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TMI Blog2019 (3) TMI 1833X X X X Extracts X X X X X X X X Extracts X X X X ..... e any enquiry from the National Multi Commodity Exchange, Ahmedabad or even from the concerned broker Dhairya Commodities Pvt. Limited to find out the factual position - addition made by the Assessing Officer on this issue was not sustainable . Characterization of income - sales tax incentives as capital receipt or as declared by the assessee as revenue receipt in the return of income - HELD THAT:- We are of the view that the subsidy in question received by the assessee in the form of refund of sales tax under the West Bengal Incentive Scheme, 2004 was capital in nature as the purpose of the same was for the expansion of the existing industry of the assessee. We also hold that merely because the said subsidy was to be received by the assessee only after the commencement of production would not change its character, which otherwise was capital in nature. We accordingly uphold the impugned order of the ld. CIT(Appeals) giving relief to the assessee on this issue. MAT computation u/s 115JB - treatment to be given to the sales tax subsidy while computing the book profit under section 115JB - HELD THAT:- This issue is squarely covered in favour of the assessee and against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the alleged undisclosed profit from Dhairya Commodities Pvt. Limited. 3. The assessee in the present case is a Company, which is engaged in the business of Processing and Sale of Edible Oil and Cultivation and Sale of Medicinal Plants and Herbal Products. The return of income for the year under consideration was filed by it on 30.09.2011 declaring a total income of ₹ 1,39,00,760/-. As per the information received by the Assessing Officer from DDIT (I CI), Kolkata, the assessee during the year under consideration had made transactions with National Multi Commodity Exchange, Ahmedabad and had booked a profit of ₹ 8,85,36,587/- on such transactions made through Broker Dhairya Commodities Pvt. Limited. As found by the Assessing Officer during the course of assessment proceedings, a profit only ₹ 8,55,82,593/- was declared by the assessee-company in its return of income. When the assessee was called upon by the Assessing Officer to explain the difference of ₹ 29,53,995/-, a copy of ledger account showing the transactions with Dhairya Commodities Pvt. Limited was submitted by the assessee to show that the Net Profit of ₹ 8,55,82,593/- only as shown w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed upon by the Ld.AO. 4. It is further observed that all the transactions were duly settled by bank and duly recorded in the books of Accounts of the appellant as is evident from the details as submitted by appellant. Thus, I am not able to agree with the contention of the Ld. AO that that merely because the DDIT report states that the amount of undisclosed income of ₹ 8,55,82,593/-, the same needs to be taken without further verification. In any case, the Ld. AO has not added the entire figure on the basis of the allegation; he has merely added back the impugned difference of the figures. I find that this has been done rather mechanically and the appellant's submissions during the appeal proceedings have not been specifically commented upon by the Ld.AO. On the other hand, the appellant has been able to document and support its transactions for the amounts stated, and the same have not been disputed by the Ld. AO. As such, in a situation where the Ld. AO has made any addition, the reasons for such addition [based on a mere difference of figures as supplied to him by the Ld. DDIT were to be evidenced on records, and mere dependence on the figure of the DDIT would not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessment proceedings at page no. 20 of the paper book to show that the Net Profit of ₹ 8,55,82,593/- was actually earned by the assessee through Dhairya Commodities Pvt. Limited. He also invited our attention to the copy of relevant ledger account placed at page no.25 to show that the profit earned by the assessee from the transactions made through Dhairya Commodities Pvt. Limited was only ₹ 655.82 lakhs and not ₹ 885.36 lakhs as stated to be reported by the Investigation Wing. He contended that the assessee is not aware as to how the figure of ₹ 885.36 lakhs was arrived at either by the Assessing Officer or by the Investigation Wing. He contended that the relevant details of the said figure were never given to the assessee and no enquiry whatsoever was made by the Assessing Officer from Dhairya Commodities Pvt. Limited to find out the exact amount of profit. He contended that the addition made by the Assessing Officer on this issue was thus not well founded and the ld. CIT(Appeals) was fully justified in deleting the same. 7. We have considered the rival submissions and also perused the relevant material available on record. It is observed that cer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e form of sales tax assistance as Industrial Promotional Assistance (IPA) under the West Bengal Incentive Scheme, 2004. The said incentive was set off by the assessee against the sales tax liability payable