2022 (4) TMI 1584 - AT - Income Tax

Allowance of expert incentive - capital or revenue nature - as per AO assessee has merely stated that the expert incentive is capital in nature and has not given any further clarification as to what was the purpose for which the subsidy has been given nor has it clarified as to the purpose for which the subsidy has been utilized - HELD THAT - As regards SHIS, the incentive was given with the objective to promote investment in technology upgradation and was granted @ 1% of FOB value of Export. The investment in technology is clearly a capital expenditure. So far as the incremental incentive scheme is concerned, the incentive was linked with incremental export if a particular year, export sale was more than certain percentage of export in the preceding year, the assessee becomes entitled for this incentive. The said incentive was connected to expenses of investment in new plant and machinery, hence, the incentive is capital in nature. With regard to, Market Linked Focus Product Scheme (MLEPS) is concerned, the incentive was granted in order to export of products of high export intensity employment potential and is incentivized at 2% of FOB value of exports. This incentive was linked to employment generation by the company connected to the export of goods and mercantile. It is linked with capital in nature. The CIT(A) has placed reliance upon the decision of the Hon ble Supreme Court in the case of CIT Vs. Ponni Sugars Chemicals Ltd. 2008 (9) TMI 14 - SUPREME COURT , Eastman Exports Global Clothing Pvt. Ltd. 2016 (7) TMI 951 - ITAT CHENNAI and Sutlej Textiles Industries Ltd. 2015 (7) TMI 515 - ITAT DELHI and M/s. Gloster Jute Mills Ltd. 2014 (7) TMI 172 - ITAT KOLKATA . These issues have duly been examined and discussed by CIT(A) in his order. The scheme is self-explanatory. There is nothing on record to which it can be assumed that the same is not in existence. No reason has been explained to which it can be assumed that the CIT(A) has granted the relief wrongly and illegally. The facts are not distinguishable at this stage. In view of the facts and circumstances and the law considered by the CIT(A), we are of the view that the finding of the CIT(A) is quite correct which is not liable to be interfered with at this appellate stage. Accordingly, we affirm the finding of the CIT(A) on this issue and decide this issue in favour of the assessee against the revenue. Allowance of claim of the Education Cess - Hon ble ITAT has passed the order dated 26.10.2021 in the case of M/s. Kanoria Chemicals Industries Ltd. 2021 (10) TMI 1153 - ITAT KOLKATA in which it is held that the Education Cess is the part and parcel of the tax. It is also argued that the Finance Bill 2022 has also cleared the situation in which Education Cess has been treated as a part of the tax. However, on the other hand, the Ld. Representative of the assessee has strongly relied upon the order passed by the CIT(A) in question. Taking into account of all the facts and circumstances, we observed that the Hon ble ITAT in the case of M/s. Kanoria Chemicals Industries Ltd. supra has passed the order by relying upon the decision of the K. Srinivasan 1971 (11) TMI 2 - SUPREME COURT Subsequently, the Finance Bill, 2022 has been passed in which the preposition of Education Cess has been dealt with and accordingly the Education Cess is being treated as part and parcel of the tax and the claim of expenses in connection with the Education Cess is not liable to be allowed. Accordingly, we set aside the finding of the CIT(A) and decide this issue in favour of the revenue against the assessee.

Summary

Issues Involved:
1. Whether the CIT(A) was justified in allowing the claim of export incentive of Rs. 66,70,644/-.
2. Whether the CIT(A) was justified in allowing the claim of Education Cess of Rs. 1,42,88,177/- on income tax and Dividend Distribution Tax.

Issue-wise Detailed Analysis:

Issue No. 1: Export Incentive Claim

The revenue challenged the allowance of the export incentive claim of Rs. 1,10,01,193/-. The revenue's argument was that the export incentive was not initially claimed by the assessee in the return of income but was allowed by the CIT(A) during the appellate proceedings. The CIT(A) allowed the claim based on various judicial pronouncements, including the Hon'ble Supreme Court's decision in the case of Goetze India Ltd vs CIT, and the Hon'ble Mumbai High Court's decision in Pruthvi Brokers Pvt. Ltd 253 CTR 0515. The CIT(A) concluded that such claims could be made at any stage of appellate proceedings.

The CIT(A) examined the nature of the export incentives under various schemes such as MLFPS/SHIS/IEIS, concluding that these incentives were capital in nature. The CIT(A) relied on the Hon'ble Supreme Court's decision in CIT vs Ponni Sugars & Chemicals Ltd (2008) 306 ITR 392 (SC), which held that if the purpose of the incentive was to enable the assessee to set up a new unit or expand an existing unit, the receipt of the subsidy was of capital nature. The CIT(A) also cited decisions from various courts, including the Hon'ble ITAT Chennai in Eastman Exports Global Clothing Pvt. Ltd. and the Hon'ble ITAT Delhi in Sutlej Textiles & Industries Ltd, which supported the view that such incentives are capital receipts.

The CIT(A) found that the export incentives under schemes like SHIS, IEIS, and MLFPS were linked to capital expenditure, technology upgradation, and employment generation, making them capital receipts. The appellate authority's findings were based on detailed examination and judicial precedents, leading to the conclusion that the claim was rightly considered at the appellate stage. The tribunal affirmed the CIT(A)'s decision, finding no reason to interfere with the order, and decided the issue in favor of the assessee.

Additional Ground: Education Cess

The revenue challenged the allowance of the claim of Education Cess based on the Hon'ble Bombay High Court's decision in Sesa Goa Limited Vs. JCIT (2020) 117 taxmann.com 96. The revenue argued that recent judgments and the Finance Bill 2022 clarified that Education Cess is part of the tax and not an allowable deduction. The tribunal referred to the Hon'ble ITAT's decision in M/s. Kanoria Chemicals & Industries Ltd., which relied on the Hon'ble Supreme Court's decision in CIT Vs. K. Srinivasan (1972) 83 ITR 346, holding that surcharge and additional surcharge are part of the income tax.

The tribunal noted that the Finance Bill 2022 explicitly treated Education Cess as part of the tax, disallowing its deduction. Consequently, the tribunal set aside the CIT(A)'s finding and decided the issue in favor of the revenue, against the assessee.

Conclusion:

The tribunal dismissed the appeals filed by the revenue in ITA Nos. 1667, 1668, and 1669/Mum/2021, affirming the CIT(A)'s decision on the export incentive claim but reversing the CIT(A)'s decision on the Education Cess claim, thereby favoring the revenue on the latter issue. The order was pronounced in the open court on 28/04/2022.