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TMI Blog2022 (4) TMI 1460X X X X Extracts X X X X X X X X Extracts X X X X ..... /2014 & 29/10/2013 respectively by the ld. Dy. Commissioner of Income Tax, Circle-6(3), Mumbai (hereinafter referred to as ld. AO). 1.1. As identical issue is involved in all these appeals, they are taken up together and disposed of by this common order for the sake of convenience. With the consent of both the parties, the appeal for the Asst Year 1996-97 is taken as the lead case considering the figures of sales tax subsidy thereon and the decision rendered thereon would apply with equal force for other assessment years also, except with variance in figures. 2. The only effective to be decided in all these appeals is as to whether the sales tax/entry tax exemption i.e subsidy, incentive, etc, by whatever name called, received by the assessee could be construed as capital receipt not chargeable to tax in the facts and circumstances of the case. 3. The brief facts of this issue are that the assessee has received sales tax/entry tax/purchase tax/VAT, etc exemptions/incentives under respective schemes from the State Governments of Maharashtra, Madhya Pradesh, Rajasthan and Haryana as the Assessee had set up units in notified areas of those State. During the Asst Year 1996-97, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e - Sales Tax New Incentive Scheme for Industries 1989, Rajasthan (S.No.764 : F-4(35)FD Gr.IV/87-39 dated 6.7.1989) 3.1 Aditya Cement - Sales Tax 41.86 169.39 898.15 842.08 698.54 4 Madhya Pradesh State 4A Sales Tax Incentives 4.1 1991 Scheme for units with Capital Investment in fixed assets of Rs.100 Crores or more 4.1.1 Grasim Cement 683.27 1,045.09 1,187.93 1,022.03 1,346.04 4.2 New Industries Notification No.A-3-11-86 (74)-ST-V dated 16.10.1986 under Madhya Pradesh General Sales Tax Act, 1958 4.2.1 Poly Aluminium Chloride 15.66 - - - - 4.3 Sales Tax Exemption Scheme (M.P. Vanijyikar Adhiniyam, 1994) 4.3.1 Vikram Woollens 5.08 37.28 44.06 57.18 61.89 &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears. For example - In the Maharashtra Scheme, the assessee falls under the category of "Pioneer unit", it is eligible for sales tax exemption upto 95% of fixed capital investment and can avail the same for a period of 10 years. The total amount of subsidy/incentive is thus capped at a particular % of total capital invested and thus over the specified period, the assessee subject to fulfilment of respective conditions under relevant schemes, gets this benefit. The subsidy figure is either determined based on the sales tax returns filed by the assessee or based on the sales tax/entry tax / purchase tax assessment orders passed in respect of various schemes of various state governments, as the case may be. The total subsidy received for each year is summarised in page 1167 of the Paper Book 4 filed before us. As and when the final sales tax liability is determined in the sales tax assessment order, the same amount is treated as notional sales tax subsidy and granted by the competent authority to the assessee. However, in all these cases, the total subsidy figure have been capped / outer limit is prescribed in the subsidy / incentive scheme itself. 3.6. Proceedings before the ld. AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court in the case of Goetze India Ltd reported in 284 ITR 323 (SC). 3.7. Proceedings before the ld. CIT(A) in the second round of proceedings: The ld. CIT(A) also again verified all the documentary evidences filed by the assessee regarding various incentive /subsidy schemes as detailed supra. The ld. CIT(A) at Para 3.3 of his order, negated the observation of the ld. AO that claim cannot be made raised following the decision of Hon'ble Apex Court in the case of Goetze India Ltd on the ground that the proceedings are in course of second round, post tribunal admitting the additional ground and thus, reliance placed by the ld. AO on Goetze India Ltd in these proceedings is misplaced. The ld. CIT(A) after acknowledging that the assessee has filed all the incentive schemes including notifications of the state governments, relied upon the decision of Hon'ble Supreme Court in the case of CIT v. Ponni Sugars & Chemicals Ltd reported in 306 ITR 392 (SC) as well as the decision of Special Bench of Mumbai Tribunal in the case of Reliance Industries Ltd reported in 88 ITD 273 held that sales tax incentive/subsidy is a capital receipt. Aggrieved by this, the revenue is in appeals befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rashtra Subsidy Scheme, whereas in the case of assessee before us, the subsidy schemes notified by four different states are involved including Maharashtra Subsidy Scheme. Hence, he stated that the ld. CIT(A) grossly erred in merely following the Special Bench decision of Tribunal in the case of Reliance Industries Ltd., which dealt only with Maharashtra Subsidy Scheme, while granting relief to the assessee. He also stated that the ld. CIT(A) had merely relied on the statements made by the assessee that all the incentive schemes were submitted before the ld. AO. In the opinion of the ld. Special Counsel for the Revenue, the lower authorities had not examined the subsidy scheme at all as directed by this Tribunal in the first round of proceedings. He relied on the order of the ld. CIT(A) wherein no detailed discussions were made with regard to each of the subsidy schemes in the appellate order. The ld. Special Counsel for the Revenue stated that what is received by the assessee is whether the subsidy or incentive itself was not proved by the assessee in the instant case. He drew our attention to the submissions made before the lower authorities that assessee was entitled for notiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said subsidy as capital in nature. Moreover, the basis of determination of sales tax subsidy is depending on sales tax assessment order. Hence, the ld. AO has to wait till the sales tax assessment order is finally passed in the hands of the assessee. This could be possible if the return of the assessee is selected for scrutiny. What if the income tax return is not at all selected for scrutiny? In such cases how the final quantification of sales tax subsidy could be determined by the Income Tax Officer? This makes the entire scheme of subsidy completely unworkable. Hence, he vehemently denied the basic concept of notional subsidy which has been ultimately received by the assessee in the instant case. He also relied on the decision of the Hon'ble Supreme Court in the case of B.C. Srinivasa Setty reported in 128 ITR 294 wherein it was held that when the computation provision fails, the charging section also correspondingly fails. 4.4. The ld. Special Counsel for the Revenue vehemently submitted that the Special Bench decision of this Tribunal in the case of Reliance Industries Ltd., reported in 88 ITD 273 was ultimately reversed by the Hon'ble Supreme Court vide its order dated 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the implementing agency after the commencement of commercial production and accordingly, it cannot be said that the subsidy so received would be in the capital field. He vehemently relied on the decision of the Hon'ble Supreme Court in the case of Sahney Steel and Press Works Ltd., reported in 228 ITR 253 wherein it was held that subsidy received after the commencement of business would be revenue receipt chargeable to tax. 4.6. The ld. Special Counsel for the Revenue submitted that the cut-off date should be reckoned as the date of commencement of business and any subsidy or incentive received after that date shall be considered as a revenue receipt in the light of the decision of the Hon'ble Supreme Court in the case of Sahney Steel referred to supra. He submitted that there is no concept of notional subsidy that could be acceptable and if it is so, it is only revenue receipt. The ld. Special Counsel for the Revenue gave a brief description of each of the scheme in its written submissions enclosed in pages 52-56 thereon and finally drew our attention to the summary of the schemes furnished by the assessee and the common features enumerated thereon as under:- (a) The objects ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Scheme of Incentive 1988 dated 01.10.1988 by the State of Maharashtra. The noteworthy and salient features of this Scheme outlined in the Notification is summarised as under - Page No. Remarks 3 As per Preamble, the New Scheme is launched to intensify and accelerate the process of dispersal of industries outside the Bombay-Thane-Pune Belt and to attract them to the underdeveloped and developing areas of the State. From the above summarised features, it can be seen that the primary and cardinal motive of the Package Scheme of Incentive 1988, is to disperse the industrial units located in Mumbai-Thane-Pune belt. The sole purpose of this Notification that can be deduced from the Notification is de-congestion of this belt being Mumbai-Thane-Pune belt by dispersing such industries located in this area to other areascategorised as B, C and D of the under developed and developing areas. In this case, the converse inference cannot be true, as the Notification does not speak of Industrial Units to be re-located from any other areas of Maharashtra to the backward areas. To put it simply, the industrial units put up in the backward area would not enjoy the same incentives, if t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purpose of computation/working of subsidy and not indicate the same as the sole criteria for eligibility for the benefit of scheme. B) As per Assessee's submission for Assessment Year 1996-97, vide page nos.101, the Designated Authority has issued Certificate of Eligibility for Exemption of Entry Tax dated 23.02.1998 under the New Industry Notification No.A-3-24-94-ST-V(112) dated 06.10.1994 Madhya Pradesh SthaniyaKshetra Me Mal K Pravesh Par Kar Adhiniyam, 1976. The certificates and other documents filed during the course of set-aside proceedings speak of the capital investmentonly for the purpose of computation/working of subsidy and not indicate the same as the sole criteria for eligibility for the benefit of scheme. (3) Aditya Cement, Unit of Grasim Industries Limited, Sales Tax Exemption As per the Assessee's submission for Assessment Year 1996-97, vide page No.119-120, the Assessee has been issued Eligibility Certificate dated 31.10.1995 for exemption of sales tax of cement clinkers of new unit, citing the eligible fixed capital investment (8a), under the Sales Tax New Incentive Scheme for Industries 1989, Rajasthan [Sr.No.764 : F4(35)FD Gr.IV/87-39 dated 06. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -97, on perusal of the Scheme (Page nos.178-179) of the Assessee, it is seen that the exemption is provided in respect of newly established industrial undertakings or expansion of existing industrial undertakings subject to fulfilment of capital investment and increase in annual production criteria mentioned therein. However, neither the scheme, nor the Eligibility Certificate provide the methodology for quantification of sales tax exemption vis-Ã -vis capital investment. Hence no exemption available, not being capital subsidy. 4.8. The ld. Special Counsel for the Revenue submitted that the reliance placed by the assessee on the decision of the Hon'ble Madhya Pradesh High Court in the case of CIT vs. Dusad Industries Ltd., reported in 162 ITR 734 (MP) was overruled by the Hon'ble Supreme Court in the case of Sahney Steel and Press Works Ltd supra. Hence, Madhya Pradesh Scheme pursuant to which assessee has received subsidy has to be construed as a revenue receipt. 4.9. The ld. Special Counsel for the Revenue stated that the decision relied by the ld. CIT(A) on Hon'ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd., reported in 306 ITR 392 (SC) was not at all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f. Special Bench heavily relied on the Sales tax assessment for the purpose of quantification of notional subsidy and reliance placed on the said sales tax assessment is irrelevant. g. Directions of Special Bench would be unimplementable. h. Special Bench twisted the interpretation of the decisions of the Hon'ble Supreme Court in the case of Sahney Steel and Press Works Ltd and Ponni Sugars and Chemicals ltd., referred to supra. i. Special Bench decision does not lay down any ratio decidendi. j. Special Bench decision has been set aside by the Hon'ble Supreme Court on the grounds of perversity. k. Special Bench decision has no precedence value. 4.12. The ld. Special Counsel for the Revenue again reiterated that quantification of sales tax subsidy in the instant case becomes totally unworkable as the same is dependent on sales tax assessment order which happens after the income tax return is filed. He argued that there cannot be any concept of notional sales tax subsidy. He submitted that notional subsidy is a "Monster". He argued that Sales Tax and Income Tax department roles are totally different as Sales Tax department in the instant case is concerned with sales tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence:- Page No / Para No of Submission filed by Department Counsel vide letter dated 01.09.2020 Gist of Department Submission Rejoinder by Assessee 1 to 3/Para 1 Brief Background stating that in the ROI of respective Assessment Years, no claim for exemption of sales tax incentive/subsidy as capital receipt was claimed. Only when for other issues when matter reached the Tribunal, in view of decision of Hon'ble Special Bench Mumbai Tribunal in the case of DCIT v. Reliance Industries Ltd. (88 ITD 273), the Assessee sought claimed relief first time by filing an additional ground of appeal and has reproduced the finding of ITAT as under: "This ground has also been raised for the first time before us by the assessee. Therefore, it requires proper examination and verification of the nature of the benefit and the scheme of the Government under which the benefit has been availed by the assessee. Accordingly, we remit this issue to the record of the AO to consider and decide the same as per law and after giving reasonable opportunity of being heard to the assesse" It is not disputed that in original ROI, the Assessee had not claimed exemption of any sales tax/purchase tax/entry tax in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal in the case of DCIT v. Reliance Industries Ltd. (88 ITD 273) (PB 1, Pg No. 217-232). Holds that decision of Hon'ble Bombay High Court against Special Bench decision has been set aside by Hon'ble Supreme Court in the case of CIT vs Reliance Industries Limited (Civil Appeal No 7769 of 2011) (PB 1, Pg. No. 243-244) back to Hon'ble Bombay High Court for fresh adjudication and hence it is clear that issue has not been settled by Apex Court till date. Para 7.2: Holds sales tax incentive is nothing but revenue received. Alternatively, since incentive received is on basis of investments made in Fixed Assets, to be reduced from WDV of assets; Thus, this clearly shows that he has examined the Schemes/Notifications/other documents and only then concluded that incentive is on revenue account. Para 7.3: Holds that Assessee's reliance on AY 1995-96, OGE to ITAT wherein such incentive is held to be capital receipt as also CIT(A) order for AY 2006-07 to AY 2008-09 cannot be relied as principle of res judicata does not apply to income tax proceedings. Para 7.4: Holds that other decisions relied by Assessee cannot apply. Also holds that since in Return of Income no claim was made, relying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt is set aside by SC and thus issue not settled by Supreme Court. Thus, he does not dispute that decision of Special Bench is still a good law. 12. Once ITAT has restored the issue to AO, question of Goetz (Supra) does not arise. In any event, even as per Goetz (supra), appellate authorities can always admit a new claim, which ITAT admitting and hence in present proceedings the AO cannot have any grievance on the same. In any event as stated in rebuttal above, those ITAT orders have become final. 13. The Assessee submits that before the ITAT in Additional Ground an estimated amount was claimed as capital receipt. Nonetheless, before AO, entire details which are schemes, sales tax notifications, sales tax returns and assessment orders were filed and based thereon final amount was claimed as capital receipt. Further, the Assessee has summarized exact figures for each year, scheme wise at Page 1167 (PB 4). Further, the Assessee has also attached the relevant sales tax assessment order/sales tax return and matched each figures, along with eligibility certificates in PB 2. A specimen detailed chart for AY 1996-97 was also filed at the time of physical hearing. Thus, all figures are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the High Courts order. It is a totally non-speaking, superficial and perverse order. When there are no facts in the order, how Hon'ble ITAT would decide the matter? Bereft of facts the order cannot be subjected to judicial scrutiny Submissions: A detailed written submissions along with factual paper book was filed before the CIT(A). The same is at Page 59 to 146 of Paper Book; The CIT(A) has passed a detailed order. The discussion on this issue starts from Page 4 to 12/Para 3. The CIT(A) at bottom of Page 9 notes that the Appellant has filed details of all the incentive schemes including notifications of the State Government. Also holds that that applying purpose test as canvassed by Supreme Court in Ponni Sugars (supra) holds subsidy to be a capital receipt; At Para 3.3.3. at Page 10, holds that despite the Hon'ble Supreme Court setting aside Bombay High Court decision in Reliance Industries' case (supra), the ITAT Special Bench decision continues. In the original ITAT proceedings, the matter was restored to the AO and not CIT(A), thus the question of CIT(A) not following directions of ITAT in first round does not arise. Reliance is placed on decisions referred above for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epartment cannot be permitted to argue on correctness or otherwise of the ITAT order in first round on admitting additional ground. Thus, there matter stands concluded. Now again Department cannot challenge the settled position. Para 5(ii)/Page 19 The decision of Special Bench in Reliance cannot be basis of unsettling assessment in case of Assessee The decision of Special Bench until stayed or reversed by the Bombay High Court cannot be ignored and being a Jurisdictional ITAT order, it is binding on ITAT. Infact, even till