TaxTMI 
TaxTMI 
TaxTMI 
2022 (12) TMI 1265
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....to the ld. Assessing Officer for exclusion of excise duty as capital receipt amounting to Rs.19,25,59,001/- availed during the year under consideration in computing total income as per the regular provisions of the Income Tax Act, 1961 ('the Act'). 3. That on the facts and circumstances of the case, necessary direction be given to the Ld. Assessing Officer for exclusion of excise duty exemption as capital receipt amounting to Rs.19,25,59,001/- availed during the year under consideration in computing book profit as per section 115JB of the Act. 4. That on the facts and circumstances of the case, interest under section 244A be recomputed considering that the additional grounds taken by the appellant as lodged in the return of income. 5. That the appellant craves leave to ad, amend, modify, rescind, supplement, or alter any of the grounds stated hereinabove, either before or at the time of hearing of this appeal." 3. Brief facts of the case are that the assessee is a Limited Company engaged in the business as manufacturers, traders, exporters, importers of all kinds of laminates, furniture and fittings. The assessee company filed its return of income disclosing loss of Rs.20,77....
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....or limitation on the exercise of appellate power. 2.4 The above decision of the Apex Court in Jute Corporation (Supra) has been followed in the subsequent decision of National Thermal Power Co. Ltd. - vs.- CIT (1998) 229 ITR 383 (SC), [Refer Page 64-66 of Additional Paper Book] to hold that, where a Tribunal is only required to consider a question of law arising from the facts, which are on records, there is no reason why such question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of the assessee. 2.5 Incidentally, the Apex Court in the case of Goetze (India) Ltd. -vs.- CIT (2006) 284ITR 323 (SC), has dealt with the power of the Assessing Officer to entertain a claim made before him, otherwise than through revised return filed on time and held that such claim cannot be entertained by the Assessing Officer. However, while concluding, the Apex Court made it abundantly clear that the said decision doesn't affect the power of the appellate authorities to admit additional ground. 2.6 The Hon'ble Bombay High Court in the case of CIT -vs.- Pruthvi Brokers & Shareholders Pvt. Ltd. (2012) 349 IT....
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....for the assessee at the outset submitted that the issue is squarely covered in favour of the assessee by the decision of this parent Tribunal in the case of its parent company Greenply Industries Limited vs. ACIT in ITA Nos. 232 & 359/GAU/2019 dated 21.06.2022. 8. On the other hand, ld. D/R though supported the order of the lower authorities but failed to controvert the contention of ld. Counsel for the assessee. 9. We have heard rival contentions and perused the records placed before us. We notice that the assessee claimed the deduction of Rs. 22,56,588/- on account of amortization of leasehold land and land development while computing its total income. On the lands taken on lease are ranging for periods from 21 years to 99 years. Ld. AO was of the view that the purpose of the expenditure made by the assessee does not satisfy the conditions laid down under the provisions of the act. 10. We, further, notice that similar case came for adjudication before this Tribunal in Greenply Industries Limited (supra) which is the parent company of the assessee and such claim of amortization of leasehold land and land development was allowed by this Tribunal observing as follows: "26. We h....
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....sm to quantify the amount and how to spread the amount across the lease period. For this purpose, the assessee has taken guidance from the Accounting Standard 19 issued by the Institute of Chartered Accountants of India and in accordance with the procedure laid down therein and principal of accounting has debited the annual amount of lease in the profit & loss account and balance prepaid lease money is shown on the assets side in each year. The amount of amortisation debited to profit & loss account is reduced from the advance lease money paid. We find no error in this way of accounting treatment of the amortisation of the leasehold expenses and thus the same being spent exclusively for the business purposes has been rightly claimed as expenditure by the assessee under Section 37 of the Act. Our view is supported by the decision of the Coordinate Bench of Delhi in the case of NIIT Technologies Ltd.(supra), wherein it was held that the assessee would be entitled to claim 1/90th of amount of total lease rent every year till period of lease of 90 years as revenue expenditure and entire lease rent amount would not be allowed during the relevant year. 29. Similarly Coordinate Bench Ah....
