TaxTMI 
TaxTMI 
2017 (3) TMI 1051
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....d in allowing the claim of revised return which is against the interest of revenue." 3. The Assessee is a company. It is engaged in the business of manufacture, sale and export of Insecticides and Agro Chemicals. For AY 2010-11, the Assessee filed a return of income declaring total income of Rs. 28,91,20,688/- on 16.9.2010. The Assessee thereafter filed a revised return of income on 22.2.2012 declaring total income of Rs. 25,28,24,247/-. The reasons for filing the revised return of income was explained by the Assessee as follows: "A sum of Rs. 1,88,90,893/- was received by our Company as Interest Subsidy from J & K Development Finance Corporation during the financial year 2009- 2010 ------------------. A sum of Rs. 3,00,15,964/- was received by our Company as Excise Duty Refund from Asst Commissioner Division Central Excise & Customs, IN & K during the financial year 2009-2010 . Both the above amounts aggregating to Rs. 4, 89, 06, 857/- are in the nature of Capital Receipts received from Government of Jammu & Kashmir as incentive for setting up Industrial Unit in Jammu----------. Since our Company's Unit is situated in the State of Jammu &....
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....ial force in the reasons given by the AO, but as * there is a direct decision of the Hon'ble J&K High Court on this issue and the unit. of the appellant's industrial undertaking is situated in Jammu & Kashmir and has received the subsidy under the same scheme under which Shree Balaji Alloys (Supra) has received the subsidy, hence the decision of the Hon'ble J&K High Court will be applicable in the case of the appellant. Moreover, it is seen that the judgements of the Hon' ble Apex Court in both the cases relied upon by the AO have been duly considered by the Hon'ble J & K High Court in the case of Shree Balaji Alloys (supra) relied upon by the appellant. The Hon' ble Court has held that - "... Thus, looking to the purpose of eradication of the social problem of unemployment in the State by acceleration of the industrial development which is certainly a purpose in the public interest. the incentives provided by the Office Memorandum and statutory notifications issued in this behalf, to the assessee cannot be construed as mere production and trade incentives, as held by the Tribunal. Making of additional provision in the scheme that incentives would b....
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....these appeals have already been decided in the cases of Assessee's who have received similar subsidy under the very same subsidy scheme, the request for adjournment was refused. We proceed to decide the appeals after hearing the learned counsel for the Assessee. 9. We have considered the issue carefully and in the light of the decision of the Hon'ble Jammu & Kashmir High Court in the case of Balaji Alloys (supra). In the case of Balaji Alloys (supra), the Hon'ble Jammu & Kashmir High Court has set out of the objects of the scheme under which the excise duty exemption subsidy and interest subsidy were received by the Assessee in the present case in the following words: "Before coming to the issues, which need determination, regard needs to be had to the salient features of the New Industrial Policy, amendment introduced thereto and the statutory Central excise notifications issued in this respect governing the refund of excise duty and interest subsidy, as incentives to the industrial units, pursuant to the New Industrial Policy. The statement and objects, which had lead to the New Industrial Policy and other concessions for t....
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.... entitled to subsidy on substantial expansion, as defined. Besides these and other concessions, interest subsidy of 3 per cent on the working capital and insurance premium to the extent of 100 per cent on capital investment too was permissible to the new and existing units on their substantial expansion for a period of 10 years. 6. Office Memorandum dt. 14th June, 2002 referred to hereinabove was later amended vide notification of 28th Nov., 2003 issued by the Government of India, Ministry of Commerce and Industry, Department of Industrial Policy and Promotion. It reads thus : "No. 1(11)/2002-NER-In pursuance of the announcement by the Prime Minister on 19th April, 2003 at Srinagar for creation of one lakh employment and self-employment opportunities in Jammu & Kashmir, the Government of India had set up a Task Force under Cabinet Secretary. The recommendations of Task Force were submitted to the Cabinet. To achieve this object of employment generation, the Cabinet has inter alia, approved following definition of the term 'substantial expansion' for the purpose of incentives/subsidies notified as per OM No. 1(13)/2000-NER dt. 14th June, 2002. 2. The C....
