2020 (3) TMI 220 - AT - Income Tax

Revision u/s 263 - excise duty refund and interest subsidy to be treated as revenue or capital receipt - to be included in computation of section 115JB book profits since forming part of the corresponding reserves - HELD THAT - Since the learned coordinate bench(es) had already accepted the assessee s case drawing distinction between the two subsidy schemes, the impugned receipts have therefore rightly held as capital and not revenue in the regular assessment in issue. Coming to latter issue of section 115JB book profit computation of the corresponding excise duty refund and interest subsidy reserves (supra), we note that this tribunal s coordinate in Binani Industries Ltd vs. CIT 2016 (3) TMI 873 - ITAT KOLKATA , Indo Rama Syntehetics (I) Ltd. 2011 (1) TMI 1 - SUPREME COURT , Apollo Tyres Ltd. 2002 (5) TMI 5 - SUPREME COURT that when a receipt is not even a revenue item, the same also does not form part of book profits u/s 115JB of the Act. Hon ble jurisdictional high court in PCIT vs. Ankit Metal Power Ltd. 2019 (7) TMI 878 - CALCUTTA HIGH COURT also reiterate the very proposition. We follow the very reasoning herein as well mutatis mutandis and conclude that the PCIT s twin orders under challenge in these assessment years have erred in law and on facts in assuming revision jurisdiction since the Assessing Officer had rightly not included the excise duty refund and interest subsidy as a revenue item in normal computation and corresponding reserves for book profits u/s 115JB of the Act. PCIT s revision direction under challenge are reversed and the impugned both regular assessments in these two assessment years are restored as a necessary corollary. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the excise duty refund and interest subsidy received by the assessee should be treated as capital or revenue receipts.
2. Whether these receipts should be included in the computation of book profits under section 115JB of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Treatment of Excise Duty Refund and Interest Subsidy:
The Principal Commissioner of Income Tax (PCIT) treated the excise duty refund and interest subsidy as revenue receipts, citing the Supreme Court's decision in CIT vs. Meghalaya Steels Ltd. The PCIT issued show-cause notices and concluded that the Assessing Officer (AO) had completed the assessments without adequate enquiries, thus causing prejudice to the interest of the Revenue.

The assessee argued that these receipts were capital in nature, referring to the tribunal's earlier decisions in its own cases for assessment years 2010-11 to 2012-13 and the Jammu & Kashmir High Court's decision in Balaji Alloys. The tribunal in the present case agreed with the assessee, reiterating that the excise duty refund and interest subsidy were capital receipts not chargeable to tax under normal provisions. The tribunal referenced the purpose test laid out by the Supreme Court in Ponni Sugars & Chemicals Ltd., concluding that these incentives were aimed at accelerating industrial development and generating employment, thus serving a public purpose and not merely operational incentives.

2. Inclusion in Book Profits under Section 115JB:
The PCIT also argued that these receipts should be included in the computation of book profits under section 115JB since they were credited to the profit and loss account. The tribunal examined whether non-revenue receipts could form part of book profits for MAT purposes. It referred to several judicial precedents, including the ITAT Kolkata Bench's decision in Binani Industries Ltd. and the Supreme Court's decisions in Indo Rama Synthetics (I) Ltd. and Apollo Tyres Ltd.

The tribunal concluded that receipts not in the nature of income should not be included in book profits under section 115JB, even if credited to the profit and loss account. It emphasized that the purpose of MAT provisions is to bring out the real profit of companies, and including non-revenue receipts would distort this objective. The tribunal upheld the CIT(A)'s decision that the excise duty refund and interest subsidy, being capital receipts, should not be included in book profits under section 115JB.

Conclusion:
The tribunal reversed the PCIT's orders, holding that the excise duty refund and interest subsidy were capital receipts not chargeable to tax under normal provisions and should not be included in the computation of book profits under section 115JB. The tribunal restored the AO's original assessments for the assessment years 2013-14 and 2014-15.