to the Government and net amount was credited to the Profit Loss Account in the books of account. In the computation of total income filed along with the return of income, the said amount was not excluded by the assessee while computing the total income under the normal provisions of the Act as well as the book profit under section 115JB of the Act. Even during the course of assessment proceedings, no such claim was made by the assessee for the exclusion of incentive amount being capital receipt. After realising this inadvertent and bonafide mistake, a claim was made by the assesese for the first time before the ld. CIT(Appeals) that the incentive in the form of sales tax assistance received as Industrial Promotional Assistance was for expansion of existing Industrial Undertaking involving huge capital outlays and the same being capital receipt was liable to be excluded while computing the total income under the normal provisions of the Act as well as the book profit under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. If the appellate commissioner is settsnea, he would be acting within his jurisdiction in considering the new claim in all its aspects. While permitting the additional ground he must be satisfied that the ground raised was bonafide and that the same could not have been raised earlier for good reasons. 2.3 The above decision of the Apex Court in the Jute Corporation (Supra) has been followed in the subsequent decision of National Thermal Power Co. Ltd. -VS.- CIT (1998) 229 ITR 383(SC), to hold that, where a tribunal is only required to consider a question of law arising from the facts, which are on records, there is no reason why such question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of the assessee. 2.4 The latest decision of the Apex Court in the case of Goetze India) Ltd. -VS.- CIT (2006) 284 ITR 323 (sC). the Apex Court dealt with the power of the A O. to entertain a claim made before the A.O., otherwise than through revised return filed on time and held that such claim cannot be entertained by AO. However, while concluding, the Apex Court made It abundantly clear that the said decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an also be placed on the decision in case of Pruthvj Brokers Shareholders Pvt. Ltd. 349 ITB 336 (Born HC1. wherein it has been held by Hon'ble High Court that it is a well settled principle that assessee is entitled to raise not merely additional legal submissions before the appellate authorities, but is also entitled to raise additional claims before them . 10. The ld. CIT(Appeals) found merit in the contention raised on behalf of the assessee-company and admitted the new claim of the assessee for adjudication on merit by observing as under:- 15. The submissions of the appellant were duly considered and found to be acceptable. The various judicial pronouncements referred to by the appellant / Ld. A.R in my considered opinion are directly applicable to its case. Moreover, I find that the decision of the Hon'ble Bombay High Court in the case of Pruthvi Brokers Shareholders Ltd in ITA No. 3908 of 2010 is also relevant, wherein it was held that the taxpayer is entitled to claim the deduction before the Appellate Authorities which was not claimed in the original or revised income-tax return. The aforesaid decision was rendered after considering the Apex Court's d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wth of industrially backward areas, it was in the nature of a capital receipt not chargeable to tax. 12. Reliance was placed on behalf of the assessee on the decision of the Hon ble Supreme Court in the case of Sahney Steel Works Limited vs.- CIT [228 ITR 253], wherein it was held that if the object of the assistance under the Subsidy Scheme was to enable the assessee to set up a new unit or expand the existing unit, then the receipt was on capital account. Reliance was also placed by the assessee on the decision of the Hon ble Calcutta High Court in the case of CIT vs.- Rasoi Limited [335 ITR 438], wherein it was held that the incentive granted to enable the specified industry to set up new units, expand their capacities, modernise their business, etc. was a capital receipt and merely because incentive was paid by way of refund of sales tax, it did not amount to revenue receipt. Various other case laws were also cited on behalf of the assessee in support of its contention that for determining the nature of subsidy in the hands of the assessee, the purpose and objective of the Scheme under which the subsidy was given is of fundamental importance and it is alone the ultimate de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany (M/s. S.K. Agrawal Co., Chartered Accountants) and has commented in Note 20 of SIGNIFICATNT ACCOUNTING POUCIES NOTES ON ACCOUNTS that the subsidy has been accounted for in the books for the purpose of payment of Excise duty on Electricity of ₹ 67.73 lakhs and Sales Tax Incentives of ₹ 2494.67 lakhs. (iii) As per the Accounting Standard 12, Paragraph 5.1, if the grant/subsidy is of capital nature the same is to be treated as a part of shareholders fund and if it is of income nature, the same is to be taken as income over one or more period. Here treatment of the subsidy received as income by the assessee itself debars it from claiming the same as a capital receipt in the computation of income . 