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TMI Blog2024 (9) TMI 735X X X X Extracts X X X X X X X X Extracts X X X X ..... d in raising additional claim of reduction of subsidy from computation of book profit though not claimed at the time of filing return of income; ii) Upon verification of income tax return, it is clear that the amount of subsidy has been reduced from WDV for the purpose of computation of depreciation and as per Income Tax Act; iii) Once the subsidy has been reduced to compute the actual cost of machineries building, it can no longer be considered as income, even u/s 2(24)(xviii) w.e.f. A.Y. 2016 17; iv) Once it is not income, the same cannot be part of book profit, though it is shown in Profit Loss Account, because capital receipt cannot be brought under the ambit of taxation even under the provisions of Minimum Alternate Tax. Entries in the books of account are not relevant; v) The Department is not permitted to take diametric opposite stand once while computing depreciation and again while computing book profit on the same issue; vi) Reduction from written down value leads to abatement of depreciation which in turn leads to higher taxable income. Again taxing the subsidy will lead to indirect double taxation which cannot be countenanced; vii) Distinct lines of reasoning should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice under section 143(2) of the Act was issued and served on ITBA. Notice under section 142(1) of the Act was issued on 06/06/2019. In response to notice issued, the details called for were uploaded. The assessee filed Income Tax Return, Computation of Income, Balance Sheet, Tax Audit Report, etc. Various details were called for electronically vide notices under section 142(1) dated 06/06/2019, 20/08/2019 and 17/10/2019. The assessee uploaded the details. 6. The assessee Company was granted Eligibility Certificate for setting up the manufacturing unit under the Mega Project in one of the backward areas qualified under the Package Scheme of Incentive, 2007, announced by the State Government of Maharashtra ( the Scheme ). A copy of the said Scheme is placed on record at Page 129 to 165 of the Paper Book. Under the said Scheme, the assessee qualified for the Mega Project and has been issued the Eligibility Certificate dated 29/05/2014, a copy of which is also placed on record at Page 166 of the Paper Book. As per the Eligibility Certificate, the assessee had invested ₹ 5,700.41 lakh during the period from 27/10/2009 to 21/03/2013, in the various assets for setting up the manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being aggrieved, filed appeal before the first appellate authority. 10. The learned CIT(A) confirmed the order passed by the Assessing Officer for the reason that (i) the downward adjustment on account of sales tax subsidy is not specified under item (i) to (viii) of the Explanation 1 to sub-section (2) of section 115JB of the Act and held that the Assessing Officer has no jurisdiction to make any adjustments other than those specified under Explanation 1 to sub-section (2) of the section 115JB of the Act. For this proposition, the learned CIT(A) relied upon the judgment of the Hon ble Supreme Court in Apollo Tyres Ltd. (supra); and (ii) reduction of the capital sales tax subsidy from the book profit is not acceptable as it is contrary to the provisions of the Companies Act and therefore, it violates the provisions of section 115JB of the Act. The assessee being not satisfied with the order so passed by the learned CIT(A), is again in appeal before the Tribunal. 11. During the course of hearing, the assessee has filed detailed written submissions, which were also reiterated in course of hearing. Relevant extracts of his submissions are extracted below to analyse the gamut of the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r loss of office or employment or cessation of business is a capital receipt though payment may be entirely, voluntary and the recipient may have no any repeat payment has no legal right to any compensation at all. The proposition is supported by the following decisions: CIT v E. D. Sheppard (48 ITR 237) (SC); CIT v Vazir Sultan Sons (36 ITR 175, 185) (SC); P. H. Divecha v CIT (48 ITR 222) (SC); W.A. Guff v CIT (31 ITR 826) (Bom.); Helen Rubber Industries Ltd. v CIT (36 ITR 544) (Ker.), reversed on another point CIT v Helen Rubber Industries Ltd. (44 ITR 714) (SC); CIT v Shaw Wallace (6 ITC 178) (PC); CIT v P. K. Das (34 ITR 729) (Cal.); CIT v Pran Jiban Jaitha (52 ITR 108) (Cal.); and Chibbett v Joseph (9 TC 48). Taxability of income and capital receipt: The income of a previous year is always subject to tax in the assessment year. Thus, income is always taxable unless exempted. However, the capital receipt shall not be subject to tax unless expressly taxed. A question arises as to whether the sales tax subsidy received from the State Government under the Scheme is a capital receipt or revenue receipt. 