TMI Blog2017 (1) TMI 1198X X X X Extracts X X X X X X X X Extracts X X X X ..... n of provisions of section 41(1) as held by the AO as there was no cessation of liability on account of payment of sales tax. - Decided against revenue - I.T.A Nos. 388 to 390/Kol/2014 - - - Dated:- 18-1-2017 - Shri A. T. Varkey, JM And Dr. A. L. Saini, AM For the Appellant : Shri G. Mallikarjuna, CIT, DR For the Respondent : Shri A. K. Tibrewal, FCA ORDER Per Bench The captioned three appeals filed by the Revenue pertaining to Assessment Years 2009-10, 2010-11 and 2011-12, are directed against the separate orders passed by the Ld. Commissioner of Income Tax (A), Central-II, Kolkata in appeal nos. 225/CC- XXVII/CIT(A)C-II/11-12, 01/CC-XXVII/CIT(A)C-II/13-14 and 77/CC-XXVII/CIT(A)C-II/13-14, dated 16.12.2013, 10.12.2013 and 10.12.2013 respectively, which in turn arise out of assessment orders passed by the AO u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the Act ), dated 26.12.2011, 07.03.2013 and 03.08.2013 respectively. 2. At the outset, we find that all the appeals of Revenue are delayed by two days and Revenue has filed condonation petitions praying for condonation of delay. On perusal of the condonation petition and in view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oducts. That, the appellant company collected the sales tax and the 75% of the same was not paid to the Government. Further, the deduction on account of payment of sales tax was allowed in earlier years and, therefore, 75% of such sales tax is taxable u/s. 41(1) of the act. However, in the assessment order, the AO did not discussed the submission made by the appellant in the course of assessment proceedings explaining as to why the sum of ₹ 6,19,47,252/- is not taxable as revenue receipt. On the other hand, the appellant has claimed that the sum of ₹ 6,19,47,252/- was receivable as Industrial Promotion Incentive under the West Bengal Incentive Scheme, 2000 and that there is no application of the provisions of section 41(1) of the Act because the appellant had not received any refund of sales tax from the Sales Tax Department. Further, entire amount of sales tax was paid to the government and no part of the sales tax was retained by the appellant as alleged by the AO. The appellant has also not claimed deduction on account of payment of sales tax as apparent from the Balance Sheet and the profit and loss account. On perusal of West Bengal Incentive Scheme, 2000, it is ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or expansion of the existing units and not to facilitate the trade or business of the industries. As per section 18 of the Scheme, under the Mega Projects, the Government may consider granting special package of incentives under this Scheme to a Mega Project. 5.1. Thus, the main aim and purpose of the Scheme for which it was sanctioned was Promotion of Industries in the State of West Bengal . Similar Schemes were sanctioned by the State Government in earlier years also to promote setting up of industries in the State and under those schemes various incentives were given to the registered and eligible industries. However, the object of all the Schemes was to provide incentives to promote the industries in the State of West Bengal. With the same object in supersession of the West Bengal Incentive Scheme, 1999, the new West Bengal Incentive Scheme, 2000 was announced by the State Government w.e.f. 1st January, 2000. It is observed that in the case of appellant company, Govt. of West Bengal, Commerce Industries Department vide letter no. 1219/JS/DC dated 22.03.2004, approved a mega package for Budge Budge Refineries Ltd. to be located at Budge Budge, South 24 Parganas with an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovt. of West Bengal vide certificate of Registration DI/2000/581(B)/102(4)/1983 dated 17.02.2005. Thus, as per the scheme, the Industrial Promotion assistance was provided as incentive for setting up of new unit or expansion of existing unit, though, the mode of calculation of assistance was sales tax paid by the appellant company. Under the circumstances, I am of the opinion that it is not correct to say that the subsidy/incentive was given to the appellant for the purpose of carrying on business or trade by way of refund of sales tax or that there was cessation of liability on account of payment of sales tax attracting the provisions of section 41(1) of the Act. Though, the method of calculation of IPA is payment of sales tax but the purpose of giving the incentive is setting up/expansion of industries in the backward areas of the State of West Bengal. In the case of Sahney Steel Press Works Ltd., (supra), it is held by the Hon ble Supreme Court that if payments in the nature of subsidy from public funds are made to the assessee to assist him in carrying on its trade or business, they are trade receipts. The character of the subsidy in the hands of recipient whether revenue or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to be determined with respect to the purpose for which the subsidy is granted. In other words, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. 