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TMI Blog2020 (5) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... view of Industrial Policy 2003 of the State Government of Punjab became eligible for claiming the electricity duty exemption - claim of the assessee was that the said entitlement although accrued but had not been received during the year under consideration, as the case of the assessee was to be examined by a separate Empowered Committee constituted by the State Government. Claim of the assessee that due to pendency of verification of compliance of eligibility condition the assessee had not even filed its claim before the Department for benefit of exemption. The said claims of the assessee are not rebutted by bringing cogent material on record, therefore the electricity duty exemption entitlement although booked in the books of accounts on estimate basis was rightly reduced from the taxable income while filing the Income Tax Return. Assessee was eligible for the incentive on the basis of Industrial Policy 2003 of Government of Punjab on account of expansion of the existing unit and it shall be received by the assessee by way of adjustment in electricity bills of future consumption. Assessee had not received any benefit by way of adjustment or reimbursement for the year under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2008) 306 ITR 392 (SC) and treating the sales tax subsidy as capital receipts in nature was wrongly followed despite the observation of the AO in the assessment order that the facts of the present case are distinguishable from that of Ponni Sugar and Chemicals Ltd. vi) Whether on the facts and in the circumstances of the case the fact that sale tax subsidy which is a post production subsidy, is held to be a revenue receipt as it is an incentive given to the assessee when its business is running. vii) The appellant craves to add, amend, alter or modify any grounds of appeal at the time of hearing. 3. Ground No. (i) and (ii) of this appeal relate to the deletion of addition of ₹ 40,72,070/- made by the A.O. on account of expenses relating to technical know-how. 4. As regards to this issue Ld. Counsel for the assessee at the very outset stated that this issue is covered in favour of the assessee and that the Ld. CIT(A) deleted the addition by following the earlier order dt. 27/05/2019 of the ITAT in assessee s own case in ITA No. 756/Chd/2018 for the A.Y. 2011-12, copy of the said order was furnished which is placed on record. 5. In his rival submissions the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ique and procedure of product ion and, therefore, was in the nature of intangible asset and of enduring nature. He further stated that the Department had challenged the order of the I .T.A.T. before the Hon'ble High Court in earlier years. Accordingly, the A.O. treated the technical know-how expenses incurred and claimed by the assessee as capital in nature and disallowed the same. 9. The Ld.CIT(A) allowed the assessee s appeal on finding that identical issue had been adjudicated by the CIT(A) in earlier years in favour of the assessee and appeal of the Revenue against the order of the CIT(A) had been dismissed by the I .T.A.T. vide its order dated 26.9.2013 for assessment year 2009-10. 10. Before us, the Ld. DR heavily relied upon the order of the A.O. though fairly conceded that identical issue had been decided in favour of the assessee in assessment year 2009-10 by the CIT(A) , whose order had been upheld by the I .T.A.T. also. 11. In view of the findings of the CIT(A) that identical issue stands decided in favour of the assessee in assessment year 2009-10 by the I .T.A.T. , which has been admitted to by the Revenue also and no distinguishing facts having been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the observation of the AO in the assessment order that the facts of the present case are distinguishable from that of Ponni Sugar and Chemicals Ltd. iii) Whether on the facts and in the circumstances of the case the fact that sale tax subsidy was given to existing unit and not for setting up new unit or expansion of the same was not considered. iv) Whether on the facts and in the circumstances of the case, the fact that the subsidy receipt after the commencement of production by the unit was not required to be treated as capital in nature was not considered. 3. The facts relating to the case are that from the Notes on Accounts of the assessee company, the A.O. noted that it had been granted exempt ion on sales tax under the Punjab Industrial Policies, 1989 1996. Under this the assessee company was given sales tax exemption on account of enhancing modernization of units and furthering industrial growth in the State and as per the scheme the sales tax was deemed to have been paid. The A.O. , however, noted that in the computation of taxable income of the assessee, the assessee had reduced its taxable profits by claiming a deduct ion of ₹ 1,84,45,151/- on acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found that the scheme though not verbatim as that of West Bengal or Gujarat Scheme, but the sum and substance of all these schemes are the same, therefore, relying on our finding gives in ITA no. 773/Chd/2012, we hold that the Sales Tax Subsidy received by the assessee is Capital in nature. As the addition made by the AO is covered by the order of the Hon'ble ITAT in favour of the appellant, the addition made on this account is deleted. 