9911796707
TMI Blog2022 (4) TMI 1460X X X X Extracts X X X X X X X X Extracts X X X X ..... e the matter has been already examined by both the lower authorities and respective conclusions drawn thereon by them , though contrary to each other, we hold that there is no need for these appeals to be remitted back to the file of ld. AO for denovo adjudication, as prayed by the ld. Special Counsel for the Revenue. First, in the nature of higher free sale sugar quota and second, in allowing the manufacturer to collect Excise duty on sale price on the free sale sugar in excess of the normal quota, but to pay to the Government only the Excise duty payable on the price of levy sugar. The Hon ble Supreme Court PONNI SUGARS CHEMICALS LTD. [ 2008 (9) TMI 14 - SUPREME COURT] in para 14 of its decision had held that character of receipt of subsidy has to be determined with respect to the purpose for which the subsidy is given. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. In fact, the Hon ble Supreme Court while rendering this decision had duly considered its earlier decision in the case of Sahney Steel and Press Works Ltd [ 1997 (9) TMI 3 - SUPREME COURT ] and had absolutely no quarrel with that judgement. R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incentive, etc, by whatever name called, received by the assessee could be construed as capital receipt not chargeable to tax in the facts and circumstances of the case. 3. The brief facts of this issue are that the assessee has received sales tax/entry tax/purchase tax/VAT, etc exemptions/incentives under respective schemes from the State Governments of Maharashtra, Madhya Pradesh, Rajasthan and Haryana as the Assessee had set up units in notified areas of those State. During the Asst Year 1996-97, the assessee had availed sales tax exemption incentive of Rs 17,50,22,940/- for setting up new industry in backward areas under the scheme of various state governments. The assessee filed its original return and offered the subsidy as trading receipt. The assessments were completed treating the subsidy as a revenue receipt , but the ld. AO resorted to make certain additions / disallowances on certain other issues. This was agitated by the assessee upto Tribunal. Subsequently, the assessee filed an additional ground before the Tribunal claiming the sales tax exemption as a capital receipt, relying on the decision of Special Bench of Mumbai Tribunal in the case of DCIT v. Reliance Indust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide 1.21 - - - - 4.4.2 Chloro Sulphuric Acid Division 1.60 1.07 0.65 - - 4.5 New Industry Notification No.A-3-24-94-ST-V(112) dated 06.10.1994 under Madhya Pradesh Sthaniya Khstra Me Mal ke Pravesh Pare Kar Adhiniya, 1976 4.5.1 Caustic Soda Memrance Cell 7.32 23.43 41.99 42.42 4.54 Total 1,750.23 3,185.12 3,605.97 3,314.36 4,421.81 3.3. The said exemption schemes are implemented by the respective sales tax authorities. For example, State Industrial and Investment corporation of Maharashtra ("SICOM") is the implementing agency in Maharashtra. Exemption is granted to the assessee by way of eligibility certificate where various conditions are stipulated, including requirement of maintaining proper accounts, utilization etc. Generally, the purpose behind the grant of such schemes is for development of backward areas as well as industrial development and generating employment. For example, the preamble of the Package Scheme of Incentive ("PSI"), 1988 dated 01.10.1988 by State of Maharashtra is as under:- "In order to achieve dispersal of industries outside the Bombay- Thane- Pune Belt and to attract them to the underdeveloped and deve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the ld. AO which are tabulated in the index pages 1-6 of Paper Book running from Page Nos. 368 to 748. In particular, the assessee filed the following documents for each of the subsidy / incentive scheme:- a. Sales tax/entry tax scheme or State Government notification; b. Eligibility certificate, wherever applicable; c. Entitlement certificate, wherever applicable; d. Sales tax assessment order/ Sales Tax Return/Entry tax returns/etc; The assessee further mapped all the documents with the scheme-wise amount of exemption claimed. The evidence in this regard is enclosed in Page 1167 of the Paper Book 4 filed. The index of the factual submissions made before the ld. AO has also been filed by the assessee vide Paper Book 1, the relevant page numbers of which are as follows: A.Y. Scheme-wise documents filed before the AO (Paper Book 1, Pg. No.) 1996-97 31-33 1997-98 37-40 1998-99 47-49 1999-00 51-54 2000-01 55-58 3.6.1. The ld. AO passed order u/s 143(3) r.w.s. 254 of the Act after considering the details in the form of various subsidy schemes of the various state governments and submissions filed by the assessee. The ld. AO rejected the claim of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e us. 4.1. The ld. Special Counsel for the Revenue argued that assessee had filed its original return for the above years by including sales tax subsidy as revenue receipt. The assessments were completed after making certain additions / disallowances. Those disputed issues were carried in appeal up to the level of the Tribunal by the assessee. When the appeal was pending before this Tribunal for the first time, almost after a gap of 10 years, the assessee chose to file an additional ground before this Tribunal to claim that subsidy / incentive / grants received under various schemes / notifications of various state Governments are capital receipts not chargeable to tax. 4.2. The ld. Special Counsel for the Revenue submitted that this Tribunal erred in admitting the additional grounds raised by the assessee in the first round of proceedings, as the decision of Special Bench of this Tribunal in the case of Reliance Industries Ltd., has been reversed by the Hon'ble Supreme Court. The ld. Special Counsel for the Revenue also criticized the Special Bench decision of this Tribunal in the case of Reliance Industries ltd., to be fallacious, wrong and perverse. He submitted that this Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecial Counsel for the Revenue argued that there was some factual discrepancies between the figures of notional subsidy mentioned in the additional grounds furnished by the assessee before this Tribunal in the first round of proceedings with the actual amount of subsidies received by the assessee. The same are tabulated hereunder:- A.Y. Amount (Rs.) (As per asst. order) Amount (Rs.) (As per addl. Ground of appeal) 1996-97 17,50,22,940/- 18 Cr. 1997-98 31,85,11,619/- 30 Cr. 1998-99 36,05,96,547/- 34 Cr. 1999-00 33,14,35,985/- 33 Cr. 2000-01 44,21,80,515/- 42 Cr. Total 162,77,47,606/- 157 Cr. 4.3. The ld. Special Counsel for the Revenue vehemently argued that assessee never reconciled these factual discrepancies with supporting documents. He also tried to drive home the point that subsidy figure has to be taken from the final sales tax assessment order as per the various subsidiaries schemes of various State Governments. He stated that the sales tax assessment order would be received by the assessee after the due date of filing the return of the income by the assessee. Hence, there cannot be a proper quantification of the subsidy by the assessee at the time of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court decision thereon, makes the order of this Tribunal per incuriam. Accordingly, he prayed for restoration of the original assessment framed in the hands of the assessee for all these years. The ld. Special Counsel for the Revenue also submitted that Reliance Industries Ltd., deals with Maharashtra Subsidy Scheme of 1983 whereas, the assessee case deals with different schemes of different years of different states. He argued that the decision of the Hon'ble Supreme Court in the case of U.P. Rashtriya Chinni vs. State of UP and others dated 02/07/1995 reported in 1995 SCC(4) 738 was not cited anywhere by this Tribunal and accordingly, the decision of Special Bench in the case of Reliance Industries Ltd., becomes non-est and loses its binding precedent. He accordingly argued that the entire gamut of taxability of subsidy should be viewed completely ignoring the decision of Special Bench in the case of Reliance Industries referred to supra. 4.5. He also pointed out that assessee had not maintained separate records for sales tax account and the subsidy to be received thereon. Accordingly, he argued that assessee had not maintained even the primary records that are required t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of Sahney Steel and Press Works Ltd. v. CIT, 1997,228 ITR 253( SC) ]. It is for the assessee to establish with documents how it is capital receipt. [Vide Supreme Court decision in the case of Novopan India Ltd. (supra) laying down the doctrine of strict construction of exemption provisions against the assessee]. (c) The incentive continues for years - here 10 years, 5 years, 9 years and 11 years. As discussed in paragraph 20 above, the incentive is continuously received for years and the assessee received incremental indirect benefits, not any direct lump sum receipt. Then the strong presumption according to the normal conduct of business, is that the incentive supplemented the profit of the business and was of revenue nature. The most important point is that assessee in its original return of income treated the transaction, and rightly so, as revenue in character and paid the taxes. But, as narrated earlier, after more than a decade the assessee has raked up the issue of capital receipt. If the assessee claims it to be capital receipt, the burden is for the assessee to establish with evidence that it is a capital receipt.