date following the Special Bench, the Hon'ble ITAT has been passing order in other cases. In fact, apart from decision of Ahmedabad Tribunal in the case of ACIT v. Genus Electrotech Ltd. (71 taxmann.com 101) (PB 4, Pg No. 801-808), the Hon'ble Mumbai ITAT in the case of Welspun India Ltd. v. DCIT (104 taxmann.com 267) also considering the Supreme Court set aside Bombay High Court decision in Reliance Industries SB (supra), decided in favour of Assessee. Said decision of Mumbai ITAT has been affirmed by Hon'ble Bombay High Court in the case of PCIT v. Welspun Steel Ltd. (103 taxmann.com 436) (PB 4, Pg. No. 1012-1017). The Assessee has also filed the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st a decision, as is elementary, does not affect the binding nature of a judicial precedent. The Special Bench decision, in the case of Reliance Industries Ltd. (supra), was not reversed by Supreme Court, but was directed to be examined, on merits, by Bombay High Court. That is quite different from disapproving the special bench decision, but it appears that the co-ordinate bench was led to believe, and there could not have been any other reason for ignoring the special bench decision, that this Special Bench decision is reversed. That is patently incorrect, and when it is pointed out to the Commissioner (DR), he did not have much to say except to rely upon the co-ordinate bench decision which seems to have followed that approach. When posed with a special bench decision and a division bench directly on the issue, though touching different chords, there is no difficulty in recognizing the limitations. The wisdom of a division bench, even if superior-as strenuously argued by the Commissioner, has to make way for the higher wisdom of a larger bench. It is this faith of judicial hierarchical system that is the strength of functioning of Tribunal and one must follow the same. The Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t set-aside of Bombay High Court order in Reliance Industries by Hon'ble Supreme Court, follows Reliance Industries Special Bench decision; Reliance is misplaced of decision of U.P. Rashtriya (SC) (supra). In present case, the CIT(A) has followed decision of Supreme Court in Ponni Sugar (supra) decision in Reliance Industries. Both the decisions are subsisting and not stayed by any Court. In fact, as on date, post Ponni Sugars (SC) (supra), the Supreme Court in Balaji Alloys (supra) and also Chapalkar Brothers (supra) have Post Chapalkar Brothers (supra) too, SLPs filed by Department have been dismissed.reiterated that subsidy for development of back ward area is a capital receipt. In Appellant's own case for (PCIT Central -1 v. Grasim Industries Ltd., (ITXA 778/2015 AY 2001-02), the Jurisdictional High Court inter alia observed as under: "It is true that the judgment of this court confirming the order of the Tribunal in the case of Reliance Industries Ltd. has been partially reversed by the Supreme Court. A question of law has been framed and has been placed for consideration of the High Court. However, this does not mean that the judgment of the Tribunal as on today stands r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s given complete relief. He has passed five identical appellate orders for the five assessment years giving a relief of over Rs.162 crores without discussing facts of any case. The CIT(A) does not discuss the schemes and their objectives. He does not mention what papers were filed before him. He does not mention how he was satisfied that the "purpose test" laid down by the Hon'ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd. has been satisfied in respect of each of the schemes. The CIT(A) has not taken cognisance of the fact that the Assessing Officer has not decided the issue of sales tax incentive in accordance with the direction of the Hon'ble ITAT. Hence, in compliance with the direction of the Hon'ble ITAT, the CIT(A) ought to have called for a full factual remand report from the Assessing Officer about the objective and nature and quantum of the purported subsidy in respect each scheme. He has not done that. In the alternative, the CIT(A) ought to have conducted the necessary enquiries himself as his powers are co-terminus with the powers of the Assessing Officer. All the facts should have been brought on record and the basis of arriving at the conclusion sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be complied with under Income Tax Act. In fact, the decision of Supreme Court in Novopan (supra) was in context of whether the assessee claimed that manufactured melamine faced particle boards MFPB was same as unveneered particle boards which were entitled to total exemption from tariff under item 6 of Exemption Notification No.55 of 1979. In this context the Supreme Court held "The principle that in case of ambiguity, a taxing statute should be construed in favour of the assessee - assuming that same principle is good and sound- does not apply to the construction of an exception or an exemption provision; they have to be construed strictly. A person invoking an exception or an exemption provision to relieve him of the tax liability, must establish clearly that he is covered by the said provision. In case of doubt or ambiguity benefit of this must go to the State" Thus, clearly in Novopan's case, the question was whether assessee was covered under an exemption notification or not and in that context, it was held that where a person invokes an exemption provision, he must prove he is covered by it and in case of doubt, the benefit should go to the State. Para 9 (a)/Page 30 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und cannot be entertained for fresh investigation into facts. It can be entertained on a pure question of law. At the cost of repetition, the Assessee again submits that the present appeals by Department is against the order of CIT(A) in second round wherein the CIT(A) held that sales tax incentive/subsidies/exemptions is a capital receipt but directed the AO to verify the quantification thereof. The Department had challenged the action of ITAT in admitting the additional ground in first round before the Hon'ble High Court. The Hon'ble High court has decided the matter in favour of the Assessee. The Department filed SLP against Bombay HC Order for AY 01-02 but not challenged the ground of admission of add. ground by the ITAT. In fact, for other years, the Department has not even filed SLP before Supreme Court. Once this issue is settled, Department cannot be allowed to agitate this in present proceedings. Also, this is not the ground before ITAT in present proceedings. In so far as decision of Chowringhee (supra) and Sinclair Murray (supra), the question before Supreme Court as not whether sales tax incentive is a capital receipt or not. If today the Supreme Court in Ponni Sug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sseessee's own case (referred supra) has held the notional sales tax receipt is Capital in nature. We notice that the co-ordinate benches of Tribunal has followed the decision rendered by the Special bench in AY 2003-04 to 2009-10 and upheld the decision rendered by Ld CIT(A) in holding that the Sales tax incentive is capital in nature...." Attention is also invited to amendment to definition of "income" u/s.2(24)(xviii)....where the Legislature has used expression "..assistance in the form of subsidy, grant, incentive....(by whatever name called)". Thus, the Assessee submits that form of assistance and nomenclature is not relevant and as stated above various decisions have used incentive, subsidy, grant interchangeably. The Assessee also submits that the amount of subsidy/incentive/notional subsidy as per relevant Scheme is quantified generally as a % of capital investment and thus fixed. The State Government only provides the said incentives based on the amount of notional sales tax yearly. Outer limit of incentive is fixed. Further, it is only mode of granting the incentive which can be different. The State Government may give cash incentive or State Government would forgo its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shtra Scheme is concerned, the Scheme itself defines and explains what is a "notional" sales tax liability (NSTL) (PB 2/Page 376). In present case, the NSTL is also quantified by sales tax officer (PB 2/Page 553). Further, please see eligibility certificate at PB 2/Page 400 where SICOM has issued Eligibility Certificate, where various conditions are stipulated, including requirement of maintaining proper accounts, etc (PB 2/Page 401 & 402). Thus, the authorities who are in charge of monitoring and implementing have not found fault with the Assessee's claim based on eligibility certificate and hence, it is submitted the entire argument of DR that no one has monitored, how and when the subsidy is computed etc should not be accepted. Infact, as rightly stated by DR, the issues, if any are to be addressed by the Sales Tax Department. In present case, the Assessee has quantified in absolute terms as seen from PB4/Page 1167 and all supporting document including sales tax return or order are part of record and no adverse comment has been made by the respective authorities and the AO and CIT(A). Reliance on Novopan (supra) in present proceedings to determine whether a receipt is capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any in a particular year would only lead to change in subsequent year and thus, at best, is a timing difference. 