TaxTMI 
TaxTMI 
2022 (8) TMI 1485
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....stances of the case and in law, Ld. CIT(A) erred in deleting the additions on account of Sales Tax Subsidy of Rs.12,74,46,480/-, Excise Duty incentive of Rs.7,90,94,513/- and Debenture redemption Reserve of Rs.4,50,00,000/- made for the purpose of income computation u/s 115JB following the decision of Hon'ble ITAT in the case of the assessee for A.Yr. 2006-07 when the decision of Hon'ble IT AT has been challenged and is under the consideration of Hon'ble High Court. 2. On facts and circumstances of the case and in law, Ld. CIT(A) erred in deleting the additions on account of Sales Tax Subsidy of Rs.12,74,46,480/- and Excise Duty incentive of RS.7,90,94,513/- made for the purpose of income computation u/s 115JB in circumstances when these receipts have been received after commencement of production and are of revenue character and therefore have to be taxed accordingly as observed by Hon'ble Supreme Court in the case of Sahney Steel and Press Works Ltd. Vs CIT [228 ITR 253 (SC)], CIT Vs Bhushan Steel & Strips 3981TR 216 (Delhi) and CIT Vs Raasi Cements 351 ITR 169 (AP). 3. On facts and circumstances of the case and in law, Ld. CIT(A) erred in deleting the additio....
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....rutiny of the records revealed as per profit and loss account the profit before tax (PBT) of the assessee company was Rs. 10,71,44,263 /-. It was observed the adjustment relating to sales tax incentive subsidy income and excise rebate refund does not fall in any category of adjustment provided u/s 115JB of the Act. Thus the book profit was required to be taken at Rs. 9,28,81,324/-, while assessing income u/s 115JB of the Act in the assessment order, which was not done. The figure is arrived as :- Particulars Amount Balance of profit carried to B/S 4,74,66,697 Add: Debt Redemption Fund 4,50,00,000 Add: Fringe Benefit Tax 4,14,627 Book Profit 9,28,81,324 At the time of giving appeal effect the tax was should have been levied on the book profit of Rs.9,28,81,324/- u/s 115JB of the Act." 4. Against the above order, assessee appealed before the ld. CIT (A). Ld. CIT(A) summarized the facts as under :- "I have examined the facts and circumstances of the case, I have considered the finding of the AO in the assessment order and submission filed by the appellant made during appellate proceedings. The AO has noted that the appellant company filed its return of income for A.Y.....
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....pital receipts. The Assessing Officer noted the facts, as set out above, as also the assessee reliance on several judicial precedents, including Special Bench decision of this Tribunal in the case of DCIT Vs Reliance Industries Ltd [(2004) 88 ITD 273 (SBI)], decision dated 29th August 2008 in the case of sister concern by the name of Genus Overseas Limited, Jaipur, Ratna Sugar Mills Co Ltd Vs CIT (33 ITR 644), CIT Vs Chitra Kalp (2771TR 540) and CIT vs. Ponni Sugar & Chemicals Ltd (306 ITR 392). He then noted that weather a subsidy is capital receipt of revenue receipt is a vexed question and it has no easy answer. He further expressed the view that whether a subsidy is to be treated as capital receipt or revenue receipt will depend upon the purpose intent and nature of scheme and benefit received under it by the recipient % he then referred to the decision of Hon'ble supreme court in the case of Sahney Steel and press works Ltd Vs CIT (228 ITR 253). He then concluded that there is no doubt that if an incentive is granted after the commencement of production by the industry, then it will be of revenue nature% Referring to Ponni Sugar &Chemicals decision (Supra) by Hon'ble S....
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.... in the district to make the industrial and economic environment live. Government of India has announced excise duty exemption for new industries to promote large scale investment in the district along with which the state Government has also decided to announce the scheme of sales tax incentives. Since the scheme is aimed at making the economic environment of Kutch district live, it has been decided to confine the same only to Kutch district. The appellant company is availing the benefit of scheme by not paying sales tax on purchases, while on sales, company is collecting sales tax on sales made and the same is carried under the head direct income under the profit and loss account of the company. It is evident from the preamble of the scheme that the incentives were given to entrepreneurs to attract the large-scale investment to generate new employment and for making the economic environment of Kutch district live. Thus, neither the incentives were given for meeting the cost of the investment nor were given for assisting the appellant in carrying out the business operations. Thus, neither the incentives were given for assisting the appellant in carrying out the business operations....
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....ere in the nature of capital receipts and thus were not chargeable to tax. The AO is directed to delete the above additions. The grounds of appeal are accordingly allowed. We find that so far as the Special Bench decision of this Tribunal in the case of Reliance Industries (Supra) is concerned, it still holds the field. All that has happened, as a result of Hon'ble Supreme Court's decision dated 9th September 2011, is that Hon'ble Bombay High Court has now admitted the question "whether, on the facts and circumstances of the cases, the Hon'ble Tribunal was right in holding that sales tax exemption was a capital receipt %and will, in due course though, adjudicate on this legal issue. To that extent, Hon'ble Bombay High Court's order dated is" April 2009, to the extent of declining to admit this question, Stands reversed. However, the decision of the Special Bench still holds good as the same has not, and at least not yet, even been examined by Hon'ble Bombay High Court. Mere admission of appeal against a decision, as is elementary, does not affect the biding nature of a judicial precedent. The Special Bench decision, in the case of Reliance Industries L....
