2023 (9) TMI 316 - AT - Income Tax

Nature of receipt - Taxable income - Method of recording transaction - Income from duty credit entitlement received under the served from India scheme (Duty credit entitlement) - whether is capital receipt and not chargeable to tax - whether Served from India Scheme has to be treated as capital receipt or revenue receipt - HELD THAT - As the assessee has recorded the SFIS benefit as the other income and included duty portion in the gross value of the capital assets. The legislature consciously prohibits the assessee not to record the duty or subsidy portion in the cost of the assets, it will lead to claim of additional depreciation on the subsidy. This is called unjust enrichment. Therefore, we are inclined to direct the Assessing Officer to allow the subsidy or SFIS benefit to the assessee as the capital receipt. At the same time, we direct the Assessing Officer to collect the utilization of SFIS credit in the various capital assets acquired or procurement of spare parts by the assessee i.e., the custom / excise duty credit claimed by the assessee assets wise and direct him to reduce the respective value from the cost of the assets recorded in the depreciation schedule. Also recalculate the depreciation for the year. Accordingly, reassess the taxable income of the assessee. Accordingly, we allow the Ground raised by the assessee as the SFIS is not a taxable income as held in the case of Container Corporation of India Ltd., 2022 (12) TMI 157 - ITAT DELHI Duty credit entitlement should be reduced from cost of the capital assets to the extent utilized for payment of import duty - HELD THAT - This issue is remitted back to Assessing Officer to recalculate the depreciation. In our view, the assessee has claimed the credit of SFIS as an income, the corresponding debit will be the cost charged to the capital assets. Therefore, the value of assets has to be readjusted. This ground of appeal is allowed for statistical purpose. Not considering that income to the extent of duty credit utilized, for corresponding custom duty on import of spares etc, is shown as expenses in profit loss account and is ultimately tax neutral and hence does not have any effect on the profit of the Appellant - HELD THAT - We observe that assessee has submitted that it has also purchased certain spare parts under this scheme, as discussed above, assessee has declared the SFIS credit as an income, then duty portion is included in the cost of the spare parts. Therefore, this ground also remitted back to AO to verify the same. In case it is included in the spare parts, the same has to be reduced or disallowed. Income claimed by the assessee in the books of account is not proper - HELD THAT - Since it is a credit to be adjusted in the cost of the capital assets. It should not be treated as an income as disclosed by the assessee. Once, it is reduced from the capital assets, it will not be additional income or incentive, therefore there will not be much impact on the profit except depreciation impact and will not impact the claim u/s. 80IA of the Act. Therefore, this ground become infructuous. Accordingly, dismissed. Other income as eligible for benefit of deduction u/s 80IA - HELD THAT - As brought to our notice that assessee has earned other miscellaneous income which are in the nature of duty credit entitlement, interest income, reversal of provision, small scarp sales. It is also submitted that assessee is engaged in one single activity i.e., running of a port. Therefore, assessee is not involved in any other activity other than running of port which is eligible for deduction u/s. 80-IA of the Act, any other income or expenditure incurred by the assessee only for running or maintenance of the port. Therefore, irrespective of various income declared in the business, any income generated out of this port is eligible for deduction u/s. 80-IA - we direct the AO to treat this miscellaneous income as part of the business carried on by the assessee. Accordingly, ground raised by the assessee is allowed. MAT computation - Entitlement under SFIS ought to be reduced from computation of profit for the purposes of Section 115JB - Assessee submitted that in view of the treatment of benefit under the SFIS are being a capital receipt, the amount of benefit will be excluded from the computation of book profit - HELD THAT - Assessee has declared the SFIS subsidy as an additional income without reducing the value of subsidy in the cost of the assets. When the same is being directed to be modified as directed to Assessing Officer the Assessing Officer will verify the same and make the changes in the depreciation schedule and reduce the subsidy from the income declared by the assessee. When the same is reduced from the income, this income will no longer be an item of income in the Profit and Loss. As held in the Pushkar Chemicals Fertilizers Ltd. 2021 (8) TMI 982 - ITAT MUMBAI the SFIS subsidy is capital in nature, it cannot form part of book profit. Since this issue is remitted to the file of the Assessing Officer, we remit this issue also to the file of AO to determine the book profit u/s. 115JB of the Act as per the direction in Ground Nos. 2 to 4. Deduction u/s 80IA - Income from scrap sale - as per DR income earned from scrap sales is not directly derived from undertaking - HELD THAT - We observe that the list of scrap materials declared by the assessee shows that these are generated out of the maintenance of the Port. The scrap cannot be accumulated from outside, unless, the assessee has bought for the business. We noticed that the assessee is not in the business of scrap sales, therefore, it should have been generated out of the port maintenance. It is integral part of the business and should be part of business income and the deduction u/s 80IA cannot be denied. Accordingly, we observe that Ld.CIT(A) has considered this aspect and allowed the claim of the assessee as per law.

Summary

Issues Involved:
1. Income from Duty Credit Entitlement under SFIS
2. Eligibility of Scrap Sales for Deduction under Section 80IA
3. Treatment of Capital Receipts under Section 115JB

Summary:

1. Income from Duty Credit Entitlement under SFIS:
The primary issue was whether the income from the Served from India Scheme (SFIS) should be treated as a capital receipt or revenue receipt. The assessee claimed that the duty credit entitlement under SFIS, amounting to Rs. 9,80,23,000/-, was a capital receipt and not chargeable to tax. The Tribunal referred to the decision in Container Corporation of India Ltd. v. DCIT, where it was held that SFIS credits are capital receipts that reduce the cost of capital assets purchased and do not constitute taxable income. The Tribunal directed the Assessing Officer to treat the SFIS benefit as a capital receipt and adjust the cost of the capital assets accordingly, recalculating the depreciation and reassessing the taxable income. Consequently, grounds related to the treatment of SFIS as capital receipts were allowed for statistical purposes.

2. Eligibility of Scrap Sales for Deduction under Section 80IA:
The assessee argued that income from scrap sales, amounting to Rs. 28,37,000/-, should be eligible for deduction under Section 80IA of the Income Tax Act. The Tribunal observed that the scrap sales were directly related to the business operations of the port, including burnt oil, empty barrels, and used spares. The Tribunal upheld the decision of the CIT(A), which allowed the deduction under Section 80IA, stating that scrap sales are an integral part of the business income. Thus, the revenue's appeal on this ground was dismissed.

3. Treatment of Capital Receipts under Section 115JB:
The assessee contended that the duty credit entitlement, being a capital receipt, should not be included in the computation of book profits under Section 115JB. The Tribunal referred to the decision in ACIT v. Shree Pushkar Chemicals and Fertilizers Ltd., which held that capital receipts not chargeable to tax under normal provisions should not form part of taxable profit. The Tribunal directed the Assessing Officer to exclude the SFIS benefit from the book profit computation under Section 115JB, following the adjustments made for the capital asset costs. This ground was allowed for statistical purposes.

Conclusion:
The appeals filed by the assessee were allowed for statistical purposes, and the appeals filed by the revenue were dismissed. The Tribunal emphasized the correct accounting treatment for SFIS benefits and upheld the eligibility of scrap sales for deductions under Section 80IA.