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TMI Blog2020 (3) TMI 220X X X X Extracts X X X X X X X X Extracts X X X X ..... IT thereafter sought to treat the said regular assessments as erroneous ones causing prejudice to interest of the Revenue on the ground that the assessee's audited balance sheets as on 31.03.13 and 31.03.14 revealed that it had received excise duty and interest subsidy refunds of Rs. 7,72,07,898 and Rs. 2,20,95,177/- in former and Rs. 10,75,14,429/- and Rs. 1,47,47,173/- in latter assessment year; respectively. And that the same had been directly taken to reserves and surplus as excise refund interest subsidy reserves. The PCIT was of the opinion that section 115JB made it clear in such circumstances that these figures of reserves "by whatever name shall form part of the Profit & Loss account for the purpose of computing book profits. The PCIT issued show-cause notice(s) to this effect on 08.02.19. 3. The assessee appeared and filed its written reply(ies) in both these assessment years. This followed the PCIT's yet another show-cause notice that the above twin heads of excise duty refunds and interest subsidy hereinabove amounted to revenue receipts as per hon'ble apex court's decision in (2016) 383 ITR 217(SC) CIT vs. Meghalaya Steels Ltd. The assessee's identical reply(ies) to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red the issue carefully and in the light of the decision of the Hon'ble Jammu & Kashmir High Court in the case of Balaji Alloys (supra). In the case of Balaji Alloys (supra), the Hon'ble Jammu & Kashmir High Court has set out of the objects of the scheme under which the excise duty exemption subsidy and interest subsidy were received by the Assessee in the present case in the following words: "Before coming to the issues, which need determination, regard needs to be had to the salient features of the New Industrial Policy, amendment introduced thereto and the statutory Central excise notifications issued in this respect governing the refund of excise duty and interest subsidy, as incentives to the industrial units, pursuant to the New Industrial Policy. The statement and objects, which had lead to the New Industrial Policy and other concessions for the State of Jammu & Kashmir floated vide Office Memorandum of 14th June, 2002 and the salient features thereof, may, in a nutshell, be stated thus : Considering the request of the Government of Jammu & Kashmir for a special package for development of the industries in the State on the lines for the North East Industrial Po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government of India, Ministry of Commerce and Industry, Department of Industrial Policy and Promotion. It reads thus : "No. 1(11)/2002-NER--In pursuance of the announcement by the Prime Minister on 19th April, 2003 at Srinagar for creation of one lakh employment and selfemployment opportunities in Jammu & Kashmir, the Government of India had set up a Task Force under Cabinet Secretary. The recommendations of Task Force were submitted to the Cabinet. To achieve this object of employment generation, the Cabinet has inter alia, approved following definition of the term 'substantial expansion' for the purpose of incentives/subsidies notified as per OM No. 1(13)/2000-NER dt. 14th June, 2002. 2. The Central Government, therefore, hereby makes amendment in the Central Interest Subsidy Scheme, 2002 notified in the notification of the Government of India in the Ministry of Commerce and Industry, Department of Industrial Policy and Promotion No. 1(11)/2002-NER dt. 22nd Oct., 2002. The definition of the term 'substantial expansion' appearing under para 5(d) of the scheme may be substituted by the following : 'Concessions for substantial expansion should extend to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of regular employees employed at any point of time by the concerned industrial unit, during last five years; (b) 'regular employment' shall not include employment provided by the industrial unit to daily wagers or casual employees; (c) 'new investment' shall not include investments which are used for paying off old debts or making payments for the plant or machinery installed prior to the 14th day of June, 2002, or paying salaries to the employees. [Above cl. (b) has been substituted vide NTF No. 11/2004- CE, dt. 29th Jan., 2004]. Old : (b) Industrial units existing before the 14th day of June, 2002, but which have undertaken substantial expansion by way of increase in installed capacity by not less than twenty five per cent on or after 14th day of June, 2002.] 4. The exemption contained in this notification shall apply to any of the said units for a period not exceeding ten years from the date of publication of this notification in the Official Gazette or from the date of commencement of commercial production whichever is later." 10. The Hon'ble Jammu & Kashmir High Court had to deal with the issue whether excise refund and interest subsidy avail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l (supra) and Ponni Sugars (supra), therefore, reveals that the apex Court had applied the above quoted dictum to determine the purpose, which the two schemes had intended to achieve by the incentive subsidies, permissible under the schemes in question in those cases. It was, therefore, in the context of respective subsidy incentive schemes in the two cases, that the subsidy in Sahney Steel (supra) was held to be revenue receipt whereas the subsidy in Ponni Sugars & Chemicals Ltd. (supra) was held as capital receipt. 17. We are supported in taking this view by the observations made by the Hon'ble Supreme Court of India in a later decision reported as Mepco Industries Ltd. vs. CIT & Anr. (2009) 227 CTR (SC) 313 : (2009) 31 DTR (SC) 305 : 2009 (7) SCC 564, where the above dictum was reiterated as follows : ".......Sahney Steel & Press Works Ltd. Etc. (supra) was a case which dealt with production subsidy, Ponni Sugars & Chemicals Ltd. (supra) dealt with subsidy linked to loan repayment whereas the present case deals with a subsidy for setting up an industry in the backward area. Therefore, in each case, one has to examine the nature of the subsidy. The judgment of this Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the State of Jammu & Kashmir have not been correctly appreciated by the Tribunal, we proceed to examine the true intent and purpose underlying the Policy and concessions contemplated by the Office Memorandum of 14th June, 2002 and the statutory notifications issued in this behalf. 