TMI Blog2017 (3) TMI 1051X X X X Extracts X X X X X X X X Extracts X X X X ..... would be available to the eligible industrial units from the date of commencement of commercial production and that these are not to be allowed for creation of new assets cannot be viewed in isolation to treat the incentives as production incentives. Such provisions are intended to ensure that the incentives are made available only to the bona fide industrial units so that the larger public interest of eradicating unemployment is achieved. The Court finally concluded that the incentives received by way of excise duty refund and interest subsidy are capital receipts in the hands of the assessee and therefore not chargeable to tax. The ratio laid down in the aforesaid decision is squarely applicable to the very same subsidy received under the very same scheme of State of Jammu & Kashmir by the Assessee in the present case. We therefore find no grounds to interfere with the conclusions of the CIT(A). The grievance of the revenue in ground No.2 regarding the revised return of income is not valid and has rightly held by the CIT(A) the said revised return of income was valid u/s.139(5) of the Act and was acted upon by the AO. - Decided in favour of assessee Excluding the subsidie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile ITA No.1018/Kol/2014 is an appeal by the Revenue. Both these appeals are directed against the order dated 18.2.2014 of CIT(A)-XII, Kolkata, relating to AY 2010-11. ITA No.1018/Kol/2014: (Revenue s appeal) 2. The grounds of appeal raised by the Revenue reads as follows: 1. On the facts and in the circumstances of the case and as per law Ld. CIT(A) erred in deleting the addition on account on account of interest subsidy and excise refund of ₹ 3,00,15,964/ - treating the both of as capital receipt. 2. On the facts and in the circumstances of the case and as per law Ld. CIT(A) erred in allowing the claim of revised return which is against the interest of revenue. 3. The Assessee is a company. It is engaged in the business of manufacture, sale and export of Insecticides and Agro Chemicals. For AY 2010-11, the Assessee filed a return of income declaring total income of ₹ 28,91,20,688/- on 16.9.2010. The Assessee thereafter filed a revised return of income on 22.2.2012 declaring total income of ₹ 25,28,24,247/-. The reasons for filing the revised return of income was explained by the Assessee as follows: A sum of ₹ 1,88,90,893/- was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the subsidies in question were received by the Assessee has held that the subsidies were capital receipt not chargeable to tax. 6. The following were the relevant observations of the CIT(A) in this regard: I have carefully considered the detailed submission put forth on behalf of the appellant along with the case laws relied upon, perused the facts of the case including the findings of the AO the judgements relied upon by him in the assessment order and other materials brought on record. After considering the entire facts of the case, I am of the view that though there is substantial force in the reasons given by the AO, but as there is a direct decision of the Hon'ble J K High Court on this issue and the unit. of the appellant's industrial undertaking is situated in Jammu Kashmir and has received the subsidy under the same scheme under which Shree Balaji Alloys (Supra) has received the subsidy, hence the decision of the Hon'ble J K High Court will be applicable in the case of the appellant. Moreover, it is seen that the judgements of the Hon' ble Apex Court in both the cases relied upon by the AO have been duly considered by the Hon'ble J K Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se receipts are to be considered for computation of book profit under section 115JB of the Act. Accordingly, this part of ground of the appeal is dismissed. 7. Aggrieved by the order of the CIT(A) holding that the receipt in question was capital receipt not chargeable to tax, the revenue has raised the aforesaid grounds of appeal before the Tribunal. 8. At the time hearing of these appeals, the learned DR sought adjournment. Out of the 17 cases listed for hearing, the learned DR has sought adjournment in 11 cases. Since the issues raised in these appeals have already been decided in the cases of Assessee s who have received similar subsidy under the very same subsidy scheme, the request for adjournment was refused. We proceed to decide the appeals after hearing the learned counsel for the Assessee. 9. We have considered the issue carefully and in the light of the decision of the Hon ble Jammu Kashmir High Court in the case of Balaji Alloys (supra). In the case of Balaji Alloys (supra), the Hon ble Jammu Kashmir High Court has set out of the objects of the scheme under which the excise duty exemption subsidy and interest subsidy were received by the Assessee in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as notified by the Central Government, were entitled to 100 per cent excise duty exemption for a period of 10 years from the date of commencement of commercial production. All new industries in the notified locations were eligible for capital investment subsidy @ 15 per cent of their investment in plant and machinery, subject to a ceiling of ₹ 30 lakhs whereas the existing units were entitled to subsidy on substantial expansion, as defined. Besides these and other concessions, interest subsidy of 3 per cent on the working capital and insurance premium to the extent of 100 per cent on capital investment too was permissible to the new and existing units on their substantial expansion for a period of 10 years. 