[ Vide Supreme Court decision in the case of N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecified Mumbai-ThanePune belt. Therefore, it cannot be said that the Package Scheme of Incentive 1988, of State Government Maharashtra was meant at large for all the units setup in the notified areas, and hence the purpose of Scheme was not for the setting up of new units, but was primarily for the purpose of decongestion and dispersal of the units located in the Mumbai-ThanePune belt/corridor. The subsidy therefore cannot be said to linked to the capital investments for setting of new units or relocation of units but was for the sufferance or disadvantage on setting up or relocating the units from MumbaiThane-Pune belt to the backward/ notified areas. Hence, the facts of this case and the intention of the Notification when subjected to the purpose test envisaged in the Hon'ble Apex Court's decision in the case of Sahney Steel and Press Ltd. vs. CIT [(1997) 142 CTR (SC) 261] and CIT v/s Ponni Sugars & Chemicals Limited [(2003) 260 ITR 0605], and the derived benefits fails to qualify as Capital Receipts. Therefore, the receipts by way of subsidies of Purchase Tax, Sales Tax, Central Sales Tax and Turnover Tax amounting to Rs.9,94,22,648/- by the State Government of Maha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Certificate of Eligibility for Exemption of Sales Tax under Sales Tax Exemption Scheme (M.P. VinijyikarAdhiniyam, 1994). As per the Assessee's submission, the scheme of sales tax exemption is applicable to new industrial undertakings. However, neither the Scheme nor the Eligibility Certificate vide page No.140, clearly establishes any nexus of the exemption granted with the capital investments, The certificates and other documents filed during the course of set-aside proceedings speak of the capital investment only for the purpose of computation/working of subsidy and not indicate the same as the sole criteria for eligibility for the benefit of scheme. (5) Grasim Cement, Unit of Grasim Industries Limited, Sales Tax Exemption On perusal of the Notification No.A-3-27-89-ST-V-(15) dated 15.02.1991, issued by the State Government of Madhya Pradesh, it is observed that the Sales Incentive Scheme is for exempting New Units with Capital Investments of Rs.100 crores or more. As per Assessee's submission, vide page nos.163-168, the Designated Authority has issued Certificate of Eligibility for Exemption of Sales Tax under Sales Tax Exemption Scheme (Madhya Pradesh Industrial Pol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue submitted that the incentive on purchase tax was held as "revenue receipt" by the Hon'ble Madras High Court in the same case of Ponni sugars reported in 260 ITR 605 which was accepted by the assessee and that limb of the issue was never challenged before the Hon'ble Supreme Court by the assessee. He submitted that in the case of Ponni Sugars and Chemicals Ltd., there was a categorical finding by the Hon'ble Madras High Court in page 611 of the judgement that assessee had produced ample materials to show that monies accrued to it by way of incentives are infact properly applied for the purpose of discharging the term loans obtained by it in accordance with terms of the loan agreement. Whereas in the instant case before us, the assessee had not submitted any material regarding the subsidy scheme of various State Governments and had not established the purpose of receipt of such subsidy and the manner in which the same had been quantified and utilised. Accordingly, he argued that the decision of the Hon'ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd., cannot advance the case of the assessee. The ld. Special Counsel for the Revenue relied on various other deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms of Explanation 10 to Section 43 (1) of the Act for A.Yrs. 1999-2000 and 20002001 as the said amendment was applicable only from Asst Year 1999-2000 and onwards. 5. We have heard the rival submissions and perused the materials available on record. The short point that arises for our consideration in these appeals is that whether the incentive /subsidy received by the assessee under various schemes of state governments after the commencement of business, could be construed as capital receipts not chargeable to tax. At the outset, in the original return of income, the assessee had not claimed exemption of any sales tax/purchase tax/entry tax incentive/subsidy. However, the assessee raised claim of exemption before the Tribunal for the first time by way of additional ground, which was admitted and restored to file of the ld AO to consider and decide the same as per law after giving opportunity of being heard to the assessee. This tribunal order in the first round of proceedings was not challenged by the revenue before the Hon'ble High Court for the Asst Years 1996-97 and 1997-98. For the Asst Year 1998-99, the revenue filed an appeal to the Hon'ble High Court against various other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge 1168 of Paper Book 5). 3 to 10/Para 2 Chart on factual data like data of original 143(3) order, ITAT order, submission of Assessee in set aside proceedings, date of 143(3) r.w.s. 254 order, reason of AO in rejecting claim, quantum of claim in second round and quantum of exemption mentioned in additional ground before ITAT and comments of Department Basis of AO denying exemption in 143(3) r.w.s. 254: Hon'ble Bombay High Court decision upholding ITAT order in Reliance Industries Ltd. has been set aside by Supreme Court to High Court. In original return of income, assessee treated incentive as of revenue nature Further comments by DR: * ITAT's order / directive has not been complied with. * Facts have not been discussed in the order. False averments made by the assessee. Variation between figures of subsidy given to ITAT and to AO not explained. * If the figure is based on investment made in fixed assets, there should be no difference. The basis of computation of subsidy has not been given. * Relies on decision of Supreme Court in the case of Sahney Steel and Press Works Ltd. v. CIT (228 ITR 253). At Para 4 of AO's order u/s.143(3) r.w.s. 254 (AY 1996-97), the AO notes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see Annexure A & B referred to in letters dated August 28, 2012 & September 27, 2013 at Page No 33 to 36 Paper Book 1. Similar details were submitted for subsequent assessment years also (please refer Page No. 37 to 58 of Paper Book 1). Thus, details of Scheme, exemptions claimed, yearwise and scheme wise documents all submitted to AO; 6. Please see legal submission filed before AO at Page 761 to 785 of PB 3. 7. Thus, clearly entire directive of ITAT of examining facts including scheme, purpose and sales tax order/notifications all have been submitted. Unlike the amount referred to in additional ground before ITAT, the AO refers to exact amount claimed by the Assessee in set aside proceedings. 8. Entire written submissions before CIT(A) in second round is from Page 59 to 146 of Paper Book 1; 9. It is a settled law by Hon'ble Supreme Court and Hon'ble Bombay High Court that once entire details have been furnished before AO, how the AO writes the order is not in control of the Assessee and merely because there is no discussion in order, it cannot be inferred that AO has not passed a speaking order. See following decisions: Marico Ltd. v. ACIT (111 taxmann.com 253) (Bom HC) ACIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 382, 399, Item No (11) at Page 400 of PB 2. Thus, assuming that the sales tax figures would undergo change, then too, the monitoring or implementing agency would ensure that incentive cannot go beyond the ceiling. Thus, at best it is timing difference. However, for tax purposes it would not make a difference as the claim is of exemption of such incentive/subsidy on capital account. 16. In so far as decision of Supreme Court in Sahney Steel (supra) is concerned, it is submitted that right from subsequent decision of Supreme Court in Ponni Sugars (supra), latest decisions of Hon'ble J&K HC in the case of Shree Balaji Alloys v. CIT (333 ITR 335) (PB 1, Pg. No. 276-284) affirmed by Hon'ble SC in the case of CIT v. Shree Balaji Alloys (80 taxmann.com 239) (SC) (PB 1, Pg. No. 239-240), Hon'ble SC in CIT v. Chaphalkar Brothers (252 Taxman 360) (PB 4, Pg. No. 809-817) and DCIT v. Munjal Auto Industries Ltd (Guj) (Tax Appeal No. 450 with 451 to 453 of 2012) (PB 4, Pg. No. 825-836) SLP Dismissed in DCIT v. Munjal Auto Industries Ltd and others (Civil Appeal No. 6226/2013) (PB 4, Pg. No. 822-824), all have consistently considered both the decisions and yet held that if subsidy is for indus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has raised Ground No 1, wherein, the ground is CIT(A) erred in following decision of Bombay High Court in Reliance Industries. The premise is factually wrong as the CIT(A) has relied on decision of Special Bench in Reliance Industries (supra); The present submissions of the Department is mainly on the premise that ITAT should have not entertained additional ground, the AO failed to apply mind and examine the facts and same for CIT(A). Once it is undisputed that all facts were provided to AO and CIT(A) and they passed orders and also perusing present grounds raised by the Department which are purely legal, can Department be permitted to argue that since no facts were examined, order of CIT(A) is perverse? Para 5(i)/Page 19 Submissions of Revenue The ITAT in first round erred in admitting an additional ground based on decision of Special Bench in case of Reliance Industries The