TMI Blog2018 (4) TMI 1200X X X X Extracts X X X X X X X X Extracts X X X X ..... considered accordingly allowed. Valuation of closing stock - Excise Duty paid on finished goods inclusion - Held that:- CIT-A correctly held that Excise Duty is not leviable in the finished goods and accordingly, question of making addition of the same amount to the closing stock does not arise. See case of CIT Vs. Dynavision Ltd., [2012 (9) TMI 265 - SUPREME COURT] - Decided in favour of assessee. - ITA No. 979/Hyd/17, 980/Hyd/17, 981/Hyd/17, 982/Hyd/17, 983/Hyd/17, 997/Hyd/17, 998/Hyd/17, 999/Hyd/17, 1000/Hyd/17 And 1001/Hyd/17 - - - Dated:- 20-4-2018 - SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER For The Assessee : Shri K.A. Sai Prasad, AR For The Revenue : Smt. U. Minichandran, DR ORDER PER BENCH : These are cross-appeals by Assessee and Revenue against the orders of the Commissioner of Income Tax (Appeals)-3, Hyderabad, dated 24-03-2017 27-03-2017 for the AY. 2006- 07, AY.2008-09, AYs.2011-12 to 2013-14. 2. Briefly stated facts are that assessee-company is engaged in the business of manufacture of cement and chemicals and has filed returns of income, offering incomes under normal computation as well as u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the addition of ₹ 4,55,52,000/- as valuation of closing stock and amount of ₹ 26,91,787/- claimed u/s. 80G of the Act. Assessee preferred an appeal originally on the addition of Excise Duty in the closing stock valuation, but raised the additional ground for exclusion of sales tax exemption/remission of ₹ 81,48,52,889/-. Ld.CIT(A) following the orders in AY. 2006-07, gave relief on both the grounds. However, the Ld.CIT(A) directed that the reduced sales tax subsidy to be adjusted proportionately from the cost of assets for the purpose of depreciation. In this year, Revenue is aggrieved on the direction of the CIT(A) on both the issues, whereas assessee is aggrieved on the direction of CIT(A) for reducing the proportionate cost of the depreciable assets. 6. In the AY. 2011-12, assessee admitted a loss of ₹ 1,85,23,20,898/- and in the course of assessment proceedings made claim of exclusion of sales tax subsidy/exemption which the AO has not considered. Therefore, assessee preferred an appeal before the CIT(A) raising the only ground for exclusion of sales tax incentive. 7. In the AY. 2012-13, assessee has raised the issue of exclusion of sales tax su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4, assessee made the claims before the AO by filing the revised returns which the AO has not allowed by elaborately discussing the issue. It was the contention of assessee in the submissions filed along with the revised return (in two of the impugned years) that sales tax incentive was given by the Government of Gujarat under the new incentive policy Capital Investment Incentive (General Scheme) 1995-2000 for setting up the industries to generate employment. It was further submitted that assessee started clinker and cement unit at Motibar, Kutch District of Gujarat State and the Government of Gujarat has issued eligibility certificate for sales tax incentives on 17-05-2002 provisionally @ 25% of tentative eligibility (limited to ₹ 151.50 Crores). There was an amendment on 21-04-2003, clarification on 05- 06-2003 and finally amendment on 27-06-2007, recording the total investment of assets at ₹ 623.91 Crores and on fixing the eligibility period from 13-04-2002 to 12-04-2018. Thus, assessee got entitled to exemption/remission of sales tax @ 100% of its fixed capital investment of ₹ 623.91 Crores. It was submitted that dealing with the incentive/exemption granted u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n issue-wise on sales taxsubsidy are as under: 9.3 Regarding the first issue whether the assessee can file the appeal against his own mistake, the judicial precedents on this issue are as under: Article 265 of the Constitution of India reads that No tax shall be levied or collected except by the authority of law. In terms of the Article 265 of the Constitution, tax can be levied only if it is authorized by law. The taxing authority cannot collect or retain tax that is not authorized. Any retention of tax collected, which is not otherwise payable, would be illegal and unconstitutional. The Supreme Court of India in CIT Vs. Shelly Products and another [261 ITR 367] held that if the assessee has by mistake or inadvertence or on