6. Office Memorandum dt. 14th June, 2002 referred to hereinabove was later amended vide notification of 28th Nov., 2003 issued by the Government of India, Ministry of Commerce and Industry, Department of Industrial Policy and Promotion. It reads thus : No. 1(11)/2002-NER-In pursuance of the announcement by the Prime Minister on 19th April, 2003 at Srinagar for creation of one lakh employment and self-employment opportunities in Jammu Kashmir, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive per cent over and above the base employment limit, subject to the conditions that : (1) the unit shall not reduce regular employment after claiming exemption, and once such employment is reduced below one hundred and twenty-five per cent of the base employment limit, such industrial unit shall be debarred from claiming the exemption contained in this notification in future. However, the exemption availed by such industrial unit, prior to such reduction, shall not be recoverable from such industrial unit. (2) The manufacturer shall produce a certificate, from general manager of the concerned District Industries Centre to the jurisdictional Dy. CCE or the Asstt. CCE, as the case may be, to the effect that the unit has created such additional regular employment. Explanation-For the purposes of this notification : (a) 'base employment limit means maximum number of regular employees employed at any point of time by the concerned industrial unit, during last five years; (b) 'regular employment shall not include employment provided by the industrial unit to daily wagers or casual employees; (c) 'new investment shall not include investments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsidy is immaterial. The main eligibility condition in the scheme with which we are concerned in this case is that the incentive must be utilized for repayment of loans taken by the assessee to set up new units or for substantial expansion of existing units. On this aspect there is no dispute. If the object of the subsidy scheme was 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 was to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account. Therefore, it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form or the mechanism through which the subsidy is given are irrelevant. 16. Perusal of the judgments in Sahney Steel (supra) and Ponni Sugars (supra), therefore, reveals that the apex Court had applied the above quoted dictum to determine the purpose, which the two schemes had intended to achieve by the incentive subsidies, permissible under the schemes in question in those cases. It was, therefore, in the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t opportunities to deal with the social problem of unemployment. This in our view was a lopsided interpretation of the New Industrial Policy and concessions formulated by the Central Government for the State of Jammu Kashmir vide Office Memorandum of 14th June, 2002. 20. Therefore, in view of the clear legal position adumbrated by the Hon ble Supreme Court of India on the issue in question, that to determine the nature and intent of the incentives as to whether those were revenue receipts or capital receipts, the purpose underlying the incentives was the determinative test, there may not be any necessity of referring to the judgments of other High Courts of the country referred to by the appellants learned counsel, some of which had been considered by Hon ble Supreme Court of India in the above-referred cases. 21. Thus, finding that the New Industrial Policy and other concessions for the State of Jammu Kashmir have not been correctly appreciated by the Tribunal, we proceed to examine the true intent and purpose underlying the Policy and concessions contemplated by the Office Memorandum of 14th June, 2002 and the statutory notifications issued in this behalf. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose in public interest. 26. In this view of the matter, the incentives provided to the industrial units, in terms of the New Industrial Policy, for accelerated industrial development in the State, for creation of such industrial atmosphere and environment, which would provide additional permanent source of employment to the unemployed in the State of Jammu Kashmir were in fact, in the nature of creation of new assets of industrial atmosphere and environment, having the potential of employment generation to achieve a social object. Such incentives, designed to achieve public purpose, cannot, by any stretch of reasoning, be construed as production or operational incentives for the benefit of assessees alone. 27. Thus, looking to the purpose of eradication of the social problem of unemployment in the State by acceleration of the industrial development and removing backwardness of the area that lagged behind in industrial development, which is certainly a purpose in the public interest, the incentives provided by the Office Memorandum and statutory notifications issued in this behalf, to the appellant-assessees cannot be construed as mere production and trade incentives ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar that the generation of employment so contemplated was not casual or temporary but of permanent nature and the paramount consideration of the Central Government in providing the incentives to new industrial units and substantial expansion of the existing units was generation of employment through acceleration of industrial development in public interest. Such incentives, designed to achieve a public purpose, cannot be construed as production or operational incentives for the benefit of assessees alone. It was further held that making of additional provision in the scheme that the incentives would be available to the eligible industrial units from the date of commencement of commercial production and that these are not to be allowed for creation of new assets cannot be viewed in isolation to treat the incentives as production incentives. Such provisions are intended to ensure that the incentives