ITAT in its wisdom admitted the additional ground and restored issue to AO to verify facts and allow the claim. While the Assessee had filed additional ground for all five years in present appeals. In so far as it relates to AY 96-97 and 97-98, no appeal was filed before Bombay High Court against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ench was perverse The Supreme Court has merely allowed SLP by setting aside matter afresh to Bombay High Court and directed the Bombay High Court to decide the question of law. The Supreme Court has not commented on Reliance Industries SB decision at all. Thus, to make a statement that Supreme Court held the decision to be perverse is a fallacy. It is settled law that until a decision is reversed by a higher court, it is binding. Para 5(v)/Page 21 By the time of passing the fresh assessment order, the Hon'ble Supreme Court's judgment was available to the Assessing Officer. In view of the judgment of the Hon'ble Supreme Court, the Assessing Officer did not examine the case further and disallowed the claim of the assesse At para 7.4 of the assessment order for AY 1999-00 in remand proceedings, the AO held that "Assessee also relied upon various judgements of different High Courts. The said judgements are not applicable to the assessee's case…" This shows that AO has examined the issue in detail and it is not a case that AO did not examine the case further in view of Hon'ble Supreme Court decision in the case of Reliance Industries. Para 5(vi)/Page 21 The CIT(A) did no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal. Therefore, the conclusions arrived at by the Commissioner (Appeals), which are in consonance with the Special Bench decision in the case of Reliance Industries Ltd. (supra) are upheld." Para 5(vii) & 5(viii)/Pages 22 & 23 The Assessee had not claimed exemption in its original return and assessments were settled. The same was correct as sales tax is a trading receipt, following Supreme Court decision in case of Chowringhee Sales Bureau v. CIT (WB) [1973]87 ITR 542 (SC) and Sinclair Murray and Co. Pvt. Ltd. V. CIT, Calcutta,[1974]97 ITR 615. The concluded assessment are now sought to be reopened on controversial decision of Reliance Special Bench. Assessee is seeking to claim refund of taxes paid years ago. Now that that decision of the ITAT Special Bench has been set aside, the raison d'etre is gone. This decision of the Hon'ble Supreme Court will relate back and the decision of the Hon'ble ITAT setting aside the assessments on the basis of this controversial decision of ITAT Special Bench becomes non-est. The decision of Hon'ble Supreme Court in Chowringhee (supra) and Sinclair (supra) both are in different context. It is not disputed the generally the sales tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt, Assessee is entitled to claim refund of taxes wrongly paid earlier. Para 5(ix) and 5(x)/Page 23 & 24 The Bombay High Court in Assessee's own case for AY 2001-02 (wherein the High Court held that additional ground on sales tax subsidy can be admitted and dismissed Department appeal) is per in curium since it did not consider Supreme Court decision in U.P.Rashtriya Chinni (supra). Please see comments in Para above. In any event, against the Bombay High Court decision, though department filed SLP they did not challenge observation on the aspect of admission of additional ground. In any event, as of date, the decision of Reliance Special Bench is valid and subsisting. Para 6(i)/Page 24 While setting aside the assessment, the Hon'ble ITAT had observed that the issue requires proper examination and verification of the nature of the benefit and the scheme of the Government under which the benefit has been availed by the Assessee. Accordingly the Hon'ble ITAT has restored this issue back to the file of the Assessing Officer and directed the Assessing Officer to decide the issue afresh after considering the decision of the Special Bench in the case of Reliance Industries Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions should be strictly construed against the subject A cardinal principle of statutory interpretation is that while taxing income, in case of ambiguity, the provisions of tax laws should be liberally interpreted in favour of the subject, whereas, while applying the exemption provisions, the tax laws should be strictly interpreted against the subject in case of ambiguity. This is because by getting exemption, the burden of taxation is shifted to other taxpayers. This is discussed in the decisions of the Hon'ble Supreme Court in the case of Novopan India Ltd. Hyderabad v. Collector of Central Excise and Customs, Hyderabad dated 14th September 1994 (Case : Appeal (Civil) 3556 of 1984) (1994 Supp(3) Supreme Court Cases 606 The moot issue in present proceedings is whether sales tax/purchase tax/ entry tax subsidy/incentive, by whatever name called, by State Governments for development of specific areas/under-developed or backward areas is a capital receipt and hence not chargeable to tax. The question whether Assessee was eligible sales tax/entry tax subsidy, whether it complied with the conditions under respective schemes or notifications etc were to be decided by respective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the decision of Hon'ble Bom HC in the case of ITO v. Universal Ferro & Allied Chemicals Ltd. (172 ITR 30) (PB 7 Pg. no. 1378- 1383, specifically Para 7) whereby it was held that once the Special Bench of the Tribunal records the decision after considering the judgement given by the High Court, then the decision of the Special Bench is binding on all other authorities subordinate to the Tribunal. Lastly, in Assessee's submission, as stated above, reliance placed by DR on Novopan (supra) is misplaced. Para 9(b)/Page 31 The order of the Hon'ble ITAT setting aside the assessment for five assessment years is against the law laid down by the Supreme Court discussed above; The assessee was allowed exemption by the State Government for all five years; Following Chowringhee Sales Bureau v. CIT (WB) [1973]87 ITR 542 (SC) and Sinclair Murray and Co. Pvt. Ltd. V. CIT, Calcutta,[1974]97 ITR 615), sales tax collected was part of turnover and since nothing was paid, it became profits. The auditors accepted the same, returns were filed and taxes were paid; No appeal was filed before CIT(A), only after ten years this additional ground was raised for the first time before ITAT; The ITAT s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment of sales tax is not a subsidy "Subsidy" and "Incentive" are different concepts - Different dictionary cited. The above definition clearly states that the subsidy is a quantified sum given from a government agency to a private enterprise. It is directly from the government to the private party and there is no ambiguity about the amount of subsidy. It is not like sale tax exemption where sales tax is purportedly collected from the customers and retained by the party and is deemed to be a subsidy; a third party, Sales-tax Officer, adjudicates about the quantum of notional sales tax subsidy and the assessee expects the Income-tax Department to adopt that figure; Thereafter, decisions tabulated to substantiate that in all cases, it was actual subsidy received and not notional List of judgements of Hon'ble SC relied upon by the Assessee wherein tax incentive/exemption was held to be a subsidy capital in nature: * Sahney Steel (supra): apart from other incentives received, there was exemption from payment of water rate; * Ponni Sugars and Chemicals (supra): The incentives conferred under that scheme were two-fold. First, in the nature of a higher free sale sugar quota and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e tax proceedings where the only issue is whether such incentives are capital receipt or revenue receipts. Para 12/Page 39 Incentive - exemption from payment of sales tax cannot be quantified. The concept of notional subsidy may be relevant for statistical purposes for estimating roughly what sales tax has been foregone for assembly debates or formulation of economic policies, but it has no place in the Income-tax Act for allowing deduction The third situation is when he collects the full sales tax and does not pay to the government. Though it is against the law, as the assessee is required to pass on the benefit to the customers, that is an issue to be addressed by the Sales-tax Department. The Income-tax Department is concerned with the quantum of the exemption claimed. It is for the assessee to establish with proper sales bills showing sales- tax amount separately and maintaining the so-called subsidy register meticulously for verification. Hence, it is impossible to find out what is the exact amount of the so-called notional subsidy unless the assessee maintains proper sale bills and registers on the basis of which the exact amount of sales-tax collected and not paid durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the AO in proceedings u/s. 143(3) r.w.s. 254 of the Act. These documents are available at page 26 to 58 of the paper book-1. The relevant index containing list of documents filed with AO are at following pages for respective years. AY Page No. of Paper Book 1 1996-97 33 1997-98 40 1998-99 49 1999-00 54 2000-01 58 The AO did not accept the contention of the Assessee and decided the matter against it. Accordingly, the Assessee filed an appeal before CIT(A) against the order u/s. 143(3) r.w.s. 254 of the Act. Subsequently, CIT(A) vide order dated 25.01.2016, allowed the claim of the Assessee and directed the AO to verify the claim in terms of quantification thereof. The AO gave effect to the order of CIT(A) vide order dated 25.04.2016. Copy of order giving effect to the order of CIT(A) is enclosed at Page No. 78 to 89 of Paper Book - 4. 