5. On perusal of the record, the Assessee is not able to understand from where Ld. DR is referring in point no. 6 of his letter dated 17.07.2019. 6. With reference to point no. 7 of letter dated 17.07.2019, it is submitted that the amount of sales tax subsidy is embedded in the value of sales and not accounted separately. 7. With reference to point no. 8 of letter dated 17.07.2019, it is submitted that no implementing agency who has power to monitor has made any adverse comments. 8. With reference to point no. 9 of letter dated 17.07.2019, it is submitted that all the facts were duly submitted before the AO and CIT(A) and there is no mention of incomplete details by the AO / CIT(A). 9. It is humbly submitted that since the figures of the subsidies/incentives are not disputed by the AO or CITA(A) or the AO post CIT(A)'s order, the DR cannot now raise the issue and make a completely new case. Para 15/Page 45 In subsequent hearings also the Department made request to ITAT to direct Assessee to give all details but the Counsel of Assessee was evasive. It may be note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intain the primary records on the basis of which the notional subsidy can be worked out independently. The reliance in decision of Supreme Court in B.C. Srinivas Setty (supra) is misplaced. In present case, the simple issue is based on the purpose of the scheme of State Government, the sales tax/entry tax incentive is capital receipt or not. The amount of such incentive is to be quantified by the respective State Governments or implementing agencies. They monitor the conditions in the eligibility certificates. Once they have not objected to the same and granted incentives, for the direct tax proceedings, the Department cannot draw support to say that if machinery provisions fails, the charge fails. Para 19, 20/Page 49 and 50 Legal Position: Notional Sales Tax Subsidy is revenue receipt. Sales tax was collected from the customer and not paid and hence profits increased. See Chowringhee (SC). Because of the nature of regular transactions and incremental profits accruing to the assessee on day to day basis, there is no scope of holding it to be of the nature of capital receipt. The natural presumption is that it is a revenue receipt. If the assessee claims it to be capital rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liance placed by the DR on the decision of Kesoram (Supra). Further, Hon'ble SC in the case of Ponni Sugars (supra) has observed that form and the point of time at which subsidy is paid is irrelevant. Also, Sales tax exemption is a fixed sum is quantified as a % of capital investment and thus a fixed sum of money to be received over a period of time. Similar were the facts in the case of Munjal Auto Ind (Guj HC) (SLP Dismissed) (supra) wherein the sales tax exemption was to the extent of a fixed percentage of capital investment which could be availed over a period of 9 years (Pg 831 of PB 4). As already stated above, the reliance placed on Novopan (supra) is misplaced. If some benefit of tax arises to the Assessee, as held by various Hon'ble HCs and Hon'ble SC, then the Assessee cannot be stopped from acting as it may deem fit, to seek the refund as may be due to it as per the law. Reliance is placed on the decision of Balmukund Acharya (Supra). Para 22 (i)/Page 52 to 56 The Department reproduces the summary of Schemes prepared by Assessee; Factual. No comments Para 22(ii)/Page 56 and 57 From the summary of the scheme furnished by the assessee the common features of the sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - The Assessee submits that this submission of Department is contrary to ratio and observations of following decisions of High Court and Supreme Court Para 14 of decision of Supreme Court in Ponni Sugars (supra) wherein specifically, it has been held that "it is the purpose test is which is relevant and the point in time and form and source of subsidy is immaterial" The J&K High Court in Shree Balaji Alloys Vs. CIT (supra) held that the Tribunal erred in concluding that incentives in form excise refund and interest subsidy received were revenue by emphasising on the fact that incentives were not available unless commercial production started as also that the incentives were recurring in nature and limited to period of 10 years from date of commencement of commercial production. The High Court applied purpose test and reversed decision of Tribunal and held above incentives were capital receipt. The SLP filed by Department is dismissed. The Supreme Court in CIT Vs. Chaphalkar Brothers (supra) affirming decision of Jurisdictional Bombay High Court held that where object of subsidy was development of multi theatre complexes, it would be a capital receipt. Para 25 of Supreme Court d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cheme is launched to intensify and accelerate the process of dispersal of industries outside the Bombay-Thane-Pune Belt and to attract them to the underdeveloped and developing areas of the State. Only if existing industry in Bombay-Thane-Pune belt are relocated in backward area then they would enjoy incentives. However, if a unit is set up in backward area but not relocated from Bombay-Thane-Pune belt then incentives not available. For the purpose of grant of such subsidies, the methodology of working was based on the value of investments made in these backward/notified areas, which may also include the value of plant & machinery dismantled and relocated to these notified areas from the Mumbai-Thane-Pune belt. The Scheme is silent about relocation of Industrial Units from other areas than the specified Mumbai-Thane-Pune belt. Therefore, it cannot be said that the Package Scheme of Incentive 1988, of State Government Maharashtra was meant at large for all the units setup in the notified areas, and hence the purpose of Scheme was not for the setting up of new units, but was primarily for the purpose of decongestion and dispersal of the units located in the Mumbai-Thane-Pune belt/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State by setting up of new industrial units within the State of Madhya Pradesh. New Industry Notification No.A-3-24-94-ST-V(112) dated 06.10.1994 under Madhya Pradesh Sthaniya Khstra Me Mal ke Pravesh Pare Kar Adhiniya, 1976 Exemption granted to new industry including any such substantial expansion of an existing industry as may be approved by the Government (Pg. 472 of PB) with the object of promoting industrial development in the State by setting up of new industrial units within the State of Madhya Pradesh. Judgment relied upon by the Assessee wherein the subsidy received under the Entry tax exemption scheme of Madhya Pradesh has been held to be capital in nature is tabulated in a Chart attached herewith as Annexure A. The highlighted portion in Department submissions clearly prove that subsidy was capped based on % of capital investment. Further, the Department has not pointed out any clause of the Scheme which suggests that Subsidy was to augment profits of the Company. In fact, the Scheme clearly provides for industrialisation (by granting benefits to new units or expansion of existing units) and in some cases, generation of employment and thus, applying purpose test, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the sole criteria for eligibility for the benefit of scheme Notification no. A-3-24-94-ST-V(108) dated 6.10.1994 (Madhya Pradesh) Exemption granted to new industrial unit with a capital investment in fixed assets above specified limit (Pg. 492 to 494 of PB) with the object of promoting industrial development in the State by setting up of new industrial units within the State of Madhya Pradesh. Judgments relied upon by the Assessee wherein the subsidy received under the Sales tax exemption scheme of Madhya Pradesh has been held to be capital in nature is tabulated in a Chart attached herewith as Annexure A. The highlighted portion in Department submissions clearly prove that subsidy was capped based on % of capital investment. Further, the Department has not pointed out any clause of the Scheme which suggests that Subsidy was to augment profits of the Company. In fact, the Scheme clearly provides for industrialisation (by granting benefits to new units or expansion of existing units) and in some cases, generation of employment and thus, applying purpose test, it be held that subsidy is a capital receipt. Grasim Cement, Unit of Grasim Industries Limited, Sales Tax Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s relied upon by the Assessee wherein the subsidy received under the Sales tax exemption scheme of Haryana has been held to be capital in nature is tabulated in a Chart attached herewith as Annexure A. The highlighted portion in Department submissions clearly prove that subsidy was capped based on % of capital investment. Further, the Department has not pointed out any clause of the Scheme which suggests that Subsidy was to augment profits of the Company. In fact, the Scheme clearly provides for industrialisation (by granting benefits to new units or expansion of existing units) and in some cases, generation of employment and thus, applying