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....ication No. 50/2003-CE dated 10.06.2003, these units are eligible for 100% excise duty exemption in respect of goods manufactured and cleared from the said unit for a period of 10 years from the date of commencement of commercial production. During the year under consideration, the assessee has availed excise duty exemption of Rs. 19,25,59,001/- which is duly credited in the statement of profit and loss account. The claim of the assessee is that the said receipts are capital in nature and therefore, need to be excluded while computing total income under normal provisions as well as computing book profit u/s 115JB of the Act. 14. In support of the grounds, ld. Counsel for the assessee submitted that for the purpose of generation of employment and utilization of local resources, Govt. of India vide Office Memorandum dated 07.01.2003 provided excise duty exemption to the units located in the backward areas. The assessee company is running a manufacturing unit in the notified backward areas of the state of Himachal Pradesh. The object of the assistance was not to enable the businessmen to run the business more profitably, but to encourage the businessmen to set up a new unit or to exp....
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....pital receipt and whether such excise duty exemption if held to be capital receipt is to be excluded for computing book profit u/s 115JB of the Act for calculating minimum alternative tax. 18. We observe that the assessee company is running a manufacturing unit at Village Paterh Bhonku, Tehsil: Nalagarh, Dist: Solan, Himachal Pradesh and as per the Office Memorandum No. 1(10)/2001-NER issued by DIP, Ministry of Commerce and Industry, GOI dated 07.01.2003 read with Notification No. 50/2003-CE dated 10.06.2003, it is eligible for 100% excise duty exemption in respect of goods manufactured and cleared from the said unit for a period of 10 years from the date of commencement of commercial production. The content of the above referred Office Memorandum dated 07.01.2003 of Ministry of Commerce and Industry, Govt. of India are reproduced below: "Subject: New Industrial Policy and other concessions for the state of Uttaranchal and the state of Himachal Pradesh. 1. The Hon'ble Prime Minister, during the visit to Uttaranchal from 29th to 31st March, 2002, had, inter-alia made an announcement that Tax and Central Excise concessions to attract investments in the industrial sector will....
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....ns are capital receipts and not chargeable to tax under the normal provisions of the Act referred to the following written submissions: "2.6.2 Reliance is placed on the principles laid down by the decision of the Hon'ble Apex Court in the case of CIT -vs.- Ponni Sugars & Chemicals Ltd. (2008) 306 ITR 392 (SC) (Refer Page 420-426 of Paper Book) wherein it was held that- 'The importance of the judgement of this Court in Sahney Steel case lies in the fact that it has discussed and analysed the entire case law and it has laid down the basic test to be applied in judging the character of a subsidy. That test is that 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. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. The main eligibility condition in the scheme with which we are concerned in this case is that the incentive must be utilized for repayment of loans taken by the assessee to set up new units or for substantial expansion of existing units. O....
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....a) & Ponni Sugars & Chemical (supra) had taken the view that Central Excise Duty Refund is a capital receipt. The decision of Hon'ble High Court was confirmed by Hon'ble Apex Court in the case of CIT Vs. Shree Balaji Alloy Ltd (supra). The matter has now reached finality. In view of decision of Hon'ble Apex Court on the matter the AO is directed to treat assessee's receipt of Excise Duty Refund as capital receipt. This will have the effect of reduction in claim of deduction u/s 80-IC." The Revenue has also not filed any appeal before the Hon'ble ITAT against the order of Ld. CIT(A), Dibrugarh on the above ground. The Appeal filed by the Revenue was only for Transfer Pricing related relief allowed by the Ld. CIT(A) to the appellant. The Ld. CIT(A) inadvertently did not adjudicate the appellants ground of exclusion of excise duty from book profit for purposes of section 115JB. Accordingly, M/s Greenply Industries Ltd. raised the said ground before the Hon'ble Guwahati Tribunal in ITA 232 & 359/Gau/2019 dated 21.06.2022 from which it is evident that Department has not challenged the above issue in appeal before ITAT. 2.6.4 The principle for deciding the nat....
