BRIDGESTONE INDIA P. LTD, MUMBAI V. ASSL/JT/DY/CIT/ASSTT/ITO, NATIONAL E-ASSESSMENT CENTRE DELH, DELHI

ITA 1081/MUM/2021

AI Insights

Bridgestone India P. Ltd appealed against the assessment order for the assessment year 2016-17, which included additions to income on account of subsidies received from the governments of Maharashtra and Madhya Pradesh. The subsidies were initially treated as revenue receipts by the Assessing Officer, leading to higher taxable income. The Tribunal examined the nature of the subsidies under the Package Scheme of Incentives, 2007, and the Industrial Promotion Policy, 2004, and found that these subsidies were intended to promote industrial development and were thus capital in nature. The Tribunal's decision was influenced by precedents set in similar cases and the specific terms of the subsidy agreements, which indicated that the subsidies were meant to support capital investment in the manufacturing unit.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 125132 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-04-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 23-01-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 09-06-2021
• Other Referred Cases: CIT vs. Ponny Sugars and Chemicals Ltd, Kedarnath Jute Manufacturing Co. Ltd vs. CIT, ACIT vs. Mahindra Vehicles Manufacturers Ltd, Innoventive Industries Ltd vs. DCIT, Bhagyalaxmi Rolling Mills Pvt. Ltd vs. DCIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Cost of acquisition; Capital receipt
• Section: 10; 115JB; 144C; 43; 92CA; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE SHRI PRASHANT MAHARISHI, AM AND MS KAVITHA RAJAGOPAL, JM ITA No. 1081/MUM /2021 (Asse ssment Year 2016-17) Bridgestone India P .Ltd Plot No-A-43, Pha se-II, Midc Chakan, Vi llage Sa wardari, Talu ka Khed, Pune-410501 Vs. Addl/JT/DY/CI T/ITO, Nationa l E- Asse ssment Centre Delhi-110 003 (Appellant) (Respondent) PAN No. AABCB2304E Assessee by : Shri Su kh sag ar S ya l, Adv Revenue by : Dr. Ma he sh A kh ad e, CI T DR . Date of h ea r ing: 24.0 1.20 23 Date of pronouncement : 21.04. 20 23 O R D E R PER PRASHANT MAHARISHI, AM: 01. This appeal is filed by assessee against the assessment order passed for assessment year 2016 – 17 under section 143 (3) read with section 144C (13) read with section 144B of the income tax act passed by National e-Assessment Centre, Delhi (the learned AO) on 23/4/2021 determining the total income of the assessee at ₹ 1,311,186,614 against the income returned by the assessee at ₹ 441,696,759/– as per return of income filed on 29/11/2016 as per normal computation of income wherein the only addition is on account of subsidies received from government of Maharashtra and government of Madhya Pradesh amounting to ₹ 470,341,836 and book profit under section 115JB of the act determined at ₹ 3,017,063,746 against book profit returned by the assessee at ₹ Page | 2 ITA No.1081/MUM/2021 Bridgestone India P. Ltd, A.Y.2016-17 2,967,413,430/–, passed in pursuance of the order passed by Transfer Pricing Officer, Ahmadabad (the learned TPO) subject to direction of the learned Dispute Resolution Panel CIT (DRP – 2), Mumbai – 1 (the learned DRP). 02. The only dispute in this appeal is addition of ₹ 332,287,820/– ( net of depreciation) in respect of subsidy received from government of Maharashtra under the packaged scheme of incentives, 2007 by treating the same as revenue receipt and further making an addition of ₹ 138,054,016/– ( net of depreciation) in respect of subsidy received from government of Madhya Pradesh under the industrial promotion policy 2004 by treating the same as revenue receipt to the normal computation of total income. 03. Assessee has raised following grounds of appeal:- “1. The ld. AO and Hon’ble DRP erred in making an addition of ₹ 33,22,87,820 (gross subsidy of ₹ 37,75,86,403/-, less depreciation of ₹ 4,52,98,683/-) in respect of the subsidies received from Government of Maharashtra under the Packaged Scheme of Incentives, 2007 by treating the same as revenue receipt Prayer The Appellant prays that the addition made by Ld.AO and Hon’ble DRP be deleted and the Ld.AO be directed to treat the amount of ₹ 33,22,87,820/- as a capital receipt and being covered by Explanation 10 to section 42(1) of the Act. 2. The Ld. AO and Hon’ble DRP erred in making an addition of ₹ 13,80,54,016/- (gross subsidy of ₹ 15,68,74,000/- less depreciation of ₹ 1,88,19,984/-) in respect of the subsidies Page | 3 ITA No.1081/MUM/2021 Bridgestone India P. Ltd, A.Y.2016-17 received from Government of Madhya Pradesh under the Industrial Promotion Policy, 2004 by treating the same as revenue receipt. Prayer The Appellant prays that the addition made by Ld. AO and Hon’ble DRP