3.7.1. Capital receipt not subject to tax: The Bombay High Court, being Jurisdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubsidy, being only a major adopted under the scheme to quantify the financial aid, is not a payment, directly or indirectly, to make any portion of the actual cost . The expression actual cost in section 43 (1) of the Income-tax Act, 1961, needs to be interpreted liberally. Such a subsidy does not partake of the incidents which attract the conditions for its deductibility from actual cost . The amount of subsidy is not to be deducted from the actual cost under section 43 (1) for the purpose of acquisition of depreciation, etc. (underlined and bold for emphasis) In the above decision, the Apex Court held that the subsidy received by the assessee is capital in nature and need not be deducted from the actual cost of asset, post consideration of the object with which the subsidy was granted to the assessee. In the present case, the subsidy is received by the Appellant Company for Mega expansion of the existing company which has set up eligible Unit in notified backward area under the Scheme. However, the subsidy is received subsequent to expansion i.e. after the commercial production by linking the quantification of payment to admissible fixed capital investment made by the Appellant C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unit than the receipt of the subsidy would be on capital account. (Underlined bold and italics for emphasis) The Supreme Court in its recent decision in CIT v. Chaphalkar Brothers (400 ITR 279) has once again considered the question as to whether subsidy received would be treated as capital or revenue nature and held as under: The fact that the subsidy kicks in only after the multiplexes start functioning and issue tickets on which entertainment duty is then waived, would not mean that the object of the subsidy is really in the nature of a helping hand for running of the day-to- day business of the multiplexes. That the object is carried out in a particular manner is irrelevant. The subsidy is capital in nature and not taxable. Since the subsidy scheme in the West Bengal case is similar to the scheme in the Maharashtra case, being to encourage development of multiplex theatre complexes which are capital intensive in nature, and the entertainment tax collected is to be retained by new multiplex theatre complexes for a period not exceeding four years, the subsidy in those cases also would be capital in nature. (Underlined and bold for emphasis) The Bombay High Court in CIT v. Relian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Scheme, 2005 as capital receipt and not revenue receipt and whether the same shall be excluded in computation of the book profit under section 115JB of the Act, held that the impugned incentives are capital receipts and not income and same shall be excluded while computing the book profit under section 115JB of the Act specifically when such receipts are capital receipts and did not fall within the definition of income under section 2(24) of the Act. The specific finding of the High Court reads as under: Held, dismissing the appeal, (i) that according to the West Bengal Incentive Scheme, 2000 and the West Bengal Incentive to Power Intensive Industries Scheme, 2005 the subsidies were granted with the sole intention of setting up new industry and attracting private investment in the State of West Bengal in the specified areas which were industrially backward and hence the subsidies were of the nature of non-taxable capital receipts. Thus according to the purpose test laid out by the Supreme Court and the High Courts the subsidy should be treated as a capital receipt in spite of the fact that the computation of power subsidy was based on the power consumed by the assessee. Once the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uted under section 115JB. (Bold for emphasis) The Kolkata Tribunal in SICPA India (P) Ltd. Vs. DCIT and vice versa (186 TTJ (Kol.) 289), while dealing with the question as to whether the excise duty exemption received by the assessee was in the nature of capital receipt and, therefore, not includable in taxable book profit under section 115JB of the Act specifically when there is no such provisions stipulated in the Explanation 1 to section 115JB of the Act held that such subsidy shall be treated as capital receipt and shall be excluded while computing the book profit under section 115JB of the Act even though there is no specific exclusion in the Explanation 1 to the said section. The facts of this case were as under: The assessee availed the excise duty exemption in respect of a new unit situated in the notified area of Sikkim. In the audited account, the said incentive was shown under the head revenue grant from Government which was clubbed and included under the head other income in Schedule 14 forming part of the financial statement. In the revised return, the assessee excluded excise duty