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 objects 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. In the case of appellant company, the incentive was receivable from the West Bengal Government under the West Bengal Incentive Scheme, 2000 in the form industrial promotion assistance, to be calculated on the basis of payment of sales tax. However, the sole object of the aforesaid incentive scheme was to enable the appellant to set up a new edible oil refinery plant and captive power generation unit. In the case of appellant, it had invested a substantial amount in fixed capital assets for the purpose of setting up a new unit. Hence, as per the principles laid down by the Hon ble Supreme Court in the case of Ponni Suga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 3,72,95,124/- is added to the total income of the assessee company as undisclosed income. 7. During the course of appellate proceedings, the appellant has submitted as under: This ground of appeal relate to addition of ₹ 3,72,95,124 made by the Ld. Assessing Officer on the ground that this amount was previously considered as income chargeable to tax u/s. 41(1) of the Act in the assessment year 2007-08 but the same was deleted by Ld. CIT(A) on the ground that the same was a provision made by the Appellant in its books of accounts on the basis of claims made by it before WBIDC. However, the sum of ₹ 4,69,78,053/- was actually paid by WBIDC vide their Cheque No. 252741 dated 17.03.2009 drawn in favour of Commercial Tax Officer, West Bengal Account Budge Budge Refinery Ltd. . The photo copy of the said cheque and the receipt of the same issued by the Appellant Company is enclosed in the paper book at pages 90 and 91. On perusal of the aforesaid receipt and the cheque it would be found that the sum of ₹ 4,69,78,053/- was paid by WBIDC on account of Industrial Promotion Assistance under The West Bengal Incentive Scheme, 2000. Under the scheme t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,252/- receivable by the appellant company on account of industrial promotion assistance under West Bengal Incentive Scheme, 2000 by holding it to be of capital in nature and hence not inc1udible in the taxable income of the assessee. 2. That in the facts and circumstances of the case and in law the Ld CIT (A) has erred in directing to delete the addition of ₹ 6,19,47,252/ - receivable by the appellant company on the ground that there was no cessation of liability, without appreciating the fact that the assessee was maintaining its accounts on mercantile basis and had accounted for the transactions in the current year. 3. That in the facts and circumstances of the case and in law the Ld CIT (A) has erred in directing to delete the addition of ₹ 3,72,95,124/-on account of Incentive received of ₹ 3,72,95,124/ -[ @75% of Sales Tax/VAT for the F.Y. 2008-09 as Industrial Promotion Assistance under W. B. Incentive Scheme 2000] 6.1. The Ld. AR for the assessee has submitted before us that the assessee company was entitled to receive subsidy in the form of Industrial promotion Assistance under the West Bengal Incentive Scheme, 2000 from the Govt. of West Be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... West Bengal Incentive Scheme-2000. The said scheme clearly says that it is for the company to establish its unit in the backward area to promote the employment and other facilities in the backward areas and the said incentive was towards capital receipt in nature. The Ld. AR for the assessee also pointed out that the said scheme is not for the assessee company to reimburse the day to day operational expenses, therefore, it cannot be in the nature of revenue. Considering the factual position and the precedent cited by the Assessee before the Ld. CIT(A) and before us, we are of the view that the Ld. CIT(A) has passed a reasoned order and it does not require any modification. Therefore, we confirm the order passed by the Ld. CIT(A). 6.4 In the result, Appeal filed by the Revenue is dismissed. 7. In rest two appeals same issues are involved, except to a small covered issue, which relates to Section 35D of the Act. The Assessee claimed preliminary expenses of ₹ 21,74,874/- in the return of Income and that was allowed in the assessment U/s 143(3) of the Act. The said claim of preliminary expenses had been allowed by the Assessing Officer in previous years. However, the deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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