DEEPAK VEGPRO (P) LTD., Alwar V. ACIT, Alwar

ITA 110/JPR/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2135 (ITAT-JAIPUR)
• Duration Of Justice: 3 year(s) 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-04-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 12-02-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R A VERMA
• Keywords: Rejection of books of accounts; Capital asset; Business income; Depreciation; Rule of consistency; Earning of tax free income; Source of fund; Question of law; Deemed dividend; Assessment record; Capital receipt; Revised return; Unabsorbed depreciation
• Section: 143(3); 14A; 139(5)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH DQY HKKJR] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YA DAV, AM VK;DJ VIHY LA- @ ITA NO. 110/JP/2014 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2009-10 M/S DEEPAK VEGPRO PVT. LTD. OLD INDUSTRIAL AREA, ITARANA, ROAD, ALWAR (RAJ.). CUKE VS. ACIT, CIRLE -1, ALWAR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAACD 6118 P VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RE SPONDENT VK;DJ VIHY LA- @ ITA NO. 116/JP/2014 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2009-10 ACIT, CIRLE -1, ALWAR. CUKE VS. M/S DEEPAK VEGPRO PVT. LTD. OLD INDUSTRIAL AREA, ITARANA, ROAD, ALWAR (RAJ.). LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAACD 6118 P VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA- @ ITA NO. 704/JP/2014 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2010-11 M/S DEEPAK VEGPRO PVT. LTD. OLD INDUSTRIAL AREA, ITARANA, ROAD, ALWAR (RAJ.). CUKE VS. DCIT, CIRLE -1, ALWAR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAACD 6118 P VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA- @ ITA NO. 705/JP/2014 ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 2 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2010-11 ACIT, CIRLE -1, ALWAR. CUKE VS. M/S DEEPAK VEGPRO PVT. LTD. OLD INDUSTRIAL AREA, ITARANA, ROAD, ALWA R (RAJ.). LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAACD 6118 P VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA- @ ITA NO. 275/JP/2015 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2011-12 M/S DEEPAK VEGPRO PVT. LTD. OLD INDUSTRIAL AREA, ITARANA, ROAD, ALWAR (RAJ.). CUKE VS. ACIT, CIRLE -1, ALWAR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAACD 6118 P VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA- @ ITA NO. 173/JP/2016 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2012-13 M/S DEEPAK VEGPRO PVT. LTD. OLD INDUSTRIAL AREA, ITARANA, ROAD, ALWAR (RAJ.). CUKE VS. ACIT, CIRLE -1, ALWAR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAACD 6118 P VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS @ REVENUE BY : SHRI R.A.VERMA (ADDL. CIT) FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI P.C. PARWAL (C.A.) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 10/03/2017 MN?KKS'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT: 24/04/2017 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 3 THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE AGAINST THE ORDERS OF LD. CIT(A), ALWAR DATED 26.12 .2013 FOR A.YS. 2009- 2010, DATED 26.12.2013 FOR A.Y. 2010-2011, DATED 20 .01.2015 FOR A.Y. 2011-2012 AND DATED 30.12.2015 FOR A.Y. 2012-2013 R ESPECTIVELY. SINCE THE COMMON GROUNDS ARE INVOLVED, ALL THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS CONSOLI DATED ORDER. 