TaxTMI 
TaxTMI 
2020 (5) TMI 45
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....the case the CIT(A) was right in deleting the addition made on account of technical know-how fees amounting to Rs. 40,72,070/- on the basis the decision of the Hon'ble ITAT dated 26.09.2013 for AY 2009-10. iii) Whether on the facts and in the circumstances of the case, the CIT(A) has erred in following the decision of the Hon'ble ITAT dated 21.10.2015 for A Y 2008-09 in the case of the assessee itself and deleting the addition of Rs. 5,60,12,370/- holding the sales tax subsidy as capital receipts in nature. iv) Whether on the facts and circumstances of the case, the Ld.CIT(A) has erred in treating the sales tax subsidy as capital receipts in nature despite the decision of Hon'ble Delhi High Court in the case of CIT vs. Vardhman Industries Ltd. vide consolidated order dated 13.07.2017 in ITA No.681/2004, 708/2004. 755/2004 & 725/2004, 398 ITR 216 wherein sales tax subsidy has been held to be a revenue receipt. v) Whether on the facts and in the circumstances of the case the decision of the Hon'ble Supreme Court in the case Ponni Sugars and Chemicals Ltd. (2008) 306 ITR 392 (SC) and treating the sales tax subsidy as capital receipts in nature was wrongly followe....
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....xpenditure. In response to the same, the assessee submit ted that the main objective of the agreement was to increase the productivity and to reduce the reject ions from the current levels. Thus i t was pointed out that the objective was to effect the economy and efficiency in manufacturing and, therefore, had been rightly claimed as revenue expenditure. I t was contended that the company had not acquired any capital asset in the nature of exclusive user of technology information. The assessee further submitted that identical issue had been decided in favour of the assessee by the I .T.A.T. in earlier years. The A.O. did not accept the content ion of the assessee. Referring to the collaboration agreement , the A.O. held that the assessee had purchased/acquired technical know-how to completely overhaul its design, plant and manufacturing systems thus getting enduring benefit of permanence and durability. The A.O. held that technical know-how obtained by the assessee was l inked to substantial modernization and expansion of existing unit/technique and procedure of product ion and, therefore, was in the nature of intangible asset and of enduring nature. He further stated that the Depa....
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....ing similar facts has been decided in assessee's favour and against the Department vide aforesaid referred to order dt. 27/05/2019 in ITA No. 756/Chd/2018 wherein the relevant findings have been given in para 2 to 6 which read as under: 2. Ground Nos. i ) to iv) , i t was contended, related to the same issue of treatment of sales tax subsidy received by the assessee, whether capital or revenue in nature and the same read as under: "i) Whether on the facts and in the circumstances of the case, the CIT(A) has erred in following the decision of the Hon'ble ITAT dated 21.10.2015 for AYs 2003- 04, 2004-05 & 2008-09 in the case of the assessee itself and deleting the addition of Rs. 1,84,45,151/- holding the sales tax subsidy as capital receipt in nature. ii) Whether on the facts and in the circumstances of the case the decision of the Hon'ble Supreme Court in the case Ponni Sugar and Chemicals Ltd. and treating the sales tax subsidy as capital receipts in nature was wrongly followed despite the observation of the AO in the assessment order that the facts of the present case are distinguishable from that of Ponni Sugar and Chemicals Ltd. iii) Whether on the facts and in t....
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.... the issue in favour of the assessee in remand. The Ld.CIT(A) after going through the order of the I.T.A.T. in the case of the assessee in ITA No.897/Chd/2006, ITA No.341/Chd/2007 and ITA No 756/Chd/2011 for assessment years 2003-04, 2004-05 and 2008-09, found that the issue of sales tax subsidy had been decided by the I .T.A.T. in favour of the assessee holding the same to be capital in nature. Accordingly, the addition made by the A.O. was deleted by the Ld.CIT(A) . Relevant findings of the CIT(A) at page 12 of the order are as under: "I have gone through the Hon'ble ITAT's order in the case of the appellant in ITA No. 897/Chd/2006, ITA No. 341/Chd/2007 & ITA No. 756/Chd/2011 for A.Y 2003-04, A.Y 2004-05 and 2008-09 wherein the matter has been adjudicated as under: "In these cases, the assessee have received Sales Tax Subsidy from Punjab Govt. under the scheme named 'Industrial Policy & Investment Code, 1996'. We have gone through the said policy and found that the scheme though not verbatim as that of West Bengal or Gujarat Scheme, but the sum and substance of all these schemes are the same, therefore, relying on our finding gives in ITA no. 773/Chd/2012, w....
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....nd the above grounds of appeal before the same are heard or disposed of. It is respectfully prayed that the relief may kindly be allowed to the assessee keeping in view of the aforesaid grounds of appeal. 15. Vide Ground No. 1 the grievance of the assessee relates to the confirmation of disallowance of Rs. 225 Lacs made by the A.O. on account of Electricity Duty Exemption claimed by the assessee as capital in nature. 16. The facts related to this issue in brief are that the assessee is in the business of manufacturing of Automotive Wheel Rims and filed the return of income on 28/09/2013 declaring an income of Rs. 36,36,217/- which was processed under section 143(1) of the Income Tax Act, 1961 (hereinafter referred to as 'Act'). Subsequently, a search and seizure operation under section 132 of the Act was carried out on 04/10/2012 on the business and residential premises of the M/s Steel Strips Group of cases to which the assessee belong. Thereafter the statutory notice dt. 25/07/2013 under section 142(1) of the Act was issued and served upon the assessee. In response the assessee furnished the return of income on 14/08/2013 declaring an income of Rs. 36,36,218/-. The A.O. issu....
