TaxTMI 
TaxTMI 
2023 (6) TMI 1438
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....ing the 100% of the capital receipt when the assessee himself claimed entire amount of Rs.5,15,25,900/- as refundable from Excise Department. 2. The assessee is following mercantile system of accounting and income is to be taxed on accrual basis and the assessee has passed this entry in the books of accounts maintained during the year under consideration. 3. Whether in the facts and circumstances of the case and in law, the Ld. CIT(A) was in error in not appreciating (that as per) the amended section 2(24)(xviii) of the IT Act, 1961 any assistance in the form of subsidy, grant, etc. provided by the Government or any other authority is to be considered as income/revenue receipt taxed accordingly. Grounds of ITA No. 587/Asr/2019 1. In the facts and circumstances of the case and in law, Ld. CIT(A) has erred in, confirming the action of the Ld. Assessing Officer, in making addition of Rs. 1,85,49,324/- under section 2(24)(xviii) of the Income Tax Act, 1961, being 36% of Excise Duty Exemption availed by the assessee firm. The action of the Ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by ....
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....t relief to the assesse by observing as under: 4.7. I am also of the considered opinion that the first appellate authority ought to consider the issue on merits. Hon'ble Madras High Court, in the case of CIT Vs Indian Express (Madurai) Pvt. Ltd. [1983)140 ITR 705 (Madras), observed that unlike a law suit in civil appeals, in tax litigation, it cannot be treated as a "lis" between two rival parties but the job of the Assessing Officer is to arrive at the correct taxable income. In view of the aforementioned discussion, the income becomes taxable on the footing of accrual only when the right to receive the income becomes vested in the assessee. As mentioned in para above, Hon'ble Supreme Court in E.D.Sassoon & Co. Ltd.(Supra) held that if the assessee acquires a right to receive the income, the income is said to have accrued to him, though, it may be received later on. The basic concept is that he must have acquired a right to receive the income. In other words, there must be a debt owed to him by somebody. Unless and until a debt is created in favour of the assessee by somebody, it cannot be said that the assessee has acquired a right to receive the income or the in....
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....1 any assistance in the form of subsidy, grant, etc. provided by the Government or any other authority is to be considered as income/revenue receipt taxed accordingly. 5. Per contra, the Ld. Counsel for the assessee has reiterated the submission made before the Ld. CIT(A) and contended that even excise duty refundable to the extent of 36% as per amended notification is also not taxable in view of the decision of jurisdictional High Court in case of Shree Balaji Alloys & Ors. Further even after amendment the excise duty refund cannot be taxed as revenue receipt as 'exemption' is not specified in the definition given in section 2(24) (xviii) of the Act. Exemption cannot in any way be equated with waiver & concession and thus exemption from excise duty will not fall within the ambit of section 2(24) (xviii) of the Act and cannot be treated as an income. 5.1 The counsel further submitted that the Ld. CIT(A), however, himself held that when specific provision has been brought to the statute and no exemption to any specified trade or area has been provided, it is not open for the taxing authority or the tax payers to interpret the same as per their convenience. As per section 2(24)....
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....s to be determined on the basis of the Income tax law and not on the basis of the entries made in the books of accounts. No tax can be imposed on an amount which is not earned. In this connection, reliance is placed on the following cases:- CIT Vs. Shoorji Vallabhdas & Co. (1962) 46 ITR 144 (SC) Income-tax is a levy on income. No doubt, the IT Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book- keeping, an entry is made about a "hypothetical income", which does not materialise. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account. A mere book-keeping entry cannot be income, unless income has actually res....
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....cognized the revenue as per the enhanced tariff which was taxed by the AO. However, on further appeal Hon'ble Supreme deleted the addition by holding as under:- 22. The question whether there was real accrual of income to the assessee-company in respect of the enhanced charges for supply of electricity has to be considered by taking the probability or improbability of realisation in a realistic manner. If the matter is considered in this light, it is not possible to hold that there was real accrual of income to the assessee-company in respect of the enhanced charges for supply of electricity which were added by the ITO while passing the assessment orders in respect of the assessment years under consideration. The Appellate Assistant Commissioner was right in deleting the said addition made by the ITO and the Tribunal had rightly held that the claim at the increased rates as made by the assessee-company on the basis of which necessary entries were made represented only hypothetical income and the impugned amounts as brought to tax by the ITO did not represent the income which had really accrued to the assessee-company during the relevant previous years. The High Court, in o....