2. Basis of calculating subsidy and supporting documents such as scheme related papers, eligibility certificate etc. were already filed before the AO during proceedings u/s. 143(3) r.w.s. 254 of the Act. The same can be checked at page 26 to 58 of the paper book -1. 3. The amount of sales tax subsidy is based on the amount as per f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emes and Sales tax assessment orders/Sales tax Return. Further the Assessee also specifically demonstrated the same for AY 1996-97 since the Department has not at all disputed the chart on Pg 1167 by way of a separate chart filed during the course of hearing on April 7, 2022. Para 16/Page 45 The assessee is not co-operating in providing the vital information which is material for proper disposal of the appeal. The information is within the personal knowledge of the assessee. In absence of all data being submitted, it should be presumed that assessee has no answer to queries. All the details filed before AO and CIT(A) in second round (post set aside after admission of additional ground by the ITAT) are in Paper Books. Detailed submission to counter this allegation made above Para 17/Pages 46 to 48 Reliance is placed on decision of Mumbai Tribunal in Bajaj Auto (90 ITD 153) for definition of "Notional Sales Tax Subsidy". Thus, definition is not simple. The definition does not deal with the situations discussed in paragraph 12(ii) where no sales -tax has been collected or less sales tax has been collected. In such cases the assessee will get relief from income-tax in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve consistently held that sales tax incentive under State Policies for development of areas of State is capital receipt. Also, once Sales Tax and Entry tax department has not disputed the claim of exemption, under the Income Tax Act, the question is whether such incentive/subsidy is "capital receipt" and not income. Thus, the reliance on decision of Novopan (supra) is misplaced. Para 21/Page 50 Reliance is placed on Hon'ble Calcutta High Court in the case of Kesoram Industries and Cotton Mills Ltd. v. CIT [1991] 191 ITR 518 (Cal.) What was the matter between the assessee and the Sales- Tax Department is no concern to the income-tax Department. The matter would have been different if it had received a fixed sum from the government. In that case the taxability of that receipt - whether revenue or capital - could have been issues before the Income -tax Department. Exemption from sales tax is not an issue. However, if the assessee is of the view that it is entitled to exemption, it has to establish its case for exemption independently with supporting primary books and documents, under the doctrine of strict construction of exemption provisions as propounded by the Hon'ble Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Hon'ble Supreme Court in the case of Sahney Steel and Press Works Ltd. v. CIT, 1997,228 ITR 253( SC) ]. It is for the assessee to establish with documents how it is capital receipt. [Vide Supreme Court decision in the case of Novopan India Ltd. (supra) laying down the doctrine of strict construction of exemption provisions against the assessee]. (f) The incentive continues for years - here 10 years, 5 years, 9 years and 11 years. As discussed in paragraph 20 above, the incentive is continuously received for years and the assessee received incremental indirect benefits, not any direct lump sum receipt. Then the strong presumption according to the normal conduct of business, is that the incentive supplemented the profit of the business and was of revenue nature. The most important point is that assessee in its original return of income treated the transaction, and rightly so, as revenue in character and paid the taxes. But, as narrated earlier, after more than a decade the assessee has raked up the issue of capital receipt. If the assessee claims it to be capital receipt, the burden is for the assessee to establish with evidence that it is a capital receipt.[ Vide Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) that since subsidy would be received only once unit goes for production, subsidy was of revenue nature. The High Court referred to the relevant Scheme, also noted that concession was capped at 125% of fixed capital investment and could be availed within 9 years. After considering decision of Supreme Court in Ponni Sugar (supra) & Sahney Steel (supra), the High Court held that though the subsidy was computed in terms of sales tax deferment and necessarily therefore, accrue after commercial production, this by itself would not be sole or concluding factor. Applying purpose test, the subsidy was held to be on capital account. Thus, in each of above cases, the Courts have been mindful of the fact that subsidy was to be received after commencement and to be availed within 9, 10 or 12 years, yet applying purpose test, it was held that subsidy was on capital account. The Department is consistently repeating that in the original return the Assessee did not claim exemption paid taxes and now after decades assessee has raked up the issue of capital receipt. The Assessee submits that post its filing its return of income, if subsequent judicial pronouncement hold that subsidy received is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d from earlier schemes, the Government has decided to bring in new Scheme i.e. Package Scheme of Incentives 1988. The Department conclusion that only if an existing unit is relocated to backward area is eligible is fallacious. See PB 2/Page 369/370 which list down Group A,B,C & D specifying developed, under developed areas of the State. Page 373 further states that an existing or a new unit….would also be eligible. New Unit has been defined at Page 376. Pioneer Unit has been defined at Pg. 378 as a large scale New unit set up after October 1, 1988. The Assessee is a Pioneer Unit (PB 2 Page 399 is the eligibility certificate issued by SICOM which recognises Vikram Ispat unit as a Pioneer Unit). Thus, under the Maharashtra 1988 Scheme, even new units are entitled to notional sales tax subsidy. Judgments relied upon by the Assessee wherein the subsidy received under the PSI Sales tax exemption scheme of Maharashtra has been held to be capital in nature is tabulated in a Chart attached herewith as Annexure A. 7) Chloro Sulphuric Acid Division and Caustic Soda Membrance Cell Division of Grasim Industries Limited - Entry Tax exemption The certificates and other documents filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.7.1989) This Scheme exempts the industrial unit from payment of tax on the sales made in the course of inter-state trade or commerce of the goods including bye-products and waste items manufactured by them within the State and in case of packing material used therewith, the benefit is available only if it is linked with fixed capital investment (Pg. 481 of PB) with the object of promoting industrial development in the State of Rajasthan. Objective at Pg 489 (this does not appear to be scheme document but some commentary on the same) :- To boost up industrial development in the State the Government have enacted provisions for giving relief to the industries in some form or the other so as to assist them in their development, particularly during the initial period required by the industries to come to full maturity. (para 1.1 refers to industrial policy 1990, whereas, above scheme is of 1989) Judgments relied upon by the Assessee wherein the subsidy received under the Sales tax exemption scheme of Rajasthan has been held to be capital in nature is tabulated in a Chart attached herewith as Annexure A. The highlighted portion in Department submissions clearly prove that subsidy wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Madhya Pradesh with a capital investment in fixed assets of Rs. 100 crore or more (Pg. 517 to 518 of PB) with the object of accelerating pace of industrialisation in the State of Madhya Pradesh. Judgments relied upon by the Assessee wherein the subsidy received under the Sales tax exemption scheme of Madhya Pradesh has been held to be capital in nature is tabulated in a Chart attached herewith as Annexure A. The highlighted portion in Department submissions clearly prove that subsidy was capped based on % of capital investment. Further, the Department has not pointed out any clause of the Scheme which suggests that Subsidy was to augment profits of the Company. In fact, the Scheme clearly provides for industrialisation (by granting benefits to new units or expansion of existing units) and in some cases, generation of employment and thus, applying purpose test, it be held that subsidy is a capital receipt. Elegant Spinners, Unit of Grasim Industries Limited, Sales Tax Exemption (AY 1997-98) As per the Assessee's submission for Assessment Year 1996-97, on perusal of the Scheme (Page nos.178-179) of the Assessee, it is seen that the exemption is provided in respect of newly est ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in each agreement pertaining to each assessment year instead of making generalized submission Without any assistance from the assessee, the Assessing Officer has faced imponderable difficulty in trying to make a sense out of the irrelevant submissions The Assessee has never stated that only because the incentive is linked to amount invested in capital asset, the incentive is capital receipt. The Assessee has always emphasized upon the purpose test. The Assessee has given all Scheme documents to AO. The CIT(A) has allowed the appeals