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Issues Involved:
1. Deletion of addition of Rs. 41,49,365/- made on account of remission of sales tax on finished goods. Summary: Issue 1: Deletion of Addition of Rs. 41,49,365/- on Account of Remission of Sales Tax on Finished Goods The appeal preferred by the revenue is directed against the order of the Ld. CIT(A), Kolkata dated 22.12.2009 for the assessment year 2004-05 on the sole ground of deleting the addition of Rs. 41,49,365/- made on account of remission of sales tax on finished goods. Briefly stated facts of the case are that the assessee is engaged in the production of wheat products. The assessee filed its return of income on 1.11.2004 disclosing a total income of Rs. 57,48,960/-. The assessment was completed u/s. 143(3) of the Act on 29.12.2006 at an assessed income of Rs. 1,82,06,720/- which included the addition of Rs. 41,49,365/- as sales tax remission treated as income. The assessee claimed the sales tax remission to be capital in nature and credited the same to the Capital Reserve of the company, explaining that the remission was granted under the West Bengal Incentive Scheme for promoting industrialization in backward areas. The Assessing Officer, however, treated the remission as revenue receipt, relying on the decision of the Supreme Court in Sahney Steel & Press Works Ltd. Vs. CIT 228 ITR 253, and added the amount to the income of the assessee. The Ld. CIT(A) deleted the said addition, leading to the revenue's appeal before the Tribunal. At the hearing, the Ld. DR relied on the order of the Assessing Officer, arguing that the Ld. CIT(A) was not justified in deleting the addition by holding the receipt as capital in nature. The DR cited the Supreme Court's decision in Sahney Steel & Press Works Ltd. and the jurisdictional High Court's decision in C.I.T. vs. Chhindwara Fuels [245 I.T.R. 9], which treated sales-tax subsidies as revenue receipts. Conversely, the Ld. counsel for the assessee argued that the issue was covered by the Tribunal's decision in M/s. Maithan Alloys Ltd. Vs. DCIT, where the Tribunal distinguished between subsidies for running an industry and those for setting up a business. The counsel contended that the incentive in question was for setting up the industry, thus qualifying as a capital receipt. After hearing both parties and reviewing the material on record, the Tribunal found that the issue was covered by its earlier decision in M/s. Maithan Alloys Ltd. Vs. DCIT. The Tribunal reiterated that the character of the subsidy, whether revenue or capital, depends on the purpose for which it is given. If the subsidy is for setting up a business, it is a capital receipt; if it is for assisting in business operations, it is a revenue receipt. The Tribunal noted that the assessee became entitled to the incentive before commencing production, indicating that the subsidy was for setting up the industry. The Tribunal also referenced the Special Bench decision in Reliance Industries Ltd., which supported the assessee's position. The Tribunal concluded that the sales-tax incentive was a capital receipt, not a revenue receipt, and upheld the Ld. CIT(A)'s order, dismissing the revenue's appeal. In the result, the appeal of the revenue is dismissed. The order is announced in the open court on 16.11.10.
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