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....al that the entries in the books of accounts are not decisive or conclusive for claiming any deduction or expenditure under the Income Tax Act. The entries in the books of accounts are made as per the accounting methods regularly adopted by the assessee. However such entries in the books of accounts are not decisive or conclusive for determining the real income for tax purposes. Further submitted that although assessee has claimed the electricity duty exemption under the aforesaid policy of the state govt, which was approved by the authorities vide letter dated 19.03.2012 and on the basis of which assessee has included the entitlement in its income, however as per the procedure, the eligibility of the assessee for Electricity Duty exemption is to be judged by a separate empowered committee. The department is in the process to send the case to empowered committee for approval for issuance of eligibility certificate. Copies of some correspondence between department and assessee in this regard is enclosed. The department has also designated various agencies like Earnst & Young, NITCON, Grant Thornton, Walker Chandiok & Co. LLP to verify the eligibility of the assessee for the entitl....
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....t. Therefore, income certainly accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then can it be said that for the purposes of taxability that the income is not hypothetical and it has really accrued to the assessee. Without prejudice to our stand as aforesaid it is further submitted that the Company is entitled for electricity duty exemption on account of expansion at the existing unit in the state of Punjab. The said electricity duty exemption is available under the Industrial Incentive Scheme of Govt, of Punjab with a view to promote growth of Industry in the state and to push and support for consolidation and expansion of existing industries. This electricity duty exemption is based upon the fixed capital investment. The electricity duty exemption of Rs. 2,25,00,000/- in respect of increase in average consumption of electricity due to expansion of production being in the nature of subsidy is a capital receipt and thus not taxable in the hands of the assessee. The reliance has been placed on the judgment of the jurisdictional P & H High Court in the case of the CIT vs Siya Ram Garg HUF in ITA no....
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.... net taxable income of the assessee. 18. Being aggrieved the assessee carried the matter to the Ld. CIT(A) who confirmed the addition by observing as under: Hon'bIe Calcutta High Court in a recent judgment in the case of PCIT-I Kolkata v/s Shyam Steel Industries Ltd. dt. 07.05.2018 in ITA 37 of 2018 has discussed the "purpose test" expanded in a recent judgment of Hon'ble Supreme Court reported at 400 ITR 279 (CIT v/s Chaplakha Brothers). In the referred case, the terms of the scheme under which the subsidy was made available to the appellant were found relevant and discussed by the Hon'ble Court as follows:- "Clause B.6.1 of the scheme made it applicable to all large scale new units and for expansion of expansion of existing units on or after July 16, 2004". In addition, clauses B.8.4 and B.8.5 clearly indicated that certain subsidies on account of capital expenditure could not be availed of by entities opting for the incentive under the subject scheme. It was submitted on behalf of appellant that since the incentive under the present scheme, as would be evident from the terms thereof, was in lieu of certain other schemes on account of capital expenditure whic....
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....submitted that the assessee company was following mercantile system of accounting therefore it had booked its entitlement to electricity duty exemption in its books of accounts for the year under consideration whereas the same had not been received by the assessee, therefore the electricity duty exemption entitlement had been reduced from taxable income while filing the income tax return. It was further submitted that entries in the books of accounts are not decisive or conclusive for claiming any deduction or expenditure under the Income Tax Act, the entries in the books of accounts are made as per the accounting methods regularly adopted by the assessee, however, such entries are not decisive or conclusive for determining the real income for tax purposes. It was pointed out that the assessee had claimed the electricity duty exemption under the Industrial Policy 2003 of the Punjab State Government which was approved by the authorities vide letter dt. 19/03/2012 on the basis of which the assessee had included the entitlement in its income. However as per the procedure, the eligibility of the assessee for electricity duty exemption was to be judged by a separate empowered committee....
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....uty exemption was rightly treated as revenue receipt and taxed during the year under consideration. 22. We have considered the submissions of both the parties and perused the material available on the record. In the present case it is not in dispute that the assessee in view of Industrial Policy 2003 of the State Government of Punjab became eligible for claiming the electricity duty exemption. However the claim of the assessee was that the said entitlement although accrued but had not been received during the year under consideration, as the case of the assessee was to be examined by a separate Empowered Committee constituted by the State Government. It was also the claim of the assessee that due to pendency of verification of compliance of eligibility condition the assessee had not even filed its claim before the Department for benefit of exemption. The said claims of the assessee are not rebutted by bringing cogent material on record, therefore the electricity duty exemption entitlement although booked in the books of accounts on estimate basis was rightly reduced from the taxable income while filing the Income Tax Return. 23. On a similar issue the Hon'ble Apex Court in th....