2. AT THE TIME OF THE HEARING, THE LD AR SUBMITTED THAT CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE FOR A.Y. 2009-201 0 MAY BE TAKEN UP AS THE LEAD CASE AS THE FACTS AND GROUNDS ARE IDENT ICAL TO WHICH THE LD DR RAISED NO OBJECTIONS. THEREFORE, WITH THE CONSEN T OF BOTH THE PARTIES, WE TAKE UP THE CROSS APPEALS FOR AY 2009-10 WHEREIN THE RESPECTIVE GROUNDS OF APPEAL ARE AS UNDER:- ITA NO. 110/JP/2014 (ASSESSEES GROUNDS OF APPEAL): 1.0 DEEMED DIVIDEND OF RS. 70,00,000:- 1.1 THAT THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN CONSIDER ING THE AMOUNT OF RUPEES 70,00,000 AS DEEMED DIVIDEND, WHEREAS THE FA CT REMAINS THAT THE ASSESSEE COMPANY HAS NOT ACCEPTED ANY PAYMENT W ITHIN THE MEANING OF SECTION 2(22)(E) OF THE INCOME-TAX ACT, 1961. THE SAID CREDIT IS ON ACCOUNT OF PURCHASE OF SHARES FROM SAU RABH AGROTECH (P) LTD, WHICH DOES NOT FALL WITHIN THE DEFINITION OF RECEIPT OF PAYMENT AND LEARNED COMMISSIONER OF INCOME-TAX (APPEALS), A LWAR HAS ERRED IN SUSTAINING THE SAME. ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 4 1.2 THAT THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN CONSIDER ING THE ASSESSEE COMPANY AS HAVING VOTING POWER IN THE COMPANY SAUR ABH AGROTECH (P) LIMITED, WHEREAS THE FACT REMAINS THAT THE ASSE SSEE COMPANY DOES NOT HAVE ANY VOTING POWER IN THE SAURABH AGROT ECH (P) LTD, IN AS MUCH AS ITS ENTIRE SHAREHOLDING GOT TRANSFERRED BY SAURABH AGROTECH (P) LTD IN FAVOUR OF SH. BABU LAL DATA, ON 10.04.2008, WHICH IS EVIDENCED FROM THE ASSESSMENT RECORDS, THE REFORE THE PROVISION OF SECTION 2(22)(E) OF THE INCOME-TAX ACT 1961 HAS NO APPLICABILITY OVER THE CASE AND LEARNED COMMISSIONE R OF INCOME-TAX (APPEALS), ALWAR HAS ERRED IN SUSTAINING THE SAME B Y NOT CONSIDERING THE SAME. 1.3. THAT THE LEARNED ASSESSING OFFICER HAS ERRED I N LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN NOT GIVI NG ANY FINDING THAT THE AMOUNT TAXED AS DEEMED DIVIDEND OF RUPEES 70,00 ,000 IS BY WAY OF LOANS OR ADVANCES, WHEREAS THE STATUTE REQU IRES ONLY SUCH AMOUNT OF LOANS OR ADVANCES, WHICH HAVE BEEN GIVEN BY WAY OF ADVANCES OR LOAN TO BE TAXED AS DEEMED DIVIDEND AND LEARNED COMMISSION OF INCOME-TAX (APPEALS), ALWAR HAS ERRED IN SUSTAINING THE SAME BY NOT GIVING ANY FINDING THERETO. 1.4 THAT THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN TREATING A SUM OF RS. 70,00,000 AS ADVANCES AND LOAN IN THE HANDS OF THE ASSESSEE COMPANY IN THE ACCOUNT OF SAURABH AGROTECH (P) LIMI TED., WHEREAS THE SAID ACCOUNT IS FOR THE SALE OF SHARES AND ENTE RED INTO FOR TRANSFERRING THE CONTROLLING INTEREST IN THE COMPAN Y SAURABH AGROTECH ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 5 (P) LTD IN FAVOUR OF SH. BABU LAL DATA FOR THE BUSI NESS EXPEDIENCY, THUS THE SAID AMOUNT IS OUTSIDE THE PURVIEW OF ADVA NCES OR LOAN, THUS NOT COVERED BY THE DEFINITION OF DEEMED DIVIDEND AND LEARNED COMMISSIONER OF INCOME- TAX (APPEALS), ALWAR HAS ER RED IN SUSTAINING THE