exempt in the computation of book profit under section 115JB of the Act by relying on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) (Vizag); and B B Infotech Ltd. v. ITO (IT Appeal No. 726 (Bang.) of 2014). Based on the facts and the circumstances of the Appellant's case, the settled legal position referred to above, the objects and intent of the statutory provisions of the Act, it is humbly submitted that the subsidies in question should be treated as capital subsidy and be excluded for the purpose of determination of book profits u/s 115JB of the Act. Similarly, in the following decisions, the Court have held that the subsidy received not for running of the business but for setting up of the unit in the backward area or the subsidy received for setting up a multiplexes or theatres then, in that case, such subsidy can be treated as capital in nature and not revenue in nature: DCIT vs. Inox Leisure Ltd. (351 ITR 314) (Guj.); Shree Balaji Alloys vs. CIT (198 Taxmann 122) (J K); CIT vs. Tiruttani Co-op Sugar Mills Ltd. (322 ITR 59) (Mad.); and CIT vs. Rasoi Ltd. (335 ITR 438) (Cal.). Now, a question arises as to whether the impugned subsidy be reduced while computing the book profit under the MAT provisions of the Act: The Mumbai Tribunal in the case of M/s. Bombay Dyeing Manufacturing Co. ltd. Bearing ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a tax thereon. (underlined and bold for emphasis) The Special Bench further considered the history of the MAT provisions and held as under: The legislative history shows that the tax under section 115J was with reference to the business profit as it was in replacement of section 80VVA which sought to reduce the deductions available in computing the income from business. When section 80VVA was introduced in 1983-84, the intention was to restrict the various tax incentives and concessions available in computing the income from business to 70 per cent. thereof. Significantly, the deduction under section 80T in respect of capital gains was not one of the items of concession or tax rebate which was to be restricted under that section. This shows that exemption of capital gains was not intended to be restricted. Subsequently also when that section was replaced by section 115J, the object was to introduce the provision whereby every company will have to pay a minimum corporate tax on the profits declared by it in its own accounts. These profits can only be those which are assessable as income under the Act. It is now well-settled that, in the interpretation of statutes, one has to adopt s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad with proviso considered the object of inserting clauses (i) to (vii) of the Explanation to the said section. The Supreme Court held that the object of clause (i) to (vii) is to find out the true working result of the assessee company. Only if the reserves created have gone to increase the book profit in any year when the MAT provisions are applicable, the assessee would be entitled to reduce the amount withdrawn from such reserve if such withdrawal is credited to the profit and loss account. Thus, the Supreme Court held that MAT provision is to bring out the true working result of the assessee company. As a consequence, the subsidies which are capital in nature are not income and, therefore, not subject to tax under the Act. Hence, such receipts should be excluded while computation of the book profit. The Kolkata Tribunal in DCIT v. Century Plyboards India Ltd. (supra) wherein after considering the above decisions of Supreme Court, the Tribunal held that though the subsidy has been credited to the profit and loss account the same shall be excluded while computing the book profit under section 115JB of the Act. The specific finding of the Tribunal reads as under: 45. Now coming t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r profits arising on transfer of a capital asset by a company to its wholly owned subsidiary company which is not treated as income under s. 2(24) of the Act and since it does not form part of the total income under s. 10 of the Act and therefore does not enter into computation provision at all under the normal provisions of the Act, the same should be considered for the purpose of computing book profit under s. 115JB of the Act, held as under: 26. We shall now examine the scheme of the provisions of s. 115JB of the Act. It is pertinent to note that the provisions of s.10 list out various types of income, which do not form part of total income. All those items of receipts shall otherwise fall under the definition of the term Income as defined in s. 2(24) of the Act, but they are not included in total income in view of the provisions of s. 10 of the Act. Since they are considered as Incomes not included in total income for some policy reasons, the legislature, in its wisdom, has decided not to subject them to tax under s 115JB of the Act also, except otherwise specifically provided for. Clause (ii) of Expln. 