and it is Department appeal to the Tribunal. It is for the Department to show from the Schemes that purpose of subsidy is to augment profits of the Company. The Assessee has never contended that all the Schemes are alike. The Assessee has submitted all the Schemes which have been considered by the AO and CIT(A). For brevity, the Assessee is attaching herewith Annexure A which lists down decisions of Tribunal where similar schemes of State Government (in the present case, Maharashtra, Haryana, Rajasthan and Madhya Pradesh) have been considered and Tribunal has held the subsidy/incentive/grant to be a capital receipt. In any event, neither the AO nor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her decisions cited by the Department are prior to decision of Supreme Court in Ponni Sugars (supra). The Department in its Written submissions at Page 64 (iv) has reproduced part of decision of Supreme Court in Sahney (supra) where it was hled that the subsidies were given to encourage setting up of industries in State of Andhra Pradesh by making the business of production and sale of goods in the state more profitable". Thus, it appears that object of the Scheme in case before Sahney was to make industries more profitable. The Department has stressed on the fact that in Ponni Sugars, the Madras High Court held that subsidy linked to purchase tax was of revenue nature and same has not been challenged before the Supreme Court. It is submitted that firstly, the Madras High Court observed that terms of concession shows that concession was given to meet the cost of running the business after it has gone to production (In the present case, the Department has not pointed out any Scheme which proves that subsidy was for meeting cost of running the business). Secondly, the mere fact that in Ponni, the said question was not challenged before Supreme Court cannot lead to conclusion that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of subsidy: * Shree Balaji Alloys (J & K HC) (supra) affirmed by Hon'ble SC (supra) * Chaphalkar Brothers (SC) (supra) * Munjal Auto (Guj), SLP Dismissed(supra) * PCIT v. Welspun Steel Ltd. (103 taxmann.com 436) (Bom HC) (PB 4, Pg. No. 1012-1017) * PCIT v. Capgemini India P. Ltd. (90 taxmann.com 409) (Bom HC) (PB 4, Pg No. 1018-1020) * CIT v. Indian Petrochemicals Corpn. Ltd. (102 taxmann.com 181) (Bom HC) (PB 4, Pg No. 1164-1166) * CIT v. Nirma Ltd. (88 taxmann.com 481) (Guj) (PB 4, Pg. No. 837-840) * CIT v. Rasoi Ltd. (245 CTR 667) (Calcutta HC) Lastly, the DR relied on the fact that decision in case of Dusad Industries (MP) (supra) was relied before AO and which has been overruled by decision in case of Sahney Steel (supra). The Assessee submits as evident from 143(3) order of AY 98-99, the AO at Para 5.4 held that facts of Dusad (supra) and in the present case is different. If facts are different then the question of commenting on Dusad does not asrise. In any event, post Chaphalkar (supra) various Tribunals have in context of incentive under 1994 and recent schemes of MP, decided in favour and held subsidy to be capital receipt. Moreover, before the Hon'b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii): Sr. No. DR's Arguments Assessee's Submissions 1. The Assessee had filed its original return for above years and included the sales as trading receipt following decision of Chowringhee Sales Bureau v. CIT (87 ITR 542) (SC) and Sinclair Murray and Co. Pvt. Ltd. v. CIT (97 ITR 615) (SC). . The AO completed assessment by making certain other additions/disallowances. Only after 10 years, the Assessee choose to file additional ground before the Tribunal to claim that subsidy/incentive/grants/etc received under various Schemes/Notifications of State Governments are capital receipt not chargeable to tax and thereby sought to seek refund of taxes suo moto paid by the Assessee The Assessee does not dispute that the claim of subsidies/incentives being capital receipt was first time raised before the Tribunal. The claim was based on the decision of Hon'ble Special Bench Mumbai Tribunal in the case of DCIT v. Reliance Industries Ltd. (88 ITD 273) (PB 1, Pg No. 217-232). However, post the said decisions, consistently, the Supreme Court, High Court and ITAT have been holding that subsidy received as a result of setting up of units or industrialisation of backward area is a capital re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dences to substantiate the claim of sales tax subsidies/incentives (PB 3, Pg. No. 786) to which the Assessee had duly complied with (See for eg:- PB 1, Pg 31-33 for AY 96-97). The AO has discussed this issue at Para 7 and observed as under: Para 7.1: Records Assessee's submissions that scheme were framed for necessary infrastructure in backward/notified area and hence incentive is capital in nature. Reliance is placed on the decision of Reliance Industries SB (supra). Holds that decision of Hon'ble Bombay High Court against Special Bench decision has been set aside by Hon'ble Supreme Court in the case of CIT vs Reliance Industries Limited (Civil Appeal No 7769 of 2011) (PB 1, Pg. No. 243-244) back to Hon'ble Bombay High Court for fresh adjudication and hence it is clear that issue has not been settled by Apex Court till date. Para 7.2: Holds sales tax incentive is nothing but revenue received. Alternatively, since incentive received is on basis of investments made in Fixed Assets, it is to be reduced from WDV of assets. Thus, this clearly shows that he has examined the Schemes/Notifications/other documents and only then concluded that incentive is on revenue account. Para 7.3: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Special Bench in Reliance Industries (supra), Bombay High Court decision in case of Reliance Industries (which now has only been set aside to Bombay High Court by Apex Court for framing a question of law), decision of Hon'ble Supreme Court in the case of CIT v. Ponni Sugars & Chemicals Ltd. (306 ITR 392 (SC) (PB1, Pg. no. 233-238) 27. The AO only states that decision of Bombay High Court is set aside by SC and thus issue not settled by Supreme Court. Thus, he does not dispute that decision of Special Bench is still a good law. 28. Once ITAT has restored the issue to AO, question of Goetz (India) Ltd. vs. CIT (284 ITR 323) (SC) does not arise. In any event, even as per Goetz (supra), appellate authorities can always admit a new claim, which ITAT admitted and hence in present proceedings the AO cannot have any grievance on the same. In any event as stated in rebuttal above, those ITAT orders have become final. 29. The CIT(A) has passed a detailed order. The discussion on this issue starts from Page 4 to 12/Para 3. 30. The CIT(A) at bottom of Page 9 notes that the Appellant has filed details of all the incentive schemes including notifications of the State Government. Also holds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OGE to CIT(A) and reconfirmed the amount of exemption. Page 1167 of Paper Book 4 summarise total subsidy for each year and also give reference to relevant schemes and pages of Paper Book. For specimen basis, for AY 1996-97, chart is separately given during the course of hearing on April 7, 2022 where the aggregate amount of subsidy in each state and relevant returns/assessment orders are matched with document in Paper Book. Also, if AO and CIT(A) have examined and analysed the factual documents, the matter cannot be remitted to AO for re verification. Reliance is placed on Hon'ble Jurisdictional Tribunal decision of Prism Cement Ltd. v. DCIT (ITA No. 804 & 805/Mum/2018) (PB 7 Para 42 at Page 1305/06) The Assessee submits that the sales tax/purchase tax/entry tax department or the State Government or its implementing agencies/monitoring agencies have to determine the incentive/subsidy based on Schemes and Notification of the State Government. The returns filed/assessment orders have already been placed on record. It is undisputed by above authorities that Assessee was entitled to subsidy/incentives. Infact, since the Assessee has received the said subsidies/incentives, the only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. v. CIT (228 ITR 253) (SC) [DR PB Pg. No. 158-173] anything before commencement is capital, after commencement is revenue. It has been settled by Hon'ble Supreme Court in case of Ponni Sugars (supra) that the form/mechanism of computing subsidy is irrelevant and merely because subsidy is granted post commencement of production, does not mean it is to augment profits. Further reliance is placed on the following judicial precedents wherein the subsidy received was held to be capital in nature even when received post commencement of production: * CIT v. Ponni Sugars & Chemicals Ltd. (Supra) * Shree Balaji Alloys v. CIT (J&K HC) (333 ITR 335) [PB 1 Pg. no. 276-284] Affirmed by SC (80 taxmann.com 239) [PB 1 Pg. no. 239-240] * DCIT v. Munjal Auto Industries Ltd (Guj) (Tax Appeal No. 450 with 451 to 453 of 2012) (PB 4 Pg. no. 825-836) {SLP dismissed by SC (Civil Appeal No. 6226/2013) (PB 4 Pg. no. 822-824)} * CIT v. Chaphalkar Brothers (252 Taxman 360) (SC) (PB4 Pg. No. 809-817) (Para 9 and 22) * MAN Industries India Ltd v. ACIT v. ACIT (ITA No. 6696, 6697 & 6698/MUM/2014) (PB 1 Pg. no. 322-350) * Mahindra & Mahindra Ltd. v. DCIT (7382/Mum/2017) (PB 1 Pg. no. 1021-1079) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of DCIT v. Indo Rama Textiles Ltd (25 taxmann.com 161) (Del. Trib.) (PB 4 Pg no. 1116-1120) held that sales tax subsidy is a capital receipt as Kesoram (supra) was prior to recent SC decision. The Assessee submits that the total subsidy receivable is based on % of capital/fixed asset investments made. Thus, the outer limit is quantified. Thus, under the sales tax/purchase tax laws etc, the total amount of subsidy would not change. Based on assessments, etc only amounts in some years may change but the outer limit fixed based on capital investment would always remain the same. The Paper books contain all factual details including schemes/notifications/returns/assessment order under sales tax etc. The Assessee submits the same are relevant. 