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2016 (10) TMI 1307 - AT - Income TaxAddition u/s 41(1) towards subsidy - accrual of subsidy / receipt of subsidy - Year of assessment - assessee had shown a sum being 75% of sales Tax / VAT as Sales Tax Incentive Receivable under the scheme of State Government. This sum was correspondingly credited to General Reserve of the assessee - quantification of subsidy was in the form of reimbursement of sales tax / VAT paid by the assessee on sale of its finished products to the extent of 75 % of the same after the commencement of production - CIT -A deleted the additions on the ground that the subsidy was actually released / sanctioned to the assessee which falls in the financial year 2008-09 relevant to Asst Year 2009-10 and hence the accrual of subsidy / receipt of subsidy had to be seen only in that year - HELD THAT:- Assessee had to first set up its project in the State of West Bengal and start manufacturing operations. The finished goods manufactured should be sold after payment of sales tax / VAT. The assessee has to produce the evidence for payment of sales tax / VAT. Thereafter, WBIDCL on satisfactory compliance made by the assessee in this regard, would release the subsidy by reimbursing 75% of the sales tax / VAT paid by the assessee. We have gone through the relevant pages of the paper book of the assessee containing the evidence in the form of tax paid challans for sales tax / VAT. Hence we hold that the ld AO had factually erred in stating that the sales tax / VAT were not paid by the assessee. AO had erred in invoking the provisions of section 41(1) of the Act. It is well settled that the said provision could be invoked only when the assessee had claimed deduction in earlier years at the time of creation of liability and if the said liability ceases to exist, then the provisions of section 41(1) of the Act could be invoked. In the instant case, admittedly, the assessee had not claimed any deduction in the earlier years towards the sales tax portion of the subsidy. Hence, the provisions of section 41(1) of the Act could be invoked in the facts of the instant case. Keeping in view the objects of the West Bengal Incentive Scheme 2000 and various judicial precedents relied upon hereinabove, we hold that the subsidy is to be treated as capital receipt not chargeable to tax in the hands of the assessee and not in the years under appeal - Subsidy cannot be the subject matter of taxation in the years under appeal as the same got released / sanctioned only in the financial year 2008-09 relevant to Asst Year 2009-10. Accordingly, the grounds raised by the revenue for both the years are dismissed.
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