15. When the remand report submitted by the Assessing Officer was confronted by the ld. CIT(Appeals) to the assessee, a rejoinder was filed by the assessee and after taking into consideration the entire material available on record as well as the submissions made by the assessee as well as the Assessing Officer, the ld. CIT(Appeals) allowed the claim of the assessee that the incentive received in the form of sales tax subsidy was a capital receipt not chargeable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant for setting up industry in the backward region of the State of West Bengal, constitutes capital receipts in the hand of the appellant as it has been granted for carrying out capital investments in backward areas of the State and hence not taxable under normal provision of the Act . 16. The ld. CIT(Appeals) also held that the amount of sales tax subsidy was liable to be excluded while computing the book profit under section 115JB of the Act for the following reasons given in para no. 6 of his impugned order:- 6. Further, since the subsidy in question is not in the nature of income, the same, in my considered view 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. The decision of Hon'ble Apex Court in case of Padmaraje R. Kadambande (supra) also supports the view that capital receipts are not income within the definition of sec 2(24) of the Act and are not at all chargeable under the Income Tax Act, 1961. Thus, in view of the above discussion, and by placing reliance on the decision of ACIT -vs.- Shre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidy received after the commencement of production is a revenue receipt. He also relied on the decision of the Hon ble Delhi High Court in the case of CIT vs.- Bhushan Steel Pvt. Limited [398 ITR 216] to contend that similar subsidy received by the assessee under U.P. State Subsidy Scheme to achieve larger goal of industrialisation was held to be revenue in nature chargeable to tax on the ground that the assessee had flexibility of using amount of subsidy for any purpose, not necessarily capital. He also relied on the decision of the Hon ble Madras High Court in the case of CIT vs.- Keracol Chlorides Limited [33 taxmann.com 628], wherein it was held that where subsidy was granted for production and not for setting up of industry, the same should be treated as a revenue receipt. He also relied on the decision of the Hon ble Allahabad High Court in the case of K.M. Sugar Mills Limited vs.- CIT [47 taxmann.com 367], wherein it was held that the subsidy given to compensate the assessee in running his business was revenue in nature. He contended that even the decision of the Hon ble Supreme Court in the case of Sahney Steel Works Limited (supra) relied upon by the assessee in suppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strial promotion for expansion of capacities, modernisation and improving the marketing capabilities was held to be a capital receipt. He contended that as held by the Hon ble Calcutta High Court in the case of Rasoi Limited (supra), it is the object for which the subsidy/assistance is given that determines the nature of the incentive subsidy and the form on the mechanism through which the subsidy was given is irrelevant. He contended that since the object of the subsidy in the said case was for expansion of the capacities, modernisation and improving the marketing capabilities, it was held by the Hon ble Calcutta High Court that it was a capital receipt and merely because the amount of subsidy was equivalent to 90% of the sales tax paid by the beneficiary did not imply with the same was in the form of refund of sales tax paid. 22. The ld. Counsel for the assessee invited our attention to the West Bengal Incentive Scheme, 2004 as published in the Official Gazette to point out that the object of the said Scheme was to extend incentive for promotion of the industry in the State. He also pointed out that the said Scheme was applicable to all large/small scale projects and tourism u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end that the refund of sales tax paid on raw materials or finished products must be treated as revenue receipt in the hands of the assessee. He also relied on the decision of the Hon ble Supreme Court in the case of CIT vs.- Chaphalkar Brothers [400 ITR 279] and submitted that the purpose test applied in the case of Sahany Steels Press Works Limited has been reiterated by the Hon ble Supreme Court while determining the nature of incentive/assistance. As regards the decision of the Hon ble Delhi High Court in the case of Bhusan Steels Strips Limited (supra) relied upon by the ld. D.R. in support of the revenue s case, he submitted that the operation of the said decision has already been stayed by the Hon ble Supreme Court as per the Interim Order passed on 20.11.2017 in SLP No. 30728 to 30732/ 2017. 