1 to s. 115JB specifically provides that the amount of income to which any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee adjustment need to be made to disclosures made in notes on accounts forming part of P L a/c of assessee. Profits arrived after such adjustment, should be considered for purpose of computation of book profits under s. 115JB of the Act and thereafter, AO had to make adjustments for additions/deletions contemplated in Explanation to s 115JB of the Act. (underlined, bold and italics for emphasis) Similar view is taken by the Courts in the following decisions: Indo Rama Synthetics (I) Ltd vs. CIT (supra); Apollo Tyres Ltd. vs. CIT (supra); Rain Commodities Ltd. v/s. Dy. CIT (131 TTJ (Hyd.) (SB) 514); ACIT v/s. L.H. Sugar Factory Ltd. and vice versa (in ITA Nos. 417. 418 and 339/Lkw/2013); and Shivalik Venture (P) Ltd v/s. Dy. CIT (supra). The Lucknow Bench of the Tribunal in ACIT v/s. L.H. Sugar Factory Ltd. and vice versa (in ITA Nos. 417. 418 and 339/Lkw/2013), where receipts on account of carbon credits which were capital receipts not chargeable to tax and hence, not in the nature of income were held not included in the book profits. A question arises as to what is the nature of sales tax subsidy in the present case: The Appellant invites Your Honour s kind attention to the Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge Scheme of Incentive and is capital in nature. Therefore, the sales tax subsidy is to be reduced from book profit. Meaning of Non-Obstante clause in section 115JB of the Act: The Calcutta Special Bench of the Tribunal in Sutlej Cotton Mills Ltd. V/s. ACIT (199 ITR 164), while dealing with the non-obstante clause contained in the MAT provisions held as under: The non obstante clause with which this section begins could only mean that the other sections which impose tax on book profit alone are to be ignored and not that the section which deems a capital receipt as income should be taken as part of the book profit for the purpose of the section, more so when section 45 declares that it cannot be taken as income if section 54E is attracted. Hence capital gains which is not chargeable even as deemed income because of section 54E, cannot be brought to tax as part of the book profit under the Explanation to section 115J. (underlined, bold and italics for emphasis) From the above finding of the Special Bench, it can be seen that the non- obstante will have overriding effect over the other section which imposes tax on the book profit alone hence, are to be ignored and not that the capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or any class of assesses or for any class of income. The Central Board of Direct Taxes (CBDT) notified ICDS-I to ICDS-X vide Notification No.S.O.892(E),dated March 31, 2015 after vide public consultations. The ICDS-VII relating to Government grants provides that all Government grants except relating to depreciable asset shall be recognized as income in accordance with the provisions of the said ICDS. The existing provisions of Explanation 10 to clause (1) of section 43 of the Income-tax Act already contained the guidance for treatment of Government grants relating to acquisition of an asset. However, there was no specific guidance available under the provisions of the Income-tax Act for treatment of other Government grants. In order to avoid any future litigation and controversy in this matter, the definition of income under clause (24) of section 2 of the Income-tax Act has been amended so as to provide that the income shall include assistance in the form of a subsidy or grant or cash incentive on duty drawback or waiver or concessions or reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body or agency in cash or kind to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Chemicals (254 ITR 554). In the following decisions courts have held that even if it is a benevolent circular it is binding on the authorities of the tax department: Navnitlal C. Jhaveri (56 ITR 198 at 203) (SC); Ellerman Lines Ltd versus CIT (82 ITR 913 at 920-1) (SC); K.P. Varghese (131 ITR 597); and UCO Bank versus CIT (237 ITR 89) (SC). The aforesaid amendment carried out by the Finance Act, 2015 to section 2(24) of the Act is applicable prospectively from Assessment Year 2016-17 and onwards. Based on the facts and circumstances of our case, the objects or intent of the statutory provisions of the Act and settled legal position referred to above and the preceding paragraphs, the impugned sales tax subsidy is capital in nature and this fact has been accepted by both the lower authorities, and, therefore, the Appellant humbly submits that the lower authorities be directed to follow the above Circular of the CBDT and apply the same to the Appellant s case and drop the proposal of treating the subsidy as the Appellant s income for the purposes of computing book profit under section 115JB of the Act. Submissions as to entries in the books of