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TMI Blog2023 (6) TMI 1438X X X X Extracts X X X X X X X X Extracts X X X X ..... entries made in the books of accounts. In our view, no tax can be charged on an amount which is not earned. In the case of Godhra Electricity Co. Ltd. Vs. CIT [ 1997 (4) TMI 4 - SUPREME COURT] while adjudicating the question whether there was real accrual of income to the assessee-company in respect of the enhanced charges for supply of electricity observed that it has to be considered by taking the probability or improbability of realisation in a realistic manner. It is further observed that if the matter is considered in this light, it is not possible to hold that there was real accrual of income to the assessee-company in respect of the enhanced charges for supply of electricity. Thus, affirmed the view of the Tribunal that the claim at the increased rates as made by the assessee-company on the basis of which necessary entries were made represented only hypothetical income and the impugned amounts as brought to tax by the ITO did not represent the income of the appellant company. In another case of Satluj Cotton Mills [ 1978 (9) TMI 1 - SUPREME COURT] observed that it is now well settled that the way in which entries are made by an assessee in his books of account is not determi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gly, the addition confirmed by Ld. CIT(A) is held to be unjustified and bad in law. As such, the part addition confirmed by Ld. CIT(A) is directed to be deleted. Thus, the ground of the assessee is allowed. - DR. M. L. MEENA, ACCOUNTANT MEMBER AND SH. ANIKESH BANERJEE, JUDICIAL MEMBER For the Appellant : Shri. P.C. Parwal, CA For the Respondent : Shri Rohit Mehra, CIT DR ORDER Per Dr. M. L. Meena, AM: The Captioned cross appeals are filed by the Revenue and the Assessee against the order dated 17.05.2019 passed by the Ld. Commissioner of Income Tax, Jammu, [hereinafter referred to as CIT(A))] arising out of the Assessment Order dated 21.12.2018, passed by the Income Tax Officer, Ward- Kathua, in respect of the Assessment Year 2016-17, challenging therein the allowing of the 100% of the capital receipt in view of the amended section 2(24)(xviii) of the IT Act, 1961 by raising following grounds of appeals respectively. Grounds of ITA No. 594/Asr/2019 1. Whether in the facts and circumstances of the case, the Ld. CIT(A) was right in allowing the 100% of the capital receipt when the assessee himself claimed entire amount of Rs.5,15,25,900/- as refundable from Excise Department. 2. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the date of commencement of commercial production. Accordingly, the assessee firm was being entitled for exemption from payment of excise duty on the goods manufactured by it claimed 100% exemption and filed returned income at NIL. 2.1 In view of insertion of clause (xviii) to section 2(24) of the Act introduced by Finance Act, 2015, the AO held that contention of assessee that this was just a notional entry as explained vide letter dt. 14.12.2018 (PB 25-29) is not relevant. Assessee is following mercantile system of accounting and income is to be taxed on accrual basis. Assessee has passed the entry in books of accounts and is thus liable to be taxed. Hence, the amount of Rs.5,15,25,900/- claimed as capital receipt exempt u/s 10 of the Act is taxed as revenue receipt in view of section 2(24)(xviii) of the Act and accordingly added to the income of assessee. 3. The assesse being aggrieved with the Assessment Order, went in appeal before the Ld. CIT(A) who has granted part relief to the assesse by observing as under: 4.7. I am also of the considered opinion that the first appellate authority ought to consider the issue on merits. Hon'ble Madras High Court, in the case of CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these circumstances, I direct the Assessing Officer to delete the addition of Rs.3,29,76,575/-. The addition of balance amount of Rs. 1,85,49,324/- which is 36% of the Net Excise Duty it treated as income of the assessee in view of Notification No. 19 of 2008 and amended section 2(24)(viii) of the Income-tax Act. The sole Ground of appeal is partly allowed. 4. The Ld. CIT(DR) for the department submitted that on the facts and circumstances of the case, the Ld. CIT(A) was not right in allowing the 100% of the capital receipt when the assessee himself claimed entire amount of Rs.5,15,25,900/- as refundable from Excise Department that the assessee is following mercantile system of accounting and income is to be taxed on accrual basis and the assessee has passed this entry in the books of accounts maintained during the year under consideration and thus the Ld. CIT(A) was in error in not appreciating that as per the amended section 2(24)(xviii) of the IT Act, 1961 any assistance in the form of subsidy, grant, etc. provided by the Government or any other authority is to be considered as income/revenue receipt taxed accordingly. 5. Per contra, the Ld. Counsel for the assessee has reiterat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts stated above it can be noted that in view of Notification No.19/2008 dt. 27.03.2008 the assessee is entitled to only 36% of the excise duty exemption and not of 100% exemption. The SLP filed before Hon ble Supreme Court has since been decided vide order dt. 22.04.2020 where Notification No.19/2008 dt. 27.03.2008 was upheld. Thus, now it is settled that assessee is entitled to only 36% of the excise duty exemption. Therefore, only because in the book of accounts assessee passed the relevant entries for 100% of the excise duty exemption would not put the Excise Department under any obligation to refund 64% of the excise duty paid by the assessee to it and hence the same cannot be included in the income of assessee. 