2020 (5) TMI 45 - AT - Income Tax

ITAT rules in favor of Assessee on nature of expenses & receipts

The DCIT CC-II, Sector 17E Chandigarh Versus M/s Steel Strips Wheels Limited And (Vice-Versa)

The DCIT CC-II, Sector 17E Chandigarh Versus M/s Steel Strips Wheels Limited And (Vice-Versa) - TMI Issues Involved:1. Treatment of expenses on technical know-how as revenue or capital expenditure.2. Treatment of sales tax subsidy as capital or revenue receipts.3. Treatment of electricity duty exemption as capital or revenue receipts.Issue-wise Detailed Analysis:1. Treatment of Expenses on Technical Know-How:The Department contested the CIT(A)'s decision to treat technical know-how expenses as revenue expenditure rather than capital expenditure. The Assessee argued that this issue had been previously decided in their favor by the ITAT for earlier assessment years. The ITAT noted that similar facts had been adjudicated in the Assessee's favor in ITA No. 756/Chd/2018 for A.Y. 2011-12, where it was held that the expenses were revenue in nature. The ITAT found no distinguishing facts in the current appeal and upheld the CIT(A)'s decision, dismissing the Department's grounds.2. Treatment of Sales Tax Subsidy:The Department challenged the CIT(A)'s decision to treat sales tax subsidy as capital receipts. The Assessee argued that this issue was also covered in their favor by the ITAT's decision in ITA No. 756/Chd/2018. The ITAT referred to its earlier decision, which held that the sales tax subsidy under the Punjab Industrial Policies was capital in nature. The ITAT found no new facts presented by the Department and upheld the CIT(A)'s decision, dismissing the Department's grounds.3. Treatment of Electricity Duty Exemption:The Assessee contested the CIT(A)'s decision to treat electricity duty exemption as revenue receipts. The Assessee argued that the exemption was a capital receipt under the Industrial Policy 2003 of Punjab, aimed at promoting industrial growth and expansion. The ITAT noted that the Assessee had booked the entitlement on an accrual basis but had not received it, as the eligibility was still under consideration by the empowered committee. The ITAT referred to the Supreme Court's decision in CIT Vs. Ponni Sugars and Chemicals Ltd., which applied the 'purpose test' to determine the nature of subsidies. The ITAT found that the electricity duty exemption was intended to promote industrial expansion and was thus a capital receipt. The ITAT deleted the addition made by the A.O. and sustained by the CIT(A).Conclusion:The ITAT dismissed the Department's appeal and allowed the Assessee's appeal, holding that:- Technical know-how expenses were revenue in nature.- Sales tax subsidy was a capital receipt.- Electricity duty exemption was a capital receipt.