TMI Blog2022 (12) TMI 1265X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 - We also find that this Tribunal after considering the settled judicial pronouncements has clearly held that the excise duty exemption received by the assessee during the course of running manufacturing units in the backward areas, notified by the Ministry of Commerce and Industry are to be considered as capital receipt not chargeable to tax and they also need to be excluded from the book profit for the purpose of computing MAT u/s 115JB of the Act. We, therefore, are of the considered view that the alleged sum of excise duty exemption is a capital receipt not chargeable to tax and even for the purpose of computing MAT u/s 115JB the said sum needs to be reduced from the net profit shown in the audited profit and loss account. Therefore, ground nos. 2 3 raised by the assessee are allowed. - I.T.A. No. 402/Gau/2019 - - - Dated:- 19-12-2022 - SRI RAJPAL YADAV, VICE PRESIDENT (KZ) And DR. MANI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessment was completed u/s 143(3) r.w.s. 144C(3) of the Act on 20.02.2019 making disallowance of amortization expenses on the lands taken on lease at Rs. Rs.22,56,588/- and Corporate Guarantee adjustment at Rs. 83,83,979/-. 4. Aggrieved, the assessee preferred appeal before ld. CIT(A) and partly succeeded. 5. Aggrieved, the assessee is now in appeal before this Tribunal. From perusal of the above grounds, we find that ground nos. 2 3 were not raised before ld. CIT(A) and they have been raised for the first time before this Tribunal. This being an additional ground, the question arises that whether any legal claim can be raised for the first time before this Tribunal. Ld. Counsel for the assessee referred to the following judicial pronouncements in support of its contention that this additional ground can be raised before this Tribunal: 2.3 In the case of Jute Corporation of India Ltd. vs. CIT (1991) 187 ITR 688 (SC), [Refer Page 58-63 of Additional Paper Book] three judge bench of the Apex Court relied upon the earlier three judge bench decision in the case of CIT -vs.- Kanpur Coal Syndicate (1964) 53 ITR 225 (SC) (in the context of Section 31(3)(a) of the 1922 Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t entitled to allow deduction which had not been claimed in the return. Similar view has also been taken in CIT -vs.- Jai Parabolic Springs Limited (2008) 306 ITR 42 (Del). 2.7 Reliance is also placed on in the case of CIT -vs.- K.S.Dattatreya (Deed.) through LR's (2011) 51 DTR 266 (Kar) wherein it has been held that - Therefore, the scope of the power of the CIT(A) is too wide. The appellate authority has plenary powers in disposing of an appeal. An appeal is a continuation of the process of assessment and an assessment is but another name for adjudication of the tax liability to accord with the taxable event in the particular taxpayer's case. It can enhance the assessment, taking advantage of the opportunity afforded by the taxpayer's appeal, even though the appeal itself has been mooted only with a view to a reduction in the assessment. The scope of his powers is coterminous with that of the ITO. He can do what the ITO can do and also direct him to do what he has failed to do . The CIT(A) can modify the assessment order on an additional ground even if not raised before the ITO. The Act does not place ant restriction or limitation on exercise of appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the claim of expenses of RS.18,73,242/- for amortisation of leasehold land. We notice that the appellant has taken various lands on lease for a long period ranging upto 99 years, which are used to carry out on business. Upfront lease premium is paid in the first year and, therefore, normal lease rentals are paid every year. The assessee follows Accounting Standard 19 issued by the Institute of Chartered Accountants of India which provides for mechanism of amortising such lease premium. A detailed calculation of amortisation of lease premium paid during the year along with the yearly rental is placed before us in paper book at pages 30 and 31. 27. The ld. Assessing Officer has denied the claim stating that the assessee s such claim cannot be made under section 35D of the Act and the said expense is also not allowable under section 37 of the Act. Section 35D of the Act deals with the amortisation of certain preliminary expenses. Before us, the issue is amortisation of lease amount and the lease premium paid by the assessee. It cannot be equated to preliminary expenses. Therefore, the said expense is not allowable under section 35D of the Act. The question is whether such expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uticals Industries Limited (2009) 227 CTR 206 (Guj.) holding that Amortization is an accounting term that refers to the process of allocating the cost of an asset over a period of time and hence it is nothing else than depreciation. The allowability of costs towards amortization of leasehold land is in question. Having heard the rival submissions on the issue, we find that the CIT(A) has rightly appreciated the facts lin perspective and concluding the issue in favour of assessee in the light of decision of Hon ble Gujarat High Court in the case of DCIT vs.