. 6,89,80,258/-made in the course of assessment to Rs. 5,13,56,000/-, in thelower appellate discussion, reading as under: “14. The Id. A.O. disallowed an amount of Rs.6,89,80,258/- treating the same as provision and not the liability havingactually accrued. The appellant in its grounds at para 6.1 onpage 14 of its paper book filed with appeal memo has admittedthat out of the expenditure of Rs. 6.89 crores an amount of Rs.5.1350 Crores only was provision and the balance ofRs.1.7630 Crores was actual expense. The ground taken bythe appellant in its appeal memo settles the dispute. Thedisallowance to the extent Rs. 5.1350 Crores is thereforeconfirmed being the provision and for which the liability hasnot yet arisen. The amount for Rs. 1.7630 Crores whichadmittedlyrepresented actualexpensesisallowedandaddition to that extend is deleted. The appellant gets relief tothe extent of Rs. 1.7630 Crores out of the disallowance of Rs.6,89,80,258/-.” 11. It has come on record that the learned CIT(A) had simplygone by the assessee’s provision to reject its claim on the onehand and deleted the balance portion on account of actualexpenditure in it’s favour. We are of the considered view thatthe Revenue’s second substantive ground herein, seeking torevive the impugned actual expenditure, hardly carries anymerits as this is not even its case that the same has not beenexpended wholly and exclusively for the purpose of business u/s37(1) of the Act. Its second substantive ground raised hereinfails therefore. 12. We now advert to the assessee’s instant grievance seekingto allow the impugned provision wherein case law BharatEarth Movers v. CIT (2000) 245 ITR 428 (SC); CalcuttaCompany Ltd. v. CIT (1959) 37 ITR 1 (SC); & CIT v. TriveniEngineering & Industries Ltd. (2011) 336 ITR 374 (Delhi) i.e.the assessee itself, in paras 6,7,8 & 11 has held that such aprovision based on scientific computation formula could indeedbe allowed. 13. Learned counsel further reiterates the assessee’s stand thatit has all along been recognizing the revenue from all projectssubject to the corresponding expenditure provision which hasto be incurred in future. 14. We find merit in the assessee’s arguments as the learned CIT(A) has simply brushed aside it’s impugned provision forafter sales expenditure etc. by observing, “The ground taken bythe appellant in its appeal memo settles the issue”. Meaningthereby that the assessee’s scientific computation herein hasnowhere been specifically dealt with or rejected as the learnedlower authorities have declined it’s provision of the impugnedexpenditure raised for meeting future anticipated liabilities asper Bharat Earth Movers (supra). Coupled with this, theassessee has already succeeded on the very issue beforehon’ble jurisdiction high court hereinabove. We, thus see nosubstance in the Revenue’s vehement contentions supportingthe impugned disallowance, which stands deleted therefore.This assessee’s second substantive ground succeeds invery terms therefore. Necessary computation shall follow as perlaw.” 14.Suffice to state that, on this issue, the ITAT has based its conclusionin respect of a judgment rendered by this Court in the case of CIT v. TriveniEngineering & Industrial Ltd. (2011) 336 ITR Delhi 374, in respect of theassessee itself, wherein paragraph 11 reads as under: 14.Suffice to state that, on this issue, the ITAT has based its conclusionin respect of a judgment rendered by this Court in the case of CIT v. TriveniEngineering & Industrial Ltd. (2011) 336 ITR Delhi 374, in respect of theassessee itself, wherein paragraph 11 reads as under: “11. After considering the submissions, the counsel on theeither side, in the given facts, we are of the prima facie viewthat arguments of the learned counsel for the assessee toprevail. The learned counsel for the Revenue may be correct instating the proposition of law, generally. No doubt, unless theexpenditure is actually incurred or it is accrued in the relevantyear, it would not be allowed as deduction. Such a liability hasto be in praesenti. However at the same time, in the givenscenario where in relation to the project works undertaken bythe assessee, completed contract method of accounting isfollowed, which is consistent with the Accounting Standardsand these accounting standards also lay down the normsindicating the particular point of time when the provisions forall known liabilities and losses has to be made, the making ofsuch a provision by the assessee appears to be justified moresowhen the assessee had recognized gain as well on such projectduring this year itself. This appears to be in consonance with principle of matching cost and revenue as well. However, in theprojected scenario of this case after taking stock of the entiresituation, we are of the opinion that it is not necessary toconclusively answer the aforesaid questions formulated. It isbecause of the reason that we find that the entire exercise isrevenue neutral. It may be pointed out that it is a matter ofrecord that against the provision of `139 lacs, the assessee hadto actually incur expenditure of `218.03 lacs, i.e., more than theprovision made. It is undisputed that the expenditure incurredby the assessee on the project is admissible deduction. The onlydispute that the Revenue seeks to raise is regarding the year ofallowability of expenditure. Considering that the assessee is acompany assessed at uniform rate of tax, the entire exercise ofseeking to disturb the year of allowability of expenditure is, inany case, revenue neutral.” 15.We have been informed by Mr. Jain that the judgment has attainedfinality in as much as the Revenue has not taken the same in appeal. TheITAT has given the benefit of the judgment.16.We are of the view that no substantial question of law arises forconsideration and the appeal is rejected but by taking the submission of Mr.Jain as noted in Paragraph 8 on record. V. KAMESWAR RAO, J VINOD KUMAR, J SEPTEMBER 03, 2025 RT