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....ed in this notification in future. However, the exemption availed by such industrial unit, prior to such reduction, shall not be recoverable from such industrial unit. (2) The manufacturer shall produce a certificate, from general manager of the concerned District Industries Centre to the jurisdictional Dy. CCE or the Asstt. CCE, as the case may be, to the effect that the unit has created such additional regular employment. Explanation-For the purposes of this notification : (a) 'base employment limit' means maximum number of regular employees employed at any point of time by the concerned industrial unit, during last five years; (b) 'regular employment' shall not include employment provided by the industrial unit to daily wagers or casual employees; (c) 'new investment' shall not include investments which are used for paying off old debts or making payments for the plant or machinery installed prior to the 14th day of June, 2002, or paying salaries to the employees. [Above cl. (b) has been substituted vide NTF No. 11/2004- CE, dt. 29th Jan., 2004]. Old : (b) Industrial units existing before the 14th day of ....
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.... object of the subsidy scheme was to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account. Therefore, it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form or the mechanism through which the subsidy is given are irrelevant." 16. Perusal of the judgments in Sahney Steel (supra) and Ponni Sugars (supra), therefore, reveals that the apex Court had applied the above quoted dictum to determine the purpose, which the two schemes had intended to achieve by the incentive subsidies, permissible under the schemes in question in those cases. It was, therefore, in the context of respective subsidy incentive schemes in the two cases, that the subsidy in Sahney Steel (supra) was held to be revenue receipt whereas the subsidy in Ponni Sugars & Chemicals Ltd. (supra) was held as capital receipt. 17. We are supported in taking this view by the observa....
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....ndum of 14th June, 2002. 20. Therefore, in view of the clear legal position adumbrated by the Hon'ble Supreme Court of India on the issue in question, that to determine the nature and intent of the incentives as to whether those were revenue receipts or capital receipts, the purpose underlying the incentives was the determinative test, there may not be any necessity of referring to the judgments of other High Courts of the country referred to by the appellants' learned counsel, some of which had been considered by Hon'ble Supreme Court of India in the above-referred cases. 21. Thus, finding that the New Industrial Policy and other concessions for the State of Jammu & Kashmir have not been correctly appreciated by the Tribunal, we proceed to examine the true intent and purpose underlying the Policy and concessions contemplated by the Office Memorandum of 14th June, 2002 and the statutory notifications issued in this behalf. 22. Perusal of the Office Memorandum dt. 14th June, 2002 indicating New Industrial Policy and other concessions for the State of Jammu & Kashmir, makes it explicit that the concessions were issued to achieve twin objects viz. (i) ....
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....ion of such industrial atmosphere and environment, which would provide additional permanent source of employment to the unemployed in the State of Jammu & Kashmir were in fact, in the nature of creation of new assets of industrial atmosphere and environment, having the potential of employment generation to achieve a social object. Such incentives, designed to achieve public purpose, cannot, by any stretch of reasoning, be construed as production or operational incentives for the benefit of assessees alone. 27. Thus, looking to the purpose of eradication of the social problem of unemployment in the State by acceleration of the industrial development and removing backwardness of the area that lagged behind in industrial development, which is certainly a purpose in the public interest, the incentives provided by the Office Memorandum and statutory notifications issued in this behalf, to the appellant-assessees cannot be construed as mere production and trade incentives, as held by the Tribunal. 28. Making of additional provision in the scheme that incentives would become available to the industrial units, entitled thereto, from the date of commencement of....
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....ntives to new industrial units and substantial expansion of the existing units was generation of employment through acceleration of industrial development in public interest. Such incentives, designed to achieve a public purpose, cannot be construed as production or operational incentives for the benefit of assessees alone. It was further held that making of additional provision in the scheme that the incentives would be available to the eligible industrial units from the date of commencement of commercial production and that these are not to be allowed for creation of new assets cannot be viewed in isolation to treat the incentives as production incentives. Such provisions are intended to ensure that the incentives are made available only to the bona fide industrial units so that the larger public interest of eradicating unemployment is achieved. The Court finally concluded that the incentives received by way of excise duty refund and interest subsidy are capital receipts in the hands of the assessee and therefore not chargeable to tax. 12. The ratio laid down in the aforesaid decision is squarely applicable to the very same subsidy received under the very sam....
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....15JB of the Act have to be looked at. Section 115JB of the Act provides that notwithstanding anything contained in any other provision of the Act, where in the case of an Assessee, being a company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April,2001, is less than seven and one half percent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of seven and one half ten per cent. The Assessee being a company the provisions of Sec.115JB of the Act were applicable. Every assessee, being a company, shall, for the purposes of section 115JB of the Act, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956). In so preparing its book of accounts including profit and loss account, the company shall adopt the same accounting policies, accounting stand and method and rates for calculating depreciation ....