- Sun Pharmaceuticals Industries Ltd. (2009) 227 CTR 206 (Guj.). We do not see any infirmity in the reasoning given by the CIT(A) while deleting the aforesaid disallowance of amortization leasehold lands. We thus decline to interfere . 30. We, therefore under the given facts and circumstances of the case and respectfully following the decisions referred hereinabove, are of the view that the amortization of leasehold land and land development charges of Rs.18,73,242/- deserves to be allowed as an expenditure under section 37 of the Act. Thus the finding of the ld. CIT(Appeals) is reversed and the additional ground raised b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other exemptions of similar nature has come up for adjudication on many occasions before Hon'ble Apex Court and have consistently held such receipts as capital in nature. In support of this contention ld. Counsel for the assessee relied on the judgment of Hon'ble Apex Court in the case of CIT vs. Ponni Sugars Chemicals Ltd. (2008) 306 ITR 392 (SC), Sahney Steel Press Works Ltd. vs. CIT (1997) 228 ITR 253 (SC), CIT vs. Shree Balaji Alloys (2016) 138 DTR 36 (SC), CIT vs. Chaphalkar Brothers Pune [2018] 252 Taxman 360 (SC). Reliance also placed on the judgment of Hon'ble Jurisdictional High Court in the case of PCIT vs. Ankit Metals Power Ltd. (2019) ITA 155 of 2018 (Cal.) and in the case of CIT vs. Rasoi Ltd. (2011) 335 ITR 438 (Cal). Reliance was also placed on the judgment of Hon'ble Special Bench of ITAT in the case of DCIT vs. Reliance Industries Ltd. (2004) 88 ITD 273 (Mum)(SB). 15. Ld. Counsel for the assessee also stated that similar issue of whether excise duty exemptions are to be excluded for the purpose of computing book profit u/s 115JB of the Act, has recently been decided this Tribunal in the other group case of the assessee i.e. Greenply Indust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... local employment generation and use of local resources. 2. In pursuance of the above announcement, discussion on Strategy and Action Plan for Development of Industries and generation of employment in the states of Uttaranchal and Himachal Pradesh were held with the various related Ministries/agencies on the issue, inter-alia, infrastructure, development, financial concessions and to provide easy market access, The new initiatives would provide the required incentives as well as an enabling environment for industrial development, improve availability of capital and increase market access to provide a fillip to the private investment in the state. 3. Accordingly, it has been decided to provide the following package of incentives for the states of Uttaranchal and Himachal Pradesh 3.1 Fiscal Incentives to new Industrial Units and to existing units on their substantial expansion: (1) New industrial units and existing industrial units on their substantial expansion as defined, set up in Growth Centres, Industrial Infrastructure Development Centres (IIDCs), Industrial Estates, Export Processing Zones, Theme Parks (Food Processing Parks, Software Technology Parks, etc.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en the receipt is on revenue account. On the other hand, if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand the existing unit then the receipt was on capita! account. Therefore, it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form of the mechanism through which the subsidy is given is irrelevant. While giving the aforesaid decision, Hon'ble Apex court has considered the object behind the payment of the incentive subsidy and applied the test laid down by the Hon'ble Apex Court in Sahney Steel Press Works Ltd. vs. CIT (1997) 228 ITR 253 (SC) (Refer Page No. 427-433 of Paper Book) and held that the incentive received under the scheme was not in the course of the trade but was of capital nature. In case of Sahney Steel Press Works Ltd. (supra), it was held that the character of the subsidy in the hands of recipient - whether revenue or capital - will have to be determined by having regard to the purpose for which the subsidy is given. If the purpose is to help the assessee to set up its business or complete a project the monies must b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT (2011) 51 DTR 217 (J K) wherein it has been held that Excise Duty Refund and Interest Subsidy received for the purpose of eradication of unemployment in the state by acceleration of industrial development and removing backwardness of the area that lagged behind in industrial development is to be treated as capital receipt. The aggrieved department in case of Shree Balaji Alloys, had preferred an appeal before the Apex Court. The Apex Court following the principles laid down in the case of Ponni Sugar (supra), has allowed the claim of Excise duty incentive as capital receipt in case of CIT -vs.- Shree Balaji Alloys (2016) 138 DTR 36 (SC) (Refer Page 434-435 of Paper Book) vide order dated 19-04-2016. 