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2022 (8) TMI 1485 - AT - Income TaxCharacterization of receipts - Additions on account of Sales Tax Subsidy, Excise Duty incentive and Debenture redemption Reserve of made for the purpose of income computation u/s 115JB - HELD THAT:- We note that Revenue does not dispute that the issue is covered in favour of the assessee in assessee’s own case for AY 2006-07 [2016 (5) TMI 1136 - ITAT AHMEDABAD] as held that as evident from the scheme itself that the sales tax subsidy/incentives were not given to the appellant for assisting it is carrying out the business operations. The objects of the subsidy were to encourage large scale investment by attracting entrepreneurs for setting up of industries in the notified area of Kutch district where the economic activities came to a standstill on account of the devastating earthquake in the state on 26th January, 2001. The scheme was formulated and 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 of Gujarat before the specified date as per the scheme of incentive. The limit of the incentive was fixed. As decided in Ponni Sugars & Chemicals Ltd [2008 (9) TMI 14 - SUPREME COURT] character of the receipt in the hands of the appellant has to be determined with respect to the purpose for which the subsidy is given. In other works, in such cases one has to apply 'Purpose test'. The point of time when the subsidy is paid is not relevant. The source is immaterial and the form of subsidy is also immaterial. It is evident from the incentive scheme itself that the purpose of the scheme was to attract the large scheme investment to generate new employment and for talking the economic environment of Kutch district live. Thus relying on the decision of Birla VXL Ltd. [2011 (11) TMI 731 - ITAT RAJKOT] sales tax incentives and Excise duty incentive received by the appellant were in the nature of capital receipts and thus were not chargeable to tax. AO is directed to delete the above additions. Also as relying on Raymond's Ltd [2012 (4) TMI 128 - BOMBAY HIGH COURT] mere fact that a Debenture Redemption Reserve is labelled as a reserve will not render it as a reserve in the true sense or meaning of that concept. An amount which is retained by way of providing for a known liability is not a reserve. Consequently, the Tribunal was correct in holding that the amount which was set apart as a Debenture Redemption Reserve is not a reserve within the meaning of Explanation (b) to Section 115JA. Also addition of made by the AO on account of sales Tax incentive subsidy, Excise duty incentive and Debenture Redemption Reserve to the Book Profit under section 115JB of the Act is held to be unjustified. However it has been claimed that the decision of ITAT is under challenged before the Hon’ble High Court, in our considered opinion, this cannot be a reason to stood depart from the decision of coordinate Bench. Hence, following the aforesaid decision of ITAT in assessee’s own case, we uphold the order of ld. CIT(A). Revision u/s 263 - disallowance on account of depreciation on subsidy - sales-tax subsidy which has been treated as capital receipt on the direction of CIT u/s 263 has been attributable to be relatable to the assets acquired and accordingly, depreciation against the so-called capital subsidy purchased as such has been denied - HELD THAT:- CITA’s order in this regard is quite appropriate as he has held that subsidy is given with reference to sales made and sale-tax benefit is given. Subsidy nowhere linked to cost of acquisition of the assets, hence there is no reason to make any deduction from the depreciation claimed. We find that the above reasoning is quite in consonance with the order of ITAT in this regard on the basis of which we have disposed off as above. In the said decision, ITAT had categorically held that the same was a capital receipt and it had upheld the order of CIT (A) and no view was expressed that the same is linked to capital assets acquisition, hence question of deduction in depreciation does not arise.
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