2. It is a settled law that passing of entries in the books of accounts is not conclusive to determine the income under the provisions of the law. Whether an amount is to be considered as income or not is to be determined on the basis of the Income tax law and not on the basis of the entries made in the books of accounts. No tax can be imposed on an amount which is not earned. In this connection, reliance is placed on the following cases:- CIT Vs. Shoorji Vallabhdas C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of the situation, no income had resulted because the income did not really accrue. (3) The conduct of the parties in treating the income in a particular manner is material evidence of the fact whether income has accrued or not. (4) The concept of real income is certainly applicable in judging whether there has been income or not but, in every case, it must be applied with care and within wellrecognised limits. Godhra Electricity Co. Ltd. Vs. CIT (1997) 225 ITR 746 (SC) The assessee company was engaged in the business of generation supply of electricity. It was entitled under the relevant law to decide on the tariff to be charged from its consumers. It increased its tariff against which consumers entered into litigation. Pending such disputes, assessee company in its books of accounts recognized the revenue as per the enhanced tariff which was taxed by the AO. However, on further appeal Hon ble Supreme deleted the addition by holding as under:- 22. The question whether there was real accrual of income to the assessee-company in respect of the enhanced charges for supply of electricity has to be considered by taking the probability or improbability of realisation in a realistic ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are available w.e.f. 01.04.2016 as mentioned in clause (a) (b), i.e. subsidy or grant or reimbursement received to meet actual cost of asset as per Explanation 10 to section 43(1) and subsidy or grant by Central Government for the purpose of corpus of a trust. The exemption granted to the assessee does not fall in the category of exceptions. Therefore, any subsidy, grant, cash incentive, duty drawback, waiver, concession reimbursement referred to in section 2(24)(xviii) is income and only because the word exemption is not mentioned therein, it is not open for the taxing authority or the tax payers to interpret the same as per their convenience. The Ld. CIT(A) viewed that central excise refund is in the nature of subsidy and thus held that 36% of the excise duty which is refundable to the assessee is income u/s 2(24)(xviii) and hence upheld the addition to the extent of Rs.1,85,49,324/-. 4. It is submitted that exemption and subsidy are two separate independent words. These words are not defined. Therefore, the general meaning of these words are required to be considered. As per Black s Law Dictionary (Sixth Edition) these two words are defined as under:- 'Exemption: Freedom fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. Vs. CIT (2022) 448 ITR 518 at Para 50 of its decision. 7. Applying the above settled principal of law, from Notification No.56/2002 dt. 14.11.2002 as amended by Notification No.19/2008 dt. 27.03.2008, the assessee is granted exemption from payment of excise duty to the extent of 36% of total excise duty collected. Section 2(24)(xviii) do not include the word exemption in its ambit though it specifically includes subsidy, grant, cash incentive, duty drawback, waiver, concession reimbursement. Thus, in the absence of inclusion of word exemption under the clause, the scope of this section cannot be enlarged to include exemption by interpreting that it is subsidy. Hence, the addition confirmed by Ld. CIT(A) is unjustified and not as per law. 6. We have heard the rival contentions, perused the material on record, impugned order, written submission and case law cited before us. Admittedly, the assessee firm has claimed 100% exemption on refund of excise duty on the goods manufactured by it, as the capital receipt. The DR argued that since, the assessee is following mercantile system of accounting and hence, income is to be taxed on accrual basis and further, the assessee has passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or supply of electricity. Thus, affirmed the view of the Tribunal that the claim at the increased rates as made by the assessee-company on the basis of which necessary entries were made represented only hypothetical income and the impugned amounts as brought to tax by the ITO did not represent the income of the appellant company. 10. In another case of Satluj Cotton Mills Vs CIT , (Supra) the Hon ble Apex Court observed that it is now well settled that the way in which entries are made by an assessee in his books of account is not determinative of the question whether the assessee has earned any profit or suffered any loss. What is necessary to be considered is the true nature of the transaction and whether in fact it has resulted in profit or loss to the assessee. 11. Following the Hon ble Apex Court (Supra), we hold that since the necessary entries made in the books of account of the appellant company represents only hypothetical/notional income although it is following mercantile system of accounting and hence, the impugned amounts as brought to tax by the ITO did not represent the income of the appellant company. Therefore, the ground No. 2 of the department is rejected. 12. Fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .1,85,49,324/-. 16. The Ld. AR argued that exemption and subsidy are two separate and independent words and which are not defined. He contended that therefore, the general meaning of these words are required to be considered, as per Black s Law Dictionary (Sixth Edition) wherein these two words are defined as under:- 'Exemption: Freedom from a general duty or service; immunity from a general burden, tax, or charge. Immunity from service of process or from certain legal obligations, as jury duty, military service, or the payment of taxes.' Subsidy: A grant of money made by government in aid of the promoters of any enterprise, work, or improvement in which the government desires to participate, or which is considered a proper subject for government aid, because such purpose is likely to be of benefit to the public 17. From the above definitions, it is apparently clear that word exemption is used in the conditions when assessee is given freedom from following any rules or regulations whereas subsidy is something which is given to the assessee to meet the cost of its project. In the present case, assessee is exempted from making payment of excise duty to the extent of 36% of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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