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....T Luknow Bench in the case of ACIT vs. L.H.Sugar Factory Ltd and vice versa in ITA Nos. 417 , 418 & 339/LKW/2013 dated 9.2.2016 and decision of Mumbai ITAT in the case of Shivalik Venture (P) Ltd. Vs. DCIT (2015) 173 TTJ (Mumbai) 238 dated 19.8.2015, came to the conclusions (i) the object of Minimum Alternate Tax (MAT) provisions incorporated in Sec.115JB of the Act was to bring out real profit of companies and the thrust was to find out real working results of company. (ii) Inclusion of receipt which are not in the nature of income in computation of book profits for MAT would defeat two fundamental principles, it would levy tax on receipt which was not in nature of income at all and secondly it would not result in arriving at real working results of company. Real working result could be arrived at only after excluding this receipt which had been credited to P&L a/c and not otherwise. (iii) There was a disclosure of the factum of forfeiture of share warrants amounting to Rs. 12,65,75,000/- by the Assessee in its notes on accounts vide Note No. 6 to Schedule 11 of Financial Statements for year ended 31.3.2009. Profit and loss account prepared in acco....
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....e fall under the definition of the term "income" as defined in sec. 2(24) of the Act, but they are not included in total income in view of the provisions of sec. 10 of the Act. Since they are considered as "incomes not included in total income" for some policy reasons, the legislature, in its wisdom, has decided not to subject them to tax u/s 115JB of the Act also, except otherwise specifically provided for. Clause (ii) of Explanation 1 to sec.115JB specifically provides that the amount of income to which any of the provisions of section 10 (other than the provisions contained in clause (38) thereof) is to be reduced from the Net profit, if they are credited to the Profit and Loss account. The logic of these provisions, in our view, is that an item of receipt which falls under the definition of "income", are excluded for the purpose of computing "Book Profit", since the said receipts are exempted u/s 10 of the Act while computing total income. Thus, it is seen that the legislature seeks to maintain parity between the computation of "total income" and "book profit", in respect of exempted category of income. If ....
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....duction from the gross value of the asset concerned in arriving at its book value.. The grant is thus recognized in the profit and loss statement over the useful life of a depreciable asset by way of a .reduced depreciation charge. Where the grant equals the whole, or virtually the whole of the cost of the asset, the asset is shown in the balance sheet at a nominal value. Under the other method, grants related to depreciable assets are treated as deferred income which is recognised in the profit and loss statement on a systematic and rational basis over the useful life of the asset. Such allocation to income is usually made over the periods and in the proportions in which depreciation on related assets is charged." The assessee applied the second alternative by crediting to the profit and loss account the Proportionate Amount of Lab Subsidy in proportion to depreciation charged on lab Equipment. Since the Lab subsidy was granted for acquisition of Lab Equipment the unamortized amount of Government Grant being Lab Subsidy was shown as Liability. Since the Lab Equipment are used in the Eligible Unit the Assessee claimed that proportionate amount of Lab Subsidy....
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.... assessee failed to furnish fund flow statement or supporting document to substantiate its claim. Further, there was a common office set- up and establishment for all the business activities as well as investment. Hence, the explanation of the assessee was not acceptable. The AO therefore held that the claim of the assessee that no expenditure has been incurred by him in relation to dividend income was not correct and therefore the provisions of Sec 14A(2) read with Rule-8D are invoked in this case. Accordingly disallowance of expenses was worked out as under : Rule 8D(ii) A Interest 2,88,33,391/- B Average Investments (39298700 + 6238700)/2 22768700/- C Average Assets (2205984982 + 169194027)/2 1948962505/- Disallowance = AXB/C 3,36,845/- Rule 8D(iii) Average Investments (39298700 + 6238700)/2 22768700/- Disallowance @1/2% of Average Investments (2205984982 + 169194027)/2 11,384/- Total Disallowance under section 14Awas thus determined at (3,36,845 + 11,384) Rs. 3,48,230/-. 28. The CIT(A) confirmed the order of the AO. Hence Gr.No.3 by the Assessee before the Tribunal. 29. We have heard the submission of the le....