purpose test, it be held that subsidy is a capital receipt. Para 24 / Pages 61 to 63 It is impossible to make out from the submissions of the assessee as to how they are relevant to the crucial issue for determination of the notional subsidy being of revenue or capital nature. The assessee has confused that any reference to investment in fixed assets for measuring the quantum of subsidy is same as investment in capital assets. It is a settled position of law that reference to investment in capital assets is only a measure for quantification o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht to be nipped in the bud. It is a wrong decision challenging the basic integrity of the Income-tax Act. All five years, it is department appeal and hence if the grounds are defective then on that ground Department appeal should be dismissed. The Assessee has not merely relied on decision of Reliance Industries (SB). In fact it has also relied on other decisions of Supreme Court and other High Courts (Please refer legal submissions made before AO and CIT(A) at Page No. 761 to 785 of Paper Book 3 and Page No. 59 to 146 of the Paper Book 1 respectively); The Assessee submits that despite the Hon'ble Supreme Court directing the Bombay High Court to consider the question of law raised in Reliance Industries, the decision of Special Bench is subsisting and in force and binding on all benches of ITAT. Para 26-39/Pages 64 to 97 Reliance is placed on decision of Supreme Court in Sahney Steel and Press Works Ltd. v. CIT [1997] 228 ITR 253 (SC) Further reliance is placed on the following decisions which have followed the ratio laid down by Sahney Steels (supra): * CIT v. Dusad Industries [1986]162 ITR 784 (MP) * CIT v. Chhindwara Fuels [2000]245 ITR 9,(Cal) * CIT v. Rajaram Maiz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy 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 of the mechanism through which the subsidy is given is irrelevant." Lastly, the DR has wrongly observed that even before Supreme Court in Ponni, the Supreme Court solely decided in favour as the subsidy was only for repayment of loan. The exact same argument was taken in case of M/s. Jindal Steel & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year 1999-2000 when the Explanation 10 was inserted in section 43(1), the law is clear that the subsidy will be reduced from the actual cost for the purpose of calculating depreciation. Further as explained while discussing the Supreme Court decision the case of P.J. Chemicals Ltd. (supra), not deducting the so called notional subsidy while calculating the depreciation has weakened the main case of claiming exemption of notional subsidy from taxation. The sales tax exemption received by the Assessee has not been granted for any specific plant or machinery but to encourage industrial development. Firstly, explanation 10 to section 43(1) has been inserted by Finance Act (No. 2), 1998 w.e.f. April 1, 1999, hence the question of applying Explanation 10 would not arise for AY 96-97 to 98-99. In any event, reliance is placed on the following judicial pronouncements wherein after considering the provisions of explanation 10 to section 43(1) as well as the decision of Hon'ble SC in the case of P.J. Chemicals (210 ITR 830), it was held that sales tax incentive cannot be reduced from the cost of capital investment as the percentage of capital investment is only a mode of quantification o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first round wrongly admitted the additional ground raised by the Assessee. The decision of Reliance Special Bench (supra) has been found to be erroneous by the Supreme Court and hence, the entire act of admitting additional ground by ITAT is wrong. Reliance Special Bench (supra) decision is fallacious and wrong and perverse on various grounds. The Assessee submits that if Department had any grievance against the order of ITAT admitting additional ground, it should have challenged the same before the High Court. The Department did not challenge this action of Tribunal for AY 1996-97 & 1997-98 and AY 1998-99 and where it did for AY 99-00 & 00-01, the HC dismissed the same. Against the same to best of our knowledge, no SLP has been filed. (Refer Page 1168 of Paper Book 5). Once the Department has not challenged and the issue on admission of additional ground has become final, it is not open for Department to now raise this issue in the present proceedings. 3. The AO and CIT(A) have not followed the direction of the Tribunal. The AO has not examined any facts/schemes/amount of claim The CIT(A) has passed mechanical orders There is no proper discussion by the AO and CIT(A) The Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 28, 2012 at Page 30 of Paper Book 1; 20. For AY 1996-97, please see letter dated September 27, 2013 at Page 31 of Paper Book 1; 21. Please see Annexure A & B referred to in letters dated August 28, 2012 & September 27, 2013 at Page No 33 to 36 Paper Book 1. Similar details were submitted for subsequent assessment years also (please refer Page No. 37 to 58 of Paper Book 1). Thus, details of Scheme, exemptions claimed, year-wise and scheme wise documents all submitted to AO; 22. Please see legal submission filed before AO at Page 761 to 785 of PB 3. 23. Thus, clearly entire directive of ITAT of examining facts including scheme, purpose and sales tax order/notifications all have been submitted. Unlike the amount referred to in additional ground before ITAT, the AO refers to exact amount claimed by the Assessee in set aside proceedings. 24. Entire written submissions before CIT(A) in second round is from Page 59 to 146 of Paper Book 1; 25. It is a settled law by Hon'ble Supreme Court and Hon'ble Bombay High Court that once entire details have been furnished before AO, how the AO writes the order is not in control of the Assessee and merely because there is no discussion in orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication/Eligibility Certificates/Sales Tax Orders/Returns/etc. all are also filed before the Tribunal and if Department has not disputed the same specifica 4. Quantification * Sales tax assessment orders were not available at the time of filing ROI. * Highlights sales tax assessment orders at Pg. No. 554-559 for AY 96-97, Pg. No. 660-662 for AY 98-99, Pg. No. 676-679 for AY 99-00, Pg. No. 709-711 for AY 00-01 of FPB 2 to prove the same * The figures of subsidy have changed. See grounds before ITAT and relief now allowed by the CIT(A). The Assessee has not explained the difference in amounts. * The amount of sales tax incentive/subsidy may be changed by the respective authorities, how would income tax department keep track of the same. The Tax Department are not trained in sales tax and expert in those laws. * The Assessee has not maintained separate account, how the subsidy is accounted, utlilized, etc. * ï‚· AO cannot be expected to do something that is impossible to do, relies upon the decision of Hon'ble Supreme Court in the case of CIT Bangalore v. B.C. Srinivasa Shetty (128 ITR 294) (DR PB Pg. no. 150-157) The Assessee had raised the additional ground befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether Assessee complied with conditions, whether it maintained separate accounts, etc. All those facets are examined by respective authorities. Further, neither the AO nor the CIT(A) has made any adverse comments on the documents filed by the Assessee including schemes, notifications, eligibility certificates etc. The Assessee has quantified the subsidy/incentives based on the factual documents and based on relevant orders of authorities or based on returns filed. Assuming that the higher amount of sales tax is determined, it would increase amount of exemption in a particular year and correspondingly reduce exemption in subsequent year. However, whatever change happens, once Assessee is entitled to an incentive, the outer limit is fixed and no incentive beyond that can be allowed by the respective authorities. Thus, at worst, it could be timing difference. On facts, the decision of B.C. Srinivasa Shetty (supra) is not applicable * A's Maharashtra scheme provides for merely shifting existing units from Mumbai-Pune-Thane belt to backward areas which cannot amount to industrialisation. The said scheme is for shifting and not for setting up new units. The DR has relied on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HC) (DR PB Pg. No. 133-147) ï‚· If subsidy was a fixed sum, the matter would have been different. % of capital investment provided in the schemes is only a measure of calculation ï‚· Assessee has dumped 2000 pages which are not relevant. It has been settled by Hon'ble HCs after considering Sahney Steel(Supra) , Ponni Sugars (supra) and Chaphalkar Brothers (supra) that where the object of the subsidy is to for development of state and setting up of industries in backward areas it is capital in nature and where it is to augment profits, it is a revenue subsidy. Few such decisions are as under: ï‚· PCIT v. Ankit Metal & Power Ltd. (Cal. HC) (416 ITR 591) (PB7 Pg. no. 1367-1374) ï‚· PCIT v. Shyam Steel Industries Ltd. (Cal. HC) (303 CTR 628) (PB7 Pg. no. 1375-1377) The Jurisdictional HC in CIT v. Kirloskar Oil Engines Ltd. (364 ITR 88) (Pg 245-247/PB 1) after referring to both the decisions of Sahney Steel (supra) and Ponni Sugars (supra) has held that "If the object of the subsidy scheme is to enable the assessee to run the business more profitably then the receipt is on the revenue account. On the other hand, if the object of the assistance under the subsidy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Schemes, have granted incentive, for present appeal, only relevant issue is, based on purpose test whether it is capital or revenue. Thus, reliance on decisions of Hon'ble apex court decisions in case of Novopan (supra) and M/s. Dilip Kumar (Supra) is misplaced. 