are made available only to the bona fide industrial units so that the larger public interest of eradicating unemployment is achieved. The Court finally concluded that the incentives received by way of excise duty refund and interest subsidy are capital receipts in the hands of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessee. As far as the excluding the subsidies in question from computation of book profit u/s 115JB of the Act is concerned, the provisions of Sec.115JB of the Act have to be looked at. Section 115JB of the Act provides that notwithstanding anything contained in any other provision of the Act, where in the case of an Assessee, being a company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April,2001, is less than seven and one half percent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of seven and one half ten per cent. The Assessee being a company the provisions of Sec.115JB of the Act were applicable. Every assessee, being a company, shall, for the purposes of section 115JB of the Act, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956). In so preparing its book of accounts includin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch ITAT in the case of Rain Commodities Ltd. Vs. DCIT (2010) 131 TTJ (Hyd)(SB) 514, ITAT Luknow Bench in the case of ACIT vs. L.H.Sugar Factory Ltd and vice versa in ITA Nos. 417 , 418 339/LKW/2013 dated 9.2.2016 and decision of Mumbai ITAT in the case of Shivalik Venture (P) Ltd. Vs. DCIT (2015) 173 TTJ (Mumbai) 238 dated 19.8.2015, came to the conclusions (i) the object of Minimum Alternate Tax (MAT) provisions incorporated in Sec.115JB of the Act was to bring out real profit of companies and the thrust was to find out real working results of company. (ii) Inclusion of receipt which are not in the nature of income in computation of book profits for MAT would defeat two fundamental principles, it would levy tax on receipt which was not in nature of income at all and secondly it would not result in arriving at real working results of company. Real working result could be arrived at only after excluding this receipt which had been credited to P L a/c and not otherwise. (iii) There was a disclosure of the factum of forfeiture of share warrants amounting to ₹ 12,65,75,000/- by the Assessee in its notes on accounts vide Note No. 6 to Schedule 11 of Financial Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome. All those items of receipts shall otherwise fall under the definition of the term income as defined in sec. 2(24) of the Act, but they are not included in total income in view of the provisions of sec. 10 of the Act. Since they are considered as incomes not included in total income for some policy reasons, the legislature, in its wisdom, has decided not to subject them to tax u/s 115JB of the Act also, except otherwise specifically provided for. Clause (ii) of Explanation 1 to sec.115JB specifically provides that the amount of income to which any of the provisions of section 10 (other than the provisions contained in clause (38) thereof) is to be reduced from the Net profit, if they are credited to the Profit and Loss account. The logic of these provisions, in our view, is that an item of receipt which falls under the definition of income , are excluded for the purpose of computing Book Profit , since the said receipts are exempted u/s 10 of the Act while computing total income. Thus, it is seen that the legislature seeks to maintain parity between the computation of total income and book profit , in respect of exempted category of income. If the said lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the asset concerned in arriving at its book value.. The grant is thus recognized in the profit and loss statement over the useful life of a depreciable asset by way of a .reduced depreciation charge. Where the grant equals the whole, or virtually the whole of the cost of the asset, the asset is shown in the balance sheet at a nominal value. Under the other method, grants related to depreciable assets are treated as deferred income which is recognised in the profit and loss statement on a systematic and rational basis over the useful life of the asset. Such allocation to income is usually made over the periods and in the proportions in which depreciation on related assets is charged. The assessee applied the second alternative by crediting to the profit and loss account the Proportionate Amount of Lab Subsidy in proportion to depreciation charged on lab Equipment. Since the Lab subsidy was granted for acquisition of Lab Equipment the unamortized amount of Government Grant being Lab Subsidy was shown as Liability. Since the Lab Equipment are used in the Eligible Unit the Assessee claimed that proportionate amount of Lab Subsidy credited to the Profit Loss Account forms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd flow statement or supporting document to substantiate its claim. Further, there was a common office set- up and establishment for all the business activities as well as investment. Hence, the explanation of the assessee was not acceptable. The AO therefore held that the claim of the assessee that no expenditure has been incurred by him in relation to dividend income was not correct and therefore the provisions of Sec 14A(2) read with Rule-8D are invoked in this case. Accordingly disallowance of expenses was worked out as under : Rule 8D(ii) A Interest 2,88,33,391/- B Average Investments (39298700 + 6238700)/2 22768700/- C Average Assets (2205984982 + 169194027)/2 1948962505/- Disallowance = AXB/C 3,36,845/- Rule 8D(iii) Average Investments (39298700 + 6238700)/2 22768700/- Disallowance @1/2% of Average Investments (2205984982 + 169194027)/2 11,384/- Total Disallowance under section 14Awas thus determined at (3,36,8 ..... 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