SAME BY NOT GIVING ANY FINDING THERE TO. 1.5 THAT THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN CONSIDER ING THE ACCUMULATED PROFIT UPTO 03.01.2009, WHEREAS THE FAC T REMAIN THAT AS ON 03.01.2009, THE ASSESSEE COMPANY WAS NOT EVEN T HE SHAREHOLDER AS ON THAT DATE, THEREFORE, NO QUESTION ARISES FOR CONSIDERING THE AMOUNT OF RUPEES 7000000.00 AS DEEMED DIVIDEND AND LEARNED COMMISSIONER OF INCOME-TAX (APPEALS), ALWAR HAS ERR ED IN SUSTAINING THE SAME BY NOT GIVING ANY FINDING THERETO. 1.6 THAT THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN CONSIDER ING THE ACCUMULATED PROFIT OF RUPEES 81,27,348.00 AS ON 03. 01.2009, WHEREAS THE ASSESSEE COMPANY DID NOT POSSESS ACCUMU LATED PROFIT AS ON 03.01.2009, WHICH IT COULD GIVE AS ADVANCES OR L OAN AND LEARNED COMMISSIONER OF INCOME-TAX (APPEALS), ALWAR HAS ERR ED IN SUSTAIN THE SAME BY NOT GIVING ANY FINDING THERETO. 1.7 THAT THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN CONSIDER ING THE ACCUMULATED PROFIT AS PER BALANCE SHEET, WHEREAS TH E RELEVANT PIECE OF STATUTE DOES NOT REQUIRES TO CONSIDER THE ACCUMU LATED PROFIT AS PER BALANCE SHEET, THE PROFIT HAS TO BE TAKEN AS DEFINE D UNDER THE PROVISION OF THE INCOME-TAX ACT, 1961 OR IN OTHER W ORDS, FOR THE ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 6 PURPOSE OF WORKING OUT THE PROFIT, DEPRECIATION ALL OWED UNDER THE PROVISION OF INCOME-TAX ACT, 1961 SHOULD BE TAKEN I NTO CONSIDERATION AND LEARNED COMMISSIONER OF INCOME-TAX (APPEALS), A LWAR HAS ERRED IN SUSTAIN THE SAME BY NOT GIVING ANY FINDING THERE TO. 1.8 THAT THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN NOT DEDU CTING THE ALL LIABILITIES DUE INCLUDING THE INCOME TAX LIABILITY WHILE WORKING OUT THE ACCUMULATED PROFIT FOR THE PURPOSE OF DEEMED DIVIDE ND WITHIN THE MEANING OF SECTION 2(22)(E) OF THE INCOME-TAX ACT, 1961 AND LEARNED COMMISSIONER OF INCOME-TAX (APPEALS, ALWAR HAS ERRED IN SUSTAINING THE SAME BY NOT GIVING ANY FINDING THERE TO. 1.9 THAT THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN TAXING A SUM OF RUPEES 70,00,000.00 WITHIN THE MEANING OF SECTION 2(22)(E) OF THE INCOME- TAX ACT, 1961 ON ACCOUNT OF RECEIVING THE PAYMENT F ROM THE COMPANY WHERE THE ASSESSEE IS HOLDING MORE THAN 10% SHARE CAPITAL AND LEARNED COMMISSIONER OF INCOME-TAX (APPEALS), A LWAR HAS ERRED IN SUSTAINING THE SAME. 2.0 DISALLOWANCE OF INTEREST OF RUPEES 33,90,121:- 2.1 THAT THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN GIVING A FINDING THAT THE ASSESSEE COMPANY HAS INVESTED ITS INTEREST BEARING FUNDS IN THE INVESTMENT IN SHARES, WHEREAS FACTS REMAINS THE ASS ESSEE COMPANY HAS NOT INVESTED THE INTEREST BEARING FUNDS ON THE CONTRARY NON- INTEREST BEARING FUNDS REPRESENTING THE SHARE CAPIT AL AND RESERVE AND ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 7 SURPLUS HAVE BEEN INVESTED IN THE SHARES AND LEARNE D COMMISSIONER OF INCOME-TAX (APPEALS), ALWAR HAS ERRED IN SUSTAIN ING THE SAME. 2.2 THAT THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN APPLYING THE PROVISION OF SECTION 14A OF THE INCOME-TAX ACT 1961, IN AS MUC H AS THE SAID PROVISION HAS NO APPLICABILITY UPON THE FACTS OF T HE CASE SINCE THE ASSESSEE COMPANY DOES NOT HAVE