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....tated earlier as well, done not affect the binding nature of the judicial precedents. There is no dispute before us the schemes under which the sales tax and excise duty are given to this assess are the same as in the case of Ajanta Manufacturing Ltd (Supra). All the material facts being the same, there is no reason to take any other view of the matter than the view so taken by the Coordinate Bench. We must, therefore, uphold the conclusions arrived at by the Commissioner (Appeals), which are in consonance with the Special Bench decision in the case of Reliance Industries (Supra) and coordinate bench decision in the case of Ajanta Manufacturing Ltd (Supra), and decline to interfere in the matter. During the course of the scrutiny assessment proceedings, the adjustment for debt redemption fund, at Rs. 2.50 crores, was declined with a short observation that debt redemption fund of Rs. 2.50 crores is an appropriation for purpose of creating a reserve and is a below the line adjustment, it does not fall in my category of the adjustment provided under section 115 JB % Learned CIT(A) confirmed the same on the same basis and rejected assessee's stand that it is covered by the Hon....
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.... be shown in the balance sheet of a company as a liability. Being monies set apart to meet a known liability, a Debenture Redemption Reserve cannot be regarded as a reserve for the purpose of Schedule VI to the Companies Act, 1956. In National Rayon Corporation, the Supreme Court followed its earlier decision in Vazir Sulton Tabacco Co. Ltd. Vs. CIT {(1981) 132 ITR 559}, in holding that since the concept of a provision is well known in commercial accountancy and is used in the Companies Act, 1956, while dealing with the preparation of balance sheets and profit and loss accounts the meaning of that concept would have to be gathered from the meaning attached in the Companies Act itself. The following observations of the Supreme Court are of significance: "The debentures were nothing but secured loans. Merely because the debentures were not redeemable during the accounting period the liability to redeem the debentures did not cease to exist. It was redeemable or repayable at a future date. But it was a known liability. In the form of balance sheet prescribed by the Act in schedule VI, the secured loans have to be shown under the heading "liabilities". Secured loans include (1) deben....
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.... there is no question of adding the same to the regular income as well as the income under section 115JB of the Act for computation of book profit. The ground of appeal is accordingly allowed.: As the facts are similar, following the finding given by me in earlier assessment year, the addition made by the AO of Rs.2,83,98,056/- in the book profit u/s 115JB on account of Sales Tax Incentive is directed to be deleted." 7. Finally, the ld. CIT (A) concluded as under :- "11. Considering the above decision of Hon'ble ITAT in appellant's own case, I find that sales tax incentives subsidy of Rs.12,74,46,480/- and Excise duty incentive of Rs.79094513/- received by the appellant were in the nature of capital receipts and thus not chargeable to tax as regular income as well as income u/ s 115JB of the Act, for computation of book profit. Further, it is noted that a Debenture Redemption Reserve labeled as a reserve will not render it as a reserve in the true sense or meaning of that concept. An amount which is returned by way of providing for a known liability is not a reserve. Consequently, the amount which was set apart as a Debenture Redemption Reserve is not a reserve withi....
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....ioner is wrong and unjustified. 3. On the facts and circumstances of the case, the Ld. CIT erred in invoking section 263 for adjustment of the unabsorbed business loss & depreciation of Rs.4.11 crore from business income completely ignoring the fact that the same error was not prejudicial to the interest of the revenue rather the error was prejudicial to interest of assessee for which appellant has filed petition u/s 154. Therefore basic conditions for invocation of power u/s 263 had not been fulfilled." 14. Consequent to the aforesaid 263 order, AO passed the order which traveled to ld. CIT (A). Ld. CIT (A) decided the issue in favour of the assessee against which Revenue has filed appeal i.e. ITA No.1830/Ahd/2015. The ground raised in this regard is as under :- "The ld. CIT (A) has erred in law and on facts in deleting the disallowance of Rs.1,91,17,002/- made by the AO on account of depreciation." 15. AO while giving effect to ld. CIT (A)'s order dated 25.03.2015 has passed an order. The assessee was not satisfied. Assessee appealed before the ld. CIT (A). Ld. CIT(A) passed the order against which assessee has preferred appeal before us in ITA No.2418/Ahd/2017. The grounds....
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.... submitted that the subsidy was not given towards any capital asset, but it was given as incentive scheme for creating new employment opportunities in the area. It was to recruit minimum 85% of .he total post from the local area and minimum 60% of the managerial and supervisory posts also from the local area. The unit will have to invest the amount equivalent to 50% of the sales tax incentive availed in the new project in the state within a period of 10 years from the commencement of commercial production. It has, therefore, been submitted by the appellant that the subsidy was not given to meet the fixed cost of investment and, therefore, the provisions of section 43(1) were not applicable. The appellant has also placed reliance on the judgment of honourable Supreme Court in the case of P J Chemicals 210 ITR 830. It has also relied on the judgment of Gujarat High Court in the case of Ellora Times in ITA number 245 of 2010. On a careful consideration of entire facts of the case, it is noted that the incentive was not given to meet the fixed costs of investment. The terms and conditions of the incentive scheme clearly laid down that the objective of the scheme was for creating new ....