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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 ..... 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. - I.T.A Nos. 742 & 743/Kol/2019 - - - Dated:- 28-2-2020 - Shri J. Sudhakar Reddy, AM And Shri S. S. Godara, JM For the Appellant : Shri S.D. Verma, Advocate For the Respondent : Smt. Ranu Biswas, Addl. CIT ORDER PER SHRI S. S. GODARA: These two assessee s appeals for assessment years 2013-14 and 2014-15 arise against the Principal Commissioner of Income Tax -4, Kolkata s separate orders; both dated 12.03.2019 passed in proceedings u/s 263 of the Income Tax Act, 1961 (in short the Act ). Heard both the parties. Case files as wel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, the same are erroneous causing prejudice to interest of the Revenue. This leaves the assessee aggrieved. 4. We have given our thoughtful consideration to rival pleadings against and in support of PCIT s assumption of impugned revision jurisdiction. There can hardly be any dispute about the settled legal proposition in view of hon ble apex court s landmark decisions in M/s Malabar Industries Co. vs. CIT [2000] 243 ITR 83 (SC), CIT vs. Max India Limited: 268 ITR 128 (P H) CIT v Kwality Steel Suppliers Complex: 395 ITR I (SC) that for the CIT or the PCIT; the case may be, can assumed his revision jurisdiction in case the assessment in question both erroneous as well as causing prejudice to interest of the Revenue; simultaneously. And also that each and every loss of revenue does not attract the revision proceedings in case the Assessing Officer has adopted one of the two plausible views. We keep in mind this settled legal proposition and proceed to deal with the identical facts in these two appeals. 5. We have sufficiently indicated that the PCIT has adopted twin reasoning of the impugned excise duty refund and interest subsidy to be included in computation of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State of Jammu Kashmir had lagged behind in industrial development, there was need for structured interventionist strategies to accelerate the industrial development of the State boosting investors' confidence. The new initiatives, in terms of the memorandum were aimed at providing requisite incentives as well as enabling environment for industrial development, improving availability of capital and increase in market access so as to give a fillip to private investment in the State. These fiscal incentives were to be provided to the new industrial units and substantial expansion of existing units. The new industrial units and existing industrial units on their substantial expansion, as defined, set up in growth center, industrial infrastructure development centers and other locations like industrial estates, parks, export processing zones, commercial estates, etc., as notified by the Central Government, were entitled to 100 per cent excise duty exemption for a period of 10 years from the date of commencement of commercial production. All new industries in the notified locations were eligible for capital investment subsidy @ 15 per cent of their investm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 3, appearing in the two notifications i.e. Central Excise Notification Nos. 56 of 2002 and 57 of 2002 dt. 14th Nov., 2002, which may be relevant to understand the issue raised in the case, needs to be noticed. It reads thus : .......... 3. The exemption contained in this notification shall apply only to the following kind of units namely : (a) New industrial units which have commenced their commercial production on or after the 14th day of June, 2002. (b) Industrial units existing before the 14th day of June, 2002, but which have : (i) undertaken substantial expansion by way of increase in installed capacity by not less than twenty-five per cent on or after the 14th day of June, 2002; or (ii) made new investments on or after the 14th day of June, 2002, and such new investment is directly attributable to the generation of additional regular employment of not less than twenty-five per cent over and above the base employment limit, subject to the conditions that : (1) the unit shall not reduce regular employment after claiming exemption, and once such employment is reduced below one hundred and twenty-five per cent of the base employment limit, such i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2008) 306 ITR 392 (SC), held as follows: 15. After going through the two judgments, we find the ratio in Sahney Steel case (supra) and approval thereof in Ponni Sugars Chemicals Ltd. (supra), to have been spelt out, in the following para of the judgment delivered by the Hon'ble Supreme Court of India in Ponni Sugars Chemicals Ltd. case (supra). It reads thus : The importance of the judgment of this Court in Sahney Steel case (supra) lies in the fact that it has discussed and analysed the entire case law and it has laid down the basic test to be applied in judging the character of a subsidy. That test is that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. The main eligibility condition in the scheme with which we are concerned in this case is that the incentive must be utilized for repayment of loans taken by the assessee to set up new units or for substantial expansion of existi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing subsidy for setting up industries in backward areas. 18. Now coming to the findings of the Tribunal on the issue, we find that the Tribunal has referred to various paras appearing in the two judgments to support its view that the receipts in the hands of the assessees were production incentives and thus revenue receipt and not capital receipt. This, however, appears to have been done without appreciating that the observations made in those paras were in the context of the schemes as such, which the apex Court was considering to find the intent and purpose of the incentives under those schemes, and not the law laid down as such. 19. The Tribunal has relied upon five factors to hold the incentives in question as production incentives but without dealing with that part of the scheme, whereby unemployment in the State had been intended to be eradicated creating atmosphere for accelerated industrial development to provide employment opportunities to deal with the social problem of unemployment. This in our view was a lopsided interpretation of the New Industrial Policy and concessions formulated by the Central Government for the State of Jammu Kashmir vide Office M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided by the industrial units to daily wagers or casual employees engaged in the units. 