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TMI Blog2023 (9) TMI 316X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee filed e-return of income on 30.9.2008 declaring total income of Rs.. 3,39,12,516/-after setting off brought forward loss of Rs.. 43,64,96,138/- and claiming deduction u/s. 80- IA(4) at Rs.. 12,41,74,419/- under the normal provisions and Book Profit of Rs.. 65,41,07,146/- u/s 115JB of Income-tax Act, 1961 (in short "Act"). The return was duly processed u/s 143(1) of the Act. 4. The case was selected for scrutiny under CASS and notices u/s. 143(2) and 142(1) of the Act, were issued and served on the assessee. In response Authorised Representative of the assessee attended and submitted the relevant information as called for. 5. The assessee engaged in the business of managing, developing and maintaining the container terminal at Dock at Chennai Port Trust. During assessment proceedings, Assessing Officer observed that in the assessment u/s 143(3) of the Act, in the assessee' case for AY 2007-08, addition was made of Rs.. 6,79,920/- on account of Transfer Pricing in view of the order u/s. 92CA(1) of the Transfer Pricing Officer, and the assessee was allowed to carry forward business losses of earlier years of Rs.. 43,58,16,218/- as against Rs.. 43,64,96,138/-. Accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital in nature and hence not liable to tax at all; 3. should have appreciated that the object of the scheme is to accelerate growth in export of services, so as to create a powerful and unique 'served from India brand; 4. failed to appreciate that as per the scheme the duty credit entitlement could be utilized largely against the import of capital goods and spares in this regard and hence the nature of duty credit entitlement per se was capital in nature; Duty credit entitlement should be reduced from cost of the capital assets to the extent utilized for payment of import duty 5. Without prejudice to the ground no. 2 to 4, should have appreciated that Duty credit entitlement which is given for utilization against custom duty on capital goods/ spares etc need to be adjusted against cost of that asset, as per explanation 10 to section 43(1) of the Act Duty credit entitlement is not taxable even as per section 41(1) of the Act 6. should have appreciated that Duty credit entitlement is not some benefit in respect of trading liability by way of remission or cessation of thereof and hence it is not even chargeable to tax as per section 41(1), the duty credit entitlement r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above grounds of appeal." 11. We proceed to adjudicate the issues raised by the assessee ground wise. 12. Ground No. 1 to 5 are interconnected and are relating to Income from duty credit entitlement of Rs.. 9,80,23,000/- received under the served from India scheme (Duty credit entitlement) is capital receipt and not chargeable to tax. Ld. AR brought to our notice that similar ground i.e., whether Served from India Scheme has to be treated as "capital receipt" or "revenue receipt" has been considered by the Coordinate Bench of the Tribunal in the case of Container Corporation of India Ltd., v. DCIT [2022] 100 ITR (Trib) 74 (Delhi) in which Coordinate Bench has held that amount of benefit under the SFIS is a capital receipt and goes to reduce cost of capital asset purchased and he brought to our notice Para Nos. 8 to 15. Copy of the order is placed on record. 13. On the other hand, the Ld. DR for the revenue contended that the said receipt was of revenue in nature and not capital. Further, the Ld. DR stated that the object and nature of the scheme has to be considered while deciding the said issue. The Ld. DR also contended that utilization of the incentive has not been establi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Central Excise tariff notification No.34/2006 dated 14.06.2006 also contains clear and specific restrictions as to credit being available only in respect of "Capital Goods" as defined in the Foreign Trade Policy. 11. SFIS is a credit receipt used for making payment of excise duty on domestic purchases. Scrips under SFIS are enticements which can be set off against excise duty while making purchase / import of capital goods. In no case has any amount been received by the Assessee under SFIS. All the purchases have been capitalized and hence new assets have come into existence. 12. The Assessee has not reckoned SFIS credit in its Profit & Loss account, since such credit for its nature as well as built-in conditions, could never have been an item on revenue account. Wherever it has made purchases of eligible capital goods however, it has corresponded with vendors as to availability of SFIS credit against Excise / Customs liability against the said purchases, obtained certificates from Excise / Customs authorities against provisional Invoices from vendors, and has purchased the said capital goods net of Excise / Customs duty, against SFIS credit. The capital goods as purchased ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chedule. 16. In the present case, the accounting method adopted by the assessee is, they claimed the SFIS as additional income and declared the same in the Profit and Loss and accounted the gross value of the capital assets in the depreciation schedule. We observe from the balance sheet and depreciation schedule that assessee has recorded the gross assets to the additions in the depreciation schedule to the extent of Rs.. 43,43,68,000/- (which includes Plant & Machinery, computer hardware and software. The above values include the custom / excise duty. 17. This can be explained with the example, let us say that the assessee purchases a "Plant and Machinery" of Rs.. 10,00,000/- and applicable customs duty @30%. As per the method of accounting, the assessee will record as under: - Cost of Plant and Machinery : Rs.. 10,00,000/- Customs duty : Rs.. 3,00,000/- Total Cost : Rs.. 13,00,000/- 18. In recording the above transactions, the company may have two ways of recording, First Method, the company will record only the basic cost and not consider the customs duty and subsidy. Whereas, in the Second Method, the company will record the total cost including the customs duty and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the same. In case it is included in the spare parts, the same has to be reduced or disallowed. 