6. DCIT v. Reliance Industries Ltd. (88 ITD 273 (Mum) (SB) (PB 1 Pg. No. 217-232) decision is perverse ï‚· Hon'ble SC has set aside the SB decision to Hon'ble Bom HC and hence the same is not a good law. ï‚· The Hon'ble Tribunal did not look into aspects like whether subsidy a/c maintained, utilisation, it is poorly drafted; ï‚· Order of Reliance (SB) is perverse; ï‚· Made various allegation on manner in which Reliance (SB) was decided, etc; ï‚· In Assessee's own case, the Tribunal has not followed Reliance (SB), See PB 4 (Page 841 onwards) After considering the Hon'ble SC (PB 1 Pg. no. 243-244) setting aside to Hon'ble Bom HC, Hon'ble Mumbai Tribunal SB decision in the case of Reliance Industries Ltd (supra) has been still held to be binding, valid and subsisting in the Assessee's own case for AY 2001-02 (ITA No. 778 of 2015) by Hon'ble Bombay High Court which is the Jurisdictional HC (SLP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les tax liability (NSTL) (PB 2/Page 376). In present case, the NSTL is also quantified by sales tax officer (PB 2/Page 553). Various Hon'ble Tribunals have either only used the term incentive or the term subsidy/incentive interchangeably and held the same to be capital in nature. Please See: - DCIT v. Reliance Industries Ltd. (88 ITD 273) (Mum SB) (PB 1 Pg. no. 217-232) - CIT v. Ponni Sugars & Chemicals Ltd. (supra) - Shree Balaji Alloys v. CIT (333 ITR 335) (J & K HC) (PB 1 Pg. no. 274-284) affirmed by SC in CIT v. Shree Balaji Alloys (80 taxmann.com 239) (PB 1 Pg. no. 239 - 240) - MAN Industries India Limited vs ACIT (ITA No. 6696, 6697 & 6698/Mum/2014) (PB 1 Pg. no. 322-350) - ACIT vs Economic Explosive Limited (ITA 202 to 206/Nag/2015) (PB 1 Pg. no. 351-354) - Grasim Industries Ltd. (Successor to Aditya Birla Nuvo Limited) v. ACIT (ITA No. 7062/M/2014) (Mum.) (PB 4 Pg.no. 841-863) - Mahindra & Mahindra Ltd. v. DCIT (7382/Mum/2017) (Mum.) (PB 4 Pg.no. 1021-1079) - Birla Corporation Ltd. v. DCIT (55 taxmann.com 33) (Kol.) (PB 4 Pg. no. 1128 - 1145) The Assessee submits that sales tax exemption received by it is a capital receipt without having regard to the term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em it fit and appropriate to refer to the various subsidy / incentive schemes of various state governments to understand its objects and purpose, which would ultimately decide its taxability. Vikram Ispat, Division of Grasim Industries Limited - Sales Tax Exemption : Package Scheme of Incentive("PSI"), 1988 dated 01.10.1988 by State of Maharashtra In order to achieve dispersal of industries outside the Bombay- Thane- Pune Belt and to attract them to the underdeveloped and developing areas of the State, Government has been giving a Package of Incentives to New Units / Expansion set-up in developing region of the State since 1964 under a Scheme popularly known as PSI. This is evident from page 369 of the Paper Book filed by the assessee, which are forming part of judicial records. We find that the ld. Special Counsel for the Revenue submitted that only existing units when relocated to backward area would be eligible for the subsidy / incentive. This in our considered opinion is incorrect. We find from Pages 369 and 370 of the Paper Book 2 filed , which are part of judicial records, it lists down Group A,B,C & D specifying developed, under developed areas of the State. Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsion of an existing industry as may be approved by the Government with the object of promoting industrial development in the State by setting up of new industrial units within the State of Madhya Pradesh. This fact is evident from Page 472 of the Paper Book. We find that assessee furnished the Entry Tax Notification No.422-6596 dated 09/2/1977 under Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 before the lower authorities. These documents are enclosed in pages 460 to 466 of the factual paper book which are part of judicial records. We find that assessee furnished the provisions of Section 10 of Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 before lower authorities as referred to in above notification vide page 467 of the paper book which is part of judicial record. We find that assessee furnished the Certificate of Eligibility for exemption of Entry Tax in favour of Chloro Sulphuric Acid Division before lower authorities. These documents are enclosed in pages 470 to 471 of the factual paper book which are part of judicial records. We find that assessee furnished the New Industry Notification No.A-3-24-94-ST-V(112) dated 06/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es made in the course of inter-state trade or commerce of the goods including bye-products and waste items manufactured by them within the State and in case of packing material used therewith, the benefit is available only if it is linked with fixed capital investment with the object of promoting industrial development in the State of Rajasthan. This fact is evident from Page 481 of the Paper Book. We find that the assessee furnished Sales Tax New Incentive Scheme for Industries, 1989, Rajasthan (S.No.764:F-4(35)FD Gr.IV/87-39 dated 06/07/1989) before lower authorities. These documents are enclosed in pages 481 to 489 of the factual paper book which are part of judicial records. We find that assessee furnished the Eligibility Certificate in favour of Aditya Cement before lower authorities. These documents are enclosed in pages 490 to 491 of the factual paper book which are part of judicial records. Vikram Woollens, Unit of Grasim Industries Limited, Sales Tax Exemption Notification no. A-3-24-94-ST-V(108) dated 6.10.1994 (Madhya Pradesh) Exemption granted to new industrial unit with a capital investment in fixed assets above specified limit with the object of promoting indus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are part of judicial records. We find that assessee furnished Sales Tax Exemption Scheme (Haryana General Sales Tax Rules, 1975) before the lower authorities. These documents are enclosed in pages 529 to 543 of the factual paper book which are part of judicial records. We find that assessee furnished Exemption Certificate in Form VAT G1 in favour of Grasim Industries Ltd., (Unit Elegant Spinners) before the lower authorities. These documents are enclosed in pages 544 to 545 of the factual paper book which are part of judicial records. 5.3.1. We further find that the assessee had furnished all the Sales Tax assessment orders and the /Entry Tax assessment orders together with respective Sales Tax returns, as the case may be, of various States for various assessment years for quantification of Notional Sales Tax / Entry Tax subsidy figure, before the lower authorities, which are tabulated hereunder:- Sales tax Orders / Entry Tax Orders - AY 1996-97 AY 1996-97 I Sales Tax Assessment Order for 546 - 559 F.Y. 1995-96 of Vikram Ispat. ii Sales Tax Assessment Order for FY 1995 -96 of Poly Aluminium Chloride - State Sales Tax 560 - 562 iii Cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 703 v Sales Tax Assessment Order for FY 1998 -99 of Grasim Cement 704 - 710 vi Sales Tax Assessment Order for FY 1998-99 of Elegant Spinners, Bhiwani 711 - 713 Sales tax Orders / Entry Tax Orders - AY 2000-01 AY 2000-01 i Sales Tax Return for FY 1999 -00 of Vikram Ispat 714 - 720 ii Entry Tax Assessment Order for FY 1999 -00 of Caustic Soda Memrance Cell 721 - 727 iii Sales Tax Assessment Order for FY 1999-00 of Aditya Cement 728 - 730 iv Sales Tax Assessment Order for FY 1999-00 of Vikram Woollens 731 - 736 v Sales Tax Assessment Order for FY 1999 -00 of Grasim Cement 737 - 744 vi Sales Tax Assessment Order for FY 1999-00 of Elegant Spinners, Bhiwani 745 - 748 5.3.2. We find from the perusal of the Maharashtra Scheme as detailed hereinabove, the said scheme itself defines and explains what is "Notional Sales Tax Liability". The said scheme also contemplates that the "Notional Sales Tax Liability" is required to be quantified by the Sales Tax Officer while framing the Sales Tax assessment for each of the years. Hence, the concept of "Notional Sales Tax Liability" is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ified the manner in which quantification of subsidies based on sales tax assessment orders which has to be done in future. Moreover, the competent authority which is incharge of actually granting the subsidy to the assessee had not objected to these points. In respect of Maharashtra Scheme, SICOM, being the implementing agency, had listed various conditions to be complied with including accounting, utilisation etc., and SICOM had duly examined the requisite conditions to be complied with. No adverse observations were indeed made by the competent authority. The competent authority had indeed granted subsidy