24. A close reading of the Office Memorandum and the amendment introduced thereto with para No. 3 appearing in the Central Excise Notification Nos. 56 and 57 of 11th Nov., 2002, thus, makes it amply clear that the acceleration of development of industries in the State was contemplated with the object of generation of employment in the State of Jammu Kashmir and the generation of employment, so contemplated, was not only casual or temporary, but was on the other hand, of permanent nature. 25. Considered thus, the paramount consideration of the Central Government in providing the incentives to the new industrial units and substantial expansion of the existing units, was the generation of employment through acceleration of industrial development, to deal with the social problem of unemployment in the State, additionally creating opportunities for self-employment, hence a purpose in public interest. 26. In this view of the matter, the incentives provided to the industrial units, in terms of the New Industrial Policy, for accelerated industrial development in the State, for creation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst the law laid down by Hon'ble Supreme Court of India in Sahney Steel (supra) and Ponni Sugars case (supra). 31. The finding of the Tribunal that the incentives were revenue receipt is, accordingly, set aside holding the incentives to be capital receipt in the hands of the assessees. 11. The conclusion of the Hon'ble High Court is that the Excise refund and interest subsidy received in pursuance of New Industrial Policy of the Government have to be considered in the light of the Office Memorandum dt. 14th June, 2002, and the said Office Memorandum makes it explicit that the concessions were given to achieve twin objects viz., acceleration of industrial development in the State of Jammu Kashmir and generation of employment in that State. The Hon'ble High Court further held that a close reading of the Office Memorandum and the amendments introduced thereto with para 3 of Central Excise Notification Nos. 56 and 57, dt. 11th Nov., 2002, makes it amply clear that the generation of employment so contemplated was not casual or temporary but of permanent nature and the paramount consideration of the Central Government in providing the incentives to new industri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t arises for consideration on the basis of the grievance projected by the Assessee in the aforesaid ground of appeal is as to whether the interest subsidy and excise duty refund which were held by the CIT(A) to be capital receipts not chargeable to tax can still be considered as part of the book profits u/s.115JB of the Act, even though these sums have been credited in the profit and loss account and treated as income and even though the exclusion of these sums for the purpose of computing book profit u/s.115JB has not been specifically provided under explanation below Sec.115JB (2) of the Act. 16. In rejecting the claim of the Assessee in this regard, the CIT(A) held that these sums have been credited in the profit and loss account and treated as income and exclusion of these incomes (sums) for the purpose of computing book profit u/s.115JB has not been specifically provided under explanation below Sec.115JB (2) of the Act. 17. We have heard the submission of the learned counsel for the Assessee. As far as the excluding the subsidies in question from computation of book profit u/s 115JB of the Act is concerned, the provisions of Sec.115JB of the Act have to be looked at. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eipts not chargeable to tax. In view of the aforesaid decision of the Hon'ble High Court rendered on identical facts as that of the Assessee's case, there can be no doubt that subsidies in question does not have any character of income. 19. When a receipt is not in the character of income, can it form part of the book profits for the purpose of Sec.115JB of the Act, is the question that arises for consideration. The ITAT Kolkata Bench in the case of Binani Industries Ltd. ITA No.144/Kol/2013 order dated 2.3.2016 reported in (2016) 178 TTJ 0658 (Kol) : (2016) 137 DTR 0185 (Kol)(Trib) had to deal with a case where the question was as to whether receipts on account of forfeiture of share warrants amounting to ₹ 12,65,75,000/-, being a capital receipt, would be liable for taxation u/s 115JB. The tribunal after referring to several decisions on the issue viz., the Hon'ble Apex Court in case of Indo Rama Synthetics (I) Ltd vs CIT 330 ITR 336 (SC), Apollo Tyres Ltd. 255 ITR 273 (SC), Special Bench ITAT in the case of Rain Commodities Ltd. Vs. DCIT (2010) 131 TTJ (Hyd)(SB) 514, ITAT Luknow Bench in the case of ACIT vs. L.H.Sugar Factory Ltd and vice versa in ITA Nos. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sugar Factory Ltd.(supra), where receipts on account of carbon credits which were capital receipts not chargeable to tax and hence not in the nature of income were held not included in the book profits. The Bench also referred to the decision of the Mumbai Bench of the ITAT in the case of Shivalik Venture Pvt. Ltd. (supra) which was a case where the question was whether profits arising on transfer of a capital asset by a company to its wholly owned subsidiary company which is not treated as income u/s 2(24) of the Act and since it does not form part of the total income u/s.10 of the Act and therefore does not enter into computation provision at all under the normal provisions of the Act, the same should be considered for the purpose of computing book profit u/s 115JB of the Act. The Mumbai Bench held as follows: 26.We shall now examine the scheme of the provisions of sec. 115JB of the Act. It is pertinent to note that the provisions of sec. 10 lists out various types of income, which do not form part of Total income. All those items of receipts shall otherwise fall under the definition of the term income as defined in sec. 2(24) of the Act, but they are not included in tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in nature as per hon ble apex court s judgment. We find no reason to accept the Revenue s instant last argument as well since we are dealing with assessee s eligible unit(s) in Jammu Kashmir and learned coordinate bench had dealt with the very scheme than that for providing an impetus to industries in north-eastern region forming subject matter of CIT vs. Meghalaya Steel Ltd. (supra). We wish to reiterate here that the hon ble Jammu Kashmir high court s judgment in Shri Balaji Alloys (supra) stands affirmed in (2017) 80 taxmann.com 229(SC) wherein their lordships have taken note of Meghalaya Steels (supra) . We thus conclude 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. 6. 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 benches take note of (2016) 178 TTJ 658 Binani Industries Ltd vs. CIT, Indo Rama Syntehetics (I) Ltd. 330 ITR 336(SC), A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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