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....ch incentives, designed to achieve public purpose, cannot, by any stretch of reasoning, be construed as production or operational incentives for the benefit of assessee alone. 2.6.8 Similar view was taken by the Hon'ble Calcutta High Court in the case of PCIT vs Ankit Metals & Power Ltd. (2019) ITA 155 of 2018 (Cal.) (Refer Page 436-451 of Paper Book) wherein the assessee received subsidy under the WBIS 2000 scheme. The question that came up for or revenue in nature. The Hon'ble High Court held the following: "On perusal of the contents of the relevant portion under the incentive subsidy schemes in question we found that in the case of the assessee, the State Government under the West Bengal Incentive Scheme, 2000, and 'West Bengal Incentive to Power Intensive Industries Scheme, 2005', had actually granted the subsidy with the sole intention of setting up new industry and attracting private investment in the state of West Bengal in the specified areas in the present case Bankura which is industrially backward hence the same was of the nature of non-taxable Capital receipt. Thus, according to the purpose test' laid out by the Hon'ble Supreme Court, variou....
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.... High Court in CIT -vs.- Rasoi Ltd (2011) 335 ITR 438 (Cal), wherein the assessee received sales tax incentive under West Bengal Incentive Scheme by way of refund of 90% of the sales tax paid in any quarter. The Hon'ble High Court held that where the subsidy is given for expansion of capacities, modernization and improving the marketing capabilities to tide over the crises of promotion of industry in the state then the same is to be treated as capital in nature. 2.6.12 Similarly, Hon'ble Special Bench in the case of DCIT -vs.- Reliance Industries Ltd. (2004) 88 ITD 273 (Mum)(SB) (Refer Page No. 400-419 of Paper Book) the has held that where the object of the subsidy was to encourage the setting up of industries in the backward area and the incentive was not given to the assessee for assisting it in carrying out its business operations, the same is capital in nature." 20. Before us, ld. Counsel for the assessee has also referred to the recent decision of this Tribunal in the case of parent company of assessee namely Greenply Industries Limited (supra) wherein similar issue came for adjudication and after considering the settled judicial precedents it was held that such ex....
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....als Ltd. (supra) and had held that the object or purpose for which the subsidy was given was relevant. It was held that the source of subsidy is immaterial, form of subsidy is equally immaterial and the time at which the subsidy is paid is also immaterial. It was held that the purpose of the scheme which enabled the grant of subsidy to the assessee was the only material factor in determining the taxability of such receipts. Further, placing reliance on the decision of the Hon'ble Kolkata Tribunal in case of DCIT vs. M/s. Century Plyboards (I) Ltd, in ITA No. 2149/Kol/2019 (Refer Page 103-122 of the Case Law Paperbook), it was held that such capital subsidy received by the assessee is also liable to be excluded from the computation of book profit. Relevant extract of the order of the Hon'ble Tribunal is reproduced below: "24. As regards the issue relating to treatment of this VA T subsidy while computing book profit u/s 115JB of the Act, we note that this exact issue was considered by us while deciding the case of DCIT vs. M/s. Century Plyboards (!) Ltd. in ITA No. 2149/Kol/2019 (supra) and it was held that such capital subsidy received by the assessee is also liable to be exclude....
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....s to whether the aforesaid incentive subsidies received by the assessee from the Government of West Bengal under the schemes in question are to be included for the purpose of computation of book profit under Section 115JB of the Income Tax Act, 1961 as contended by the revenue by reiving on the decision in the case of Apollo Tyres Ltd, (supra). 27. In this case since we have already held that in relevant assessment year 2010-11 the incentives 'Interest subsidy' and 'Power subsidy' is a 'capital receipt' and does not fall within the definition of 'Income' under Section 2(24) of Income Tax Act, 1961 and when a receipt is not on in the character of income it cannot form part of the book profit under Section 115JB of the Act, 1961. In the case of Apollo Tyres Ltd, (supra) the income in question was taxable but was exempt under a specific provision of the Act as such it was to be included as a part of the book profit. But where a receipt is not in the nature of income at all it cannot be included in book profit for the purpose of computation under Section 115JB of the Income Tax Act, 1961. For the aforesaid reason, we hold that the interest and power su....
