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2016 (6) TMI 890 - ITAT MUMBAI

2016 (6) TMI 890 - ITAT MUMBAI - TMI - Capital subsidy received under the Bihar Incentive package - whether not to be deducted from WDV of the plant and machinery? - Held that:- Instant appeal is identical to the ground raised in the appeal for assessment years 2008-09 and 2009-10 which was also allowed by learned CIT(A) in the instant assessment year following the afore-stated decisions of the Tribunal in assessee company’s own case for the assessment year 2008-09 and 2009-10, hence, Respectful .....

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is given to promote establishment of new units and for expansion of capacity of existing units. As per this scheme, the distillery is entitled for reimbursement of commercial taxes(VAT) paid on purchase of molasses for production of alcohol and the said benefit will be available for five years from the date of establishment of distillery unit. We do not find any reason to interfere with the order of the learned CIT(A) with respect to this issue also as this scheme of reimbursement of commercial .....

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016 - Shri Sanjay Garg, Judicial Member And Shri Ramit Kochar, Accountant Member For the Revenue : Shri Amit Kumar Singh, DR For the Assessee : Shri Jayesh Desai ORDER Per Ramit Kochar, Accountant Member This appeal, filed by the Revenue, being ITA No. 5675/Mum/2014, is directed against the appellate orders dated 21-07-2014 passed by the learned Commissioner of Income Tax (Appeals)- 8, Mumbai (Hereinafter called the CIT(A) ), for the assessment year 2011-12, the appellate proceedings before the .....

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eceived under the Bihar Incentive package is not to be deducted from WDV of the plant and machinery ? 2. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in holding that subsidy received by the way of reimbursement of commercial Tax (VAT) is not a revenue receipt ? 3. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in directing the AO to delete the addition made to book profits on account of excess depreciation and subsidy receiv .....

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ments and subsidy of ₹ 2,26,70,311/- by way of reimbursement of Excise duty under Bihar Incentive Package - 2006 for undertaking expansion of its capacity from 8500 TCD to 10000 TCD in the previous year 2007-08 (assessment year 2008-09). The assessee company has treated the said subsidy as capital receipt and credited the amount to the capital reserve account , without crediting the same to the Profit & Loss account. However, the AO has rejected the claim of the assessee company by tre .....

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, the A.O. observed that the assessee company had received capital subsidy of ₹ 3 crores under Bihar Incentive Package - 2006 for setting up of the distillery unit being 10% of investment in machineries and equipments for establishment of distillery plant and subsidy of ₹ 4,13,51,468/- by way of reimbursement of Excise duty under Bihar Incentive Package 2006 for undertaking expansion of its capacity from 8500 CTD to 10000 TCD in the previous year 2008-09 (assessment year 2009-10). Ag .....

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2008-09 and 2009-10, the matter went up to the Tribunal and the Tribunal in ITA No. 772/Mum/2012 for the assessment year 2008-09 vide orders dated 31st January, 2014 held that capital subsidy being 10% of investment in machineries and equipments is not required to be deducted from the cost of plant and machinery and also the subsidy received as excise duty reimbursement cannot be taken as revenue receipt and the A.O. is not entitled to add the above two items to the book profit computed u/s 115 .....

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, and in order to solve the problem of additional financial load faced by the investors and in order to minimize the burden on them the surplus funds so generated by the State Incentive policy could be used for repayment of term loan taken from Central Financial Institutions and Banks so that these projects could become viable. Para 2 of the said resolution further states that under the new Industrial Policy of the State, under the provisions of attracting capital investment for technical develo .....

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n the State. 2.3.1 It is pertinent to mention that the Ld.CIT(A) has stated that the wording of the said scheme read together with the said guidelines issued by the Bihar Government indicates that the subsidy is granted with the object of incentive for the entrepreneurs to establish sugar industry/expand the capacity in the state of Bihar and thus the said subsidy is given for setting up of industry or expansion of industry in the state of Bihar. We concur with the said observation of the Ld.CIT .....

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ly or indirectly to meet any portion of the actual cost. The same view has been followed by the Tribunal in a subsequent case, namely M/s. Godrej Agrovet Ltd. (supra), the order to which the present Accountant Member is also a party. It is pertinent to mention that in the appeal preferred before the High Court against the said decision of the Tribunal, the Revenue has not disputed the decision of the Tribunal in the appeal before the Hon ble High Court. This suggests that the Revenue has accepte .....

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case of Inventaa Chemical Ltd (supra) has held that if payment of subsidy is not related to actual acquisition of assets and subsidy is granted on capital investment on land, building and machinery, such subsidy cannot be reduced from the value of asset (WDV). Applying these ratio to the facts of the assessee s case, after noting that the revenue has not brought on record that the subsidy received by the assessee is directly or indirectly resulted in acquisition of any asset, we are of the consi .....

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Ground No.1 is dismissed. ***** ***** 3.3 We have heard both the sides and perused the material on record. It is not disputed that the subsidy scheme formulated by the Government of Bihar is for the purpose of attracting capital investment and to encourage setting up the industry/expand the existing unit. It is pertinent to mention that the character of a subsidy in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. The point of time at wh .....

