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TMI Blog2016 (5) TMI 1136X X X X Extracts X X X X X X X X Extracts X X X X ..... ,21,35,417/- treating excise incentive as revenue receipt by the Assessing Officer without appreciating facts that the assessee is free to utilise the money as it feels to do so and there is no stipulation of it being used. 4. The relevant material facts, as culled out from material on record, are like this. The assessee before us is a company engaged in the business of manufacturing of CTVs, PCBs, Washing Machines etc. During the course of the scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has claimed an amount of Rs. 4,36,57,867 as capital subsidy received by way of sales tax benefit under the scheme of the Gujarat Government, and Rs. 3,21,35,417 as excise duty benefit under the scheme of the Government of India. As the Assessing Officer noted, "these amounts being notional, assessee had claimed the same in computation of income". In response to the questions put by the Assessing Officer, during the course of the assessment proceedings, it was explained by the assessee that the assessee was granted sales tax benefit for setting up the unit in the district of Kutch, and this benefit was in the sense that nether the assessee has paid any sales ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation to apply the incentive amount towards repayment of capital asset- unlike in the case of Ponni Sugar, that the nature of assistance was for trade and that in effect sales tax subsidy reduced the cost and increased the profits of the assessee, and that, for all these reasons, the sales tax subsidy is required to be treated as revenue in nature. As regards Central Excise Duty refund, the Assessing Officer noted that the rebate/ refund is available only for the period which is reckoned from the date of commencement of commercial production, that there is no stipulation on how to use the refunds so received, and that, in view of this factual position and earlier discussions on legal position, this subsidy is also required to be treated as a revenue receipt. It was in this backdrop that the additions of Rs. 4,36,57,867 in respect of sales tax subsidy and Rs. 3,21,35,417 for excise duty subsidy were made to the income returned by the assessee. Aggrieved, assessee carried the matter in appeal before the CIT(A). Learned CIT(A)'s line of reasoning was as follows: 3.7. On merits of the issue, I have carefully considered the submission of the learned counsel and also considered the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... centives 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. The appellant's case is covered by the decision of Hon'ble Special Bench of Mumbai Tribunal in the case of DCIT vs. Reliance Industries Ltd. 88 ITD 273 (Mum. (SB) as relied on by the learned Counsel. The Hon'ble Special Bench of Mumbai Tribunal had relied on the decision of the Hon'ble Madras High Court in the case of Ponni Sugars & Chemicals Ltd. 260 ITR 605 (MAD). This decision was later on affirmed by the Hon'ble Supreme Court in the case of CIT vs. Ponni Sugars & Chemicals Ltd. 306 ITR 392 (SC) by holding that the 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 words, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter may kindly be referred to Special Bench and accordingly be adjourned. 7. Learned counsel, on the other hand, submitted that the issue in appeal is squarely covered by the coordinate bench decision in the case of DCIT Vs Ajanta Manufacturing Ltd (ITA No. 793/Rjt/2010; order dated 23th September 2010, as rightly pointed by the learned Commissioner, in respect of the same subsidy scheme, and we must, therefore, follow the said decision. As for the decision of another coordinate bench, in the case of ACIT Vs Jindal Steel & Power Ltd [(2013) 38 taxmann.com 132 (Delhi)], learned counsel points out that this decision is clearly per incurium as the bench has ignored a binding special bench decision in the case of Reliance Industries Ltd (supra). A deviant and per-incurium decision, according to the learned counsel, should not be allowed to dilute the binding decisions from the higher forums. Learned counsel also submitted that there is no occasion to send the matter to the special bench, as Reliance Industries decision (supra) is a special bench decision which still holds the field. 8. A few weeks after the hearing was concluded and the order was pending dictation, learned Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business. 10. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 11. 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 Hon'ble Bombay High Court has now admitted the question "whether, on the facts and circumstances of the case, the Hon'ble Tribunal was right in holding that sales tax exemption was a capital receipt" and will, in due course though, adjudicate on this legal issue. To that extent, Hon'ble Bombay High Court's order dated 15th April 2009, to the extent of declining to admit this question, stands reversed. However, the decision of the Special Bench still holds good as the same has not, and at least not yet, even been examined by Hon'ble Bombay High Court. Mere admission of appeal against a decision, as is elementary, does not affect the biding nature of a judicial precedent. The Special Bench decision, in the case of Reliance Industries Ltd (supra), was not rever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffect the binding nature of the judicial precedents. There is no dispute before us that the scheme under which the sales tax and excise duty subsidy are given to this assesse 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 conclusions arrived at by the Commissioner (Appeals), which are in consonance with the Special Bench decision in the case of Reliance Industries (supra) and coordinate bench decision in the case of Ajanta Manufacturing Ltd (supra), and decline to interfere in the matter. 12. The appeal of the Assessing Officer is thus dismissed. 13. That takes us to the appeal filed by the assessee. 14. Ground no. 1 and 2 are not pressed and are dismissed as such. 15 In ground no. 3, the short issue is that the learned CIT(A) erred in confirming non exclusion of debt redemption fund of Rs. 2.50 crores from the book profit for the purpose of computing book profits under section 115JB. 16. During the course of the scrutiny assessment proceedings, the adjustment for debt redemption fund, at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Sultan Tobacco Co. Ltd. Vs. CIT [[1981] 132 ITR 559], in holding that since the concept of reserve and of a provision is well known in commercial accountancy and is used in the Companies Act, 1956, while dealing with the preparation of balance sheets and profit and loss accounts the meaning of that concept would have to be gathered from the meaning attached in the Companies Act itself. The following observations of the Supreme Court are of significance: "The debentures were nothing b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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