TaxTMI 
TaxTMI 
2018 (4) TMI 1200
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....115JB at Rs. 80,59,75,288/-. In that assessment year, AO inter-alia disallowed the claim of increased interest element on account of foreign exchange fluctuations at Rs. 37,65,807/- and also disallowed an amount of Rs. 8,12,27,057/- u/s. 40(a)(ia) of the Act. In addition to the above amount, the AO also added an amount of Rs. 3,01,76,155/- representing the element of Excise Duty on Closing Stock. AO has not allowed a deduction u/s. 40(a)(ia) disallowed in earlier year but allowable in this year. Aggrieved on the above order, assessee preferred an appeal before the Ld.CIT(A). 3. In the course of appeal proceedings, assessee has raised an additional ground that sales tax exemption/remission of Rs. 35,91,26,456/-, shown in the P&L A/c as a receipt is in fact a capital receipt and is not includable in the total income, though admitted and assessed. Elaborately discussing the issues, Ld.CIT(A) in the impugned assessment year has allowed the contentions of assessee partly on the increased interest element on foreign exchange and completely on the disallowance u/s. 40(a)(ia), addition of Excise Duty on closing stock and claim of amount disallowed in earlier year u/s. 40(a)(ia). 4. With ....
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....while completing the assessment. 7.1. In the appeal before the Ld.CIT(A), Ld.CIT(A) partly allowed the contentions. While allowing assessee's claim of exclusion of sales tax subsidy, AO was directed to adjust the said amount proportionately from the cost of assets for the purpose of depreciation. Revenue is aggrieved on the direction of the CIT(A) to exclude the sales tax subsidy, whereas assessee is aggrieved on the direction of the CIT(A) to adjust in the cost of depreciable assets. 8. In the AY. 2013-14, as in the previous assessment year, assessee has raised the issue of exclusion of sales tax subsidy before the AO himself. However, AO did not agree with assessee's claim and rejected the same. Thus, while completing the assessment, out of the loss returned in the revised return, AO added the sales tax exemption amount while completing the assessment. 8.1. In the appeal before the Ld.CIT(A), Ld.CIT(A) partly allowed the contentions. While allowing assessee's claim of exclusion of sales tax subsidy, AO was directed to adjust the said amount proportionately from the cost of assets for the purpose of depreciation. Revenue is aggrieved on the direction of the CIT(A) to exclude th....
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....ess and was aimed to cover capital outlay of assessee. It was held that amount was capital receipt not chargeable to tax. Relying on the principles laid down by the Hon'ble Gujarat High Court, assessee submitted to the AO that the sales tax incentive/remission received by the company is capital in nature. 11.1. AO, however, did not agree with the above contentions and elaborately discussed about assessee's books of account, accounting standards, principles of taxation and provisions of Section 2 etc., and also various other decisions to come to a conclusion that the amount received is accruing in the course of a trading transaction of a business and therefore, revenue receipt and it is taxable. He also distinguished the judgment relied upon to state that the decision relied upon by the assessee was rendered on the issue of taxability of capital investment subsidy and not sales tax incentive. Holding the above view, AO rejected the claim in the assessment orders for AYs. 2012-13 and 2013-14. 11.2. When the matter was agitated before the Ld.CIT(A) in the form of additional ground for AY. 2006-07 and 2008-09 and as a regular ground from AYs. 2011-12 onwards, Ld.CIT(A) analysed t....
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....only as provided under the Act. If any assessee, under a mistake, misconception or on not being properly instructed is over assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected. The Bombay High Court in Nirmala L. Mehta V. A.Balasubramaniam, C.I.T. (2004) 269 ITR 1 held that there cannot be any estoppel against the statute. Article 265 of the Constitution of India in unmistakable terms provides that no tax shall be levied or collected Circular No. 14(XL-35) of 1955, dated 11-04-1955, issued by the Central Board of Direct Taxes reads as under: "Officers of the department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a tax payer in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the officers should take the initiative in guiding a tax payer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the department, for it would inspire confidence in him that he may be sure of getting a square deal from the depar....
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....assessee had claimed reduction of purchase tax for the first time before the appellate authority. The hon'ble court held that an appellate authority has all the powers which the assessing officer has in deciding the question before it. It was further held that there is always a case for raising additional ground, if such ground could not be raised before the Assessing authority or such ground became available on account of change of circumstances or law. It was further held that there may be several factors justifying the raising of such new ground in appeal, and each case has to be considered on its own facts. NTPC LIMITED Vs. CIT 229 ITR 383 (SC) wherein it was held that the purpose of assessment was to assess correctly the tax liability of the assessee in accordance with the law. If for example, "as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed, or a permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item. We do not ....
