TaxTMI 
TaxTMI 
2018 (4) TMI 1200
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....isions at NIL and accepted the income u/s. 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 disallo....
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....ised return, AO added the sales tax exemption amount 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. Revenu....
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....and not to give any benefit on day to day functioning of the business 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 a....
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....ain to that year. The Bombay High Court in Balmukund Acharya Vs. DCIT, CIT and UOI 310 ITR 310 held that Tax can be collected 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....
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....sessee can raise the issue for the first time before the appellate authorities, before CIT(A), before the Hon'ble ITAT. The judicial precedents are :- JUTE CORPORATION OF INDIA 187 ITR 688 (SC). In this case the 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 permissibl....
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....nment's resolution which is evident from the first page of such resolution repeated as under "The new industrial policy announced by the Government of Gujarat has emphasized the need to accelerate developments of the backward areas of the State and to create large-scale employment 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....
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....cement of unit) nor the source of subsidy. the facts in this case were, certain cooperative societies running sugar mills were in losses, No financial institutions were coming forward to give loans, In such circumstances the government had given subsidy to the sugar mills with the condition that the profits from such mills were to be used only for repaying term loans, With this govt 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 ....
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.... what is not taxable as per normal provisions is also not taxable u/s 115JA. Therefore the capital receipts which are not income at all needs to be excluded from the profit. Apollo Tyres Vs. CIT (2002) 255 ITR 273 the Hon'ble Supreme Court held that the Assessing Officer has to accept the net profit computed in accordance with Part-II & III of Schedule-VI to Companies Act certified by the competent authorities and further held that Assessing 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....
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....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) of Section 43]." The explanatory notes in CBDT Circular No.19/2015 dated 27.11.2015 regarding the applicability of Sec.2(24)( xviii) clearly states that the amendment is applicable w.e.f. A.Y.2016-17. The relevant part of the circular is repeated as under: "..................in-order to avoid any future litigation and controversy 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 A....
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....ly the Hon'ble Gujarat High Court judgment, which is binding on the authorities below, there are host of other judgments also on the issue of incentive, particularly from Hon'ble Supreme Court. In the case of Sahney Steel & Press Works Ltd. Vs. CIT [1997] 94 Taxman 368/228 ITR 253 (SC), Hon'ble Supreme Court held that subsidy received by assessee is capital in nature. The Hon'ble Supreme Court in the case of Ponny Sugars Ltd., [306 ITR 392] has held that it is the purpose that decides the nature of subside and not the time of granting 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 'purpo....
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....n.com 255/198 Taxman 122/333 ITR 335. While considering the scheme of refund of excise duty and interest subsidy in that case, it was held that the scheme was capital in nature, despite the fact that the incentives were not available unless and until commercial production has started, and that the incentives in the form of excise duty or interest subsidy were not given to the assessee expressly for the purpose of purchasing capital assets or for the purpose of purchasing machinery. [Para 23] * After setting out both the Supreme Court judgments referred to hereinabove, 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 parti....
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.... percentage of the capital investment made by the appellant. The appellant claimed full depreciation on the plant & machinery without reducing the sales tax subsidy thereby the appellant was granted double benefit (a) by not paying tax on sales tax subsidy, (b) by not reducing such capital subsidy from the W.D.V. of the machinery. As per the provisions of the Section 43(1) of Income Tax Act, any subsidy granted by government shall not be included in the actual cost of a asset. The relevant provisions are as under: Explanation 10.--Where a portion of the cost of an asset acquired by the assessee has been met directly 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 sub....
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....(Vizag) as well as by the decision of Hon'ble Mumbai Tribunal in the case of Godrej Agrovet Ltd. -vs.-ACIT (2009) in ITA No. 6807/Mum./06. In both the decisions, it has been held that only if the subsidy or other grant was given to offset the cost of an asset, such payment would be covered by Explanation 10 to Sec. 43(1). In a case where subsidy is received as an incentive for setting up or expansion of new unit, the mere fact that specified percentage of fixed capital cost was taken as the basis for determining the subsidy, it should not be mistaken as a payment intended to subsidize the cost of fixed assets. In the present case, the objective is industrialization & employment 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 ....
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....ia Ltd in ITA No.1834/Hyd/2012 dated 3.5.2013 following the decision of Hon'ble Gujarat High Court in case of Narmada Chamatur Petrochemicals Ltd 233 CTR 265, and the decision of Hon'ble Mumbai High Court in case of Lokneta Balasaheb Desai SSK Ltd 339 ITR 288, clearly held that the excise duty is not includible in closing stock of finished goods which are not cleared from the factory premises. Therefore it is evident from the above table that wherever the finished goods were cleared for sale from the factory premises the excise duty was already included by the assessee. Wherever the goods are still lying in the factory premises no excise duty is includable. Therefore there is no merit in the 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(....