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.... held that 36% of the excise duty which is refundable to the assessee is income u/s 2(24)(xviii) and hence upheld the addition to the extent of Rs.1,85,49,324/-. 4. It is submitted that 'exemption' and 'subsidy' are two separate & independent words. These words are not defined. Therefore, the general meaning of these words are required to be considered. As per Black's Law Dictionary (Sixth Edition) these two words are defined as under:- 'Exemption: Freedom from a general duty or service; immunity from a general burden, tax, or charge. Immunity from service of process or from certain legal obligations, as jury duty, military service, or the payment of taxes.' 'Subsidy: A grant of money made by government in aid of the promoters of any enterprise, work, or improvement in which the government desires to participate, or which is considered a proper subject for government aid, because such purpose is likely to be of benefit to the public' 5. From the above definition it can be noted that exemption is when assessee is given freedom from following any rules or regulations whereas subsidy is something which is given to the assessee to meet the co....
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....emption by interpreting that it is subsidy. Hence, the addition confirmed by Ld. CIT(A) is unjustified and not as per law. 6. We have heard the rival contentions, perused the material on record, impugned order, written submission and case law cited before us. Admittedly, the assessee firm has claimed 100% exemption on refund of excise duty on the goods manufactured by it, as the capital receipt. The DR argued that since, the assessee is following mercantile system of accounting and hence, income is to be taxed on accrual basis and further, the assessee has passed this entry in the books of accounts maintained during the year under consideration. He contended that the Ld. CIT(A) was in error by not appreciating that as per the amended section 2(24)(xviii) of the IT Act, 1961 any assistance in the form of subsidy, grant, etc. provided by the Government or any other authority is to be considered as income/revenue receipt taxed accordingly. 7. However, the Ld. DR could not rebut the contention of the Ld. Counsel that applying the settled principal of law, from Notification No.56/2002 dt. 14.11.2002 as amended by Notification No.19/2008 dt. 27.03.2008, that the assessee was entitl....
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....suffered any loss. What is necessary to be considered is the true nature of the transaction and whether in fact it has resulted in profit or loss to the assessee. 11. Following the Hon'ble Apex Court (Supra), we hold that since the necessary entries made in the books of account of the appellant company represents only hypothetical/notional income although it is following mercantile system of accounting and hence, the impugned amounts as brought to tax by the ITO did not represent the income of the appellant company. Therefore, the ground No. 2 of the department is rejected. 12. From the above, it is evident that Government of India vide amended notification has made its intention clear that the assessee would be entitled to excise duty exemption only to the extent of 36%. The excess exemption from excise duty to the extent of 64% recognized by the assessee in its books of accounts is nothing but hypothetical income which has not accrued. This is also confirmed by Hon'ble Supreme Court by dismissing the SLP filed by the assessee. In view of that matter, the Ld. CIT(A) has rightly deleted the addition of Rs.3,29,76,575/-. Thus, ground no. 1 and ground no. 3 of revenue are rejec....
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....ant of money made by government in aid of the promoters of any enterprise, work, or improvement in which the government desires to participate, or which is considered a proper subject for government aid, because such purpose is likely to be of benefit to the public' 17. From the above definitions, it is apparently clear that word exemption is used in the conditions when assessee is given freedom from following any rules or regulations whereas subsidy is something which is given to the assessee to meet the cost of its project. In the present case, assessee is exempted from making payment of excise duty to the extent of 36% of the total excise duty collected. It is not subsidy given to meet cost of project. In our view, the exemption from excise duty do not fall in the definition of income as envisaged u/s 2(24)(xviii) of the Act. Meaning thereby, the amount of Rs.1,85,49,324/- is not an income but a capital receipt not taxable under the provisions of the Act. 18. The Hon'ble Supreme Court in "Commissioner of Custom Vs. Dilip Kumar & Co.", (Supra) by considering the decision of judgment of State of West Bengal Vs. Kesoram Industries Ltd. 10 SCC 201 decided by the bench of 5 jud....