account of ignorance, included in his income any amount which is exempted from payment of income-tax or is not income within the contemplation of law, the assessee may bring the same to the notice of the assessing officer, which if satisfied, may grant the assessee necessary relief and refund the tax paid in excess, if any. In CIT Vs. Bharat General Reinsurance Co. Ltd. 81 ITR 303 (Del), this court held that merely because ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icitude for public exchequer with an inbuilt idea of fairness to taxpayers. Therefore it is abundantly clear from the above judicial precedents that an amount is taxable only in accordance with the law, not because the assessee himself offered it to tax either by mistake or by inadvertence. 9.4 The second issue is, whether the assessee can make claim/ raise the issue before the appellate authority for the first time? In this regard when the matter was remanded to the Assessing officer in his report dated 29-07-2016 the AO opposed the admission of additional ground on the ground that :- a) Any such claim can be made only by way of filing revised return as held by the Apex Court in case of Goetze India Limited. In the instant case the assessee did not file the revised return of income making such claim. b) On the date of filing of return, the assessee was not entitled to capitalize the sales tax. c) The appellate forum cannot be used to legitimize assessee's own mistakes. d) The assessed income cannot go below the returned income. e) That with effect from 1-4-2016 section 2(24) is amended, sub clause XVIII is inserted treating any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble Mumbai Bench in MA. No.247/MUM/2010 arising out of ITA No. 6253/Mum/1999, in an identical case involving sales-tax subsidy where the assessee himself had offered such sales-tax as revenue receipt, even after considering the new scheme of assessment (where 98% of the returns are not scrutinised, once the returns are processed no further action is taken by the department, where there is no scope for assessee to rectify his own mistakes), the Hon'ble Mumbai Bench held that even in the new scheme of assessment, the department cannot fasten tax to income which is not liable to tax. Similar view was held in case of Prithvi Share Brokers 349 ITR 336 (MUM) GVK Industries Ltd Vs. ACIT (2012) 24 Taxmann.com 107 (Hyd) B-bench C. Parikh Co. 122 ITR 610 (Guj) In view of the above judicial precedents it is a fairly settled issue that the assessee can raise the additional grounds for the first time before the appellate authority. The spirit behind all these decisions is, only the legitimate taxes due are collected and not otherwise. 9.5 The third issue is whether the sales tax exemption/remission granted by the Government of Gujarat vide its re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess 2. Small Scale Units 20% of the eligible fixed capital investment or ₹ 15 lacs whichever is Less. 20% of the eligible fixed capital investment or ₹ 15 lacs whichever is Less. RATE OF SALES TAX INCENTIVES Category Sales Tax Exemption Rate Period Sales Tax Deferment Rate Period I. 100% of the eligible fixed capital investment 7 years 125% of eligible fixed capital investmen 9 years II. 80% of the eligible fixed capital investment 5 years 100% of the eligible fixed capital investment 7 years The judicial precedents on the issue whether the sales tax subsidy is capital receipt or revenue receipt are :- SAHNEY STEELS 228 ITR 253 (SC) 1997 the question in this case was whether the subsidy received from government of Andhra Pradesh was taxable or not? Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purpose of 115JB. In case of CIT Vs Harinagar Sugar Mills in ITA No.1132 of 2014 the Hon'ble Mumbai Bench held that subsidy granted by government for the purpose of setting up/expansion of sugar mills is a capital receipt and such receipt is not to be added to book profit u/s 115JB. In view of the above discussion after carefully considering the Gujarat government scheme dated 11-09-1995, the object of the scheme was to set up industries in the backward areas of Gujarat and to provide employment opportunities to the unemployed youth. It is a trite law now that the determination of a subsidy as capital receipt or revenue receipt is dependent upon the objective of the scheme. As held in the case of Ponny Sugars Ltd 306 ITR 392 the subsidy given to set up industries