25. As regards the treatment to be given to the subsidy in question while computing the book profit of the assessee-company under section 115JB of the Act, the ld. Counsel for the assessee contended that even though the said amount was credited by the assessee-company to its Profit Loss Account, the same being capital in nature not chargeable to tax under the Income Tax Act, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant material available on record. As regards the preliminary objection raised on behalf of the Revenue challenging the action of the ld. CIT(Appeals) in entertaining the new claim made by the assessee for treating the subsidy in question received during the year under consideration as capital receipt not chargeable to tax, it is observed that this issue is squarely covered in favour of the assessee, besides the various judicial pronouncements cited on behalf of the assessee and relied upon by the ld. CIT(Appeals) in his impugned order, by the decision of the Coordinate Bench of this Tribunal in the case of DCIT vs.- Indian Oil Petronas Pvt. Limited rendered vide its order dated 31.05.2018 in ITA No. 157/KOL/2017, wherein it was held by the Tribunal by relying on the decision of the Hon ble Supreme Court in the case of National Thermal Power Co. Limited vs.- CIT (229 ITR 383) as well as the decision of the Hon ble Calcutta High Court in the case of Maynak Poddar (HUF) vs.- WTO (262 ITR 633) that his jurisdiction was rightly exercised by the ld. CIT(Appeals) in entertaining the additional ground raised by the assessee claiming exclusion of capital subsidy received by way of sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure chargeable to tax. It was, however, clarified by the Hon ble Supreme Court that the subsidy in that case had not been granted for bringing into existence any new asset. It was further clarified by the Hon ble Supreme Court that the character of the subsidy in the hands of the recipient, whether revenue or capital, will have to be determined by having regard to the purpose for which the subsidy is given. Explaining further with illustration, it was observed by the Hon ble Supreme Court that if the Scheme was that the assessee will be given refund of sales tax on purchase of machinery as well as on raw materials to enable the assessee to acquire new plants and machinery for further expansion of its manufacturing capacities in backward areas, the entire subsidy must be held to be a capital receipt in the hands of the assessee. After taking note of both these decisions of the Hon ble Supreme Court in the case of Sahany Steel Press Works Limited (supra) and Ponny Sugar Chemicals Limited (supra), Hon ble Calcutta High Court has held in the case of Rasoi Limited (supra) that the subsidy received by the assessee from the Government of West Bengal under the Scheme of Industrial Prom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cited by the ld. Representatives of both the sides, as discussed above, is that the character of subsidy in the hands of the recipient, whether capital or revenue, is required to be determined after having regard to the purpose for which the subsidy was given and the mode and source of payment as well as the point of time when the subsidy was paid is not relevant. Keeping this position in mind, let us now see the purpose for which the subsidy in question was given to the assessee in the form of sales tax refund under the West Bengal Incentive Scheme, 2004. As per the West Bengal Incentive Scheme, 2004 notified in the Official Gazette, it was meant to extend incentive for promotion of industries in the State of West Bengal and the same was applicable to all Large/Small Scale Projects and Tourism Units in Large/Small Scale Sector to be set up and also expansion project of existing Units on or after 1st April, 2004. The object of the said Scheme thus was to promote setting up and expansion of industries and the subsidy was made available to the existing industries for undertaking substantial expansion. Under the said Scheme, Mega Projects were not eligible for the interest subsidy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 33. It is pertinent to note that the similar issue had come up for consideration before the Delhi Bench of this Tribunal in the case of Pepsico India Holdings Pvt. Limited (supra) cited by the ld. Counsel for the assessee. In the said case, industrial promotional assistance in the form of subsidy by way of refund of sales tax paid was received by the assessee under the same Scheme, i.e. West Bengal Incentive Scheme, 2004 and the issue raised was relating to the taxability of the subsidy received by the assessee. While deciding the said issue, the Tribunal took note of the object of the West Bengal Incentive Scheme, 2004, which was found to be to promote setting up and expansion of projects/industry and keeping in view the said object and the ratio laid down by the Hon ble Supreme Court in the case of CIT vs.- Ponny Sugar Chemicals Limited (supra) as well as in the case of CIT vs.- Chaphalker Brothers (supra), it was held by the Tribunal that the subsidy received by the assessee under the West Bengal Incentive Scheme of 2004 was capital in nature and the same could not be taxed as revenue receipt. 34. Having regard to all the relevant facts of the case and keeping in vi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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