accounts are not relevant for determini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n his books of account be decisive or conclusive in the matter. (underlined and bold for emphasis) The Bombay High Court, being jurisdictional High Court, in CIT vs Bhor Industries Ltd. (264 ITR 180) on a question whether expenditure which has been deferred in the books of accounts can be allowed as revenue expenditure, held that such expenditure to be treated as revenue expenditure in the year in which it is incurred irrespective treatment in the books of account. The facts of this case were as under: During the accounting year ending March 31, 1996, the company claimed the voluntary retirement scheme expenses amounting to Rs. 10,02,23,735 incurred at Borvile plant. As per the annual report, the voluntary retirement scheme expenses were to be written off within a period of 60 months. In the past, the company had incurred the voluntary retirement scheme expenses for other plants and under the books of the company, such expenses were written off over a period of 36 months. Therefore, when for the accounting year ending March 31, 1996, the voluntary retirement scheme expenses amounting to Rs. 10,02,23,735 incurred for Borvile plant came to be written off within 60 months, the officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g decisions: UCO Bank v CIT (237 ITR 889) (SC); Kedamath Jute Mfg. Co. Ltd. v CIT (82 ITR 363) (SC) Sutlej Cotton Mills Ltd. v CIT (116 ITR 1) (SC); CIT v Tata Chemicals Ltd. (256 ITR 395) (Bom); CIT v Berger Paints (India) Ltd (254 ITR 503) (Cal); CIT v Bhor Industries Ltd. (264 ITR 180) (Bom); CIT v Fenner (India) Ltd. (292 ITR 605); CIT v Saravana Spinning Mills (P) Ltd. (292 ITR 655)(Mad); and CIT v Darius Pandole (330 ITR 485) (Bom). From the ratio laid down by the courts in the aforesaid decisions it is very clear that entries in the books of account would not be a decisive factor for determining the tax implications under the Act. Based on the above submissions, the facts and the circumstances of the Appellant's case, the settled legal position referred to above, the objects and intent of the statutory provisions of the Act, merely because the sales tax subsidy is credited to in the books of accounts based on the Ind AS 20 as also based on the opinion of EAC of the ICAI the same under no circumstances be treated as revenue in nature for the purposes of the Income-tax Act and the character of the subsidy shall continue to be regarded as capital in nature and, therefore, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t applicable to the Appellant. The Appellant invites Your Honours kind attention to paragraph 7 of ICDS VII, which reads as under: 7. Where the Government grant is of such a nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total Government grant, the same proportion as such asset bears to all the assets in respect of or with reference to which the Government grant is so received, shall be deducted from the actual cost of the asset or shall be reduced from the written down value of block of assets to which the asset or assets belonged to. The said paragraph specifically provides that when the grant is not related to any particular assets then, in that case, the proportionate amount of grant shall be reduced from the value of the respective asset. This itself justifies that grants which are capital in nature are not required to be routed through profit and loss account but by virtue of specific provisions under Ind AS vis-a-vis opinion of the EAC of the ICAI, the same were credited to profit and loss account. In the present case, the Appellant has followed paragraph 7 as the sales tax subsidy received by it does not related t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form part of the book profit under section 115JB of the Act, 1961. In the case of Apollo Tyres Ltd. (supra) the income in question was taxable but was exempt under a specific provision of the Act as such it was to be included as a part of the book profit. But where a receipt is not in the nature of income at all it cannot be included in the book profit for the purpose of computation under section 115JB of the Income-tax Act, 1961. For the aforesaid reason, we hold that the interest and power subsidy under the schemes in question would have to be excluded while computing book profit under section 115JB of the Income-tax Act, 1961. Thus, the Calcutta High Court in Ankit Metal and Power Ltd. (supra) has categorically distinguished the decision of the Supreme Court in Apollo Tyres' Case (supra) and held that when subsidy is not income within the meaning of section 2(24) of the Act, the question of treating the same as income either under the normal provisions of the Act or under MAT provisions of the Act would be contrary to the objects and intent of the statutory provisions of the Act. The position would be the same even after insertion of sub-clause (xviii) to clause (24) of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 254 of the Act. Further, the Calcutta High Court in CIT v/s. Britannia Industries Ltd. (396 ITR 677), wherein it was held that the Tribunal has power to entertain the claim for deduction not claimed before the assessing officer by filing a revised return of income. Decisions relied on by the CIT(A): The CIT(A) vide its order relied on the decision of the Bombay High Court in CIT Vs. Veekaylal Investment Co. Pvt. Ltd. (249 ITR 597), wherein the Bombay High Court held that if the profit is not computed in accordance with Part II and Part III of the Schedule VI of the Companies Act, 1956, the assessing officer has power to re-compute such book profit. Thus, it can be said that if the assessing officer can amend the book profit, if it is not in accordance with Part II and Part III of Schedule VI, likewise even the assessee can re-compute the book profit for the purposes of section 115JB of the Act. The aforesaid proposition is supported by the following decisions: DCIT Vs. Bombay Diamond Co. Ltd.; Syndicate Bank Vs. ACIT (179 ITD 178) (Bang. Trib.); and SICPA India (P) Ltd. vs. DCIT (supra). In view of the above, it is submitted that the subsidy amount being capital in nature, AO may b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of the Tribunal rendered in the matter of DCIT v/s Century Plyboards Pvt. Ltd., [2021] 187 ITD 35 (Kol. Trib.) decided on 04/11/2020. 45 Now coming to the issue relating to treatment of these subsidies while computing book profit u/s 115JB. website that the Hon'ble Apex Court in the case of Apollo Tyres Ltd. v. CIT [2002] 122 Taxman 562/255 ITR 273 held that the AO has the power to rework the book profit if the profits are computed not in accordance with Part II and Part III of Schedule VI to the Companies Act, 1956. The Hon'ble Supreme Court in their subsequent decision rendered in the case of Indo Rama Synthetics (1) Ltd. v. CIT [20111 9 taxmann.com 25/196 Taxman 539-330 ITR 363 further held that, the object of MAT provisions is to bring out the true working result of the companies. As held in the preceding paras, the subsidies received by the assessee were capital in nature and therefore not liable to tax. In the circumstances therefore, inclusion of such capital receipt in the computation of book profit u/s 115JB would defeat two fundamental principles. Firstly, it would levy tax on receipt which is not in the nature of income at all and secondly it would not resu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Act, 1961. For the aforesaid reason, we hold that the interest and power subsidy under the schemes in question would have to be excluded while computing book profit under section 115 JB of the Income-tax Act, 1961. 47. We also rely on the decision of the coordinate bench of this Tribunal in the case of Sicpa India (P.) Ltd. (supra) wherein it has been held that the subsidy received by the assessee in form of excise duty exemption me for setting up new industry in the North Eastern State viz., Sikkim was in the capital field and therefore not eliable to tax under the provisions of section 115JB of the Act. The relevant findings of this Tribunal are as follows: 21. The main issue that arises for consideration on the basis of the grievance projected by the Revenue in the aforesaid ground No. 2 is as to whether the excise duty refund which were held by the CIT(A) to be capital receipts not chargeable to tax can still be considered as part of the book profits u/s. 115JB of the Act, even though these sums have been credited in the profit and loss account and treated as income and even though the exclusion of these sums for the purpose of computing book profit u/s. 115JB has not been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In other words, all that one has to do, while computing book profits is to take the profit as per profit and loss account prepared in accordance with Companies Act, 1956 and make additions or subtraction as is given in the explanation to sec. 115JB(2) of the Act. 23. We have already seen that the issue whether subsidies in question can be regarded as income at all is no longer res integra and has been concluded by the Hon'ble Jammu Kashmir High Court in the case of Balaji Alloys (supra). In the aforesaid decision the Hon'ble J K High Court on identical facts held that excise duty subsidy and interest subsidy were capital receipts not chargeable to tax. In view of the aforesaid decision of the Hon'ble High Court rendered on identical facts as that of the Assessee's case, there can be no doubt that subsidies in question does not have any character of income. 