5. Before us, the Ld. DR vehemently supported the order of the A.O. though he fairly conceded that this issue had been decided in favour of the assessee by the I .T.A.T. in the case of the assessee itself in earlier years. 6. In view of the same, since the issue of sales tax subsidy received by the assessee by virtue of scheme of Punjab Government has already been decided by the I .T.A.T. in the case of the assessee itself in the preceding years, holding the same to be capital in nature and with no distinguishing facts having been brought to our notice by the Ld. DR, we see no reason to interfere in the order of the Ld.CIT(A) al lowing the assessee s appeal following with order of the I .T.A.T. In view of the above, ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases to which the assessee belong. Thereafter the statutory notice dt. 25/07/2013 under section 142(1) of the Act was issued and served upon the assessee. In response the assessee furnished the return of income on 14/08/2013 declaring an income of ₹ 36,36,218/-. The A.O. issued statutory notice dt. 07/04/2014 under section 143(2) of the Act alongwith notice under section 142(1) and questionnaire dt. 07/04/2014 to the assessee. 17. During the course of assessment proceedings the A.O. noticed that the assessee had claimed the entitlement to Electricity Duty Exemption of ₹ 2,25,00,000/-as it is capital receipt. The A.O. asked the assessee to show cause as to why the said amount be not treated as the revenue receipt and taxed accordingly. In response the assessee submitted as under: Regarding the deduction of entitlement to Electricity Duty Exemption of ₹ 2,25,00,000/- claimed by the assessee during the year. It is submitted as under: The Government of Punjab has announced a number of incentive packages under its Industrial Policy 2003, one of which is the grant of upto 50% Electricity Duty Exemption to Industries for the development of Mega Projects wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for approval for issuance of eligibility certificate. Copies of some correspondence between department and assessee in this regard is enclosed. The department has also designated various agencies like Earnst Young, NITCON, Grant Thornton, Walker Chandiok Co. LLP to verify the eligibility of the assessee for the entitlement of electricity duty exemption. Grant Thornton has submitted their report to the department. Copy of the report is enclosed. Until and unless department is not satisfied with the compliance of eligibility conditions by assessee, the assessee is not entitled for the benefit of exemption from electricity duty. Therefore, since the eligibility and entitlement of the assessee to exemption from electricity duty is still under consideration of the department, the income has not accrued to the assessee in real sense. Due to pendency of verification of compliance of eligibility conditions, the assessee has not even filed its claim before the department for benefit of exemption. The assessee has included the income of ₹ 2,25,00,000/- in its P L A/c on an estimated basis which may or may not be received by the assessee. The assessee has calculated the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udice to our stand as aforesaid it is further submitted that the Company is entitled for electricity duty exemption on account of expansion at the existing unit in the state of Punjab. The said electricity duty exemption is available under the Industrial Incentive Scheme of Govt, of Punjab with a view to promote growth of Industry in the state and to push and support for consolidation and expansion of existing industries. This electricity duty exemption is based upon the fixed capital investment. The electricity duty exemption of ₹ 2,25,00,000/- in respect of increase in average consumption of electricity due to expansion of production being in the nature of subsidy is a capital receipt and thus not taxable in the hands of the assessee. The reliance has been placed on the judgment of the jurisdictional P H High Court in the case of the CIT vs Siya Ram Garg HUF in ITA no. 679/2010 decided on 14.12.2010 , wherein the Hon'ble P H High Court while placing reliance on the Judgment of the Apex Court in the case of Ponni Sugars 219 CTR 105 (2008) and distinguishing the judgment in the case of M/s Abhishek Industries Ltd. 286 ITR 1 has held that the test to determine as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dt. 