5. Since Assessee is claiming exemption from direct tax, strict interpretation has to be applied. Assessee has to substantiate that it has satisfied all conditions for getting the subsidy from the State. Reliance was placed on decision of Hon'ble Supreme Court in case of Novopan India Ltd. Hyderabad v. CCEC {Supp (3), Supreme Court Cases, 606} (DR PB Pg. no. 123-132) and CC (Import) v. M/s. Dilip Kumar & Company & Ors. (Civil Appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (PB 7 Pg. no. 1378-1383, specifically Para 7) that once the Special Bench of the Tribunal records the decision after considering the judgement given by the High Court, then the decision of the Special Bench is binding on all other authorities subordinate to the Tribunal. In any event, to best of our knowledge, the decision of Reliance (SB) (supra) itself has not been challenged before Bombay High Court. It is for Department to demonstrate that very same decision of SB is challenged and pending before Bombay High Court. In our view, the Reliance Special Bench has passed a detailed order after considering the preamble of the scheme as also various decisions including those of Supreme Court and hence, same cannot be ignored. Lastly, the ITAT in Appellant's own case (as successor to Aditya Birla Nuvo Limited) (PB 4, Pg 852) has never held or observed anything contrary to Reliance (SB), but decided to apply purpose test as held by Ponni Sugars (supra) and decided in favour independently of Reliance SB by holding that VAT incentive under UP State Government Scheme is a capital receipt 7. Incentive v. Subsidy The Assessee has merely received an incentive and not a subsidy. Sales tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced from the cost of capital investment as the percentage of capital investment is only a mode of quantification of subsidy and not a payment to meet any portion of the "actual cost": PCIT v. Welspun Steel Ltd. (103 taxmann.com 436) (Bom HC) (PB 4 pg. 1012-1017) Nestle India Ltd v. DCIT (1954/Del/2014) (PB 4 pg. 1089-1115) CIT v. Rasoi Ltd. (46 taxmann.com 214) (Kol T) Sasisri Extractions Ltd. v. ACIT (122 ITD 428) (Vizac T) (PB 1 Pg. No. 364-367) Additional grounds Additional Grounds 1 to 8 filed by the Revenue are argumentative in nature and pure facets of Department's various arguments to support its original grounds. Assessee has already responded to those arguments above and in Annexure 1 5.2. From the aforesaid table, it is very clear that the assessee had furnished all the requisite documents to justify its claim of exemption that the subsidy received by it are capital receipts not chargeable to tax, before the ld. AO as well as before the ld. CIT(A) and that both the lower authorities had examined the very same documents and had arrived at their respective conscious conclusions. Hence the argument advanced by the ld. Special Counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nit as a Pioneer Unit. Thus, under the Maharashtra 1988 Scheme, even new units as well as existing units are entitled to notional sales tax subsidy. We find that the assessee furnished the Package Scheme of Incentive, 1988 dated 01/10/1988 by State of Maharashtra before the lower authorities. These documents are enclosed in pages 368 to 398 of the factual paper book which are part of judicial records. We find that the assessee furnished the eligibility certificate for Sales Tax Incentive issued by SICOM in favour of Vikram Ispat before the lower authorities. These documents are enclosed in pages 399 to 422 of the factual paper book which are part of judicial records. We find that the assessee furnished the Certificate of Entitlement No.N29M/136/LM/660 issued by Dy. Commissioner of Sales Tax (Incentive and Enforcement), Sales Tax department, Maharashtra in favour of Vikram Ispat before lower authorities. These documents are enclosed in pages 423 to 436 of the factual paper book which are part of judicial records. Chloro Sulphuric Acid Division and Caustic Soda Membrance Cell Division of Grasim Industries Limited - Entry Tax exemption Entry Tax Notification No.422-6596 dated 09. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtificate of Entry Tax in favour of Poly Aluminium Chloride Division before the lower authorities. These documents are enclosed in pages 468 to 469 of the factual paper book which are part of judicial records. We find that assessee furnished the New Industries Notification No. A-3-11-86(74)-ST-V dated 16/10/1986 under Madhya Pradesh General Sales Tax Act, 1958 before the lower authorities in respect of Poly Aluminium Chloride Division. These documents are enclosed in pages 437 to 455 of the factual paper book which are part of judicial records. We find that assessee furnished the provisions of Section 12 of the Madhya Pradesh General Sales Tax, 1958 as referred in the above notification before the lower authorities. These documents are enclosed in pages 456 to 457 of the factual paper book which are part of judicial records. We find that assessee furnished the Certificate of Eligibility for Exemption from payment of Sales Tax under the Madhya Pradesh General Sales Tax Act, 1958 and Central Sales Tax Act, 1956 before the lower authorities in respect of Poly Aluminium Chloride Division. These documents are enclosed in pages 458 to 459 of the factual paper book which are part of jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no. 502 of the paper book which is part of judicial record. Grasim Cement, Unit of Grasim Industries Limited, Sales Tax Exemption 1991 Scheme for units with Capital Investment in fixed assets of Rs. 100 crore or more [Notification no. A-3-27-89-ST-V-(15) dated 19.02.1991 (Madhya Pradesh)] Exemption granted to eligible industrial unit established in any district in Madhya Pradesh with a capital investment in fixed assets of Rs. 100 crore or more (Pg. 517 to 518 of PB) with the object of accelerating pace of industrialisation in the State of Madhya Pradesh. This fact is evident from Pages 517 to 518 of the Paper Book filed which are part of judicial records. We find that assessee furnished Sales Tax Exemption Scheme (Madhya Pradesh Industrial Policy & Action Plan, 1994) before lower authorities. These documents are enclosed in pages 503 to 516 of the factual paper book which are part of judicial records. We find that assessee furnished the 1991 scheme for units with capital investment in fixed assets of Rs.100 Crores or more before the lower authorities. These documents are enclosed in pages 517 to 522 of the factual paper book which are part of judicial records. We find that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Orders / Entry Tax Orders - AY 1997-98 AY 1997-98 I Sales Tax Assessment Order for F.Y. 1996-97 of Vikram Ispat. 598 - 604 ii Entry Tax Assessment Order for FY 1996 -97 of Chloro Sulphuric Acid Division 605 - 607 iii Entry Tax Assessment Order for FY 1996 -97 of Caustic Soda Memrance Cell 608 - 610 iv Sales Tax Assessment Order for FY 1996-97 of Aditya Cement 611 - 614 V Sales Tax Assessment Order for FY 1996-97 of Vikram Woollens 615 - 620 vi Sales Tax Assessment Order for FY 1996 -97 of Grasim Cement 621 - 625 Sales tax Orders / Entry Tax Orders - AY 1998-99 AY 1998-99 I Sales Tax Return for FY 1997 -98 of Vikram Ispat 626 - 634 ii Entry Tax Assessment Order for FY 1997 -98 of Chloro Sulphuric Acid Division 635 - 637 iii Entry Tax Assessment Order for FY 1997 -98 of Caustic Soda Memrance Cell 638 - 642 iv Sales Tax Assessment Order for A.Y. 1997-98 of Aditya Cement 643 - 649 v Sales Tax Assessment Order for FY 1997-98 of Vikram Woollens 650 - 651 vi Sales Tax Assessment Order for FY 1997 -98 of Grasim Cement 652 - 659 vii Sales Tax Assessment Order for FY 1997-98 of Elegant Spinners, Bhiwani 660 - 662 Sales tax Orders / Entry Tax Ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rities. Even the Special Bench decision rendered by this Tribunal in the case of Reliance Industries Ltd., reported in 88 ITD 273 was erratically criticised by the ld. Special Counsel for the Revenue which have already been detailed hereinabove. In fact, the ld. Special Counsel for the Revenue proceeded on the premise that the Special Bench decision of this Tribunal has been reversed by the Hon'ble Supreme Court and sent back to the Hon'ble Bombay High Court. This aspect as to whether at all the decision of Special Bench in the case of Reliance Industries Ltd., referred to supra would still hold the field or not, is dealt separately hereinbelow. In these circumstances, we deem it fit and appropriate to direct the ld. Special Counsel for the Revenue to kindly be careful while arguing the cases in future before any judicial forum by not using such crude expressions. 5.3.3. We find that the ld. Special Counsel for the Revenue vehemently submitted that since the subsidy / incentive would be determined subsequently based on Sales Tax assessment order, which happens after the date of filing of return, the quantification of subsidy becomes unworkable and that the Income Tax department is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Industries Ltd v. ACIT (I.T.A. No. 7299/Mum/2017) 879-991 (PB 4) 2 ACIT v. Economic Explosive Limited (ITA 202 to 206/Nag/2015) 351-354 (PB 1) Package scheme of Incentive 1993 of Government of Maharashtra which is an extension of Schemes introduced in 1964, 1979 and 1988 with the object being industrial development of backward district as well as generation of employment 3 DCIT v. Indo Rama Textiles Ltd. (25 taxmann.com 161) (Del. T) 1116-1120 (PB 4) Sales Tax exemption Scheme of Government of Maharashtra, 1993 for promotion of industrialization in backward areas of the State of Maharashtra through Scheme of incentives. 