2017 (12) TMI 634 - HC - Income Tax

High Court rules for Assessee, upholding ITAT's decision on custom duty, inventory, raw material, and sales tax subsidy.

The High Court ruled in favor of the Assessee on all issues raised in the appeal. The Court upheld the ITAT's decision to delete additions related to ... Custom duty on import of components for export purpose - custom duty on inventory held in closing stock - addition on account of excess consumption of raw material and components - sales tax subsidy: revenue receipt v. capital receipt / treatment as taxable income - treatment of government subsidy for tax purposesCustom duty on import of components for export purpose - Deletion of addition/disallowance relating to custom duty on import of components meant for export to the extent specified. - HELD THAT: - The Tribunal's deletion of the addition/disallowance in respect of custom duty on components imported for export purposes was upheld. The Court answered Questions (1) in the appellant's appeal in the affirmative for the assessee, relying on the reasoning adopted in the decision rendered earlier in ITA No.250 of 2005 for the same assessee (AY 1999-2000). On that basis the impugned addition/disallowance of Rs. 2,08,59,280/- was deleted in favour of the assessee and against the Revenue. [Paras 3]Addition/disallowance on custom duty for imported components used for export deleted; decision affirmed in favour of the assessee.Custom duty on inventory held in closing stock - Deletion of addition/disallowance relating to custom duty incorporated in closing inventory. - HELD THAT: - The Tribunal's deletion of the addition/disallowance in respect of custom duty included in closing stock was affirmed. Following the Court's earlier decision in ITA No.250 of 2005 for the same assessee, Questions (2) was answered in the affirmative for the assessee, resulting in deletion of the impugned addition/disallowance of Rs. 23,68,09,186/-. [Paras 3]Addition/disallowance on custom duty in closing stock deleted; decision affirmed in favour of the assessee.Addition on account of excess consumption of raw material and components - Deletion of addition made by AO on account of alleged excess consumption of raw materials and components. - HELD THAT: - The Tribunal's deletion of the addition on account of alleged excess consumption was upheld. On the authority of the Court's earlier decision in ITA No.250 of 2005 concerning the same assessee, Question (3) was answered in the affirmative for the assessee, and the impugned addition of Rs. 4,65,02,993/- was deleted. [Paras 3]Addition for alleged excess consumption deleted; decision affirmed in favour of the assessee.Sales tax subsidy: revenue receipt v. capital receipt / treatment as taxable income - treatment of government subsidy for tax purposes - Whether the sales tax subsidy received under the Haryana scheme is taxable as revenue receipt (added to income) or not. - HELD THAT: - The Court answered Question (4) in favour of the assessee, holding that the sales tax subsidy under the State scheme is not to be treated as a revenue receipt liable to addition. The Court relied on its earlier decision in Commissioner of Income Tax v. Johnson Matthey India (P) Ltd. (order dated 13 March 2015), which applied the Supreme Court decisions in Sahney Steel and Press Works Ltd. and Ponni Sugars and Chemicals Ltd. The Revenue did not prefer an appeal against the Johnson Matthey decision; a decision relied upon by the Revenue (Commissioner of Income Tax v. Bhushan Steel Pvt. Ltd.) is stated to be under stay before the Supreme Court. For these reasons the Tribunal's deletion of the addition of Rs. 16,04,07,733/- on account of sales tax subsidy was sustained. [Paras 4, 5, 6]Addition of sales tax subsidy deleted; sales tax subsidy under the Haryana scheme held not to be taxable as revenue receipt, decision in favour of the assessee.Final Conclusion: The Revenue's appeal is dismissed. The Tribunal's deletions in respect of custom duty on imported components for export, custom duty included in closing stock, alleged excess consumption additions, and the addition of sales tax subsidy are all affirmed in favour of the assessee for AY 2005-06; the appeal is disposed accordingly. Issues:1. Custom duty on import of components for export purpose2. Custom duty on inventory held in closing stock3. Alleged excess consumption of raw material and components4. Treatment of sales tax subsidy as revenue receiptAnalysis:1. Custom duty on import of components for export purpose:The appeal by the Revenue challenged the ITAT's order deleting the addition of custom duty on import of components for export purpose. The High Court, considering a previous decision for the same Assessee for AY 1999-2000, ruled in favor of the Assessee and against the Revenue. The Court's decision was influenced by the precedent set in a case involving Johnson Matthey India (P) Limited and supported by Supreme Court judgments.2. Custom duty on inventory held in closing stock:Similar to the first issue, the High Court upheld the ITAT's decision to delete the addition/disallowance related to custom duty on inventory held in closing stock. The Court's ruling was consistent with its interpretation in a previous case involving the same Assessee for AY 1999-2000, favoring the Assessee and going against the Revenue.3. Alleged excess consumption of raw material and components:The ITAT's deletion of the addition of alleged excess consumption of raw material and components was affirmed by the High Court in line with its decisions on the previous issues for the same Assessee. The Court's judgment favored the Assessee and went against the Revenue based on established legal principles and precedents.4. Treatment of sales tax subsidy as revenue receipt:Regarding the treatment of sales tax subsidy as revenue receipt, the High Court referred to a previous case involving Johnson Matthey India (P) Limited, where a similar issue was decided in favor of the Assessee and against the Revenue. The Court noted that the Revenue's reliance on another case was under appeal and stayed by the Supreme Court. Consequently, the High Court ruled in favor of the Assessee on this issue as well, aligning with its previous decisions and established legal principles.In conclusion, the High Court disposed of the appeal in favor of the Assessee on all the issues raised, emphasizing consistency with previous decisions and established legal precedents.