be deleted and the Ld.AO be directed to treat the amount of ₹ 13,80,54,016/- as a capital receipt and being covered by Explanation 10 to section 43(1) of the Act.” 04. Brief facts show that assessee is engaged in the business of tyre and allied products manufacturing, trading in natural rubber and synthetic rubber. The assessee has taken a radial tyre manufacturing technology and use of Bridgestone brand of manufactured products in India. Assessee filed its return of income on 29/11/2016 declaring a total income of ₹ 441,696,759/– which has been further revised on account of signing of Advance Pricing Agreement on 26/2/2019 declaring an income of ₹ 840,844,813. This return of income was picked up for scrutiny. The assessment order was passed on 23/4/2021. 05. On perusal of the audited profit and loss account of the assessee, it was observed that assessee has credited industrial promotion subsidy under package scheme of incentives 2007 of government of Maharashtra under the head 'other operating revenue' however while filing the computation of total income assessee reduced the above from total income. The claim of the assessee is that as assessee has entered into memorandum of understanding with government of Maharashtra on 26/4/2010 to setup a manufacturing unit for manufacturing of steel belted radial, inner tubes and flaps. Industrial unit of the assessee was designated as Page | 4 ITA No.1081/MUM/2021 Bridgestone India P. Ltd, A.Y.2016-17 Mega project under package scheme of incentives of government of Maharashtra. In its books of account the electricity subsidy has been reduced from electricity expenses and further subsidy by way of refund of value-added tax and Central sales tax paid to government of Maharashtra of ₹ 377,586,403/– are charged to profit and loss account. 06. Further assessee has also been granted industrial investment promotion assistant by government of Madhya Pradesh for the expansion of production capacity of radial tyres at its plant. The assessee has deferred benefit recognized in the statement of profit and loss account over a period of 10 years on estimated basis and for this year has recognized ₹ 156,874,000 in the profit and loss account. 07. The assessee has contended that the subsidy received by the assessee is a capital receipt and hence not taxable. The assessee relied on decision of the honourable Supreme Court in case of CIT versus Ponny sugars and chemicals Ltd (2008) 174 taxman 87 (SC), and several other decisions of the coordinate benches. Assessee also submitted scheme of subsidy and the memorandum of understanding entered into with government of Maharashtra. Assessee referred to explanation 10 to section 43 (1) of the act in support of its arguments and submitted that assessee has already reduced the amount of subsidy from the cost of acquisition of the asset and claimed depreciation on the net cost of acquisition. 08. The learned assessing officer rejected the contention of the assessee that subsidy received is a capital receipt and further rejected the reliance on explanation 10 to section 43 (1) of the act. The learned AO was of the view that according to the scheme assessee is entitled to electricity duty payment Page | 5 ITA No.1081/MUM/2021 Bridgestone India P. Ltd, A.Y.2016-17 exemption , hundred percent exemption from payment of stamp duty and both are limited to hundred percent of the eligible investment or to the extent of taxes payable to the government of Maharashtra, whichever is lower. The subsidies are subject to different time frames beginning from the date of commencement of commercial production in the eligible unit. Accordingly, the learned AO was of the view that subsidies were received by the assessee only when the assessee commences the commercial production. The above subsidies were to be received by the assessee for a limited period and therefore such subsidies cannot be treated as an aid to the setting up of the manufacturing unit of the assessee for the plant. Further the electricity duty payment exemption and industrial promotion subsidy are in the form of reimbursement of taxes paid to the state government and therefore revenue in nature as they went towards reduction of the amount payable for consumption of electricity and commercial production, though the intention of the state government was to promote industrial development in the States backward areas. The learned AO was also of the view that date of start of commercial production would come into effect if and only when commercial production in manufacturing unit of assessee at that plant commenced. The AO was also of the view that it is never mentioned that the subsidy is being provided under that scheme that subsidies were