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....ployment opportunities. It has also stressed the need to increase the total flow of investment to the industrial sector with the proper development of infrastructure and human resources to sustain long-term growth and achieve sustainable development. 2. The Government of Gujarat is committed to create large-scale employment opportunities to absorb the swelling ranks of the unemployed. State Government has announced the new employment policy in order to ensure that priority is given to local persons for employment in Industrial sector. 3. A scheme to provide Capital Investment Subsidy and Sales Tax Incentives is necessary to attract investments to generate greater employment in less industrially developed areas. With a view to secure balanced development of industries in Gujarat through dispersal of industries in the most backward areas and backward areas the Government of Gujarat has approved a package of incentives. As a part of this package, Government of Gujarat is pleased to introduce the following scheme." Therefore the primary purpose of this industrial policy is :- A) To accelerate development of back ward areas in the state. B) To create large scale employment....
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....condition financial institutions came forward and provided funds. The court held that the subsidy in this case was given for setting up of new units/for substantial expansion of existing units. Therefore such subsidy was capital in nature. CIT VS BOUGAINVILLEA MULTIPLEX ENTERTAINMENT CENTRE PVT. LTD. (2015 55 Taxmann.com 26 (Delhi HC). In this case entertainment tax exemption subsidy granted to an assessee engaged in the business of running of multiplex cinema and shopping malls was held as capital in nature. CIT Vs SHREE BALAJI ALLOYS the Hon'ble Supreme Court in its recent judgment dated 19-04-2016 held that subsidy by way of excise duty and interest received from Government of Jammu & Kashmir for setting up of a new industrial undertaking is a capital receipt and not taxable as income. The court further held that the fact that the incentives were available only after commencement of production cannot be viewed in isolation and such incentives cannot be construed as mere production or trade incentives. In case of ACIT Vs Shree Cement Ltd, ITA No.614, 615, 635/JP/2010, A.Y.2004-05 to 2006-07 the Hon'ble ITAT, Jaipur dealing with the identical issue of sales tax in....
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.... Officer does not have the jurisdiction to go beyond and re-scrutinize the accounts, meaning thereby the net profit arrived at in P&L account as per the annual report shall be the opening figure to be adopted for the purpose of 115JB. In case of ACIT Vs Shree Cement Ltd, ITA No.614, 615, 635/JP/2010, A.Y.2004-05 to 2006-07 the Hon'ble ITAT, Jaipur dealing with the identical issue of sales tax incentive held that: c) The sales tax subsidy granted for setting up of new unit is capital receipt, therefore not liable to tax. d) Such receipt is not includable for the purpose of 115J6. The Court further held that "Our view as above is supported by the decision of the Special Bench in the case of Rain Commodities (supra), which incidentally has been relied upon by DR. On examination of the said order we find that at Para 17 (last sub-para) & Para 18, after considering the decision of Supreme Court in Apollo Tyres Ltd (supra), Special Bench have held that if Profit & Loss account is not in accordance with Part II & Part III of Schedule VI to the Companies Act, it is permissible to alter the net profit so as to make it in accordance with Part II & III of Schedule VI, which is....
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....oversy in this matter, the definition of income under clause (24) of section 2 of the Income-tax Act has been amended so as to provide that the income shall include assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement \(by whatever name called ) by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee other than the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause 1(2) of section 43 of the Income Tax Act. 5.2 As mentioned in Press Release dated 5th May, 2015, the amended definition of income shall not apply to the LPG subsidy or any other welfare subsidy received by an individual in his personal capacity and not in connection with the business or profession carried on by him. 5.3 Applicability:- This amendment take effect from 1st April, 2016 and would accordingly apply to assessment year 2016-17 and subsequent assessment years." Therefore the amended provisions treating subsidy or grant as Income, are prospective in nature and....
