TMI Blog2018 (4) TMI 1757X X X X Extracts X X X X X X X X Extracts X X X X ..... ote the industries are not subject to tax, therefore, an item which is not taxable cannot be brought to tax under the provision of MAT. In holding so, we rely on the order of this co-ordinate Bench of this Tribunal in the case of Sicpa India (P) Ltd. [ 2017 (3) TMI 1383 - ITAT KOLKATA] The undisputed fact is that the incentive received by assessee is not in the nature of income earned during the course of business. Therefore, in our considered view, same cannot be regarded as income for the purpose of MAT u/s 115JB of the Act. Thus, the amount of incentive received by assessee should be excluded from the determination of book profit under the provision of Section 115JB - we reverse the order of Ld. CIT(A). and direct the AO to delete the same Disallowing the credit for tax paid by assessee by way of adjustment of refund for AY 2011-12 - HELD THAT:- We direct AO to allow the credit of refund pertaining to AY 2011-12 adjusted against the demand for the year under consideration as per the provision of law. In terms of above direction, this ground of assessee is allowed for statistical purpose. Charging interest u/s. 234C on the assessed income rather than on returned in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y please be given to the Learned Assessing Officer ( Ld Assessing Officer') to allow deduction for leave encashment on payment basis in the relevant years(s). 3. That on the facts and in the circumstances of the case, Ld. CIT(A) was not justified rather grossly erred in not allowing exclusion of sales tax incentive and state capital investment subsidy availed during the year under consideration amounting to ₹ 39,870,574 and ₹ 5,975,000 respectively, being capital in nature, in computing book profit u/s 115JB of the Act. 4. That on the facts and in the circumstances of the case, Ld. CIT(A) was not justified and grossly erred in not allowing exclusion of prior period interest on income tax refund of ₹ 22,987,154 in computing book profit u/s. 115JB of the Act. 5. That on the facts and in the circumstances of the case, Ld. CIT(A) was not justified rather grossly erred in not allowing exclusion of profit on sale of fixed assets of ₹ 61,063 in computing book profit u/s 115JB of the Act. That on the facts and in the circumstances of the case, Ld. CIT(A) was not justified rather grossly erred in not allowing credit for tax of ₹ 848,000 paid by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of section 43B and deduction for the same can be allowed only on payment basis. Further, the Apex Court vide its Interim order dated 08-09- 2008 and 08-05-2009 against the order of Exide Industries Ltd. (Supra) has allowed the operation of section 43B(f) to continue until further order. Further the issue has already been decided against the appellant by my predecessor in ground no. 7 in the appeal for A.Y. 2005-06, ground no. 2 in appeal for A.Y. 2006-07, ground no. 2 in appeal for A.Y. 2007-08 and ground no. 3 in appeal for A.Y. 2008-09. It is true that Calcutta High Court had struck down provision of section 43B(f) while deciding the case of Exide Industries vs. Union of India 292 ITR 470 (Cal). However, revenue filed SLP against this order before Hon'ble Supreme Court. The Hon'ble Supreme Court in the case of CIT vs M/s Exide Industries Ltd. in SLP (Civil) . CC 12060/2008 during hearing on 8.9.2008 gave the following order:- Upon hearing counsel the Court made the following order, Issue notice, In the meantime, there shall be slay of the impugned judgment, until further orders The Hon'ble Supreme Court during the hearing in the same case further on 8.5.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th due respect to Hon'ble High Court, I am following the interim order of Hon'ble Supreme Court. In view of the same and the facts mentioned in the assessment order, the disallowance of ₹ 1,37,80,734/- made by the AO is confirmed. Hence, ground no. 4 taken by the appellant is dismissed. Aggrieved by this, the assessee has come up in appeal before us. 7. Ld. AR for the assessee filed paper book which is running from pages 1 to 412 and reiterated the arguments that were made before the Ld. CIT(A) whereas Ld. DR for the Revenue supported the order of Authorities Below. 8. We have heard the rival contentions of both the parties and perused the material available on record and perused the case law cited by Ld. AR for the assessee. At the outset, it was observed that assessee has claimed expenses towards leave encashment for ₹ 1,37,80,734/- on accrual basis. Before us Ld. AR for the assessee submitted that the deduction on account of provision for leave encashment was claimed on the judgment of jurisdictional High Court in the case of Exide Industries Ltd. vs. Union of India (2007) 292 ITR 470 (Cal). In this regard, Ld. AR frankly accepted that the judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax remission and state capital subsidy was received by it under the West Bengal Incentive Scheme, 2000, which was given to it to achieve industrialization of backward areas as well as to generate employment opportunities. However, the AO observed that there is no provision under the Income Tax Act for allowing deduction on account of capital receipt under the provision of Sec. 115JB of the Act. Accordingly, AO disallowed the claim of assessee and added to the total amount of subsidy received by it while calculating the tax under Minimum Alternate Tax (MAT) provision. 11. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that incentive was received by it on account of sales tax remission of ₹3,98,70,574/- and state capital investment subsidy amounting to ₹59.75 lakh under the West Bengal Incentive Scheme, 2000. The specific purpose for giving incentive to assessee was to encourage the entrepreneurs to set up new industrialized units and expand the existing units in the backward areas in the state of West Bengal. However, assessee also submitted that the impugned capital receipts do not represent any element of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Companies Act, 1956, lays down that' P L should be made to closely disclose the working of the company. Since, in the present case, the subsidy has been credited to P L a/c, in order to work out the real profit of the company u/s 115JB said amount needs to be deducted, following the decision of the Hon'ble Supreme Court in Apollo Tyres (2002) 255 ITR 273 (SC) rw Indo Rama Synthetics (I) Ltd vs CIT(2011) 330 ITR 363(SC). The appellant has also relied upon the judgment in the case of CIT vs Veekaylal Investments CO.