22. With regard to Ground No. 10, as discussed above, the income claimed by the assessee in the books of account is not proper. Since it is a credit to be adjusted in the cost of the capital assets. It should not be treated as an income as disclosed by the assessee. Once, it is reduced from the capital assets, it will not be additional income or incentive, therefore there will not be much impact on the profit except depreciation impact and will not impact the claim u/s. 80IA of the Act. Therefore, this ground become infructuous. Accordingly, dismissed. 23. With regard to Ground No. 11 which is in respect of "Other income of Rs.. 3,27,468/- (erroneously rounded off in the grounds of appeal at Rs.. 3,27,000/-) is eligible for benefit of deduction under section 80IA of the Act. Ld. AR of the assessee submitted that assessee is engaged in one single activity i.e. of running of a Port and it has no other operations otherwise than running of a Port and has no other income otherwise than from running of the Port. Ld. AR of the assessee brought to our notice Page Nos. 82 to 84 of the Paper Bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative tried to submit before us that the subsidy given to the manufacturers under NBS Scheme was to give concession to the farmers and reduce the MRP in order to bring down the manufacturing cost. Whole scheme was designed to increase the fertilizer production and utilization among the farmers by making available at the affordable price to the farmers. Since it is linked to reduction of price in manufacturing, this subsidy can only be classified under revenue not capital. However, we notice that the purpose of introduction of NBS scheme and modification of various Govt. schemes over the period is due to the fact that (refer impact of concession scheme) the growth of fertilizer industry was stagnated with virtually no investments over the years in urea sector, this industry had no incentive to invest on modernization and for increasing efficiency. The industry had no incentive to focus on farmers leading to poor farm extension services. The policy was introduced to reduce the burden on subsidy outgo in the hands of the Government which increased exponentially over the years. This policy is introduced considering all the issues relating to agriculture productivity, balanced fertiliza ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me lies outside the purview of the Act. Therefore, when the receipt is not in the nature of income, it cannot form part of taxable profit. In the present case, the issue is different, the assessee has declared the SFIS subsidy as an additional income without reducing the value of subsidy in the cost of the assets. When the same is being directed to be modified as directed to Assessing Officer the Assessing Officer will verify the same and make the changes in the depreciation schedule and reduce the subsidy from the income declared by the assessee. When the same is reduced from the income, this income will no longer be an item of income in the Profit and Loss. As held in the above decision, the SFIS subsidy is capital in nature, it cannot form part of book profit. Since this issue is remitted to the file of the Assessing Officer, we remit this issue also to the file of Assessing Officer to determine the book profit u/s. 115JB of the Act as per the direction in Ground Nos. 2 to 4. Accordingly, this ground also allowed for statistical purpose. 30. In the result, appeal filed by the assessee is allowed for statistical purpose. ITA.NO. 893/MUM/2013 (A.Y. 2008-09) - REVENUE APPEAL 31. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the industrial undertaking. Hence, it is eligible for deduction u/s. 80IA, therefore, A.O. is directed to allow deduction u/s. 80IA on scrap sale of Rs. 28,37,000/-." 35. We observe that the list of scrap materials declared by the assessee shows that these are generated out of the maintenance of the Port. The scrap cannot be accumulated from outside, unless, the assessee has bought for the business. We noticed that the assessee is not in the business of scrap sales, therefore, it should have been generated out of the port maintenance. It is integral part of the business and should be part of business income and the deduction u/s 80IA cannot be denied. Accordingly, we observe that Ld.CIT(A) has considered this aspect and allowed the claim of the assessee as per law. Therefore, we do not see any reason to disturb the same. Accordingly, ground raised by the revenue is dismissed. 36. In the result, appeal filed by the revenue is dismissed. ASSESSMENT YEAR 2009-10 ITA.NO. 1119/MUM/2013 (A.Y: 2009-10) - ASSESSEE APPEAL 37. Assessee has raised following grounds in its appeal: - "1. erred in upholding the addition of Rs 11,09,18,055 made by the AO to the total income of the App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount and is ultimately tax neutral and hence does not have any effect on the profit of the Appellant Duty credit entitlement is eligible for deduction under section 80IA of the Act 10. without prejudice to the grounds 1 to 9, erred in not appreciating that since the duty credit entitlement is having first degree nexus with the business of managing developing and maintaining the container terminal dock, it should be eligible for deduction under section 80IA of the Act. Other Income 11. erred in not allowing deduction under section 80IA of the Act on other income of Rs 6,03,055 earned by the Appellant. Capital receipt not taxable under Section 115.JB of the Act even if the receipt is incorrectly credit to the Profit & Loss A/c 12. Without prejudice to the above grounds, erred in not appreciating that capital receipt in the form of duty credit entitlement though incorrectly credited to the Profit & Loss A/c, shall not be considered while computing book profits under Section 115JB of the Act since it is a capital receipt, 13. Should have appreciated that as per Accounting Standard - 10, the duty credit should be reduced from the cost of assets and therefore to that exte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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