TaxTMI 
TaxTMI 
2017 (5) TMI 1591
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.... are heard together and are being disposed of by way of consolidate order for the sake of convenience. We first take up the appeal of Revenue in ITA No.1222/Kol/2014 relating to A.Y. 06-07. 3. The Revenue has raised per its grounds as under :- "1. That on the facts and circumstances of the case and in law, the Ld. CIT(A) is not justified in treating the sales tax remission received as capital receipt. 2. That on the facts and circumstances of the case and in law, the Ld. CIT(A) is not justified in treating the incentive received as capital receipt when the same was not used for acquiring any capital asset. 3. That on the facts and circumstances of the case and in law, the Ld. CIT(A) is not justified in treating the incentive received as capital receipt by not appreciating that the decision of the Apex court in the case of Sahney Steel & Press Works Ltd -v-CIT [1997] 228 ITR 253 on the same issue. 4. That the Department craves leave to add, modify or alter any of the grounds of appeal and/or adduce additional evidence at the time of hearing of the case." 4. The solitary issue raised by the Revenue in all the grounds of this appeal is whet....
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....ales Tax: Remission of Sales Tax on sale of finished goods due for payment by it for a period of 9 ((nine) years subject to the ceiling of 100% of the gross value of the fixed capital assets of the approved project or Rs. 75 crores whichever is less, as per clause 10.1.1(ii), 10.1.5 and 10.1.7 of the scheme" The assessee has also challenged the taxability of incentive under the provisions of Minimum Alternate Tax (MAT for short) on the ground that a receipt which is not the income at all then the question of charging the tax either under normal provisions or MAT provisions does not arise. The object under the MAT provisions is to bring out the true working results of the assessee and therefore in case on hand if capital receipts are treated as income then the purpose of the MAT shall be defeated. The assessee to support its contentions has relied on various judgments of Hon'ble Courts and CBDT Circular No. 495 dated 22.9.1987. The ld CIT(A) also called remand report from the AO who did not dispute on the facts of the case but denied the benefit by observing that the claim was not made in the income tax return by the assessee. Therefore, the claim of the assessee to exclude the a....
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....d tourism units in large/medium sector to be set up and also expansion projects of existing units on or after 1st April 1999 in the private sector, co-operative sector, joint sector as also companies / undertakings owned and managed by Statement Government." A plain look at the above scheme makes it clear that the incentive was being provided by the Government of West Bengal to promote the industries. The impugned incentive has nothing to do with the operational cost of the company. Similarly the manner in which the subsidy was computed has no role in deciding the nature of the subsidy. The assessee in the instant case has established a new industrial undertaking for the manufacture of "Bottle Grade Polyester Chips with a capacity of 140000 tonnes". Therefore the subsidy was given to assessee for the establishment of new industrial unit. The Hon'ble jurisdictional High Court in the case of CIT Vs. Rasoi Limited reported in 335 ITR 438 (Cal) has held that the Sales Tax Incentive granted by the West Bengal Government to the assessee with the object to a provide incentive to set up new industrial undertaking or substantial expansion of the existing undertakings was capital rece....
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.... "The character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, one has to apply the purpose test. If the 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 is irrelevant. In the present case, receipt of the subsidy was capital in nature as the assessee was obliged to utilize the subsidy only for repayment of term loans undertaken by the assessee for setting up new units/expansion of existing business. Keeping in mind the object behind the payment of the incentive subsidy such payment received by the assessee under the Scheme was not in the course of a trade but was of capital nature.-Sahney Steel & Press Wo....
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....the case of Binani Industries Ltd., vs DCIT in ITA No.144/Kol/2013 A.Y 2009-10 vide order dated 02-03-2016 has allowed the issue in favour of assessee as detailed under : The issue in the above case was raised as under : "The last issue to be decided in this appeal is as to whether, the forfeiture of share warrants amounting to Rs. 12,65,75,000/-, being a capital receipt, would be liable for taxation u/s 115JB of the Act just because it has been credited in the profit and loss account as an extraordinary item, in the facts and circumstances of the case. The relevant operative portion of the order reads as under : "28. In view of the foregoing discussions, we find merit in the contentions of the assessee that the profit arising on transfer of capital asset to its wholly owned Indian subsidiary company is liable to be excluded from the Net profit., i.e., the Net profit disclosed in the Profit and Loss account should be reduced by the amount of profit arising on transfer of capital asset and the amount so arrived at shall be taken as "Net profit as shown in the profit and loss account" for the purpose of computation of book profit under Explanation 1 to sec. 11....
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....s and circumstances of the case and in law, the Ld. CIT(A) is not justified in deleting the notional "Market to Market" foreign exchange loss. 2. That on the facts and circumstances of the case and in law, the Ld. CIT(A) is not justified in deleting the "Market to market" foreign exchange loss, when the same was not crystalised during the year under consideration. 3. That on the facts and circumstances of the case and in law, the Ld. CIT(A) is not justified in deleting the notional "Marked to market" foreign exchange loss by not considering CBDT's instruct No. 3/2010 dated 23.03.2010. 4. That the Department craves leave to add, modify or alter any of the grounds of appeal and/or adduce additional evidence at the time of hearing of the case." 14. Only issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by the Assessing Officer for Rs.84.51 lakh on account of unexpired foreign currency forward contract on Marked to Market (MTM for short) basis. 15. The assessee in the year under consideration has debited its profit and loss a/c by Rs. 4909.67 lakh which was inclusive of loss on account of MTM to the extent of ....
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....ystem of accounting and for the purpose of recording transactions in foreign currency it has followed Accounting Standard-11. The same system of accounting had been followed by the appellant company consistently year after year and accepted by the AO. Nowhere, the AO has doubted the correctness of the accounting system and accounting standard followed by the company. In the year under consideration the appellant has claimed loss of Rs. 84.51 lacs being 'Marked to Market' loss. The unexpired forward contracts at the year end were re-alingned by the appellant on the basis of currency rate as on the last day of the financial year/. This was done by the appellant as per AS-11 which is a recognized and judicially accepted Accounting Standard. As per the accounting system the gain in the expired contract is credited to the profit and loss account as income and similarly the loss is debited to the profit and loss account. It is true that the loss/gain is on the unexpired contracts which are to be matured/settled in the next financial year. But, in view of the mercantile system of accounting and the accounting Standard, AS-11, such gain or loss has to be recognized in the profit and loss a....
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.... was allowed as deduction. In view of above facts and respectfully following the decisions of the Hon'ble Supreme Court, High Court and ITAT as discussed above it is held that the AO was not justified in disallowing the MTM loss of Rs. 84.51 lacs. He is directed to allow the claim of the appellant company. The ground no. 1 to 3 are allowed." The Revenue, being aggrieved, is in appeal before us. 17. Before us Ld. DR vehemently supported the order of AO whereas the ld AR relied on the order of Ld CIT(A) and filed a paper book which running from pages 1 to 97. 18. We have heard rival contentions and perused the materials available on record. From the aforesaid discussion, we find that the AO treated the loss arising on account of forward contracts in foreign currency which has not been settled in the year under consideration as notional loss. However the ld. CIT(A) allowed such loss having reliance on judgment of the Hon'ble Delhi High Court in the case CIT Vs Woodward Governor India Ltd. reported in 294 ITR 451. In rejoinder ld. DR stated that the said judgment of the Hon'ble Delhi High Court was delivered much earlier whereas the Instruction No. 3/2010 was issued da....