(P) Ltd (2001) 249 ITR 597(BOM), although the copy of judgment in this case was not furnished. The reliance on the decision by the Hon'ble Mumbai High Court by the appellant is found to be misplaced, it was observed by the Hon'ble High Court that, The important thing to be noted is that while calculating the total income under the Income Tax Act, the assessee is required to take into account income by way of capital gains under section 45 of the Income Tax Act. In the circumstances, one fails to understand as to how in computing the book profits under the Companies Act, the assessee Company cannot consider capital gains for the purposes of compu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edited the amounts of S.T subsidy and state investment subsidy to the profit and loss account which was duly certified by the auditors ,in view thereof the A.O correctly held that no adjustment could be made subsequently for computation of MAT profits by reducing the impugned receipts from the 'book profit' for the purpose of 115JB of the Act. It is the case of the assessee that since these impugned receipts are in the nature of capital, receipts, it was contended that the same shall not be charged to tax and as such the same should be reduced from the net profit determined in the profit and loss account prepared by the assessee' while computing book profit within the meaning of section 15JB of the Act. The A.R of the appellant has contended that the provisions contained in subsection (5) of section 115JB of the Act that since all other provisions of this Act shall also apply to every assessee, being a company, mentioned in section 115JB of the Act, the assessee is entitled to reduce these receipts as exempted under normal provisions of the Act. For this proposition the assessee relied on various judgments. The provisions of sections 115J, 115JA and 115JB of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovided in this section used in this sub-section (5) of section 115JB of the Act, we are of the considered opinion that the expression save as otherwise provided in this section 115JB clearly means that what is provided in section 115JB should be religiously followed and anything over and above the matter provided in section 115JB will be subject to other provisions of the Act. The provisions of section 115JB have an overriding effect upon other provisions of the Act as is evident from the section itself. Thus, the method of computation of book profit provided in the Explanation to section 115JB should be strictly followed while computing the book profit and the normal provisions of computation of profit under any head of the Act shall not be applicable. The A.R of the appellant has also relied upon the judgment of the Hon'ble Jaipur Tribunal in the case of ACIT Vs Shree Cement Ltd (2012-TIOL-02- ITAT- Jaipur) for its claim that the Hon'ble Tribunal after discussing the issue at length has held that Sales Tax incentive needs to be excluded in computing Book Profit u/s 115JB since the same is in the nature of a capital receipt not liable for tax. However, it is observe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the computation of book profit under the provisions contained in Explanation to section 115JB of the Act, the assessee is not entitled to the exclusion thereof as claimed. Thus, the argument that impugned capital receipts are to be reduced from the net profit shown in the profit and loss account prepared under the Companies Act for the purpose of computing book profit under section 115JB of the Act is not tenable. If such reduction is allowed from the net profit determined in the profit and loss account for the purpose of computing book profit under section 115JB of the Act, the same would certainly be against the above referred decisions laid down by the honourable Supreme Court in the case of Apollo Tyres Ltd. (supra) and HCL Comnet Systems Services Ltd. (supra) wherein the powers of the Assessing Officer while computing the book profits for the purpose of section 115J or 115JA were limited as discussed above. From the above, it is difficult to conclude that the Division Bench of Bombay High Court in this case has overruled the decision of another Division Bench without even a line of discussion. The decision of the Bombay High Court in the case of Veekaylal Investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipts sought by the appellant is not tenable by giving purposive interpretation particularly since such interpretation is to transform the concept of Book profit for the purpose of section 115JB of the Act. On the contrary, the sections which impose the charge or levy, should be strictly construed and this position though was reiterated by the Apex Court in CIT v. Mahaliram Ramjidas [1940] 8 ITR 442; and subsequently by the Supreme Court in (PC) India United Mills Ltd. v. CEPT[1955] 27 ITR 20 in the case of India United Mills and thereafter the various other judgments, still prevails as the correct law. The entire mechanism for the computation of book profit is clearly set out in sub-section (1) of section 115JB read with Explanation thereto. The starting point being the net profit as shown in the profit and loss account prepared in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act but also the items, which are to-be increased as stipulated in clauses (a) to (h), and the items, which are to be reduced as specified in clauses (i) to (vii), find specific mention in the scheme of the section itself. Hence, the computation of book profit, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced reliance