capital in nature. The learned AO also rejected the reliance on the decision of the honourable Supreme Court in case of pony sugar (Supra ). The explanation 10 to section 43 (1) of the act provides for mechanism for computation of actual cost of the asset while factoring in subsidies obtained from government with certain riders. The learned AO noted that as the subsidy was revenue in nature, the above provision does not apply. Further The Finance Act 2015 which came into force Page | 6 ITA No.1081/MUM/2021 Bridgestone India P. Ltd, A.Y.2016-17 on 1/4/2016 amended section 2 (24) of the act and inserted clause (xviii) applicable from assessment year 2016 – 17 and therefore it is not applicable for subsidies under package subsidy incentive scheme of 2007 to the assessee before 1 April 2015. Therefore, it was held that subsidies received under PSI 2007 are not for capital creation, subsidies received are revenue in nature. The AO noted that assessee has reduced from the cost of its fixed assets amount of ₹ 533,460,403/– on account of package scheme of incentive of ₹ 377,586,403/– and industrial investment promotion assistance of ₹ 156,874,000 from government of Maharashtra as recognised by the assessee in its books and thereby assessee claimed less depreciation to the extent of ₹ 64,118,567/–. Thus the AO allowed set-off of lesser depreciation claimed by the assessee and made an addition of ₹ 470,341,836 as income of the assessee. The draft assessment order was passed on 11/12/2019. On objection before the learned dispute resolution panel, the directions were given that in assessment year 2015 – 16 the learned dispute resolution panel rejected the claim of the assessee with respect to subsidy from Maharashtra government and further the subsidy of Madhya Pradesh government is also of the similar nature and substance. Therefore the addition made by the learned assessing officer were found to be correct. Consequently, in the final assessment order also the above additions were made as per Assessment order dated 23/4/2021. 09. The learned authorised representative submitted a paper book containing 212 pages wherein the scheme of packaged incentive scheme 2007, memorandum of understanding entered into with the government of Maharashtra dated 26 double 2010, eligibility certificate of the assessee and copy of industrial promotion policy Page | 7 ITA No.1081/MUM/2021 Bridgestone India P. Ltd, A.Y.2016-17 2004 along with action plan issued by the government of Madhya Pradesh were submitted. The learned authorised representative submitted that the learned dispute resolution panel has followed its direction for assessment year 2015 – 16. The issue in assessment year 2015 – 16 travelled to the coordinate bench in ITA number 45/IND/2021 which was decided on 8/12/2022 wherein the coordinate bench has allowed the claim of the assessee holding that the subsidy received by the assessee are capital in nature as the assessee has utilised the said subsidiary for setting up a new unit/expansion of existing business. The coordinate bench further held that the object of the subsidy is for the promotion of industries. He therefore submitted that issue is squarely covered in favour of the assessee. He further submitted that assessee has reduced the amount of subsidy from the cost of acquisition of the asset in terms of explanation 10 of section 43 (1) of the act. 010. The learned departmental representative vehemently supported the orders of the lower authorities. 011. We have carefully considered the rival contentions and perused the orders of the lower authorities. We find that the identical issue arose in the case of the assessee for assessment year 2015 – 16, which travelled before the coordinate bench in ITA number 45/IND/2021 in assessee's own case wherein by order dated 8/12/2022, the coordinate bench held as under:- "5. The assessee is engaged in the business of Tyre and Allied Products manufacturing. The assessee has taken Radial Tyre Manufacturing Technology and use of Bridgestone brand of manufactured products for its entrepreneurial venture in India. The assessee filed original return of income on 27.11.2015 declaring total income at Rs. NIL. On perusal of Form 3CEB filed by the assessee the Page | 8 ITA No.1081/MUM/2021 Bridgestone India P. Ltd, A.Y.2016-17 Assessing Officer observed that during the assessment year under consideration, the assessee had entered into international transactions with its various Associates Enterprises (AEs). Accordingly, after seeking the prior approval of the Pr. Commissioner of Income Tax-I, the case was referred to the Transfer Pricing Officer (TPO) under Section 92CA of the Act vide letter dated 18.10.2017. The Transfer Pricing Officer (TPO) after examining assessee's transfer pricing documentation and economic analysis has passed an order dated 30.10.2018 under Section 92CA(3) of the Act determining the "Arm's Length Price" difference of Rs. 41,57,14,947/- in respect of royalty payment of its AE and Rs. 39,63,921/- in respect of international transactions relating to trading activities of the assessee. Thus, total upward adjustment of Rs. 41,96,78,868/- was made to the total income of the assessee in the said order passed by the TPO. The draft assessment order under Section 14393) r.w.s. 144C of the Income Tax Act, 1961 was passed on 18.12.2018. Thereafter, the assessee objected to the draft assessment order before Dispute Resolution Panel (DRP) under Section 144C of the Act. The DRP issued direction vide order dated 27.09.2019. After taking cognizance of the TPO and DRP's direction the Assessing Officer made addition of Rs. 29,49,00,133/- as addition of subsidies received from Government of Maharashtra under PSI, 2007. 6. Being aggrieved by the assessment order the assessee filed appeal before us. 7. The Ld. A.R. submitted that assessee entered into Memorandum of Understanding (MOU) with Government of Maharashtra on 24.06.2010 to set up a manufacturing unit at Chakan for manufacturing of steel belt radial tyre for PSR and TBR, inner tubes and flaps and accordingly the said manufacturing unit at Chakan was designated as Mega Project under PSI, 2007. The assessee submitted following details as to the subsidy under Package Scheme of Incentives (PSI), 2007 of Government of Maharashtra: Industrial Promotion Subsidy Financial Year 2014-15 Nature Amount Treatment in books of accounts Electricity Subsidy Reduced from electricity expenses Subsidy by way of refund Rs.33,37,15,833/- Charged to P&L of VAT and CST paid to GOM (Government of Maharashtra) The Ld. A.R. submitted that subsidy received by assessee under PSI, 2007 is a capital receipt and thus non-taxable. The assessee vide written submitted dated 12.12.2018 filed by the opinion of Senior Page | 9 ITA No.1081/MUM/2021 Bridgestone India P. Ltd, A.Y.2016-17 Advocate, has opined that subsidy received by assessee under PSI, 2007 is of capital nature and hence non-taxable. The Ld. A.R. relied upon following decision: (i) CIT vs. Ponny Sugars & Chemicals Ltd. (2008) 174 Taxmann 87 (SC) (ii) Kedarnath Jute Manufacturing Co. Ltd. 82 ITR 363 (iii) ACIT vs. Mahindra Vehicles Manufactures ltd. (ITA No. 6919&6920/Mum/2016) (iv) Innoventive Industries Ltd. vs. DCIT (ITA No. 215/PN/2014) (v) Bhagyalaxmi Rolling Mills Pvt. Ltd. vs. DCIT (ITAT No. 3428/Mum/2016) The Ld. A.R. also filed PSI, 2007 of Government of Maharashtra, MOU it entered with Government of Maharashtra & Eligibility Certificate (EC) for Mega Project under PSI, 2007. The assessee also referred to Explanation 10 Section 43(1) of the Act in support of the arguments. The Assessing Officer observed that the subsidies received as per MOU was related to electricity duty payment exemption, 100% exemption from payment of stamp duty, ITA No.45/Ind/2021 Bridgestone India Pvt. Ltd. vs. ACIT Asst.Year -2015-16 industrial promotion subsidy, less the amount of benefits availed in form of exemption of payment of Electricity Duty & Stamp Duty, but limited to 100% eligible investments or to the extent of taxes payable to the Government of Maharashtra, whichever is lower. All form of subsidies are subject to different type frames, beginning from the date of commencement of commercial production in the Eligible Unit. The Ld. A.R. also relied upon the decision of the Mumbai Tribunal in case of ACIT vs. Mahindra Vehicles Manufactures Ltd. (ITA Nos. 6919 & 6920/Mum/2016) and the decision of Hon'ble Supreme Court in case of Sahany Steel (supra), Ponni Sugars (supra) and Bhushan Steels & Stripes Ltd. (2017) 83 taxmann.com 204 (Delhi) subsidies received under PSI, 2007 are not capital in nature and thus the assessee's contention were rejected. The Assessing Officer made addition of Rs. 29,49,00,133/- thereby allowing set up of Rs. 3,88,15,700/- under Industrial Promotion Subsidy of Rs. 33,37,15,833/-. The Ld. A.R. further submitted that the addition made by the Assessing Officer is not just and proper. 8. The Ld. D.R. submitted that the assessee himself has made contradictory claim when the receivables are declared. In fact, in Profit & Loss the assessee has declared Page | 10 ITA No.1081/MUM/2021 Bridgestone India P. Ltd, A.Y.2016-17 the said subsidy as revenue and therefore, it is the assessee's contradictory claim which should not be entertained and disturbed the 20 years of assessee's own system of accounting. The Ld. D.R. relied upon the assessment order and the order of the DRP. 9. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the assessee is receiving subsidies related to electricity duty payment exemption, 100% exemption from payment of stamp duty and industrial promotion subsidy comprising of tax payable to the State Government during the period of 20 years starting from the date of commencement of commercial production. It is not the case of the Revenue that the assessee is not eligible for Mega Project under the Package Scheme of Incentives 2007 notified by the Government of Maharashtra from 30.03.2007 till 29.08.2009. Ld. AR at the time of hearing has produced the eligibility certificate for Mega Project new unit issued by Government of Maharashtra, Directorate of Industries dated 26.12.2013. The MOU between the Government of Maharashtra and the assessee company was signed on 26.04.2010 in respect of the proposed project of BSID on the basis of the level of proposed incentives. The said MOU is in respect of manufacturing of Steel Belt Radial Tyre for PSR and TBR, inner tubes and flaps. The disbursement of ITAs for the period 01.04.2014 to 31.03.2015 was issued by Government of Maharashtra to the assessee company on 25.05.2016. The letter dated 11.12.2018 addressed by the assessee to the Assessing Officer mentioned that based on the PSI Scheme, MOU, EC, facts and judicial precedents, the amount of IPS subsidy being of a capital nature has correctly been reduced from the costs as per Explanation 10 of Section 43(1) of the Act. The contention of the Ld. DR that the assessee consistently has treated the subsidies as Revenue in its recorded accounting system, do not nullify the actual intention of the Package Scheme of Incentives 2007 which is in capital nature. The assessee was eligible to claim subsidy and accordingly has taken benefit thereby deducting the same required to obtain eligibility certificate and in the present case the eligibility certificate was issued w.e.f. the date of commencement of commercial production by the assessee. Thus, the ITA assessee was eligible to claim the benefit of Package Scheme of Incentives for the period of 20 years. The decision of Hon'ble Supreme Court in the case of Ponni Sugars & Chemicals Limited (supra) has categorically Page | 11 ITA No.1081/MUM/2021 Bridgestone India P. Ltd, A.Y.2016-17 mentioned that if the test laid down in the judgement of Sahney Steel & Press Works Limited, the assessee was free to use the money in its business entirely as it liked but in the present case the receipt of the subsidies/incentives are in respect of electricity duty exemption for the period of 15 years, 100% exemption from payment of stamp duty and industrial promotion subsidy. Therefore, the said subsidies are capital in nature as the assessee has utilised the said subsidy for setting up new unit/expansion of existing business. Thus, the decision of Hon'ble Supreme Court is squarely applicable in the present case and hence the appeal of the assessee is allowed. 10. In result, the appeal of the assessee is allowed." 012. We find that coordinate bench in assessee's own case for assessment year 2015 – 16 after examining the scheme has held that the object of the scheme is for industrial development of the state, therefore, applying the decision of the honourable Supreme Court in case of Ponny sugar (supra) held that the subsidy received by the assessee is a capital receipt and should go to reduce the cost of acquisition of the asset. The learned departmental representative could not show us any reason to deviate from the above decision on identical facts and circumstances. Therefore respectfully following the decision of the coordinate bench in assessee's own case for assessment year 2015 – 16, which is the initial year in which the revenue raised this issue for the first time and the learned DRP also relied on direction for that year, we also hold that the subsidy received by the assessee is capital receipt. Further the assessee has applied explanation 10 to section 43 (1) of the act, considering subsidy as the cost of an asset met by the government and thus reduced from the total cost of the asset by the amount of subsidy for the purpose of claiming the depreciation by producing the chart where the above sum of subsidy was reduced from the actual cost Page | 12 ITA No.1081/MUM/2021 Bridgestone India P. Ltd, A.Y.2016-17 of the asset eligible for depreciation. Accordingly, both the grounds of appeal are allowed. 013. In the result, appeal filed by the assessee is allowed, Order pronounced in the open court on 21.04.2023 -Sd/- Sd/- (KAVITHA RAJAGOPAL) (PRASHANT MAHARI SHI) (JUDICI AL ME MBER) (ACCOUNTANT MEMBER) Mumbai, Dated: 21.04.2023 Sudip Sarkar, Sr.PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Mumbai