2002 (4) TMI 214 - AT - Income Tax

Tribunal upholds Entertainment Tax Subsidy as revenue receipt, dismisses appeals

Mudit Refrigeration Industries Limited. Versus Assistant Commissioner Of Income-Tax

The Tribunal dismissed all appeals, upholding the Entertainment Tax Subsidy as a revenue receipt, the addition of Rs. 18,000 due to unexplained credit, ... Assessable As Income, Adjustment of Entertainment Tax Issues Involved:1. Whether the Entertainment Tax Subsidy received by the assessee is a capital receipt or a revenue receipt.2. Addition of Rs. 18,000 on account of credit appearing in the account of Sri Mohanlal Singh.3. Disallowance of Rs. 3,000 out of freight and cartage expenses.Detailed Analysis:Issue 1: Entertainment Tax Subsidy - Capital or Revenue ReceiptThe primary issue in the appeals was whether the Entertainment Tax Subsidy received by the assessee should be treated as a capital receipt or a revenue receipt. The assessee argued that the subsidy was a capital receipt intended for the development of cinema in backward areas and should not be taxed. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] disagreed, treating the subsidy as a revenue receipt based on the Supreme Court's decision in V.S.S.V. Meenakshi Achi v. CIT and other precedents.The Tribunal considered various arguments and precedents, including the Supreme Court's decision in Sahney Steel & Press Works Ltd. v. CIT, which held that subsidies given to assist in carrying on trade or business are trading receipts. It was noted that the subsidy was given to make the business of running a cinema more profitable, not for acquiring capital assets. The Tribunal concluded that the grants-in-aid received by the assessee from the State Government, treated as paid by way of adjustment and retained by the assessee, cannot be regarded as anything but a revenue receipt.Issue 2: Addition of Rs. 18,000 on Account of CreditThe second issue was the addition of Rs. 18,000 to the assessee's income on account of a credit appearing in the account of Sri Mohanlal Singh. The AO made this addition because the identity, creditworthiness, and genuineness of the transaction were not satisfactorily explained. The CIT(A) upheld this addition, noting that necessary evidence such as land records, Khasra, and Khatauni were not produced.The Tribunal reviewed the evidence and arguments presented. The assessee had filed a confirmatory letter from Sri Mohanlal Singh, stating that the loan was given from the sale proceeds of potatoes. However, the Tribunal found this insufficient to prove the genuineness of the cash credit, the creditworthiness of Sri Mohanlal Singh, and the genuineness of the transaction. Consequently, the Tribunal upheld the addition of Rs. 18,000.Issue 3: Disallowance of Rs. 3,000 Out of Freight and CartageThe third issue was the disallowance of Rs. 3,000 out of freight and cartage expenses by the AO, which was upheld by the CIT(A) due to the non-verifiability of the expenditure. The assessee argued that the disallowance was excessive.The Tribunal noted that neither the AO nor the CIT(A) had mentioned the total amount of freight charges out of which Rs. 3,000 was disallowed. Additionally, the assessee did not provide details of the freight charges in the paper book. In the absence of sufficient details, the Tribunal found no reason to interfere with the orders of the authorities below and dismissed the ground of appeal.Conclusion:The Tribunal dismissed all the appeals, upholding the treatment of the Entertainment Tax Subsidy as a revenue receipt, the addition of Rs. 18,000 on account of unexplained cash credit, and the disallowance of Rs. 3,000 out of freight and cartage expenses.