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....anting subsidy nor the source of subsidy. The Hon'ble Supreme Court in the case of CIT-1, Kolhapur Vs. Chaphalkar Brothers, Pune [400 ITR 279] (SC) has again reiterated the same principles while analyzing the various incentive schemes and held as under: "* Applying the test of purpose, the Court was satisfied that the payment received by the assessee under the scheme was not in the nature of a helping hand to the trade but was capital in nature. [Para 20] * What is important is the fact that Sahney Steel & Press Works Ltd. v. CIT [1997] 94 Taxman 368/228 ITR 253 (SC) was followed and the test laid down was the 'purpose test'. It was specifically held that the point of time at which the subsidy is paid is not relevant; the source of the subsidy is immaterial; the form of subsidy is equally immaterial. [Para 21] * Applying the aforesaid test contained in both Sahney Steel & Press Works Ltd.'s case (supra) as well as CIT v. Panni Sugars & Chemicals Ltd. [2008] 174 Taxman 87/306 ITR 392(SC), it is viewed that the object, as stated in the statement of objects and reasons, of the amendment ordinance was that since the average occupancy in cinema theatres has falle....
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....e, the High Court found that the concessions were issued in order to achieve the twin objects of acceleration of industrial development in the State of Jammu and Kashmir and generation of employment in the said State. Thus considered, it was obvious that the incentives would have to be held capital and not revenue. [para 24] * The finding of the Jammu and Kashmir High Court on the facts of the incentive subsidy contained in that case is absolutely correct. In that once the object of the subsidy was to industrialize the State and to generate employment in the State, the fact that the subsidy took a particular form and the fact that it was granted only after commencement of production would make no difference. [para 25] * Further, since the subsidy scheme in the west Bengal case is similar to the scheme in the Maharashtra case being to encourage development of Multiplex Theatre Complexes which are capital intensive in nature, and since the subsidy scheme in that case is also similar 'to the Maharashtra cases, in that the amount of entertainment tax collected was to be retained by the new Multiplex Theatre Complexes for a period not exceeding four years, the West Bengal case....
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....irectly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee: Provided that where such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee. Therefore the Assessing Officer is directed to reduce the sales tax subsidy from the depreciable assets in the same proportion as such asset bears to the total assets. For example; The W.D.V. of plant & machinery - Rs.10,00,000 The W.D.V. of furniture & fixtures - Rs. 2,00,000 The sales tax subsidy - Rs. 1,00,000 The amount to be reduced from the cost of plant ....
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....generation and only for the purpose of quantification of subsidy, it is linked with eligible fixed capital investment. Such case is not covered by Explanation 10 to Sec. 43 (1) as held by Hon'ble Mumbai and Visakhapatnam Tribunal. Incidentally similar view has also been taken by Hon'ble Hyderabad ITAT in a recent case in Bajaj Consumer Care Ltd -Vs.- ACIT (2011) [ITA No. 365/Hyd/09]. In the light of the facts of the present case and respectfully following the above mentioned decisions, we reject this contention of Ld DR on merit as well. 13.3. This order of the Hon'ble ITAT stands confirmed by the judgment of the Hon'ble High Court of Rajasthan in the above mentioned cases vide its judgment dt. 22-08-2017. Respectfully following the principles laid down by the above and since this issue is also discussed by the Co-ordinate Bench at Hyderabad in the case of Bajaj Consumer Care Ltd., Vs. ACIT in ITA No. 365/Hyd/2009, we hold that the order of CIT(A) to that extent is not correct and the amount of subsidy cannot be adjusted to the cost of a depreciable assets. Accordingly, we set aside the last portion of the CIT(A)'s order and direct the AO not to adjust the subsidy....
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....addition made by the Assessing Officer and the same is deleted". 14.3. After considering the rival contentions, we do not find any reason to interfere with the order of the Ld.CIT(A). The Co-ordinate Bench in the case of Dy. CIT Vs. M/s. Sponge Iron India Ltd., in ITA No. 1834/Hyd/2012, dt. 03-05-2013 has held as under on the similar issue: "6. We have heard both the parties and perused the record as well as gone through the orders of the authorities below. The CIT(A) gave a categorical finding that the "undisputed fact in this regard is that the finished goods have not been moved out of factory premises and hence the liability of payment of excise duty did not arise." The CIT(A) relied upon the decision of the Bombay High Court in the case of Loknete Balasaheb Desai SSK Ltd., 339 ITR 288 (Bom.) wherein it was clearly held that the word incurred used in 145A(b) must be construed to mean the liability actually incurred by the assessee. The CIT(A) observed that though the date of manufacture is the relevant date for dutiability, the relevant date for the duty liability, is the date on which the goods are cleared. In other words, in respect of excisable goods manufacture and lying....