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 apparent from the record. It held that excise subsidy refunds are capital receipts and should be excluded from computing book profit under Section 115JB. The order was pronounced on 02/09/2021.

---

---

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.

---