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2016 (7) TMI 608

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..... sessee: Shri V.N.Purohit, CA Shri H.N. Bharwadaj, ACA For The Revenue: Shri Arun Kanti Sinha, JCIT, Sr. DR ORDER Per Shri M. Balaganesh, AM: These cross appeals by assessee and revenue are arising out of order of CIT(A), Asansol vide appeal No.198/CIT(A)/Asl/ACIT/Cir-1/Asl/2009-10 dated 11.06.2014. Assessment was framed by DCIT, Cir-1, Kolkata u/s. 143(3) 115WE(3) of the Income tax Act, 1961 (hereinafter referred to as the Act ) for AY 2007-08 vide his order dated 30.12.2009. Since both the appeals are arising out of same order of CIT(A), we dispose of the same by this common order for the sake of convenience. 2. The revenue has raised the following grounds:- 1. That the Ld. CIT(A), Asansol has erred in law and on facts in allowing the disallowance of ₹ 1,09,73,000/-, made by the AO on account of subsidy received from Government of W.B. through WBIDCL. 2. That the Ld. CIT(A), Asansol has erred in law and on facts by allowing the disallowance of ₹ 10,38,005/-, made by the AO on account of interest subsidy received as revenue receipt. 3. That the Ld. CIT(A), Asansol has erred in law and on facts by allowing the disallowance of .....

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..... Iron at Location Ikrah, P.O. Jamuria Hat, P.S. Jarnuria has been declared eligible for different incentives, subject to certain conditions, and an Eligibility Certificate No. INC-2000/EC-29I (B) dated 16-12-2004 was issued to the Company. The subsidies are not absolute, but are recoverable in case the assessee company fails to abide by the conditions mentioned in Condition (III) of the Eligibility Certificate. As per the said Eligibility Certificate, the company was eligible for the subsidies which were to be computed on different criteria. For easy consideration, the subsidies were given following nomenclature: (a) State Capital Incentive Subsidy (b) Interest Subsidy (c) Waiver of Electricity Duty (d) Employment Generation Subsidy (e) Remission of Stamp Duty Registration Fees State Capital Incentive Subsidy The Government of West Bengal sanctioned, in terms of the aforesaid Incentive Scheme, a capital subsidy of ₹ 1,09,73,000/- on account of investment made by the assessee for the establishment of its sponge Iron factory at Jamuria vide its letter no. INC- 2000(386)/II/GENCS/4597 dated 19/21-03-2007. The above subsidy of ₹ 1,09,73,000/- was s .....

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..... Total amount of Expenditure 69,74,269 41,52,021 85,90,773 2. Less: 3. Amount of subsidy computed 40,30,061 10,38,005 11,14,841 4. Net Amount debited to Profit Loss Account 29,44,208 31,14,016 74,75,932 Total net expenditure under the head Interest - ₹ 54,55,459 As a result of such adjustment of subsidies, the expenditure under the above heads was reduced. Based on the above said net figures, the accounts of the company were finalized and a loss of Rs. ₹ 1,64,02,636/-, which should have been higher by the sum of ₹ 61,82,907/- i.e. the actual loss of the company would be ₹ 2,25,85,543/-. The Return of Income was finalized on the basis of the loss of ₹ 1,64,02,636/-. This fact is evident from the books of accounts and Profit Loss Account for the year ended 31-03- 2007. .....

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..... 10,38,005/- based on Interest on Term Loan II and c) exclusion of subsidy of 11,14,841/- received being based on Electricity Charges from the Total Income as made in the Revised Return. The Ld. AO, further, did not accept the claim of the assessee, a) excluding the sum of ₹ 40,30,061/- being subsidy based on Interest on Term Loan I from total income being capital in nature and b) reversal of the deduction of State Incentive Subsidy from the Cost of Plant Machineries, as made inadvertently by the assessee, for the purpose of Depreciation as made in the letter filed during the course of hearing. The Ld. AO, however, added the State Capital Incentive Subsidy of ₹ 1,09,73,000/- to the Returned Income treating the same being Revenue in nature. 6. The Learned CITA appreciated the Incentive Scheme and its purpose and treated the capital subsidy received in the sum of ₹ 1,09,73,000/- as capital receipt and allowed the ground of the assessee in that regard. The Learned CITA however by placing reliance on the decision of the Hon ble Apex Court in the case of Goetze India Ltd reported in 284 ITR 323 (SC) did not consider the revised return of income wherein the depreci .....

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..... accordance with the law and therefore, needs to be excluded while computing the income under the Income Tax Act. The Learned AR effectively reiterated the submissions made before the lower authorities by stating the relevant portions of the scheme by making specific references to the paper book filed by him. In response to this, the Learned DR supported the orders of the Learned AO and specifically argued that the interest and electricity subsidy should be treated only as revenue receipts as it reduces the total expenditure of the assessee which in turn increases the profitability of the assessee. 8. We have heard the rival submissions and perused the materials available on record including the paper book filed by the assessee. We find that the Objects of the scheme could be understood from the foreword of West Bengal Incentive Scheme, 2000 issued by the Commerce Industries Department and Cottage Small Scale Industries Department , Government of West Bengal. For the sake of convenience, the same is reproduced hereunder:- West Bengal Incentive Scheme 1999 Scheme had an attractive provision of Sales Tax related by way of remission or deferment . But in pursuance of .....