07.05.2018 in ITA 37 of 2018 has discussed the purpose test expanded in a recent judgment of Hon'ble Supreme Court reported at 400 ITR 279 (CIT v/s Chaplakha Brothers). In the referred case, the terms of the scheme under which the subsidy was made available to the appellant were found relevant and discussed by the Hon'ble Court as follows:- Clause B.6.1 of the scheme made it applicable to all large scale new units and for expansion of expansion of existing units on or after July 16, 2004 . In addition, clauses B.8.4 and B.8.5 clearly indicated that certain subsidies on account of capital expenditure could not be availed of by entities opting for the incentive under the subject scheme. It was submitted on behalf of appellant that since the incentive under the present scheme, as would be evident from the terms thereof, was in lieu of certain other schemes on account of capital expenditure which may have been obtained by an assessee, the real purpose of the scheme has to be seen as augmenting the capital resources by a new or expanded unit and not to allow a lower cost of the daily functioning of an existing unit. The difference may be in degrees bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee, therefore the electricity duty exemption entitlement had been reduced from taxable income while filing the income tax return. It was further submitted that entries in the books of accounts are not decisive or conclusive for claiming any deduction or expenditure under the Income Tax Act, the entries in the books of accounts are made as per the accounting methods regularly adopted by the assessee, however, such entries are not decisive or conclusive for determining the real income for tax purposes. It was pointed out that the assessee had claimed the electricity duty exemption under the Industrial Policy 2003 of the Punjab State Government which was approved by the authorities vide letter dt. 19/03/2012 on the basis of which the assessee had included the entitlement in its income. However as per the procedure, the eligibility of the assessee for electricity duty exemption was to be judged by a separate empowered committee and the department was in the process to send the case to empowered committee for approval of eligibility certificate. Therefore the eligibility and entitlement of the assessee to exemption from electricity duty was still under consideration of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case it is not in dispute that the assessee in view of Industrial Policy 2003 of the State Government of Punjab became eligible for claiming the electricity duty exemption. However the claim of the assessee was that the said entitlement although accrued but had not been received during the year under consideration, as the case of the assessee was to be examined by a separate Empowered Committee constituted by the State Government. It was also the claim of the assessee that due to pendency of verification of compliance of eligibility condition the assessee had not even filed its claim before the Department for benefit of exemption. The said claims of the assessee are not rebutted by bringing cogent material on record, therefore the electricity duty exemption entitlement although booked in the books of accounts on estimate basis was rightly reduced from the taxable income while filing the Income Tax Return. 23. On a similar issue the Hon'ble Apex Court in the case of CIT Vs. Ponni Sugars and Chemicals Ltd. (supra) held as under: ''The character of the receipt of a subsidy in the hands of the assessee under a scheme has to be determined with respect to the purpose fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... electricity subsidy under the Raj as than Investment Promotion Scheme was held to be a capital receipt by the CIT(A). It was held that this was granted in larger public interest and it was linked to capital interest, a similar scheme was that the amounts received in the similar scheme have to be capital receipt by a Division Bench of this Court in Commissioner of Income Tax, Ajmer vs. Shree Cement [D.B. Income Tax Appeal No.204/2010, decided on 22.08.2017]. This Court notices that the ratio of the rulings in Ponni Sugars Chemicals Ltd.(supra) and Sahney Steel Press Works Ltd. Ors. (supra), applied. Consequently, we find no infirmity with the approach of the ITAT on this aspect as well. 24. In the present case also the assessee was eligible for the incentive on the basis of Industrial Policy 2003 of Government of Punjab on account of expansion of the existing unit and it shall be received by the assessee by way of adjustment in electricity bills of future consumption. However the assessee had not received any benefit by way of adjustment or reimbursement for the year under consideration, so it was a hypothetical income which may or may not materialize to its money value. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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