to the assessee as finally determined by the respective sales tax officers which is in consonance with the subsidy schemes of various State Governments. The role of Income Tax department is only to examine whether the said receipt of subsidy would constitute capital or revenue receipt in the hands of assessee - nothing more nothing less. In any case, the lower authorities below had not even disputed this fact, which is vehemently argued by the ld. Special Counsel for the Revenue. This tantamounts to ld. Special Counsel for the Revenue making out a new case before the Tribunal and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intensify and accelerate the process of dispersal of industries to the less developed regions and promoting high tech industry in developed areas of the State of Maharashtra 7 Bombay Dyeing &Mfg Co Ltd v. DCIT (87 taxmann.com 213) (Mum. T) 290-321 (PB 1) Package scheme of Incentive 2007 of Government of Maharashtra granting subsidy with a view to encourage the dispersal of industries to the less developed areas of the State of Maharashtra 8 Innoventive Industries Ltd v. DCIT (ITA No. 601/PN/2013)(Pune Trib.) 1222-1246 (PB 6) Package Scheme ofIncentive, 2007 ofGovernment of Maharashtragranting subsidy with a view to encourage the dispersal of industries to the less developed areas of the State of Maharashtra B Rajasthan Scheme 9 CIT v. Shri Cement (ITA No. 204 / 2010) (Raj HC) 248-275 (PB 1) Rajasthan Sales Tax/Central Sales Tax Exemption Scheme for Industries, 1998 for promoting industrial development of the State and encourage new capital investment in industry and thereby promote employment 10 Birla Corporation Ltd. v. DCIT (55 taxmann.com 33) (Kol.) 1128-1145 (PB 4) Sales Tax Incentive under Rajasthan Sales Tax Exemption Scheme of 1998 for encouragement of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Scheme-Madhya Pradesh 19 M/s. Jindal Steel & Power Ltd. v. ACIT (ITA 167/Del/2009) - Notification No. 41 and 42 for exemption from entry tax 24.04.2000 issued u/s 8(5) of the Central Sales Tax Act, 1956 to encourage new industrial units, development of backward areas and create employment opportunities in public interest 5.3.5. From the perusal of the aforesaid schemes together with its objects and preamble, we find that the dominant purpose for which the incentive scheme per se introduced by the respective State Governments was only for the purpose of setting up of industries in the respective areas for industrial development in State and also to accelerate development and absolutely not for augmenting the profits of the assessee. Effectively, the schemes of various State Governments envisaged the rapid industrialisation, growth and new employment generation in the respective areas which would in turn promote the growth of the State. Hence, it could be safely concluded that subsidy / incentive granted is only for setting up of the units based on the fixed percentage of the capital cost and not for running the business of the assessee. Moreover, even this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt as trade receipts or not. The object of the grant was that in the year 1981, in view of heavy fall in prices of sugar, sugar industries were in difficulty. The Government decided to give financial assistance to certain industries in respect of sugar manufactured by them from home-grown beet during the relevant period. Lord Macmillan held that- "What to my mind is decisive is that these payments were made to the company in order that the money might be used in their business." He further observed that: "I think that they were supplementary trade receipts bestowed upon the company by the Government and proper to be taken into computation in arriving at the balance of the company's profits and gains for the year in which they were received." 15. In the case before us, the payments were made to assist the new industries at the commencement of business to carry on their business. The payments were nothing but supplementary trade receipts. It is true that the assessee could not use this money for distribution as dividend to its shareholders. But the assessee was free to use the money in its business entirely as it liked and was not obliged to spend the money for a part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. The main eligibility condition in the Scheme with which we are concerned in this case is that the incentive must be utilised 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 of the mechanism through which the subsidy is given is irrelevant." 19. Sahney Steel was distinguished, in para 16 by then stating that this Court found that the assessee was free to use the money in its business entirely as it liked. 20. Finally, it was found that, ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Sahney Steel. 23. Mr. Ganesh, learned Senior Counsel, also sought to rely upon a judgment of the Jammu and Kashmir High Court in Shree Balaji Alloys v. CIT [2011] 9 taxmann.com 255/198 Taxman 122/ 333 ITR 335. While considering the scheme of refund of excise duty and interest subsidy in that case, it was held that the scheme was capital in nature, despite the fact that the incentives were not available unless and until commercial production has started, and that the incentives in the form of excise duty or interest subsidy were not given to the assessee expressly for the purpose of purchasing capital assets or for the purpose of purchasing machinery. 24. After setting out both the Supreme Court judgments referred to hereinabove, the High Court found that the concessions were issued in order to achieve the twin objects of acceleration of industrial development in the State of Jammu and Kashmir and generation of employment in the said State. Thus considered, it was obvious that the incentives would have to be held capital and not revenue. Mr. Ganesh, learned Senior Counsel, pointed out that by an order dated 19.04.2016, this Court stated that the issue raised in those appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld and observed that the character of the subsidy in the hands of the recipient whether revenue or capital will have to be determined, having regard to the purpose for which the subsidy is given. The source of find is quite immaterial. If the purpose is to help the assessee to set up its business or complete a project the monies must be treated as having been received for capital purposes. Such But if monies are given to the assessee for assisting him in carrying out the business operations and given after the satisfaction of the conditions of commencement of production, such subsidy must be treated as assistance for the purpose of the trade. 9. Such decision was considered in case of Ponni Sugars and Chemicals Ltd.(supra) and the Apex Court held and observed as under : "13. The main controversy arises in these cases because of the reason that the incentives were given through the mechanism of price differential and the duty differential. According to the Department, price and costs are essential items that are basic to the profit making process and that any price related mechanism would normally be presumed to be revenue in nature. In other words, according to the Department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd it has laid down the basic test to be applied in judging the character of a subsidy. That test is that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy 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 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were dismissed by the Hon'ble Supreme Court vide its order dated 08/05/2018 on the ground that the issue is already covered in the decision of Chapalkar Brothers referred to supra. 5.3.8. Before us, the ld. Special Counsel for the Revenue referred to various decisions of Hon'ble High Courts. But, all those decisions were rendered prior to the decision of Hon'ble Supreme Court referred to above. Hence, the decisions relied upon by the ld. Special Counsel for the Revenue would not advance the case of the Revenue. 5.3.9. It is pertinent to note that in each of the aforesaid decisions of Hon'ble Supreme Court, the Courts have been mindful of the fact that the subsidy has to be received after commencement of business and to be availed within 9,10 & 12 years, as the case may be, and yet by applying purpose test, it was held that subsidy was on capital account. 5.4. Applicability of Special Bench decision of Mumbai Tribunal in the case of Reliance Industries reported in 88 ITD 273. The ld. Special Counsel for the Revenue vehemently submitted that the decision of the Hon'ble Special Bench has been reversed by the Hon'ble Supreme Court by remitting the matter back to the Hon'ble Bomba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of business operations, it is revenue. Hon'ble Supreme Court demonstrated the principle that the object of the subsidy must be given primary importance over the source of fund. 5.4.1. Ultimately the Special Bench after placing reliance on the decision of Hon'ble Supreme Court in Sahney Steel and Hon'ble Madras High Court in the case of CIT v. Ponni Sugars & Chemicals Ltd. Reported in 260 ITR 605 held that the decision of the Tribunal in Asst Year 1985-86 is correct and observed the following: 37....The observations of the Madras High Court lend support to the view that the purpose and object of the Scheme under which the subsidy is given is of more fundamental importance than the fact that the subsidy was received after the commencement of production or conditional upon it. Therefore, in our view and with respect, the Tribunal in the case of Reliance Industries Ltd. ( supra) had correctly interpreted and understood the ratio of the judgment of the Supreme Court in Sahney Steel & Press Works Ltd.'s case (supra). 