2.6.5 In the case of CIT v Chaphalkar Brothers Pune [2018] 252 Taxman 360 (SC), the Hon'ble Supreme Court confirming the above decision of Jammu Kashmir High Court in the case of CIT v Shree Balaji Alloys (supra) held that once the object of the subsidy was to industrialize the State and to generate employment in the State, the fact that subsidy took a particular from and was granted only after commencement of production would make no difference. 2.6.6 In the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the fact that computation of 'Power subsidy' is based on the power consumed by the assessee. It is well established from submission of the assessee as enunciated above that once the purpose of a subsidy is established; the mode of computation is not relevant as held in the decisions of the Hon 'bie Supreme Court in the case of Sahney Steel and Press Works Ltd. Vs. Commissioner of Income tax [1997] 228IRT253 (SC); CITVs. Ponni sugars and Chemicals Ltd. [2008] 306 ITR 392 (SC) and the decision of our High Court in case of CIT Vs. Rasoi Ltd. 335 ITR 438 (Cal.) against which SLP has been dismissed. The mode of computation/form of subsidy is irrelevant. The mode of giving incentive is reimbursement of energy charges. The nature of subsidy depends on the purpose for which it is given. Hence the assessee draws support from the decisions already discussed earlier as the same principle will apply here. Thus, the entire reason behind receiving the subsidy is setting up of plant in the backward region of West Bengal, namely, Bankura. Accordingly, we hold the aforesaid incentive subsidies are 'capital receipts' and is not an 'income' liable to be taxed in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of the Income Tax Act nor 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. The relevant finding of this Tribunal in Greenply Industries Limited (supra) is reproduced below: 10. We have heard the rival contentions and perused the relevant material available on record. We note that the assessee runs two manufacturing units in the name of Rudrapur Plywood Unit and Rudrapur MDF Unit and both are covered by the Excise Notification No.50/2003 dated 10.06.2003. Both the units are located in backward areas and are eligible for 100% excise duty exemption in respect of goods manufactured and cleared from such units for a period of 10 years from the date of commencement of commercial production. The assessee has claimed the excise duty exemption from these two units at Rs.87,98,09,432/- which is in the nature of capital receipt not liable to be taxed. We also find that though the said amount is reflected in the Profit Loss Account of the assessee and the amount being capital receipt has not been objected by the ld. CIT(Appeals) also, who has allowed deduction of the said amount vide his or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 45. Now coming to the issue relating to treatment of these subsidies while computing book profit u/s 115JB, we note that the Hon ble Apex Court in the case of Apollo Tyres Ltd. vs. CIT (255 ITR 273) held that the AO has the power to rework the book profit if the profits are computed not in accordance with Part II and Part III of Schedule VI to the Companies Act, 1956. The Hon ble Supreme Court in their subsequent decision rendered in the case of Indo Rama Synthetics (!) Ltd vs. CIT (330 ITR 363) further held that, the object of MAT provisions is to bring out the true working result of the companies. As held in the preceding paras, the subsidies received by the assessee were capital in nature and therefore not liable to tax. In the circumstances therefore, inclusion of such capital receipt in the computation of book profit u/s 115JB would defeat two fundamental principles. Firstly, it would levy tax on receipt which is not in the nature of income at all and secondly it would not result in arriving at real working results of the company. We thus find merit in the assessee s claim that the said subsidies being capital in nature, deserves to be excluded from the computation of book p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computing book profit under Section 115 JB of the Income Tax Act, 1961. 26. The admitted factual and legal position in the present case is that subsidies in question is not in the nature of income. Therefore they cannot be regarded as income even for the purpose of book profits u/s.115JB of the Act though credited in the profit and loss account and have to be excluded for arriving at the book profits u/s. 115JB of the Act. We hold accordingly and confirm the order of the CIT(A) in this regard. In light of the aforesaid discussion, we are of the view that the subsidies in question should be excluded for the purpose of determination of book profits u/s. 115JB of the Act. We hold accordingly and dismiss Gr.No.2 raised by the Revenue. 25. For the reasons set out above therefore, we allow the grounds taken by the assessee and direct the AO to deduct the VAT subsidy of Rs.8,78,84,902/- both while computing income under normal computational provisions and book profit u/s 115JB of the Act for the relevant AY 2014-15. 12. The Hon ble Kolkata ITAT in case of DCIT -vs.