upon. From the foregoing discussion, we note that subsidy was given by the Govt. of West Bengal for the purpose of enabling the entrepreneurs to establish new industry and also expand the existing industries. Under normal computation of income the subsidy given to promote the industries are not subject to tax, therefore, an item which is not taxable cannot be brought to tax under the provision of MAT. In holding so, we rely on the order of this co-ordinate Bench of this Tribunal in the case of Sicpa India (P) Ltd. (supra) wherein it was held as under:- 22. We have heard the submission of the learned counsel for the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the question that arises for consideration. The ITAT Kolkata Bench in the case of Dy. CIT v. Binani Industries Ltd. [2016] 178 TTJ 658 : had to deal with a case where the question was as to whether receipts on account of forfeiture of share warrants amounting to ₹ 12,65,75,000/-, being a capital receipt, would be liable for taxation u/s 115JB. The tribunal after referring to several decisions on the issue viz., the Hon'ble Apex Court in case of Indo Rama Synthetics (I) Ltd. v. CIT [2011] 330 ITR 336/9 taxmann.com 25, Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273/122 Taxman 562 (SC), Special Bench ITAT in the case of Rain Commodities Ltd. v. Dy. CIT [2010] 40 SOT 265 (Hyd.) (SB), ITAT Luknow Bench in the case of ACIT v. 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. v. Dy. CIT [2015] 70 SOT 92/60 taxmann.com 314, 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Ltd. (supra) which was a case where the question was whether profits arising on transfer of a capital asset by a company to its wholly owned subsidiary company which is not treated as income u/s 2(24) of the Act and since it does not form part of the total income u/s.10 of the Act and therefore does not enter into computation provision at all under the normal provisions of the Act, the same should be considered for the purpose of computing book profit u/s 115JB of the Act. The Mumbai Bench held as follows: '26. We shall now examine the scheme of the provisions of sec. 115JB of the Act. It is pertinent to note that the provisions of sec. 10 lists out various types of income, which do not form part of Total income. 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) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must follow the judgment that has been just delivered in the Maharashtra case. The undisputed fact is that the incentive received by assessee is not in the nature of income earned during the course of business. Therefore, in our considered view, same cannot be regarded as income for the purpose of MAT u/s 115JB of the Act. Thus, the amount of incentive received by assessee should be excluded from the determination of book profit under the provision of Section 115JB of the Act. Thus, we reverse the order of Ld. CIT(A). and direct the AO to delete the same. This ground of assessee s appeal is allowed. 14. Next issue raised by assessee in ground No.4 is that Ld. CIT(A) erred in not allowing exclusion of prior period interest on income tax refund. At the time of hearing, Ld. AR did not press this ground, thus this ground of assessee is dismissed as not pressed. 15. Next issue raised by assessee in ground No.5 is that Ld. CIT(A) erred in confirming the order of AO by including the profit on sale of fixed assets of ₹61,063/- while computing the book profit u/s 115JB of the Act. 16. During the year, assessee has shown profit in its profit and loss account on sale of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otton Mills v. CIT [1979] 116 ITR 1 (SC) After careful consideration, it is found that facts of the appellant s case are different from those in the case of laws cited. The appellant has itself credited the income to the audited profit and loss account, prepared in accordance with part II and III of Schedule VI to the Companies Act, which was certified as having been prepared correctly as per the said provisions. Therefore, the reliance upon these judgments is misplaced as regardless of the nature of income as revenue or capital receipt, income from sale of fixed assets is not an item specified for adjustment or reduction from net profit for computation of Book profit under Explanation 1 to section 115JB of the Act. for the reasons discussed in detail in para 8 above and in view of the decision of the Hon'ble Supreme Court Apllo Tyres (2002) in 255 ITR 273 (SC), wherein it was held that book profits prepared by the Company in accordance with the Companies Act cannot be interfered with by the AO and only permissible adjustments specified in Explanatiion-1 to section 115JB are to be made for the computation of Book profit as penalty ratio of Kerala High Court s judgment in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uire to charge the interest on the income declared by assessee in its returned income. Accordingly, he prayed before us to give necessary direction to AO to levy the interest u/s 234C of the Act on the income declared by assessee in its income tax return in place of charging the same on assessed income. On the contrary, Ld. DR agreed to the submission made by Ld. AR. 25. After hearing rival parties and perused the materials on record and in terms of above, we set aside the order of Ld. CIT(A) and remit the issue back to the file of AO to pass speaking order after providing reasonable opportunity of being heard to assessee and charge the interest under section 234C of the Act as per the provisions of law. This ground of assessee is allowed for statistical purpose. 26. Last issue is general and needs no separate adjudication. 27. In the result, assessee s appeal is allowed partly for statistical purpose. Coming to Revenue s appeal in ITA No.478/Kol/2016. 28. Grounds raised by Revenue is reproduced hereunder:- 01. Whether on the facts and in the circumstances of the case the Ld. CIT(A) has erred in law in deleting the addition of sales tax subsidy which had bee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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