38. In this view of the matter, we answer the question referred to us in the affirmative. 5.4.2. The ld. AR vehemently submitted that the department did not chall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udgement of Hon'ble Jurisdictional High Court in this regard is reproduced as under:- "3. We will first address the questions no. (c) and (d), which are different elements of the same issue. The respondent assessee had received a subsidy. It is undisputed that up to the level of Income Tax Appellate Tribunal, the assessee did not raise a contention that such subsidy was towards capital account and, therefore, not taxable. However, before the Tribunal such a contention was raised. The Tribunal by the impugned judgment relied upon its earlier judgment for the Assessment Year 1999-2000 in case of this very assessee and restored the issue back to the Assessing Officer. In the earlier order, the Tribunal had remanded the issue to the file of the Assessing Officer "to decide the issue afresh after considering the decision of Special Bench of the Tribunal in the case of Reliance Industries Ltd. (supra)". Thus, the Tribunal remanded the issue back to the Assessing Officer to be decided in the light of the Special Bench judgment in the case of Reliance Industries Ltd. The Revenue's grievance in this respect is two fold. It was contended that the issue was raised for the first time bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be treated to be towards revenue account. It would be equally open for the Revenue to oppose such a contention if so advised. The Assessing Officer and the Revenue authorities would have to take a decision in accordance with law. These questions, therefore, are not considered." (emphasis applied by us while placing reliance on the decision of Hon'ble Jurisdictional High Court) 5.4.4. Against this judgement on other issues, the Revenue preferred an SLP before the Hon'ble Supreme Court and the same was dismissed vide order dated 23/08/2019 in SLP (Civil) Diary No.22929/2019. In other words, the Revenue while preferring SLP before the Hon'ble Supreme Court did not even challenge this ground of subsidy and the decision of Special Bench of Tribunal in the case of Reliance Industries Ltd., Hence, the order of the Hon'ble Jurisdictional High Court in assessee's own case for A.Y.2001-02 had become final on the very same issue. Though the said decision has been rendered for subsequent assessment year as compared to the years under consideration before us, in view of identical facts and the same legal issue, and more especially, in order to address the fact of binding precedent of Sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... & Power Ltd. (supra), did indeed travel much beyond its limited mandate in ignoring a binding judicial precedent simply because appeal against that special bench decision is now pending before Hon'ble Bombay High Court. When posed with a special bench decision and a division bench directly on the issue, though touching different chords, we have no difficulty in recognizing our limitations. The wisdom of a division bench, even if superior- as strenuously argued by the learned Commissioner, has to make way for the higher wisdom of a larger bench. It is this faith of judicial hierarchical system that is the strength of our functioning, and we must follow the same. We, therefore, regret our inability to follow the division bench in the case of Jindal Power, no matter how deeply we respect and admire the work of all our colleagues, and we would rather be guided by the special bench decision - which is exactly what another division bench, on the same set of facts as before us, did in the case of Ajanta Manufacturing Ltd. (supra). As for learned Commissioner (DR)'s suggestion that we should follow the jurisdictional High Court decision in the case off Colourman Dyechem Ltd. (supra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be adjudicated on merits with regard to taxability of subsidy and the Tribunal ultimately gave relief to the assessee on merits independently by applying purpose test and the decision of the Hon'ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd., referred to supra. Hence, the reliance placed on this observation of the Tribunal by the ld. Special Counsel for the Revenue is misplaced and does not come to the rescue of the revenue. 5.4.8. We further find that the ld. Special Counsel for the Revenue repeatedly reiterated that the decision of the Hon'ble Supreme Court in the case of U.P. Rashtriya Chinni vs. State of Uttar Pradesh and Others dated 02/07/1995 reported in 1995 SCC(4) 738 was not cited before the Special Bench of Mumbai Tribunal while rendering the decision in the case of Reliance Industries Ltd., and therefore, the Special Bench decision is non-est and loses its binding precedent. At the outset, we would like to state that UP Rashtraiya Chinni decision was not rendered in the context of Income Tax Act and the taxability of subsidy was not an issue there before the Hon'ble Supreme Court. We have already stated hereinabove that the decision of the Speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of asset and depreciation claim should be on the net value/cost of the asset after reducing the amount of incentives in terms of Explanation 10 to Section 43(1) of the Act?" 5.5.1. This question has been answered by the Hon'ble Jursidictional High Court in the following manner:- 9. The second question raised by the Revenue is consequent of the first question, in which, the Revenue argues that, if the subsidy is treated as a capital in nature, the same must bring down assessee's costs of acquisition of plant and machinery. The assessee's claim of depreciation to that extent must shrink. Assessee argues that, the Tribunal correctly held that, the subsidy had not been given in relation to acquisition of plant or machinery and that, therefore, same cannot be adjusted towards cost of acquisition. 10. It is undoubted that, the subsidy had no relation to the assessee's acquisition of plant or machinery. It was to be granted to an industry which had set up the new industrial unit in the District of Kutch. In such back-ground, question - arises whether such subsidy would be adjustable towards assessee's costs of acquisition of capital assets. We may notice that, a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of the amount invested by an entrepreneurs in acquiring capital assets as cash subsidy. The scheme does not say as to in what manner the subsidy was granted is to be utilized. In other words, the entrepreneur to whom the subsidy was granted was free to utilize it in any manner he liked. It would, therefore, appear that quantification of subsidy on the basis of investment was a measure adopted by the Government for convenience to work out the subsidy. If subsidy could be utilized by the entrepreneur in any manner he liked, could it be said that it was granted for meeting the cost of the capital assets? In our opinion, taking an overall view of the various provisions of the scheme, it is difficult to hold that cash subsidy was granted to entrepreneur to meet the cost of the fixed assets or part thereof The cost of the fixed assets was merely adopted as a measure for working out subsidy. In fact, a careful examination of the scheme reveals that it is the value of the fixed assets and not its cost which is adopted as the basis for computing the amount of the subsidy. Emphasis on value and not the cost is evident from the fact that land and building already owned by an industrial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the subsidy, being only a measure adopted under the scheme to quantify the financial aid, is not a payment, directly or indirectly, to meet any portion of the 'actual cost The expression 'actual cost' in section 43(1) of the Income Tax Act,1961, needs to be interpreted liberally. Such a subsidy does not partake of the incidents which attract the conditions for its deductibility from 'actual cost'. The amount of subsidy is not to be deducted from the 'actual cost' under section 43(1) for the purpose of calculation of depreciation etc."' No question of law, therefore, arises in this respect. 5.5.2. Respectfully following the same, we hold that the provisions of Explanation 10 to Section 43(1) of the Act would not be applicable in the facts and circumstances of the case and accordingly, the alternative ground raised by the Revenue is hereby dismissed. 5.6. In view of the aforesaid detailed observations, we hold that subsidy / incentive received in the instant case by the assessee for all the years under consideration would have to be construed only as a capital receipt not chargeable to tax and the ld. CIT(A) had rightly granted relief to the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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