4 ACIT v. Sanvijay Rolling and Engineering Ltd. (224/Nag/2015) (Nag. T) 1121-1127 (PB 4) Package Scheme of Incentive, 2001 of the Government of Maharashtra granting subsidy for setting up project in view for employment generation and for dispersal of industry 5 LG Electronics India (P.) Ltd. v. ACIT (83 taxmann.com 179) (Del. T) 992-996 (PB 4) Package Scheme of Incentive, 2001 of Government of Maharashtra providing refund of VAT with the objective of promotion of industry and balanced regional growth, diversion of industry to less developed areas o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Ltd (ITA No. 540/Ind/2018) (Indore T) 1191-1200 (PB 6) Subsidy received under Madhya Pradesh Industrial Policy, 2004 with an objective to increase capital investment in backward areas in the state of Madhya Pradesh. 14 Udai Plastic (P.) Ltd. v. ITO (98 ITD 231) 1247-1249 (PB 7) State Investment Subsidy and Sanction Rules, 1989 of MP state with an objective of setting up industries in backward area 15 ParleAgro P Ltd. v. ACIT (ITA No. 6209/Mum/2013) 1250-1263 (PB 7) Industrial Promotion Policy, named as "Madhya Pradesh Udyog NiveshSamvardhanYogna 2004" with an objective to accelerate the pace of industrialization, maximize employment prospects and develop the infrastructure in the backward areas 16 Prism Cement Ltd. v. DCIT(I.T.A. No. 804 & 805/Mum/2018) 1264-1341 (PB 7) Sales tax exemption under Madhya Pradesh Industrial Investment Promotion Assistance Scheme-2004 with an objective to accelerate the pace of industrialization, to maximize the employment prospects and balanced regional development 17 M/s Vardhman Textiles Limited (ITA No. 787/Chd/2015) 1342-1366 (PB 7) 18 M/s. Jinal Steel & Power Ltd. v. ACIT (ITA 167/Del/2009) - Notification No. 40 for ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in allowing the manufacturer to collect Excise duty on sale price on the free sale sugar in excess of the normal quota, but to pay to the Government only the Excise duty payable on the price of levy sugar. The Hon'ble Supreme Court in para 14 of its decision had held that "character of receipt of subsidy has to be determined with respect to the purpose for which the subsidy is given. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial." In fact, the Hon'ble Supreme Court while rendering this decision had duly considered its earlier decision in the case of Sahney Steel and Press Works Ltd., reported in 228 ITR 253 and had absolutely no quarrel with that judgement. Rather, it concurred with the decision rendered in Sahney Steel and Press Works Ltd., case. In this regard, it would be relevant to reproduce the operative portion of the decision of Hon'ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd., as under:- 14. The second case is Lincolnshire Sugar Co. Ltd. v. Smart 20 TC 643. In that case it was found that Lincolnshire Sugar Co. Ltd carried on the business of manufacturing sugar from home gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether by way of refund of sales tax or relief of electricity charges or water charges can be treated as an aid to setting up of the industry of the assessee. As we have seen earlier, the payments were to be made only if and when the assessee commenced its production. The said payments were trade for a period of five years calculated from the date of commencement of production in the assessee's factory. The subsidies are operational subsidies and not capital subsidies. 5.3.6. Yet another decision was rendered by Hon'ble Supreme Court in the case of CIT vs. Chapalkar Brothers reported in 400 ITR 279 which held that where the object of respective subsidy schemes of State Government was to encourage development of multiple theatre complexes, incentives would be held to be capital in nature and not revenue receipts. The relevant operative portion of the judgment is reproduced hereunder:- 18. After discussing the judgment in Sahney Steel & Press Works Ltd.'s case (supra) this Court then held: "The importance of the judgment of this Court in Sahney Steel case lies in the fact that it has discussed and analysed the entire case law and it has laid down the basic test to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heatre Complex, has emerged. These complexes offer various entertainment facilities for the entire family as a whole. It was noticed that these complexes are highly capital intensive and their gestation period is quite long and therefore, they need Government support in the form of incentives qua entertainment duty. It was also added that government with a view to commemorate the birth centenary of late Shri V. Shantaram decided to grant concession in entertainment duty to Multiplex Theatre Complexes to promote construction of new cinema houses in the State. The aforesaid object is clear and unequivocal. The object of the grant of the subsidy was in order that persons come forward to construct Multiplex Theatre Complexes, the idea being that exemption from entertainment duty for a period of three years and partial remission for a period of two years should go towards helping the industry to set up such highly capital intensive entertainment centers. This being the case, it is difficult to accept Mr. Narasimha's argument that it is only the immediate object and not the larger object which must be kept in mind in that the subsidy scheme kicks in only post construction, that is wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue nature. The Hon'ble Gujarat High Court referred to the relevant subsidy scheme noted that concession was capped @125% of fixed capital investment and could be availed within 9 years. The Hon'ble Gujarat High Court after considering the decision of Hon'ble Supreme Court both in the case of Sahney Steel and Press Works Ltd., and Ponni Sugars and Chemicals referred to supra had held as under:- "7. From the provisions of the said scheme, it clearly emerges that the subsidy though computed in terms of sales tax deferment or waiver, in essence it was meant for capital outlay expended by the assessee for set up of the unit in case of a new industrial unit and for expansion and diversification of an existing unit. As noted, such subsidy was available only to a new industrial unit or a unit undertaking expansion or diversification. Fixed capital investment has been defined as to include various investments in land under use, new construction, plant and machinery etc. The entitlement was related to percentage of fixed capital investment. 8. It is undoubtedly true that such subsidy was computed in terms of sales tax deferment and necessarily therefore, would accrue to an industry onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting refund of sales tax was that the assessee could set up new business or expand his existing business. The contention of the assessee in that case was dismissed by the Tribunal and, therefore, the assessee had come to this Court by way of a special leave petition. It was held by this Court on the facts of that case and on the basis of the analyses of the Scheme therein that the subsidy given was on revenue account because it was given by way of assistancein carry ing on of trade or business. On the facts of that case, it was held that the subsidy given was to meet recurring expenses. It was not for acquiring the capital asset. It was not to meet part of the cost. It was not granted for production of or bringing into existence any new asset. The subsidies in that case were granted year after year only after setting up of the new industry and only after commencement of production and, therefore, such a subsidy could only be treated as assistance given for the purpose of carrying on the business of the assessee. Consequently, the contentions raised on behalf of the assessee on the facts of that case stood rejected and it was held that the subsidy received by Sahney Steel could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be computed in terms of tax otherwise payable by the industry. However, the purpose of such exemption was to meet with the capital outlay already undertaken by the assessee. This clearly comes out from various provisions of the scheme. For example, the scheme was applicable only to the new project or to a existing project provided investment in fixed capital or capacity was increased atleast by 50%.Thus, the very eligibility for seeking exemption was linked with new investment being made in fixed capital. Further though the scheme envisaged a certain period spanning for 5 to 10 years during which such exemption could be availed depending on the category of the unit, such exemption would cease the moment the total incentives touched 100% of the eligible capital investments. In other words, the upper limit of total incentive which the unit could receive from the State Government in the form of tax waiver would not exist 100% of the eligible capital investment regardless of the residue of the period of its exemption eligibility as per the scheme. From the combined reading of salient features of the scheme, we have no doubt in our mind that the incentive was being offered for recou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... backward districts as well as generation of employment. However, the matter was