24. When a receipt is not in the character of income, can it form part of the book profits for the purpose of sec. 115JB of the Act, is the question that arises for consideration. The ITAT Kolkata Bench in the case of Dy. CIT v. Binani Industries Ltd. [2016) 178 TTJ 658: had to deal with a case where the question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the decision of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (supra) as a case in which the income in question was taxable but was exempt under a specific provision of the Act and but for the exemption, the income would be chargeable to tax and such items of income should also be included as part of the book profits. But where a receipt is not in the nature of income at all it cannot be included in book profits though it is credited in the profit and loss account. The Bench followed the decision of the Lucknow Bench in the case of L.H. Sugar Factory Ltd. (supra), where receipts on account of carbon credits which were capital receipts not chargeable to tax and hence not in the nature of income were held not included in the book profits. The Bench also referred to the decision of the Mumbai Bench of the ITAT in the case of Shivalik Venture (P.) Ltd. (supra) which was a case where the question was whether profits arising on transfer of a capital asset by a company to its wholly owned subsidiary company which is not treated as income u/s 2(24) of the Act and since it does not form part of the total income u/s.10 of the Act and therefore does not enter into computat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion should be excluded for the purpose of determination of book profits u/s.115JB of the Act. We hold accordingly and dismiss Gr.No.2 raised by the Revenue. 48. For the reasons set out above and respectfully following the binding decision of the Hon'ble Calcutta High as Court as well as this Tribunal, we hold that the subsidies received by the assessee for setting up new Industries, by way of refund of VAT and excise duty of Rs. 2,36,75,501/-and Rs. 18.82,79.547/- respectively are liable to be excluded from the computation of book profit u/s 115JB of the Act. 15. We also deem it fit to reproduce below Para 14.7 to 19.13 of the order dated 08/04/2024, passed by the Co ordinate Bench of the Tribunal, Mumbai Bench, in IPCA Laboratories Ltd. v/s DCIT, [2024] 161 taxmann.com 511 (Mum.). 14.7 We now come to the issue relating to treatment of these subsidies while computing book profit u/s 115JB. It is noted that, in the context of similar State Industrial Scheme, the Hon'ble Calcutta High Court in the case of Ankit Metal and Power Ltd. 416 ITR 591 has held that, the subsidies received for setting up new industry is not in the nature of income, and therefore cannot be deemed as i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee in form of excise duty exemption for setting up new industry in the North Eastern State viz., Sikkim was in the capital field and therefore not liable to tax under the provisions of section 115JB of the Act. The relevant findings of this Tribunal are as follows: 21. The main issue that arises for consideration on the basis of the grievance projected by the Revenue in the aforesaid ground No. 2 is as to whether the excise duty refund which were held by the CIT(A) to be capital receipts not chargeable to tax can still be considered as part of the book profits w/s.115JB of the Act, even though these sums have been credited in the profit and loss account and treated as income and even though the exclusion of these sums for the purpose of computing book profit u/s.115JB has not been specifically provided under explanation below sec. 11518(2) of the Act. In rejecting the claim of the Assessee in this regard, the AO held that these sums have been credited in the profit and loss account and treated as income and exclusion of these incomes (sums) for the purpose of computing book profit u/s.115JB has not been specifically provided under explanation below sec. 115JB (2) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and has been concluded by the Hon'ble Jammu Kashmir High Court in the case of Balaji Alloys (supra). In the aforesaid decision the Hon'ble J K High Court on identical facts held that excise duty subsidy and interest subsidy were capital receipts not chargeable to tax. In view of the aforesaid decision of the Hon'ble High Court rendered on identical facts as that of the Assessee's case, there can be no doubt that subsidies in question does not have any character of income. 24. When a receipt is not in the character of income, can it form part of the book profits for the purpose of sec.115JB of the Act, is the question that arises for consideration. The ITAT Kolkata Bench in the case of Dy. CIT v. Binani Industries Ltd. [2016] 178 TTJ 658 had to deal with a case where the question was as to whether receipts on account of forfeiture of share warrants amounting to Rs. 12,65,75,000/-, being a capital receipt, would be liable for taxation u/s 115JB. The tribunal after referring to several decisions on the issue viz., the Hon'ble Apex Court in case of Indo Rama Synthetics (I) Ltd. v. CIT [2011] 330 ITR 336/9 taxmann.com 25, Apollo Tyres Ltd. v. CIT [2002] 174 CTR 521/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a receipt is not in the nature of