was a capital receipt. The court further observed that in determination of character of the subsidy, the source, the form and the time of the grant of the subsidy would be immaterial. Therefore the sales-tax subsidy granted is capital receipt and therefore not liable to tax. However the A.O is directed to ascertain the quantum of sales tax subsidy ( that is included in sales ) from books of account o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inclusion of sales tax Subsidy in the Profit and loss is not in accordance with Schedule VI, Part II III. Hence it implies that needful adjustment to exclude the same is not only permissible, but is mandatory so as to make the Profit Loss Account compliant with the basic requirement of Section 115JB. It is pertinent to mention that the decision in case of Rain Commodities Vs. DCIT (2010) 131 TTJ 514 was rendered by Hon'ble Special Bench Hyderabad. Though this case was in favour of Revenue, the principle was, it is permissible to alter the net profit so as to make it in accordance with Part II III of Schedule VI, which is the starting point for computation of 'Book profit' in terms of section 115JB. In case of CIT Vs Harinagar Sugar Mills in ITA No.1132 of 2014 the Hon'ble Mumbai Bench held that subsidy granted by government for the purpose of setting up/expansion of sugar mills is a capital receipt and such receipt is not to be added to book profit u/s 115JB. Therefore in view of the above judicial precedents the sales tax subsidy being capital in nature is not taxable, accordingly the net profit would be reduced to that extent and such re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t CIT(A) has erred in allowing the additional ground of appeal in AYs. 2006-07 and 2008-09 in addition to contesting the issue in all the impugned assessment years. 11.6. After considering the rival contentions of the parties and perusing the detailed order of the Ld.CIT(A), we do not find any reason to interfere with the above order. It is trite law that no tax shall be levied or collected, except by the authority of law as provided in terms of Article 265 of the Constitution. It is also admitted that if the assessee has by mistake or inadvertence or on account of ignorance, included any amount which is exempted from payment of tax, assessee may bring the same to the notice of the AO, who can grant the necessary relief [CIT Vs. Shelly Products Anr] [261 ITR 367] (SC). There are various other case law as relied on by the Ld.CIT(A) and the judicial precedents clearly establishes that assessee can make the claim at any point of time when the appeals are pending even before the higher forum of ITAT, provided the facts are available on record. Since the Ld.CIT(A) examined this issue elaborately, we approve the same and reject the grounds raised in this regard by Revenue in AYs. 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recent past, the concept of a Complete Family Entertainment Centre, more popularly known as Multiplex Theatre Complex, has emerged. These complexes offer various entertainment facilities for the entire family as a whole. It was noticed that these complexes are highly capital intensive and their gestation period is quite long and therefore, they need Government support in the form of incentives qua entertainment duty. It was also added that government with a view to commemorate the birth centenary of late V. Shantaram decided to grant concession in entertainment duty to Multiplex Theatre Complexes to promote construction of new cinema houses in the State. The aforesaid object is clear and unequivocal. The object of the grant of the subsidy was in order that persons come forward to construct Multiplex Theatre Complexes, the idea being that exemption from entertainment duty for a period of three years and partial remission for a period of two years should go towards helping the industry to set up such highly capital intensive entertainment centres. This being the case, it is difficult to accept the argument of the revenue that it is only the immediate object and not the larger object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... livered in the Maharashtra case. [Para 27] Accordingly, the appeals filed by the department are dismissed. [Para 28] 12.1. In view of the scheme of Government of Gujarat which set up to provide employment opportunities to the unemployed youth, the subsidy is to be considered as capital receipt only. Respectfully following the decision of the Hon'ble Gujarat High Court, which directly applies to the scheme, we hereby affirm the order of CIT(A) and reject the grounds of Revenue. Even though Ld.CIT(A) also considered the issue in the light of the provisions of Section 115J, Revenue has not contested the issue. Accordingly, there is no need to consider the issue now. 12.2. In case assessee has claimed the deduction of sales tax u/s. 43B to that extent, the same need not be allowed. AO is free to make necessary adjustments, if the same amount was claimed as deduction in the IT computation. 