TMI Blog2022 (8) TMI 1485X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the Assessee : Shri Mayank Patawari, CA For the Revenue : Md. Gayasuddin Ansari, Senior DR, Shri J.K. Mishra, CIT DR ORDER PER SHAMIM YAHYA, ACCOUNTANT MEMBER : ITA NOS.9513, 9514, 9515 9516/DEL/2019 These are all appeals by the Revenue against the respective orders of the ld. CIT (Appeals). 2. The grounds of appeal are common except for change in figures. For the sake of reference, we are referring to ITA No.9513/Del/2019 and the grounds of appeal taken by the Revenue read as under :- 1. 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/-, 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 D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rebate refund. That further in the assessment year, claim of adjustment of Rs.4,50,00,000/- on account of Debt Redemption Reserve was disallowed provisionally while computing book profit. Finally, the AO held as under:- After taking necessary approval, a notice u/s 154 was issued on the assessee specifying the mistake that is proposed to be rectified. The assessee submitted its reply, in which it relied on the observation of Ld CIT(A) with respect to an order of AY 2012-13. The reply of the assessee was considered and not found tenable. The scrutiny 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... setting up the unit in the district of Kutch, and this benefit was in the sense that nether the assessee has paid any sales tax on purchases nor charged any sales tax to its customers. The claim of the assessee was that there is a notional subsidy element in built in the revenue received and that is really the subsidy received by it in respect of sales tax. As for the Central Excise Subsidy granted by the Government of India, the assessee was to charge full excise duty on sales invoices, adjusted the CENVAT credit available to it on purchase, and was required to pay the balance through the PLA. Subsequently, the amount actually paid, through PLA, was refunded to the subsidy. The assessee disclosed these refunds in the profit and loss account as capital 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 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lows: On merits of the issue, I have carefully considered the submission of the learned counsel and also considered the findings of the Assessing Officer. The subsidy/sales tax incentive was available to the appellant for establishing the industries unit in the Kutch district of Gujarat The incentive scheme was formulated vide resolution Ni INC-10200-903-1 dated 09.11.2001 of industries of mines department government of Gujarat In the preamble itself it was stated that 'The economic activities in the district of Kutch came to a standstill on account of the devastating earthquake in the state on 28th January 2001; New employment opportunities could be created. If new investment takes place, the government is committed to attracting industries 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 dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, 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. In view of the above judicial decision and considering the facts of the case and also relying on the decision of the jurisdictional bench of ITAT in the case of ACIT Vs. Birla VXL Ltd. (ITA/247-249/Rajkot/2011), I am of the considered opinion that the sales tax incentives of Rs.43657867/- and Excise duty incentive of Rs.32135417/- received by the appellant were 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 Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id in the case of Ajanta Manufacturing Ltd (Supra). As for learned Commissioner (DR) suggestion that we should follow the jurisdictional High Court decision in the case off Colourman Dyechem (Supra), we find that Their Lordship, in this case, were dealing with an entirely different type of subsidy which was clearly dealing with an expansion situation. However, we would rather refrain from making any further detailed observation on this issue, as we are alive to the fact that Hon'ble jurisdictional High Court, in Tax Appeal No 358 of 2012, has admitted appeal against the decision of this Tribunal in Ajanta case (Supra) and all these issues will now came up for consideration of their Lordships. The fact that appeal is admitted does not, as we have stated 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 concl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporation Ltd. Vs. Commissioner of Income Tax {(1997) 2271TR 764}. The Supreme Court after adverting to the provision of Clause 7 of Part III Schedule VI of the Companies Act, 1956 held that the basic principle is that an amount set apart to meet a known liability cannot be regarded as reserve . Where a company issues debenture, the liability to repay arises the moment the money is borrowed. By issuing debentures a company takes a loan against the security of its assets. Though the loan may not be repayable in the year of account, the obligation to repay is a present obligation. Hence any money set apart in the accounts of the company to redeem the debenture has to be treated as monies set apart to meet a known liability. Consequently, debentures have to 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 know ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 on the issue of addition of Rs.2,83,98,056/- in the book profit u/s 115JB of the Act regarding Sale Tax Incentive, following has been held :- 7.3 I have carefully considered the facts of the case, the assessment order and the written submission of the appellant It is noted that the similar issue has been decided by me in the case of the appellant for the A. y. 2009-10 in appeal no.CIT(A)- 2/DC/T Circle-4/406/13-14 dated 12/12/2014. For the sake of clarity the findings given by me in para 7.3 are reproduced as under- It is noted that the issue regarding treatment of sales tax subsidy has been decided by me in favour of the appellant and the AO has been directed to treat the same as capital receipt. Since, the subsidy has been treated as capital receipt, 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e. Genus Electrotech Ltd. also for the AY 2007-08. 13. ITA No.1136/Del/2012 is the appeal filed by the assessee against the order of ld. CIT wherein following grounds have been raised :- 1. On the facts and circumstances of the case, the Ld. CIT erred in passing order u/s 263 thereby set aside the assessment order dated 29.12.2009 passed by assessing officer. 2. On the facts and circumstances of the case, the Ld. CIT erred in directing the AO to make enquiry as to whether sales tax incentive amounting to Rs.12.74 crore had been capitalized in the books of accounts for the purpose of depreciation or not, completely disregarding the fact that the sales tax incentive had been credited in profit loss account had never been capitalized in books of accounts. Thus the said direction by commissioner 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 whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 has dealt with the issue as under :- I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The appellant has set up a manufacturing plant in Kutch area of the state of Gujarat. As per the schemes of the government, the appellant was getting sales tax incentive/subsidy. The appellant treated the subsidy as capital receipt for A. Y. 2007 - 08. The AO held that the proportionate depreciation at the rate of 15% of the subsidy of Rs.12.74 crores should also be disallowed as the cost of the asset acquired by the appellant has been met directly or indirectly by this Central or state government or any authority in the form of subsidy. The AO accordingly made a disallowance of Rs. 1.91 crores on account of depreciation. The appellant on the other hand has 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar decision has been given by the honourable ITAT Rajkot bench in the case of Ajanta Manufacturing Ltd (supra). In that case, the industry was set up in the similar scheme as that of the appellant and the sales tax/excise incentives were held to be capital receipt. In another case which is also been relied by the appellant and decided by honourable High Court of Delhi in the case of Indo Rama Synthetics India Ltd (supra), it was held that the subsidy receipt for encouraging investment in backward area, even if computed with reference to cost of investment in fixed assets, will not be reduced from the cost of assets by applying the provisions of section 43. The honourable High Court approved the decision of ITAT Hyderabad bench, in which it was held that the payment of subsidy was not related to the actual acquisition of assets. In the present case there is no link of the subsidy received with the cost of purchase of assets. The appellant has been getting the subsidy with reference to the sales made by it and the sales tax benefit is given. The appellant has purchased the machinery and nowhere subsidy is linked to those cost of acquisition. Therefore, in my considered opinion th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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