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2019 (3) TMI 1833 - AT - Income TaxUndisclosed profit from broker - CIT(Appeals) deleted the addition - HELD THAT - There was thus a difference of ₹ 29,53,995/- in the profit reported by the Investigation Wing and the profit declared by the assessee and when the assessee was required to explain this difference, complete details of the relevant transactions were furnished by the assessee to show that the profit actually earned by him was only ₹ 8,55,82,593/-. A copy of relevant ledger account was also filed by the assessee to show that the actual profit only ₹ 8,55,82,593/- was earned on the relevant transactions booked through broker Dhairya Commodities Pvt. Limited. This relevant information furnished by the assessee-company in support of its claim, however, was brushed aside by the Assessing Officer and the difference of ₹ 29,53,995/- was added by him by treating the same as undisclosed profit of the assessee without giving any basis as to how the profit of ₹ 8,85,36,587/- was arrived at as reported by the Investigation Wing. He also did not make any enquiry from the National Multi Commodity Exchange, Ahmedabad or even from the concerned broker Dhairya Commodities Pvt. Limited to find out the factual position - addition made by the Assessing Officer on this issue was not sustainable . Characterization of income - sales tax incentives as capital receipt or as declared by the assessee as revenue receipt in the return of income - HELD THAT - We are of the view that the subsidy in question received by the assessee in the form of refund of sales tax under the West Bengal Incentive Scheme, 2004 was capital in nature as the purpose of the same was for the expansion of the existing industry of the assessee. We also hold that merely because the said subsidy was to be received by the assessee only after the commencement of production would not change its character, which otherwise was capital in nature. We accordingly uphold the impugned order of the ld. CIT(Appeals) giving relief to the assessee on this issue. MAT computation u/s 115JB - treatment to be given to the sales tax subsidy while computing the book profit under section 115JB - HELD THAT - This issue is squarely covered in favour of the assessee and against the revenue by the various decisions of the Tribunal. In one of such decisions rendered in the case of Benani Industries Limited 2016 (3) TMI 873 - ITAT KOLKATA the Coordinate Bench of this Tribunal has held that the capital receipt in the form of sales tax incentive is required to be excluded while computing the book profit under section 115JB. The entire submissions made on behalf of the assessee in support of its new claim made for the first time before him were forwarded by the ld. CIT(Appeals) to the Assessing Officer for his examination. After examining the details and documents furnished by the assessee, a remand report dated 12.06.2017 was submitted by the Assessing Officer to the ld. CIT(Appeals). In the said remand report, reasons were given by the Assessing Officer elaborately in support of his stand that the claim of the assessee that the incentive received in the form of subsidy was a capital receipt was not acceptable. As pointed out by the ld. Counsel for the assessee from the relevant portion of the orders of the Tribunal, the amounts in dispute were credited by the assessees in the Profit Loss Account and the factual position in the said cases thus was similar to that of the assessee. As further pointed out by the ld. Counsel for the assessee, a Note No. 20 was given by the assessee-company as Notes to Accounts forming part of its annual accounts pointing out specifically that it was entitled for sales tax incentive of ₹ 2494.67 lakhs under the West Bengal Incentive Scheme, 2004. We, therefore, find no infirmity in the impugned order of the ld. CIT(Appeals) allowing the claim of the assessee for exclusion of the amount of subsidy in question while computing the book profit under section 115JB. Decided against revenue.
Issues Involved:
1. Deletion of addition of ?29,53,995/- on account of alleged undisclosed profit. 2. Acceptance of sales tax incentives of ?24,94,66,520/- as capital receipt. Analysis of Judgment: Issue 1: Deletion of Addition of ?29,53,995/- on Account of Alleged Undisclosed Profit The Revenue challenged the deletion of ?29,53,995/- added by the Assessing Officer (AO) as undisclosed profit from Dhairya Commodities Pvt. Limited. The assessee, a company engaged in the processing and sale of edible oil and cultivation of medicinal plants, declared a profit of ?8,55,82,593/- in its return of income. However, the AO, based on information from DDIT (I&CI), Kolkata, alleged that the profit was ?8,85,36,587/-, resulting in a discrepancy of ?29,53,995/-. The AO added this difference as undisclosed profit. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, noting that the assessee provided ledger accounts showing the actual profit of ?8,55,82,593/-. The CIT(A) found that the AO mechanically added the difference without proper verification and failed to substantiate the figure of ?8,85,36,587/- reported by the DDIT. The Tribunal upheld the CIT(A)'s decision, stating that the AO did not make any enquiry from the National Multi Commodity Exchange or the broker to verify the actual profit. Therefore, the addition was not sustainable, and the deletion was justified. Issue 2: Acceptance of Sales Tax Incentives of ?24,94,66,520/- as Capital Receipt The Revenue contested the CIT(A)'s acceptance of the assessee's claim that sales tax incentives of ?24,94,66,520/- received under the West Bengal Incentive Scheme, 2004, were capital receipts. The assessee initially declared these incentives as revenue receipts in its return but later claimed them as capital receipts during the appellate proceedings. The CIT(A) admitted the new claim, referencing judicial precedents that allowed such claims to be raised at the appellate stage. The CIT(A) found that the incentive was for the expansion of the assessee's industrial undertaking in a backward area, thus qualifying as a capital receipt. The CIT(A) relied on the Supreme Court's decision in Sahney Steel Works Limited and the Calcutta High Court's decision in Rasoi Limited, which held that subsidies for setting up or expanding industrial units are capital receipts. The Tribunal upheld the CIT(A)'s decision, noting that the West Bengal Incentive Scheme aimed to promote industrial growth in backward areas. The subsidy, linked to capital investment, was for the expansion of the existing unit and thus capital in nature. The Tribunal also agreed that the subsidy should be excluded while computing book profit under section 115JB of the Income Tax Act, as it was a capital receipt not chargeable to tax. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on both issues. The addition of ?29,53,995/- as undisclosed profit was deleted due to lack of proper verification by the AO. The sales tax incentives of ?24,94,66,520/- were accepted as capital receipts, aligning with judicial precedents and the objective of the West Bengal Incentive Scheme. The Tribunal also confirmed that these incentives should be excluded from the computation of book profit under section 115JB.
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