referred to the Special Bench as it was alleged that the decision for AY 1985-86 was virtually overruled by subsequent decision of the Mumbai Tribunal in the case of Bajaj Auto Ltd (ITA No. 49 and 1101 of 1991). The Special Bench held that the decision of Bajaj Auto has not overruled the decision of Hon'ble Mumbai Tribunal for AY 1985-86 on the following basis: i) There cannot be any question of overruling the decision of one Bench by another bench of equal strength as it would be contrary to the established norms of judicial system in the country. ii) Even on merits it cannot be said that the Tribunal has laid out more stress on the form of the scheme and not their substance as held in Bajaj Auto as the Tribunal in the order for AY 1985-86 has explained the difference between exemption schemes of Maharashtra and Andhra Pradesh in detail. iii) Reliance placed by Tribunal in Asst Year 1985-86 on the decision of Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. v. CIT (228 ITR 253) cannot be said to be erroneous. The Tribunal did recognise that the object with which subsidy is g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18/12/2018 before the Hon'ble Jurisdictional High Court, wherein the question Nos. c & d was exactly on this point. For the sake of convenience, the question Nos. c & d raised by the Revenue before the Hon'ble Jurisdictional High Court is reproduced hereunder:- "(c) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in restoring the issue of taxability of the sale tax exemption benefit of Rs.58 crores availed by the assessee to the file of the Assessing Officer for deciding afresh after considering the decision of the Special Bench of the ITAT in the case of DCIT V. Reliance Industries Ltd., 88 ITD 273, which has not been accepted by the Revenue? (d) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in entertaining the additional ground without appreciating that the assessee had treated the amount of sales tax exemption benefit of Rs.58 crores as revenue receipt and had included this amount in the returned income and it had been taxed accordingly and the assessee did not raise this issue before the CIT(A) and the issue had attained finality?" 5.4.3. While disposing of the questions N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court on two occasions, in the order dated 27.09.2016 and 22.11.2016 passed in Income Tax Appeal Nos. 475 of 2014 and 102 of 2014 respectively had not entertained the challenge of the Revenue. In any case, it was contended that the facts on record are available and the Tribunal has merely asked the Assessing Officer to take a decision on the assessee's contention. 5. As long as the material exists on record, a contention raised by the assessee for the first time before the Tribunal, cannot be barred. So much is clear from series of judgments of various Courts including of this Court in case of CIT Vs. Pruthvi Brokers and Shareholders P. Ltd. (2012) 349 ITR 336. It is not the case of the Revenue that the assessee in the context of its contention on the nature of the subsidy, desired to produce additional evidence. It is true that the judgment of this Court confirming the order of the Tribunal in case of Reliance Industries Ltd. has been partially reversed by the Supreme Court. A question of law has been framed and placed for consideration of the 4 of High Court. However, this does not mean that the judgment of the Tribunal as on today stands reversed or stayed. In any case, q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 9th September 2011, is that Hon'ble Bombay High Court has now admitted the question "whether, on the facts and circumstances of the case, the Hon'ble Tribunal was right in holding that sales tax exemption was a capital receipt" and will, in due course though, adjudicate on this legal issue. To that extent, Hon'ble Bombay High Court's order dated 15th April 2009, to the extent of declining to admit this question, stands reversed. However, the decision of the Special Bench still holds good as the same has not, and at least not yet, even been examined by Hon'ble Bombay High Court. Mere admission of appeal against a decision, as is elementary, does not affect the biding nature of a judicial precedent. The Special Bench decision, in the case of Reliance Industries Ltd. (supra), was not reversed by Hon'ble Supreme Court, but was directed to be examined, on merits, by Hon'ble Bombay High Court. That is quite different from disapproving the special bench decision, but it appears that the coordinate bench was led to believe, and there could not have been any other reason for ignoring the special bench decision, that this Special Bench decision is re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any other view of the matter than the view so taken by the coordinate bench. We must, therefore, uphold the conclusions arrived at by the Commissioner (Appeals), which are in consonance with the Special Bench decision in the case of Reliance Industries Ltd. (supra) and coordinate bench decision in the case of Ajanta Manufacturing Ltd. (supra), and decline to interfere in the matter." (emphasis supplied by us) 5.4.6. In view of the above, no fault could be attributed on the ld. CIT(A) placing reliance on the decision of the Special Bench of the Tribunal and granting relief to the assessee in the instant case. 5.4.7. We find that the ld. Special Counsel for the Revenue placed heavy reliance on the decision of the Co-ordinate Bench of this Tribunal in the case of Grasim Industries Ltd., (successor to the business of Aditya Birla Nuvo Ltd., formerly known as Indian Rayon and Industries Ltd.,) for A.Yrs. 1995-96 to 1998-99 in ITA Nos. 3938/Mum/2013, 2197/Mum/2014, 2198/Mum/2014 & 7062/Mum/2014 respectively dated 18/04/2018 wherein this Tribunal had held that the issue in dispute with regard to taxability of subsidy could be decided independently without depending upon the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Industries Ltd., referred to supra still holds the field and still has binding precedent. 5.5. With regard to yet another argument advanced by the ld. Special Counsel for the Revenue, on without prejudice basis, that even if the subsidy is treated as capital receipt then the same would have to be reduced from the cost of assets in terms of Explanation 10 to Section 43(1) of the Act. We find that the provisions of Explanation 10 to Section 43(1) of the Act has been introduced in the statute only from A.Y.1999-2000 onwards. Eventhough we find that the subsidy in the instant case is given to meet the fixed capital investment but the said subsidy is not identifiable with any particular asset as such. When the subsidy or grant received is not identifiable to any particular asset, then the provisions of Explanation 10 to Section 43(1) of the Act would not be applicable. Reliance in this regard is placed on the decision of the Hon'ble Jurisdictional High Court in the case of PCIT vs. Welspun Steel Ltd., reported in 264 Taxman 252. The relevant question raised before the Hon'ble Jurisdictional High Court is as under:- "(b) Whether on the facts and in the circumstances of the case and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r words, rapid urbanization was taking place. So far as the State of Gujarat is concerned, there was rapid industrial growth in cities like Baroda, Ahmedabad and Surat resulting in strain on municipal services. Urbanization created several problems such as pollution, growth of slums etc . It was also necessary to have balanced growth of industry in different regions. However, as pointed out above, entrepreneurs were reluctant to set up industries in backward areas. These areas were identified as backward because there was un-development or underdevelopment of industries in these areas. It was, therefore, that the Government decided to give financial incentives to encourage and induce entrepreneurs to move to backward areas and establish industries there so that the region may develop and promote the welfare of the people living in that region. One of the incentives which the Government decided to grant was cash subsidy so that entrepreneurs could utilize such cash subsidy for any purpose connected with the establishment of industries in the backward areas. Once the decision to give cash subsidy was taken, the Government had to work out some method to determine the quantum of such s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the specific purpose of meeting any portion of the cost of the fixed assets. The subsidy was granted to compensate the entrepreneur for the hardship and inconvenience which he might encounter while setting up industries in backward areas." 11. Similar issue came up for consideration again before the Gujarat High Court in CIT v. Swastik Sanitary Works Ltd. [2006] 286 ITR 544. It was a case in which, the Government subsidy was intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries. In such a case, specified percentage of the fixed capital cost, which was the basis for determining the subsidy, would be granted. The Court held that, such basis for determining the subsidy was only a measure adopted under the scheme to quantify the financial aid and it was not a payment, directly or indirectly to meet any portion of the actual cost of acquisition of capital asset. It was held and observed as under:- 'In so far as question No.2 is concerned, this court finds that the same is squarely covered by the decision of the Supreme Court in CIT v. P. J. Chemicals Ltd., [1994] 210 ITR 830. In the said case, after review of the law on t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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