ANY EXEMPT INCOME IN THE FORM OF DIVIDEND DURING THE YEAR AND LEARNED COMMISSIONER O F INCOME-TAX (APPEALS, ALWAR HAS ERRED IN SUSTAINING THE SAME. 2.3 THAT THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN APPLYING THE PROVISION OF RULE 8D OF THE INCOME-TAX RULES, WHICH IN THE INSTA NT CASE HAS NO APPLICABILITY AND LEARNED COMMISSIONER OF INCOME-TA X (APPEALS), ALWAR HAS ERRED IN SUSTAINING THE SAME. 3.0 THAT THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN NOT ALLO WING THE CLAIM OF THE ASSESSEE COMPANY OF RUPEES 3,24,17,009 BEING V AT REIMBURSEMENT AND IN THE NATURE OF CAPITAL RECEIPT IN VIEW OF THE BOMBAY HIGH COURT DECISION IN THE CASE OF COMMISSIO NER OF INCOME- TAX-3, MUMBAI V/S RELIANCE INDUSTRIES LIMITED 2010- TIOL-22B-HC- MUIM-IT DATED 15.04.2009 AND LEARNED COMMISSIONER O F INCOME-TAX (APPEALS), ALWAR HAS ERRED IN SUSTAINING THE SAME. ITA NO. 116/JP/2014 (REVENUES GROUND OF APPEAL) THAT THE COMMISSIONER OF INCOME TAX ( APPEALS), ALW AR HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES O F THE CASE IN ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 8 DELETING THE ADDITION OF RS. 27,77,310/- MADE BY AO ON ACCOUNT OF DISALLOWANCE OF DEDUCTION UNDER SECTION 80IA CLAIME D ON THE PROFITS OF THE WIND MILLS. ITA NO. 110/JP/14 3. IN GROUND NO.1 OF ASSESSEES APPEAL, THE ASSESSE E HAS CHALLENGED THE ACTION OF LD CIT(A) IN CONFIRMING THE ADDITION OF RS 70 LACS UNDER SECTION 2(22)(E) OF THE ACT. 3.1 BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSE SSEE WAS HOLDING 24.70% OF THE SHARES OF M/S SAURABH AGROTECH PVT. L TD. (SAPL) WHICH IN TURN HOLDS 21% SHARES OF VIJAY AGRO MILLS PVT. LTD. (VAMPL). ON 10.04.2008, ASSESSEE PURCHASED 10,000 SHARES OF VAM PL FROM SAPL FOR A CONSIDERATION OF RS.70 LACS. IN SUPPORT OF THIS, ASSESSEE IN COURSE OF ASSESSMENT PROCEEDINGS FILED COPY OF ACCOUNT OF SAP L IN ITS BOOKS OF ACCOUNTS, COPY OF SHARE TRANSFER FORM, COPY OF RESO LUTION OF BOARD OF DIRECTORS OF SAPL, COPY OF THE MINUTES OF THE BOAR D MEETING OF VAMPL AND ANNUAL RETURN OF VAMPL FILED TO THE ROC EVIDEN CING PURCHASE OF 10000 SHARES OF VAMPL BY THE ASSESSEE FROM SAPL. TH E AO, IN COURSE OF ASSESSMENT PROCEEDINGS, OBSERVED THAT THE AUDITOR I N NOTE NO. 11 OF THE ACCOUNTS HAVE STATED THAT ACCORDING TO THE LEGAL OP INION, ASSESSEE CONTINUES TO BE THE OWNER OF THE SHARES OF SAPL SIN CE THE CONSIDERATION FOR TRANSFER OF SHARES HAS NOT BEEN DETERMINED, THE REFORE THE COMPANY ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 9 HAS RESCINDED THE CONTRACT FOR SALE OF SHARES. HE, THEREFORE, HELD THAT ASSESSEE HOLD MORE THAN 10% OF THE SHARES OF SAPL, SAPL HAS ACCUMULATED PROFIT AS ON 03.01.09, COMPUTED ON PRO RATA BASIS OF RS. 81,27,348/- (1,08,36,465*9/12) WHEREAS ASSESSEE WAS HAVING CREDIT BALANCE OF RS. 70 LACS AS ON 03.01.09 IN THE ACCOUN T OF SAPL. HE, THEREFORE, CONCLUDED THAT PROVISIONS OF SECTION 2(2 2)(E) IS ATTRACTED AND ACCORDINGLY MADE ADDITION OF RS. 70 LACS. 3.2 BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R IN APPEAL BEFORE THE LD CIT(A) WHO CONFIRMED THE ADDITION MADE BY TH E AO U/S 2(22)(E). THE RELEVANT FINDINGS OF THE LD. CIT(A) ARE REPRODU CED AS UNDER:- 4.3 I HAVE PERUSED THE