income at all it cannot be included in book profits though it is credited in the profit and loss account. The Bench followed the decision of the Lucknow Bench in the case of L.H. Sugar Factory Ltd. (supra), where receipts on account of carbon credits which were capital receipts not chargeable to tax and hence not in the nature of income were held not included in the book profits. The Bench also referred to the decision of the Mumbai Bench of the ITAT in the case of Shivalik Venture (P.) Ltd. (supra) which was a case where the question was whether profits arising on transfer of a capital asset by a company to its wholly owned subsidiary company which is not treated as income u/s 2(24) of the Act and since it does not form part of the total income u/s.10 of the Act and therefore does not enter into computation provision at all under the normal provisions of the Act, the same should be considered for the purpose of computing book profit u/s 115JB of the Act. The Mumbai Bench held as follows: 26. We shall now examine the scheme of the provisions of sec. 115JB of the Act. It is pertinent to note that the provisions of sec. 10 lists out various types o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new industry, by way of refund of excise duty from the computation of book profit u/s 115JB of the Act. 14.10 As far as the ld. CIT DR s contention regarding admission of fresh claim is concerned, we note that the had raised the claim in the abated AYs 2012-13 2014-15. It is noted that the Hon'ble Bombay High Losevin the decisions rendered in the cases of Pr. CIT v. JSW Steel Limited 270 Taxman 201 and CIT V. B. G. Shirke Construction Technology (P.) Ltd. 395 ITR 371 has held that, it is open for an assessee to lodge a new claim in a proceeding under section 153A which was not claimed in his regular return of income, provided the assessment stood abated as a consequence of the search. Also, the Hon'ble Bombay High Court in the case of CIT. Pruthvi Brokers Shareholders (supro) after considering the decisions of the Hon'ble Supreme Court in the cases of Addl. CIT v. Gurjargravures (P.) Ltd., 111 ITR 1, Jute Corpn. of India Ltd. v. CIT 187 ITR 688, National Thermal Power Co. Ltd. v. CIT 229 ITR 383 and Goetze (India) Ltd. v. CIT (supra) has upheld the powers of the appellate authorities including Ld. CIT(A) to entertain and adjudicate additional claims which was not made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the circumstances of the case, we dismiss the Civil Appeal. However, we make it clear that the issue in this case is limited to the power of the Assessing Authority and does not impinge on the power of the Income-tax Appellate Tribunal under section 254 of the Income-tax Act, 1961. 29.1 This judgment was followed by our Court in the case of Britannia Industries Ltd. (supra) holding that Tribunal has the power to entertain the claim of deduction not claimed before the Assessing Officer by filing revised return. Respectfully following the aforesaid decision as well as the view already taken by us in this case that the aforesaid subsidies are capital receipt and not an income' and not liable to Tax Tribunal in exercise of its power under section 254 of the Income-tax Act justified this claim though no revised return under section 139 (5) of the Act was filed before the Assessing Officer. We answer both the question Nos. 1 and 2 in negative and in favour of assessee. 14.13 For the reasons set out above therefore, we do not find any merit in the legal plea raised by the Ld. CIT. DR contesting validity of admission of additional claim by the Ld. CIT(A). Overall thus, we see no reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee is partly allowed. ITA no.242/Nag./2023 Assessee s Appeal A.Y. 2018 19 22. The assessee has raised following grounds: 1. On the facts and circumstances of the case and in law, Ld. CIT(A) erred in rejecting the additional legal claim of reduction of capital subsidy while computing the income u/s 115JB of the Act, for the reasons mentioned in the impugned order or otherwise. 2. On the facts and circumstances of the case and in law, Ld. CIT(A) erred in not allowing the deduction of sales tax subsidy of Rs. 10,34,44,301/- in computing the income u/s 115JB of the Act, for the reasons mentioned in the impugned order or otherwise. 3. On the facts and circumstances of the case and in law, Ld. CIT(A) erred in confirming the action of ld. AO in making disallowance of depreciation aggregating to Rs. 51,73,962/-, for the reasons mentioned in the impugned order or otherwise. 4. The appellant craves leaves to alter, amend, withdraw or substitute any ground or grounds or to add any new ground or grounds of appeal on or before the hearing. 23. The facts are similar with only variation in numerical figures, we hold that the decision in assessment year 2017 18 shall apply mutatis mutandi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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