2021 (9) TMI 233 - AT - Income Tax

Tax Appeals Allowed: Excise subsidy refunds as capital receipts excluded from book profit calculation

The Tribunal allowed all appeals of the assessee, concluding that not considering subsequent legal interpretations by higher courts constitutes a mistake ... Rectification u/s 154 - Nature of receipt - revenue or capital receipt - benefit in the form of excise duty subsidy - Whether issue falls u/ s 154 or not? - what constitute mistake apparent from record - whether, a Supreme court judgment delivered at later point of time after passing or order can constitute mistake apparent from record or not, whether income tax authority can amend any order, if there is any mistake apparent from record with relevance to a later judgment? - HELD THAT:- We find that in the case of DCIT vs. M/s Kashmir Steel Rolling Mills [2015 (1) TMI 1265 - ITAT AMRITSAR] held on identical facts that non consideration of order of jurisdictional high court constitute mistake apparent from record.- also Further, the Co-ordinate Bench of ITAT Mumbai in the case of Nulux Engineers vs. DCIT [2018 (10) TMI 1908 - ITAT MUMBAI] held that non-consideration of the decision of Hon’ ble Supreme Court as well as subsequent interpretation of law by Hon' ble Supreme Court and its non- consideration by Revenue in its order constitute mistake apparent from record which can be rectified u/ s 154 of the Act. Hon’ ble Supreme Court in the case ACIT vs. Saurashtra Kutch Stock Exchange Ltd. [2008 (9) TMI 11 - SUPREME COURT] held that non consideration of a decision of Jurisdictional High court or Supreme court can be said to be a 'mistake apparent from record' which can be rectified under section 254(2). After considering the above circular and judicial pronouncements, we hold that the petition submitted by the assessee falls within the scope of section 154. Whether Excise Duty refund is capital or revenue receipt ? - Hon' ble High Court of J& K in the case of Shree Balaji Alloys [2011 (1) TMI 394 - JAMMU AND KASHMIR HIGH COURT] 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 - we find no dispute that the Excise Duty refund received by the assessee is to be treated as capital receipt. Exclusion of capital receipts in computing Book profit u/ s 115JB - HELD THAT:- Only that receipt which forms part of the “income” are to be taxed. The capital receipts which are otherwise not subject to tax under the normal provisions of the Act are not envisaged to be taxed under the provisions of “Minimum Alternate Tax”. Once a receipt is not considered as income, the same cannot be subjected to tax under this Act as such receipt naturally classified under capital receipt. Which was never meant to be taxed cannot be taxed even u/ s 115 JB. The Hon’ ble Supreme Court in the case of Apollo Tyres Ltd. [2002 (5) TMI 5 - SUPREME COURT] held that the revenue cannot go beyond the net profit shown in the P&L account except to the extent provided in the Explanation to Section 115J. The Hon’ble High Court of Karnataka in the case of Hariram Hotels Pvt. Ltd. [2015 (12) TMI 1419 - KARNATAKA HIGH COURT] held that the capital receipts are not subjected to the provisions of Section 115JB. Issues Involved:1. Opportunity of being heard.2. Jurisdiction and legality of the ex-parte order.3. Consideration of excise duty subsidy as a capital receipt.4. Consideration of Focus Product Scheme/Focus Market Scheme as a capital receipt.5. Admissibility of additional grounds of appeal.6. Time limit for passing the rectification order.Issue-Wise Detailed Analysis:1. Opportunity of Being Heard:The assessee contended that the CIT(A) erred in passing an ex-parte order without providing an opportunity of being heard. The Tribunal noted that the assessee claimed no notice of hearing was received, making the order without jurisdiction and illegal. However, this ground was not pressed during the arguments.2. Jurisdiction and Legality of the Ex-Parte Order:The assessee argued that the ex-parte order passed by CIT(A) without notice was without jurisdiction and needed to be quashed. This issue was also not pressed during the arguments.3. Consideration of Excise Duty Subsidy as a Capital Receipt:The assessee filed a rectification application under Section 154 to consider the excise duty subsidy as a capital receipt. The Assessing Officer rejected the application, stating that the claim was a debatable issue and not a mistake apparent from the record. The Tribunal referred to CBDT Circular No. 68 dated 17.11.1971, which clarified that a mistake arising from a subsequent Supreme Court interpretation constitutes a mistake apparent from the record. Judicial precedents from ITAT Amritsar and ITAT Mumbai supported this view. The Tribunal concluded that the petition fell within the scope of Section 154.4. Consideration of Focus Product Scheme/Focus Market Scheme as a Capital Receipt:The Tribunal noted the assessee's business involved manufacturing in Himachal Pradesh and Jammu and Kashmir, availing excise duty subsidies aimed at generating employment and industrial development. The Hon'ble High Court of J&K in Shree Balaji Alloys vs. CIT held that such subsidies aimed at public interest and employment generation are capital receipts. The Supreme Court upheld this view, dismissing the department's appeal. The Tribunal found no dispute that the excise duty refund should be treated as a capital receipt.5. Admissibility of Additional Grounds of Appeal:The assessee argued that CIT(A) erred by not following the High Court's decision on the admissibility of additional grounds of appeal. The Tribunal did not provide a specific ruling on this issue in the judgment.6. Time Limit for Passing the Rectification Order:The assessee contended that the rectification application was filed within the time limit, but the order was passed beyond the prescribed time. The Tribunal did not specifically address this issue in the judgment.Exclusion of Capital Receipts in Computing Book Profit Under Section 115JB:The Tribunal examined whether capital receipts should be excluded from book profit computation under Section 115JB. Citing various judicial precedents, including the Supreme Court's decision in Apollo Tyres Ltd. and the High Court of Karnataka's decision in Hariram Hotels Pvt. Ltd., the Tribunal held that capital receipts are not subject to tax under Section 115JB.Conclusion:a. Not considering the subsequent interpretation of law through the judgment of the Hon'ble Supreme Court or the Hon'ble jurisdictional High Court constitutes a mistake apparent from the record.b. The excise subsidy refund is to be treated as a capital receipt.c. Capital receipts are to be excluded for the purpose of computing book profit under Section 115JB.Result:All the appeals of the assessee were allowed. The order was pronounced in the open court on 02/09/2021.