12.3. In the result, Revenue s grounds on this in all the impugned assessment years are accordingly dismissed. The issue whether the subsidy amount can be adjusted in the cost of depreciable assets: 13. This issue arises in assessee s appeals in all the impugned assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax subsidy - ₹ 1,00,000 The amount to be reduced from the cost of plant machinery = ₹ 10 Lakhs/12 Lakhs x 1 lakh = Rs.75,000 The W.D.V. of Plant machinery for allowing depreciation would be - ₹ 9,25,000 Accordingly the Assessing Officer is directed to re-compute the depreciation . Assessee is aggrieved on this. 13.1. It was submitted that similar issue was considered by the Co-ordinate Bench at Jaipur in the case of ACIT, Circle- 2, Ajmer Vs. Shree Cement Ltd., in ITA Nos. 614, 615 635/JP/2010, which order was confirmed by the Hon'ble High Court of Rajasthan in the case of CIT-1, Ajmer Vs. M/s. Shree Cement Limited, in D.B. Income Tax Appeal No. 27/2012, dt. 22-08-2017. It was further submitted that the amendment to the Act has come subsequently and so the same cannot be adjusted out of the cost in the impugned assessment years. 13.2. We have considered the rival contentions. It is true that this issue was elaborately discussed by the Co-ordinate Bench in the case of ACIT, C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 365/Hyd/2009, we hold that the order of CIT(A) to that extent is not correct and the amount of subsidy cannot be adjusted to the cost of a depreciable assets. Accordingly, we set aside the last portion of the CIT(A) s order and direct the AO not to adjust the subsidy so received out of the cost of depreciable assets [WDV] in each of the impugned assessment years. The grounds are considered accordingly allowed. Issue of valuation of closing stock: 14. This issue arises in the Revenue appeals for the AYs. 2006-07 and 2008-09. While completing the assessment, AO has considered that Excise Duty paid on finished goods has not been included in the value of closing stock and invoking the provisions of Section 145A, he made addition of Excise Duty @16% which works out to an addition of ₹ 3,01,76,155/- in AY. 2006-07 and ₹ 4,55,52,000/- in AY. 2008-09. 14.1. AO relied on the decision of the Hon'ble Supreme Court in the case of CIT Vs. British Paints Ltd., [188 ITR 144] wherein it was held that Excise Duty has to be included in the closing stock of finished goods. Assessee contested before the Ld.CIT(A) and explained that there is no Excise Duty on materials t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mean the liability actually incurred by the assessee. The CIT(A) observed that though the date of manufacture is the relevant date for dutiability, the relevant date for the duty liability, is the date on which the goods are cleared. In other words, in respect of excisable goods manufacture and lying in stock, the excise duty liability will get crystallized on the date of clearance of goods and not on the date of manufacture. We find that, in the case under consideration, the liability for excise duty did not crystallize, the provisions of section 145A are not applicable to assessee's case. Therefore, we find no infirmity in the order of the CIT(A) in directing the AO to delete the addition made towards variation in the valuation of closing stock. Accordingly, the grounds raised by the revenue are dismissed . 14.4. This view of the Co-ordinate Bench of the ITAT was in way was upheld by the Hon'ble Supreme Court in the case of CIT Vs. Dynavision Ltd., [348 ITR 380] (SC), wherein it was held : 2. At the outset, it may be stated, that, it is not in dispute that the assessee has been following consistently the method of valuation of closing stock which is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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