TMI Blog2017 (4) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... eligible to qualify in the latter part of the scheme, the assessee is receiving incentive/subsidy in the form of refund of sales tax from the State Government. As far as the purpose of subsidy is concerned, it is quite evident that it is for setting up of new Mega Project in the classified area. Hence, the decision of Coordinate Bench of the Tribunal in the case of Rasiklal M. Dhariwal (HUF) Vs. DCIT (2011 (3) TMI 1619 - ITAT PUNE ) would not apply in the facts and circumstances of the case. Thus, in the facts of the case and in the light of various decisions discussed above, we hold that the incentive received by the assessee under the PSI, 2007 scheme in the form of refund of sales tax is Capital receipt, not liable to tax. - ITA No.601/PN/2013, ITA No.215/PN/2014 - - - Dated:- 24-3-2017 - SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM For The Appellant : Shri C.H. Naniwadekar For The Respondent : Shri Shashi B. Prasad ORDER PER VIKAS AWASTHY, JM : These two appeals have been filed by the Assessee against the order of Commissioner of Income-Tax (Appeals)-I, Pune dated 29-12-2012 for A.Y. 2009-10 and dated 20-09-2013 for A.Y. 2010-11, respectively. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were paid after the production commenced. She failed to appreciate the settled law in this regard in its true perspective. d. The appellant craves leave to add, alter delete or substitute all or any of the grounds of appeal. Identical grounds of appeal have been taken by the assessee in A.Y. 2010-11 challenging the findings of CIT(A) in treating subsidy received under the PSI, 2007 as revenue receipt. In appeal for A.Y.2010- 11 the assessee has also challenged the disallowance of prior period expenditure ₹ 29,84,611/-. 5. Shri C.H. Naniwadekar appearing on behalf of the assessee submitted that the Maharashtra Government had introduced PSI, 2007 through its Resolution No.PSI-1707(CR-50)/IND-8 dated 30-03-2007. According to the preamble of the PSI, 2007, the State Government in order to achieve higher and sustainable economic growth with emphasis on balanced Regional Development and Employment through greater private and public investment introduced the package of incentives. The Government gave area-wise schemes/benefits to the companies. Under the said scheme, the Government introduced Mega Project Scheme under which industrial unit of the assessee at Village Pimple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presentative contended that the subsidy was given by the State Government for setting up of industrial unit in lesser developed areas of State of Maharashtra. The PSI, 2007 was introduced in 1964 and was thereafter amended from time to time. The scheme was last amended in 2001 and was operative from 01-04-2001 to 31-03- 2007. The ld. Authorised Representative referring to the Preamble of Package Scheme of Incentives at page 64 of the paper book, submitted that the Scheme was declared by the State Govt. for setting up of new industrial units to ensure sustained industrial growth through innovative initiatives for development of key potential sectors with special emphasis on balanced regional development and employment generation through greater private and public investment. Under the PSI, 2007, the areas of the State are classified into various groups, i.e. A, B, C, D and D+. Group A comprises of the most developed areas, viz Mumbai Metropolitan Region Pune Metropolitan Region and Group D+ having the least developed areas not covered under Group A, B, C or D. The Mega Project set up by the assessee is in Group C, i.e. the area which is less developed than those areas covered un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within one year from the date of commencement of commercial production. In so far as the period of investment is concerned, the assessee had still time upto 27-03-2013 to make further investments. The ld. Authorised Representative pointed that as per PSI, 2007 the assessee was eligible to claim subsidy on issuance of eligibility certificate under PSI, 2007 and the eligibility certificate is issued from the date of commencement of commercial production by the eligible unit. The eligibility certificate was issued to the assessee by Government of Maharashtra on 17-03-2009. The date of start of commercial production was 01-12-2008, therefore, the eligibility certificate was made effective from 01-12-2008, i.e. in F.Y. 2008-09. The assessment years under appeal (A.Y. 2009-10 and 2010-11) are the first year and second year, respectively for claiming subsidy under PSI, 2007 scheme. 9. The ld. Authorised Representative submitted that the case of the assessee is squarely covered by the decision of Special Bench of Tribunal in the case of DCIT Vs. Reliance Industries Ltd. reported as 88 ITD 273. The Special Bench after considering the decisions rendered in the case of Sahney Steel and Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partmental Representative submitted that the Hon ble Supreme Court of India in the case of Sahney Steel and Press Works Ltd. Vs. CIT (supra) has held that if payment 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 Hon ble Supreme Court of India has further observed that if the money is given only after and conditionally upon commencement of production, such subsidies must be treated as assistant for the purpose of the trade. The ld. Departmental Representative to further buttress his arguments placed reliance on the decision of Pune Bench of the Tribunal in the case of Rasiklal M. Dhariwal (HUF) Vs. DCIT in ITA No.575/PN/2007 for A.Y. 2003-04 decided on 31-03-2011. The Departmental Representative submitted that the Tribunal in the said case has held that sales tax benefit given for mitigating the problems faced by the promoters of wind energy generation are Revenue receipts. 