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TMI Blog2021 (12) TMI 1352X X X X Extracts X X X X X X X X Extracts X X X X ..... subsidy is linked with the amount of investment made in the eligible unit. Simply because the subsidy has been disbursed in the form of refund of VAT and CST, it will not alter the purpose of granting the subsidy, which is nothing but establishment of new industrial units in less developed areas of the State. The authorities below have been swayed by the fact that the subsidy was granted post commencement and is in the nature of refund of VAT and CST and overlooked the purpose of its granting, which is nothing but momentum in industrial pace in less developed parts of the State. Testing the factual panorama on the touchstone of the ratio laid down by the Hon ble Supreme Court in the above referred cases, we are of the considered opinion that the subsidy of Rs.89.73 crore is a capital receipt and not chargeable to tax. It is relevant to mention that we are concerned with the A.Y. 2014-15. The Finance Act, 2015 has inserted clause (xviii) to section 2(24) w.e.f. 01-04-2016 providing that the assistance in the form of subsidy or grant of cash incentives etc., other than the subsidy which has been taken into consideration in determining the actual cost of the asset in terms of Expl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not controvert the argument of the assessee. Respectfully following the precedent, we order to exclude this company from the list of comparables. This part of the ground is, therefore, allowed. Next comparable assailed by the assessee is JCB India Limited, which was included by the TPO in the list of comparables - No relief was allowed by the DRP. The ld. AR fairly submitted that the inclusion of JCB India Limited in the list of comparables was challenged by the assessee for the immediately preceding assessment year as well but the Tribunal has upheld the decision of the authorities below in this regard. We have perused the order passed by the Tribunal on this issue for the immediately preceding assessment year. Relevant discussion has been made in para 8 of the order. After elaborate analysis of the factual and legal position, the Tribunal has finally held that JCB India Limited was rightly included in the list of comparables. Following the same view, we countenance the inclusion of this company in the list of comparables. This part of the ground is, therefore, dismissed. Transfer pricing adjustment on entity level as against the proportionate adjustment - AR subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of operating revenue, which was also offered for taxation. The TPO opined that the subsidy was in the nature of extraordinary item of income which required exclusion from the operating revenue. By doing so, he computed assessee s PLI at (-) 4.01%. After making certain inclusions in and exclusions from the list of comparables drawn by the assessee, the TPO finally selected five companies as comparable with their mean adjusted PLI at 2.25%. Considering the same as benchmark, he recommended transfer pricing adjustment of Rs.39,43,92,035/-, which was notified in the draft order. The assessee contended before the Dispute Resolution Panel (DRP) that the subsidy received by it ought to have been considered as operating revenue. At the same time, it was also submitted that the subsidy should be considered as a capital receipt not liable to tax. The DRP rejected the assessee s contention on both the scores and treated the subsidy as a revenue receipt and also upheld its exclusion from the operating revenue for the purpose of the PLI determination. Certain directions were rendered in the context of comparables. While giving effect to such directions of the DRP, the AO, in the final asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venues included in the Statement of Profit and loss account. The resultant figure of loss has been taken as the opening point for the computation of total income, which means that the subsidy has been offered for taxation. The assessee also treated it as an item of operating revenue for the purposes of computing the PLI under the Manufacturing segment. Though the treatment of the subsidy as a revenue item was left intact by the AO, the TPO opined that the subsidy was an extraordinary item of income and hence liable to be excluded from the ambit of operating revenue. The contention of the assessee before the DRP that the subsidy should be considered as a capital receipt also came to be jettisoned which upheld its inclusion in the operating revenue. The net effect of these proceedings is that the subsidy received by the assessee amounting to Rs.89.73 crore has been taxed as a revenue receipt and has also been removed from the operating revenues in the computation of PLI from the Manufacturing segment. 6. The primary contention of the assessee is that the subsidy is in the nature of capital receipt and hence, should be excluded. We have gone through the nature of subsidy granted to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the PSI, 2007 emphatically manifests that the subsidy has been granted to encourage industrial growth in less developed areas of the State. The quantification of subsidy is linked with the amount of investment made in setting up of the eligible units. However, the disbursal of the subsidy is in the form of refund of VAT and CST paid on sale of excavators. Taking assistance from the Note given in the Financial statements, the assessee claimed before the DRP that the subsidy was a capital receipt and hence not chargeable to tax. The DRP rejected the contention of the assessee on the ground that it was received after setting up of the unit and was in the form of refund of VAT and CST. In our considered opinion, the decisive factor for considering the nature of subsidy as a capital or revenue receipt is the purpose for which the subsidy has been granted and not the manner of its disbursal. The Hon ble Supreme Court in Sahney Steels and Press Works vs. CIT (1997) 228 ITR 253(SC) has held in the facts of that case that the operational subsidy received after the commencement of business was a revenue receipt but simultaneously laid down the ratio decidendi of applying the purpose tes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e TNMM. 9. The ld. AR contended that in the hue of the amendment to section 2(24) of the Act, the assessee offered the subsidy as a revenue receipt chargeable to tax for the A.Y. 2016-17 and also claimed it as operating revenue for the purpose of the ALP determination, which issue is sub judice before the Tribunal. We desist from commenting on the treatment of subsidy as an item of operating revenue or otherwise because it is not required for the disposal of the present appeal, for which the subsidy has been held to be a non-operating revenue on the ground that it is a capital receipt and does not form part of the total income of the assessee. 10. To sum up, the subsidy of Rs.89.73 crore is capital receipt not chargeable to tax and at the same time it will not be included in the operating revenue for determining the ALP of the Manufacturing segment. 11. Another issue taken up by the assessee in the appeal is against not considering the impact of excess Custom Duty on imports while computing operating margin from the Manufacturing operations. At the outset, the ld. AR submitted that similar issue was raised in the assessee s appeal for the assessment year 2011-12 and the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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