22. Perusal of the Office Memorandum dt. 14th June, 2002 indicating New Industrial Policy and other concessions for the State of Jammu & Kashmir, makes it explicit that the concessions were issued to achieve twin objects viz. (i) Acceleration of industrial development in the State of Jammu & Kashmir, which had been found lagging behind in such development and (ii) Generation of employment in the State of Jammu & Kashmir. Amendment introduced to the Office Memorandum vide notification of 28th Nov., 2003 of the Government of India, Ministry of Commerce and Industry (Department of Industrial Policy and Promotion) eloquently demonstrates the Central Government's intention in extending the incentives. The Government's objective, as conveyed by Hon'ble the Prime Minister at Srinagar on 19th April, 2003, was, for creation of one lac employment and self-employment opportunities in Jammu & Ka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agged behind in industrial development, which is certainly a purpose in the public interest, the incentives provided by the Office Memorandum and statutory notifications issued in this behalf, to the appellant-assessees cannot be construed as mere production and trade incentives, as held by the Tribunal. 28. Making of additional provision in the scheme that incentives would become available to the industrial units, entitled thereto, from the date of commencement of the commercial production, and that these were not required for creation of new assets cannot be viewed in isolation to treat the incentives as production incentives, as held by the Tribunal, for the measure so taken, appears to have been intended to ensure that the incentives were made available only to the bona fide industrial units so that larger public interest of dealing with unemployment in the State, as intended, in terms of the Office Memorandum was achieved. 29. The other factors, which had weighed with the Tribunal in determining the incentives as production incentives may not be decisive to determine the character of the incentive subsidies, when it is found, as demonstrated in the Office Memorandum, amend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lable only to the bona fide industrial units so that the larger public interest of eradicating unemployment is achieved. The Court finally concluded that the incentives received by way of excise duty refund and interest subsidy are capital receipts in the hands of the assessee and therefore not chargeable to tax. 12. The ratio laid down in the aforesaid decision is squarely applicable to the very same subsidy received under the very same scheme of State of Jammu & Kashmir by the Assessee in the present case. We therefore find no grounds to interfere with the conclusions of the CIT(A). The grievance of the revenue in ground No.2 regarding the revised return of income is not valid and has rightly held by the CIT(A) the said revised return of income was valid u/s.139(5) of the Act and was acted upon by the AO. In these circumstances, we find no merit in Ground No.2 raised by the revenue. 13. In the result, the appeal by the revenue is dismissed. ITA No. 883/Kol/2014 (Assessee's appeal) 14. Ground No.1 raised by the Assessee reads as follows: "1. That the Learned Commissioner of Income Tax (Appeals) -XII, Kolkata was not justified in upholding the action of the Learned Ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rposes of section 115JB of the Act, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956). In so preparing its book of accounts including profit and loss account, the company shall adopt the same accounting policies, accounting stand and method and rates for calculating depreciation as is adopted while preparing its accounts that are laid before the company at its annual general meeting in accordance with provisions of Sec.210 of the Companies Act. Explanation below Sec.115JB of the Act provides that for the purposes of section 115JB of the Act, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by-- certain items debited in the profit and loss account in arriving at the net profit and as reduced by- certain items that are credited in the profit and loss account. In other words, all that one has to do, while computing book profits is to take the profit as per profit and loss account prepared in accordance with Companies Act, 1956 and make additions or subtraction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h had been credited to P&L a/c and not otherwise. (iii) There was a disclosure of the factum of forfeiture of share warrants amounting to Rs. 12,65,75,000/- by the Assessee in its notes on accounts vide Note No. 6 to Schedule 11 of Financial Statements for year ended 31.3.2009. Profit and loss account prepared in accordance with Part II and III of Schedule VI of Companies Act 1956, included notes on accounts thereon and accordingly in order to determine real profit of Assessee, adjustment need to be made to disclosures made in notes on accounts forming part of profit and loss account of Assessee. Profits arrived after such adjustment, should be considered for purpose of computation of book profits u/s 115JB of the Act and thereafter, AO had to make adjustments for additions/deletions contemplated in Explanation to section 115JB of the Act. 20. The Tribunal in the aforesaid decision made a reference to the decision of the Special Bench of the ITAT in the case of Rain Commodities (supra) which in turn was based on the ratio laid down in the decision of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (supra) as a case in which the income in question was taxable bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pted u/s 10 of the Act while computing total income. Thus, it is seen that the legislature seeks to maintain parity between the computation of "total income" and "book profit", in respect of exempted category of income. If the said logic is extended further, an item of receipt which does not fall under the definition of "income" at all and hence falls outside the purview of the computation provisions of Income tax Act, cannot also be included in "book profit" u/s 115JB of the Act. Hence, we find merit in the submissions made by the assessee on this legal point." 21. The admitted factual and legal position in the present case is that subsidies in question is not in the nature of income. Therefore they cannot be regarded as income even for the purpose of book profits u/s.115JB of the Act though credited in the profit and loss account and have to be excluded for arriving at the book profits u/s.115JB of the Act. We hold accordingly and confirm the order of the CIT(A) in this regard. In light of the aforesaid discussion, we are of the view that the subsidies in question should be excluded for the purpose of determination of book profits u/s.115JB of the Act. We hold accordingly and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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