12. The ld. Departmental Representative further pointed that the decision rendered in the case of CIT Vs. Reliance Industries Ltd., by the Special Bench of the Tribunal was upheld by the Hon ble Bombay High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merits on the questions framed. The Hon ble Apex Court has set aside the decision of Hon ble Bombay High Court and has remitted the issue back for adjudicating the issues raised in the appeal by the Department. Even if the judgment of Hon ble Bombay High Court in the case of CIT Vs. Reliance Industries Ltd. has been set aside, the order of Special Bench of the Tribunal is still alive. 15. We have heard the submissions made by the representatives of the rival sides and have perused the orders of authorities below. We have also considered various documents placed on record in the form of paper book and the judgments/decisions referred to by the representative of both sides during the course of making submissions. Before we proceed to decide the nature of subsidy and the purpose for which the subsidy was received by the assessee, it would be relevant to first refer to the Preamble of Package Scheme Incentive, 2007 under which the assessee has received assistance from the State Government. The relevant extract of the Preamble of PSI, 2007 reads as under : PREAMBLE In order to encourage the dispersal of industries to the less developed areas of the State, Government has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ga Project. The Department of Industries, Government of Maharashtra vide letter dated 30-10-2007 has offered the status of Mega Project to the proposal of assessee on the basis of employment generation and has offered incentives subject to compliance of PSI, 2007. 18. The assessee has entered into Memorandum of Understanding with the Government of Maharashtra on 15-10-2008 (placed on record at page 119 of the paper book). The relevant extract of the terms and conditions specified in Memorandum of Understanding for claiming benefit under the scheme are as under : 1. ADAPL shall invest approximately ₹ 117 crores in the new project at village Sanaswadi, Tal.Shirur, Distt. Pune will offer employment to 510 persons. 2. GoM will offer following benefits / incentives granted hereunder available with regard to the eligible investments for expansion and shall be payable to ADAPL on ADAPL complying with the requirements under PSI 2007. 2.1 Electricity Duty exemption for the period of 7 years from the date of commencement of commercial production. 2.2 100% exemption from payment of Stamp Duty. 2.3 Industrial Promotion Subsidy (IPS) equivalent to 75% of ELIGIBLE I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry is entitled to subsidy subject to the limit of 75% of eligible investments as reduced by the amount of benefits availed on account of Electricity Duty and Stamp Duty exemption or the taxes paid to the State Government within a period of 7 years, whichever is lower. In the present case, the assessee has received Industrial Promotion Subsidy in the form of refund of sales tax paid to the State Government. The latter mode of payment of Industrial Promotion Subsidy is possible only when the beneficiary under the scheme has commenced production and its products are available in the market for sale. Until and unless the production starts and the products are sold in the market, there cannot be refund of sales tax. In the background of the above narrated facts, it would be wrong to conclude that since the assessee has received subsidy as refund of sales tax, therefore, it is a trade receipt. The assessee has received subsidy in the form of refund of sales tax for setting up of Mega Project in classified Area C of the State of Maharashtra and upon providing employment to more than 500 persons, as specified under the scheme. 21. One of the objection raised by the CIT(A) in rejecting t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee could have claimed the benefit of subsidy. The relevant extract of the eligibility certificate is reproduced herein below : 6. Capital cost (Rs.in lacs) Particulars Maximum Admissible Fixed Capital Investment Actual accepted investment made from 28.03.2007 to 5.12.2008 Land Site Dev. 520.00 520.00 Building 1984.00 1984.00 Plant Machinery 6913.00 6160.82 Electricals 1282.00 139.14 Others 1001.00 649.73 Total 11700.00 9453.69 7. Date of start of Commercial Production 01.12.2008 8. Validit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to deal with the issue determining the nature of subsidy, i.e. whether Capital or Revenue. In the said case the subsidy was received by the assessee under the scheme with twin objects, viz., (i) acceleration of industrial development in the State of Jammu Kashmir, and (ii) generation of Employment in the State. The subsidy was received by the assessee in the form of excise refund and interest, etc. The Tribunal decided the issue in favour of the Revenue by holding the subsidy received by the assessee as Revenue receipt on the following grounds : (i) The excise refund and interest subsidy had not been given to the appellants to establish industrial units because the industry stood already established. (ii) The incentives were not available unless and until commercial production had commenced. (iii) The incentives were recurring in nature, in that, those were limited to a period of 10 years from the date of commencement of commercial production. (iv) The incentives in the form of excise duty refund and interest subsidy were not given to the assessees for purchasing capital asset or for purpose of machinery. (v) The incentives were given for easy market accessibilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents to support its view that the receipts in the hands of the assessees were production incentives and thus revenue receipt and not capital receipt. This, however, appears to have been done without appreciating that the observations made in those paras were in the context of the schemes as such, which the apex Court was considering to find the intent and purpose of the incentives under those schemes, and not the law laid down as such; 19) The Tribunal has relied upon five factors to hold the incentives in question as Production Incentives but without dealing with that part of the Scheme, whereby unemployment in the State had been intended to be eradicated creating atmosphere for accelerated industrial development to provide employment opportunities to deal with the social problem of unemployment. This in our view is lop-sided interpretation of the New Industrial Policy and Concessions formulated by the Central Government for the State of Jammu and Kashmir vide Office Memorandum of June 14, 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 incen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... introduced thereto with para No.3 appearing in the Central Excise Notification Nos.56 and 57 of November 11, 2002, thus, makes it amply clear that the acceleration of development of industries in the State was contemplated with the object of generation of employment in the State of Jammu and Kashmir and the generation of employment, so contemplated, was not only casual or temporary; but was on the other hand, of permanent nature. 25) Considered thus, the paramount consideration of the Central Government in providing the incentives to the New Industrial Units and Substantial Expansion of the existing units, was the generation of employment through acceleration of industrial development, to deal with the social problem of unemployment in the State, additionally creating opportunities for self employment, hence a purpose 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 and Kash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were Revenue Receipt is, accordingly, set aside holding the incentives to be Capital Receipt in the hands of the assesses. In the instant case also the Government of Maharashtra through PSI, 2007 intends to achieve industrialization with twin objects of (1) Balanced Regional Development, and (b) Employment Generation. Thus, the ratio laid down in the case of Shree Balaji Alloys Vs. CIT (supra) would apply in the present case. 25. We find that the Special Bench of Tribunal in the case of DCIT Vs. Reliance Industries Ltd., in a case where the assessee had received the incentive/subsidy in the form of exemption from liability to payment of sales tax for setting up of industries in notified areas under 1979 scheme of Government of Maharashtra has held that sales tax incentives received by the assessee from the Government of Maharashtra is Capital receipt not chargeable to tax. 26. The Hon ble Bombay High Court in the case of CIT Vs. Chaphalkar Brothers after considering the ratios laid down in the case of Sahney Steel and Press Works Ltd. (supra) and Ponni Sugars and Chemicals Ltd.(supra) has held that the purpose for which the subsidy was given is relevant factor to determ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng into existence a new asset. The Tribunal held that the object of the scheme was to promote generation of energy through non-conventional sources and the same is sought to be achieved by the Government in the form of supporting the units to perform more efficiently and profitably. Thus, in view of the above facts the Tribunal held that the incentives received by the assessees in the form of sales tax benefits were Revenue receipt as it has nothing to do with setting up of the windmill. The facts of the aforesaid case are entirely at variance with that of the case in hand. In the present case, the incentive in the form of refund of sales tax is on account of setting up of new industrial unit with twin objective of balance development of regions and generation of employment. As per the scheme there are two modes of payment of Industrial Promotion Subsidy. The subsidy to the extent of 75% of the eligible investments as reduced by the benefit of electricity duty exemption and stamp duty exemption or to the extent of taxes paid to the State Government within a period of 7 years, whichever is lower. It is not the choice of the assessee to opt for either of the two modes. The benefic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .Y. 2009-10 because of peculiar reasons and circumstances beyond its control. As could be seen from the Annexure A enclosed to the order, the expenses related to salary wages, production incentives, LTA Medical expenses, travelling expenses etc. and the appellant could have easily provided for these expenses in the books of etc for the A.Y. 2009-10. Further, this is also not a case where the liability in question is a disputed liability, which is crystallized only during the year under consideration. In such circumstances and as the appellant has been following mercantile system of accounting, the expenses relating earlier years cannot be allowed as deduction for the year under consideration. Therefore, the assessing officer is justified in not allowing the deduction on account of prior period expenses amounting to ₹ 29,84,611/- and accordingly the disallowance made by assessing officer on this ground is upheld. Ground of appeal No.2 fails. The ld. Authorised Representative has not been able to controvert the findings of CIT(A) on this issue, hence we do not find any reason to interfere with the order of CIT(A) on this issue. Accordingly, ground No.4 of appeal fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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