2019 (11) TMI 750 - AT - Income Tax

Tribunal upholds CIT(A)'s orders on repairs, excise subsidy as capital receipt

The Tribunal dismissed the Revenue's appeal in its entirety, upholding the CIT(A)'s orders on both issues. The first issue involved the deletion of an ... Addition on account of repairs and maintenance - HELD THAT:- After considering the rival submissions, we do not find any infirmity to interfere with the Orders of the Ld. CIT(A) in deleting the addition. Since the existing unit of assessee have been repaired and no new asset has come into existence, therefore, the Ld. CIT(A) on verification of bills and vouchers, correctly held that same are revenue expenditure in nature. This Ground of appeal of Revenue is dismissed. Capital receipt - Subsidy in the form of excise duty refund - HELD THAT:- The assessee has referred to Notification issued for New Industrial Policy in which the Government of Jammu & Kashmir has requested for special package for development of industries in the State. On the lines the industrial policy of the State Government was also notified by the Central Government. Thus, the assessee received the subsidy in the form of excise duty refund for development of industry and generation of employment for new units or making substantial expansion. Therefore, purpose test is satisfied in the case of the assessee for the purpose of grant of subsidy for setting-up industrial unit in the State of Jammu and Kashmir. The Ld. CIT(A) correctly followed the decision of Hon’ble Supreme Court in the case of Pooni Sugars & Chemicals Ltd. [2008 (9) TMI 14 - SUPREME COURT] and in the case of Shree Balaji Alloys vs., Commissioner of Income Tax [2011 (1) TMI 394 - JAMMU AND KASHMIR HIGH COURT] in which similar Notification have been considered and held Excise refund and interest subsidy received by the assessees in pursuance of the incentives announced and sanctioned vide Government of India, Ministry of Commerce and Industry's Office Memorandum dt. 14th June, 2002 and Central Excise Notification Nos. 56 and 57 dt. 14th Nov., 2002 and other notifications issued on the subject, pertaining to the Industrial Policy for the State of Jammu & Kashmir, is capital receipt. Issues Involved:1. Deletion of addition made on account of repairs and maintenance.2. Allowance of claim regarding excise subsidy as a capital receipt.Detailed Analysis:Issue 1: Deletion of Addition on Account of Repairs and MaintenanceBackground: The Revenue challenged the order of the CIT(A) in deleting the addition of Rs. 5,14,383/- made on account of repairs and maintenance. The Assessing Officer (A.O.) had disallowed this amount, categorizing it as capital expenditure.Findings:- The CIT(A), upon examination and verification of bills and vouchers, noted that no new asset had come into existence from the expenditure, which was solely for the repairs and maintenance of the factory in the Udhampur Unit.- The CIT(A) directed the A.O. to allow the claim and modify the assessment order accordingly.Arguments:- The Departmental Representative (D.R.) relied on the order of the A.O.- The Assessee's Counsel argued that the expenditure was for flooring of the old Udhampur Unit and did not result in any enduring asset. The expenditure included items like stone dust, cement, M.S. Gate, Kota Stone, fittings, etc. The Counsel cited the case of Commissioner of Income Tax vs. ICI India Pvt. Ltd., where repairs to prevent further deterioration were deemed revenue expenditure.Conclusion: The Tribunal found no infirmity in the CIT(A)'s order, agreeing that the expenditure was for repairs and maintenance without creating a new asset. Thus, the appeal by the Revenue was dismissed.Issue 2: Allowance of Claim Regarding Excise Subsidy as a Capital ReceiptBackground: The Revenue contested the order of the CIT(A) allowing the assessee's claim of Rs. 4,81,11,120/- as a capital receipt. The issue arose from the non-exclusion of excise subsidy from total income under the normal provisions of the Act and computation of book profits under section 115JB.Findings:- The A.O. had disallowed the claim, considering it a fresh claim that could only be raised through a revised return, citing the Supreme Court judgment in Commissioner of Income Tax vs. Goetze (India) Ltd.- The CIT(A) allowed the claim, referencing several judicial precedents, including the Supreme Court's decision in Ponni Sugars & Chemicals Ltd., which held that subsidies for setting up new units or expanding existing units are capital receipts. The CIT(A) also referred to the Jammu & Kashmir High Court's decision in Shree Balaji Alloys vs. Commissioner of Income Tax, which deemed excise duty refunds as capital receipts.Arguments:- The D.R. relied on the A.O.'s order.- The Assessee's Counsel reiterated that the subsidy was for setting up new units and expanding existing ones, thus qualifying as a capital receipt. The Counsel cited the scheme's purpose and relied on the aforementioned judicial precedents.Conclusion: The Tribunal upheld the CIT(A)'s decision, agreeing that the subsidy was for the development of industries and generation of employment, thus satisfying the purpose test. The Tribunal dismissed the Revenue's appeal, affirming that the excise duty refund was a capital receipt.Final Judgment:The appeal of the Revenue was dismissed in its entirety. The Tribunal found no merit in the Revenue's contentions and upheld the CIT(A)'s orders on both issues. The judgment was pronounced in the open court.