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..... . The source is immaterial. If the object of the subsidy is to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the assistance under the subsidy scheme is to enable the assessee to set up a new unit or to expand an existing unit then the receipt of the subsidy would be on capital account. The assessee was a co-operative society running a sugar mill. During the relevant year in question, on account of economic factors, it was not economically viable to run new sugar factories and, due to high financial costs, financial institutions did not come forward to advance loans to the entrepreneurs of new sugar factories. The tempo of establishing new sugar factories received a serious setback. A committee appointed by the Government recommended that five possible incentives for making a sugar plant economically viable could be provided for, viz., capital subsidy, larger percentage of free sale of sugar, higher levy sugar price, allowing rebate on excise duty and remission of purchase tax. Following that report, schemes were formulated giving the following benefits : (i) incentive subsidy available only .....

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..... e granted as per Para 9.1 and Para 10 of the Scheme respectively. 8.5. We find that the issue with regard to taxability of subsidy is also adjudicated in detail by the decision of the Co-ordinate Bench of this tribunal in the case of DCIT vs M/s Strassenburg Pharmaceuticals Ltd in ITA No. 1131 1133 /Kol/2009 dated 27.1.2011 wherein it was held that :- 6. We have heard both the parties, perused the material placed before us and the decision of the ITAT and also the decision of the Hon ble jurisdictional High Court cited supra. We find that the issue is covered by the aforesaid decisions cited supra and the Ld. CIT(A) following the said decisions treated the WBIPA receipt as a capital receipt and directed the Assessing Officer to delete the additions for all the three assessment years under appeal. Since the Ld. CIT(A) by following the decision of Hon ble jurisdictional High Court s order and also the decision of the jurisdictional ITAT, treated the WBIPA receipt as a capital receipt and directed the Assessing Officer to delete the additions for all the three assessment years under appeal. we find no infirmity in his order and the same is hereby upheld. For the sake of br .....

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..... mited to 5 years from the date of commencement of production - Incentives are to be given by way of refund of Sales Tax and also subsidy as power consumed and other exemptions. After analyzing the above features, the Apex Court at page 262 observed as under: That precisely is the question raised in this case. By no stretch of imagination can be subsidies whether by way of refund of Sales Tax or relief of electricity charges or water charges to be treated as an aid to setting up of the industry of the assessee . . The subsidies are operational subsidies and not capital subsidies . The above facts of the case are similar to the case of Kesoram Industries Cotton Mills Ltd. (1991) 191 ITR 518 (Cal) wherein the subsidy received by way of refund of Sales Tax levied on raw materials, machinery, finished goods etc. Thus these two judicial decisions are mainly based on two factors : First, subsidy for carrying on business (conditional), secondly the incentive by way of refund of Sales Tax etc. The facts of the present case are different and are very similar to the case laws relied on by the appellant especially cases decided by ITAT, Kolkata. In the pres .....

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..... al crisis. The financial help, in this regard, has, therefore, got to be considered as having an enduring effect of dragging the business out of the poor financial conditions being faced by the industries. The scheme of the Govt. of West Bengal does not at all envisage giving any subsidy in respect of specific items of expenses like sales-tax, power, water etc. Hence, we are of the opinion that the facts of the present case not only differ greatly from those in the cases of either Kesoram Industries Cotton Mills Ltd. or Sahney Steel Press Works Ltd. As decided earlier, but the assistance, in the instant case, being unrelated to the day-to-day operations of the assessee-company or even meeting of any specific items of revenue expenses, has got to be considered as capital receipt. There is no doubt about the fact that the units receiving the assistance from the Govt. of West Bengal will be required to undergo certain regulatory measures and fulfill certain existence to be allowable to the assessee in carrying for the business itself in a regular manner or even for the purpose of augmenting its pro fits On the other hand, the sole purpose behind the grant of the assistance seems t .....

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..... on of the tribunal has been duly approved by the Hon ble Calcutta High Court in G.A. No. 2042 of 2011 ITAT No. 201 of 2011 dated 21.7.2011 in the very same case. 8.6. With regard to the claims made in the revised return, we find that the Learned CITA had not considered the same in view of the fact that the revised return was filed by the assessee beyond the prescribed period u/s 139(5) of the act. The Learned CITA had applied the decision of Goetze India Ltd supra and accordingly rejected the claim of the assessee. But we find from the last paragraph of the decision of Goetze India Ltd , supra, wherein the Hon ble Apex Court observed that revised return though filed belatedly could be considered by the Appellate Authority and hence we hold that the assessee is entitled to make its claim by way of revised return. 8.7. With regard to the issue of claim of additional depreciation, we find that the lower authorities had clearly misunderstood the scheme of the Act and the purpose of giving the benefit of additional depreciation to the assessee. The provisions of section 32(1) (iia) are reproduced hereunder for the sake of convenience:- 32. (1) In respect of depreciation of- .....

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..... date on the Learned AO to grant depreciation to the assessee whether or not such claim is made by the assessee in the return in terms of Explanation 5, it would be just and fair that the same mandate would get automatically extended to the claim of additional depreciation also. The provisions of section 32(1)(ii) speaks about block of assets. The additional depreciation u/s 32(1)(iia) of the Act only enables further depreciation of 20% of actual cost of plant and machinery under clause (ii). 8.8. Keeping in view the objects of the West Bengal Incentive Scheme 2000 and various judicial precedents relied upon hereinabove, we hold that the capital subsidy of ₹ 1,09,73,000/- is to be treated as capital receipt. Consequentially the assessee need not reduce the same from the cost of the asset for the purpose of claiming depreciation. We hold accordingly. Similarly, we hold that the interest subsidy of ₹ 10,38,005/- and Electricity subsidy of ₹ 11,14,841/- should also be treated as capital receipt. We direct the Learned AO to grant the additional depreciation on the actual cost of asset before reducing subsidy in terms of section 32(1)(iia) of the Act. We hold accordi .....

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