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....heme for J&K as formulated by the Central Government and treated the same as a capital receipt not liable to tax by the J&K High Court in the case of Shree Balaji Alloys (supra) and also affirmed by the Hon'ble Supreme Court, that it will not form part of the income chargeable to tax u/s 4 of the Act and once the same is treated as capital receipt not chargeable to tax under the Income- tax Act, then same has to be excluded while computing the income under the MAT provisions in terms of Section 115-JB of the Act. Because Section 115-JB is also meant for the purpose of levy of tax on income and the basic things will have to be kept in mind that receipts which have to be included in the profit should be having the characteristic of income. There is a fundamental difference between the income and capital that the income is liable to tax, whereas capital is not liable to tax. In the case of Padmaraje R. Kadambande vs. CIT in 195 ITR 877, the Hon'ble Supreme Court held that the capital receipts are not income within the definition of Section 2(24) of the Act and hence are not chargeable under the Income Tax Act. The learned counsel further stated that the provision of Section 115-JB of ....
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....Pvt. Ltd. vs. DCIT in ITA No. 2008/ Mum/2012 wherein it was held that capital subsidy shall be excluded in computing book profit u/ s 115JB of the Act. 24. To conclude, (a) Not considering the subsequent interpretation of law through the judgment of the Hon'ble Supreme Court or the Hon'ble jurisdictional High court would constitute a mistake apparent from record. (b) The Excise subsidy refund is to be treated as capital receipt. (c) Capital receipts are liable to be excluded for the purpose of computation of book profit u/s 115" 15. In case of ACIT -vs.- Shree Cement Ltd (ITA No. 614/JP/2010) order dated 09- 09-2011. (Refer Page No. 716-751 of Paper Book), the Coordinate Jaipur Bench of ITAT was dealing with the issue as to whether subsidy received which was admittedly capital in nature can be subject to MAT. The ITAT held that there was never any intention behind introduction of section 115JB to tax something which is not taxable at all. It was held that tax incentives needs to be excluded in computing Book Profits u/s 115JB being capital receipt not having any element of income embedded therein and not representing the real working results of the company. The Tribunal f....
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....ermine the real profit of the assessee as laid down by the Hon'ble Apex Court in the case of Indo Rama Synthetics (supra) adjustment need to be made to the disclosures made in the notes on accounts forming part of the profit and loss account of the assessee and the profits arrived after such adjustment should be considered for the purpose of computation of book profits u/s 115JB of the Act. 19. In the case of ACIT -vs.- The Nilgiri Tea Estate Ltd. (2014) 65 SOT 14 (Cochin) (URO) (Refer Page 151 -156 of the Case Law Paperbook) wherein it was held that any income, which does not fall within the purview of Total Income u/s 5 of the IT Act, cannot be taxed under any other provisions of the Act. Further, the Hon'ble Tribunal held that the provisions of Chapter XII-B of the Act do not operate to extend the scope of Total Income but provides an alternative basis for computing the income and hence income which is not chargeable to tax cannot be included in the computation of Book Profit u/s 115JB. 20. In the case of Sutlej Cotton Mills Ltd -vs.- ACIT (1993) 45 ITD 22 (Cal) (SB) (Refer Page 157-201 of the Case Law Paperbook), it was held that according to standard accounting practice, c....
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.... of Rudrapur Unit 1) and copy of Form A (in case of Rudrapur Unit 2) has been enclosed (Refer Page No. 599-683 of Paper Book). 22. In the light of above decision as well as the Memorandum issued by the Ministry of Commerce & Industry, we find that the excise duty exemption is purely capital receipt and is neither chargeable to tax under the normal provisions of the Income Tax Act nor is to be included as part of the book profit for computing the minimum alternative tax as per the provisions of section 115JB of the Act. Thus Ground No. 2 raised by the assessee is allowed." 21. From perusal of the above judgments and decisions and more specifically from the recent decision of this Tribunal in assessee's parent company case of Greenply Industries Limited (supra), we find that they are squarely applicable on the issues raised in the instant appeal and there remains no dispute that the alleged sum of excise duty exemption received by the assessee is a capital receipt not chargeable to tax and it is to be excluded for the purpose of computing book profit u/s 115JB of the Act. We also find that this Tribunal after considering the settled judicial pronouncements has clearly held that th....