- M/S Century Plyboards (I) Ltd. (ITA No. 2149/Kol/2019 And C.O. No. 22/Kol/2020 In ITA No.2149/Kol/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me based on book profit without claiming any deduction or incentive allowable under the Act, but the fact remains that taxability has to be restricted to the income and once a receipt is considered as capital, it should be excluded even while computing book profit u/s. 115-JB of the Act. He relied upon the following judgments: (i) ITA No. 923/Bang/2009 dated 13th January 2017 JSW Steels Ltd. -vs. ACIT (ii) ITA No. 5124/Del/2011 dated 29th June 2018 Montage Enterprises Pvt. Ltd. vs. DCIT (iii) ITA No. 2199/Del/2009 dated 20th March 2019 Ultimate Flexipack Ltd. vs. DCIT (iv) 416 ITR 591 (Cal) Pr. CIT vs. Ankit Metal 85 Power Ltd. (v) Appeal No. 1132 of 2014 dated 4th January 2017 CIT vs. Harinagar Sugar Mills Ltd. (Bombay) (vi) ITA Nos. 614, 615 635/JP/2010 dated 9th September 2011 - Shree Cement - Appeal by Revenue, the Hon ble Rajasthan High Court in Appeal Nos. 204 of 2010 and 85 of 2014 vide order dated 22nd August 2017 has not admitted any question of law in appeal filed by Revenue. 15. Since we have already held that the CENVAT credit, as received by the appellant, in accordance with the incentive scheme for J K as formulated by the Centra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at: With the above discussions, the only issue left to be considered is whether exclusion of the above capital receipt is in line with the principles as laid down by Hon'ble Apex Court in the case of Apollo Tyres (supra). In the case of Apollo Tyres (supra), the question before the Apex Court was whether an AO can, while assessing a company for income tax u/s 115J of the IT Act, question the correctness of the P L a/c prepared in accordance with requirements of Parts II and III of Sch. VI to the Companies Act. From the question as framed before the Apex Court it is clear that the issue before the Hon'ble Court was with regard to power of the AO to recast audited accounts prepared in accordance with Part II and Part III of the Sch. VI to the Companies Act. Therefore, for applicability of the decision of the Apex Court the prerequisite is that the accounts are prepared in accordance with Part II arid Part III to Sch. VI of the Companies Act. If however the P L accounts are not in accordance with Part II and III of Sch. VI to the Companies Act, the said decision cannot be applied and in that situation it does not prohibit the needful adjustment. 16. By placing relian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ractice, capital receipt cannot be part of the profit. Therefore, capital receipts which do not have the character of income cannot be liable to income-tax by adding it to the book profit. When an amount which forms part of the book profit itself cannot be taxed under s. 115J, when it does not have the income character it has to be accepted that when what is routed through the P L account and carried to reserve is of a capital receipt and does not have an income character. It cannot be added back to the book profits merely because of the enabling provision in the Expln. to s. 115J for the purpose of imposing a tax thereon. 21. After going through the above referred judgments and decisions and on examining the facts of the instant case, we find that the excise duty exemption has been admittedly the capital receipt and the finding of the ld. CIT(Appeals) that the excise duty exemption is not liable to be taxed under the normal provisions of the Income Tax Act being not in dispute for us, the alleged capital receipt cannot be categorised as part of the book profit. In the case of assessee being covered by the excise duty notification, such sum collected on the goods manufactured ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s clearly held that the excise duty exemption received by the assessee during the course of running manufacturing units in the backward areas, notified by the Ministry of Commerce and Industry are to be considered as capital receipt not chargeable to tax and they also need to be excluded from the book profit for the purpose of computing MAT u/s 115JB of the Act. 22. We, therefore, respectfully following the settled judicial precedence, are of the considered view that the alleged sum of excise duty exemption of Rs. 19,25,59,001/- is a capital receipt not chargeable to tax and even for the purpose of computing MAT u/s 115JB of the Act the said sum needs to be reduced from the net profit shown in the audited profit and loss account. Therefore, ground nos. 2 3 raised by the assessee are allowed. 23. As far as ground no. 4 is concerned the same relates to computation of interest u/s 244A of the Act considering the additional grounds. Since we have already allowed the additional ground nos. 2 3 raised by the assessee, this ground no. 4 remains to be consequential in nature and, therefore, the Revenue authorities shall re-compute the interest u/s 244A of the Act. 24. Ground n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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