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view of that matter we do not find infirmity in the decision of the Ld.CIT(A) in deleting the impugned addition made by the AO and thus the order of the Ld.CIT(A) on this count is upheld. Ground No. 2 is dismissed. ***** ***** 4.1 Having heard both the sides and perused the material on record, it is noted that the issue raised in this ground is squarely covered in favour of the assessee by the decision of the Hon ble Apex Court in the case of Apollo Tyres Ltd. Vs. CIT 250 ITR 273, wherein it has .....

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nt except to the extent provided for the explanation of section 115J. Also, it is noted that while deciding grounds no. 1 & 2 in respect of the additions under normal provisions of the income in respect of treatment of the said subsidy, we confirmed the deletions made by the Ld.CIT (A) and hence the additions made in computation of book profit under section 115JB is not sustainable. Since, the facts and position of law as aforementioned has been correctly appreciated by the Ld.CIT(A) for arr .....

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2010-11 in ITA No. 2221/Mum/2014 dated 12th April, 2016, the Tribunal again followed its decision for the assessment year 2008-09 and 2009-10 in ITA no 772/Mum/2012 dated 31-01-2014 and ITA no. 2221/Mum/2014 dated 12- 04-2016 and dismissed the appeal of the Revenue. 5. We have observed that the ground No. 1 in the instant appeal is identical to the ground raised in the appeal for assessment years 2008-09 and 2009-10 which was also allowed by learned CIT(A) in the instant assessment year followin .....

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ed that the assessee company during the previous year relevant to the instant assessment year received reimbursement of commercial taxes(VAT) on Molasses under Bihar Incentive Package 2006 amounting to ₹ 43,89,465/- for setting up distillery unit . The assessee company has established the distillery unit in financial year 2007-08. The Government of Bihar has formulated the incentive scheme to promote establishment of new units and for expansion of capacity of existing units. As per this sc .....

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s from the date of expansion of the capacity of the plant and the assessee company had received subsidy of reimbursement of excise duty in assessment years 2008-09 and 2009-10 and subsidy by way of reimbursement of commercial tax paid on molasses in the assessment year 2010-11 and the same was not offered for tax in assessment years 2008-09, 2009-10 and 2010-11 which were considered as revenue receipts by the AO. The Tribunal has already held that reimbursement of subsidy by way of excise duty i .....

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venue receipt. 3.1 Briefly stated, the assessee company had received subsidy of ₹ 2,26,70,311/- by way of reimbursement of excise duty under the 'Bihar Incentive Package 2006' which the assessee company treated as capital receipt. However, in the assessment framed, the AO treated the same as revenue receipt. According to the AO, the subsidy in the form of reimbursement of excise duty went on to reduce the cost of the assessee and the payment of excise duty forms part of P&L Acc .....

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isions where it has been held that when the subsidy scheme is to enable the assessee in setting up the new unit or to expand the existing unit, then the receipt of the subsidy is on capital account. Aggrieved by the impugned decision the revenue has raised this granted in the appeal before us. 3.2 Before us, the Ld. DR has contended that the reimbursement of the excise duty has to be treated as revenue receipt by relying on the order of the AO. On the other hand, the Ld.Senior Counsel for the as .....

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35 taxmann.com 515 (Gujarat) and the decision of the J&K High Court in the case of Shree Balaji Alloys Vs. CIT 333 ITR 335 (J&K). 3.3 We have heard both the sides and perused the material on record. It is not disputed that the subsidy scheme formulated by the Government of Bihar is for the purpose of attracting capital investment and to encourage setting up the industry/expand the existing unit. It is pertinent to mention that the character of a subsidy in the hands of the assessee has t .....

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in his order and also the decisions relied on by the Ld.Counsel for the assessee as aforementioned. In view of that matter we do not find infirmity in the decision of the Ld.CIT(A) in deleting the impugned addition made by the AO and thus the order of the Ld.CIT(A) on this count is upheld. Ground No. 2 is dismissed. In the instant assessment year, the assessee company has received subsidy by way of reimbursement of commercial taxes(VAT) paid under Bihar Incentive Scheme 2006 of ₹ 43,89,465 .....

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If the object of the subsidy scheme is to enable the tax-payer in setting up the new unit or to expand the existing unit, then the receipt of the subsidy is to be treated on capital account. We have observed that the learned CIT(A) has also allowed the claim of the assessee company in treating reimbursement of commercial taxes(VAT) based upon the decision of the Tribunal for earlier years with respect to the reimbursement of excise duty holding that the subsidy received by the assessee by way of .....

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of alcohol and the said benefit will be available for five years from the date of establishment of distillery unit. We do not find any reason to interfere with the order of the learned CIT(A) with respect to this issue also as this scheme of reimbursement of commercial taxes(VAT) on purchase of Molasses under Bihar Incentive Package 2006 is similar to scheme of reimbursement of excise duty under Bihar Incentive Package 2006 and we hold that this is a capital receipt which is not chargeable to ta .....

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apital subsidy and excise duty reimbursements received by the assessee company under Bihar Incentive Package 2006 to the book profit computed u/s. 115JB of the Act. The decision of the Tribunal in ITA no. 772/Mum/2012 for the assessment year 2008-09 is reproduced hereunder: 4.1 Having heard both the sides and perused the material on record, it is noted that the issue raised in this ground is squarely covered in favour of the assessee by the decision of the Hon ble Apex Court in the case of Apoll .....

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