ASSESSMENT ORDER AS WELL A S DETAILED SUBMISSIONS MADE BY THE AR ALONG-WITH THE JUDICIAL CITATIONS GIVEN THEREIN AND FIND THAT AO HAD MADE THE DISALLOWANCE OF RS. 70 LACS BY INVOKING THE PROVISIONS OF SECTION 2(22)(E) OF THE IT ACT. THE ORDER OF THE AO (RELEVANT TEXT) HAS BEEN REPRODUCED ABOVE FO R THE SAKE OF CONVENIENCE. THE ADDITION OF RS. 70 LACS ON ACCOUNT OF DEEMED DIVIDEND HAS BEEN MADE BY THE AO AS IT WAS FOUND TH AT THE APPELLANT COMPANY IS HAVING SUBSTANTIAL INTEREST OF MORE THAN 10% IN THE COMPANY M/S SAURABH AGROTECH PVT. LTD. IN THE BOOKS OF THE APPELLANT COMPANY REVEALED THAT ON 03.01.2009, THE ASSESSEE WAS HAVING CREDIT BALANCE OF RS. 70 LACS WHICH WAS TO B E PAID TO M/S SAURABH AGROTECH PVT. LTD. BASED ON THE ACCUMULATED PROFITS AVAILABLE IN THE BOOKS OF M/S SAURABH AGROTECH PVT. LTD., THE ADDITION TO BE MADE ON ACCOUNT OF DEEMED DIVIDEND WAS RESTRI CTED BY THE AO TO RS. 70 LACS. ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 10 4.4 THE WORKING OF THE QUANTUM OF ADDITION TO BE MA DE ON ACCOUNT OF DEEMED DIVIDEND HAS NOT BEEN DISPUTED IN APPEAL BY THE APPELLANT. HOWEVER, THE APPELLANT HAS STATED THAT THE PROVISIO NS OF THIS SECTION ARE NOT ATTRACTED AS THE SAID CREDIT IN THE BOOKS O F THE ASSESSEE COMPANY IS ON ACCOUNT OF PURCHASE OF SHARES FROM M/ S SAURABH AGROTECH PVT. LTD., WHICH DOES NOT FALL WITHIN THE DEFINITION OF RECEIPT OF PAYMENT. IT IS FURTHER STATED THAT THE ASSESSEE COMPANY DOES NOT HAVE ANY VOTING POWER IN M/S SAURABH AGROTECH PVT. LTD., AS ITS ENTIRE SHARE HOLDING WAS TRANSFERRED BY M/S SAURABH AGROTECH PVT. LTD. IN FAVOUR OF SHRI BABU LAL DATA ON 10-04-2008. IT IS ALSO STATED THAT THE WORKING OF ACCUMULATED PROFITS AND COMPUTA TION OF DEEMED DIVIDEND ON 03-01-2009 WOULD HAVE NO RELEVANCE AS T HE ASSESSEE COMPANY NO LONGER WAS A SHARE HOLDER ON THAT DATE. ACCORDINGLY, IT IS STATED THAT THE PROVISIONS OF DEEMED DIVIDEND ARE N OT APPLICABLE IN THIS CASE. 4.5 FURTHER, COPIES OF ANNUAL RETURN FILED WITH THE MINISTRY OF CORPORATE AFFAIRS (WHICH WERE FILED IN THE COURSE O F APPELLATE PROCEEDINGS) REVEAL THAT FORM NO. 20B HAS BEEN FILE D ONLY ON 27-01- 2009 BY M/S SAURABH AGROTECH PVT. LTD. THE FORM REL ATES TO FINANCIAL YEAR ENDING ON 31-03-2008 BUT WAS FILED MUCH AFTER THE DUE DATE ALONG-WITH THE LATE FEE ON 27-01-2009. THE DATE OF TRANSFER OF SHARES THOUGH HAS BEEN STATED TO BE 10-04-2008. HOWEVER TH E APPELLANT FAILED TO JUSTIFY OR EXPLAIN ANY REASONS FOR THE DE LAY IN FILING OF SUCH DOCUMENTS. 4.6 FURTHER, IT IS SEEN FROM THE WRITTEN SUBMISSION FILED ( PARA 4.2 ABOVE), THAT IT IS FURTHER STATED BY THE APPELLANT THAT- WE BEG TO ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 11 SUBMIT THAT THE SAID AMOUNT OF RUPEES 7000000.00 IS IN RELATION TO THE PURCHASE OF SHARES BY DEEPAK VEGPRO (P) LTD FRO M SAURABH AGROTECH (P) LTD. OF VIJAY AGRO MILLS (P) LIMITED A ND THE SAID SHARES PURCHASE AND SALE TRANSACTION TOOK PLACE ON 10.04.2 008 AS PER THE FOLLOWING DOCUMENTS:- COPY OF ACCOUNT OF SAURABH AGROTECH (P) LTD (SHARE S ACCOUNT) IN THE BOOKS OF ACCOUNT OF DEEPAK VEGPRO (P) LTD. FOR PURCHASE OF SHARES, WHEREIN THE ENTRY FOR THE PURCHASE OF SHAR ES WERE PASSED ON 10.04.2008 SHARE TRANSFER DEED DATED 10.04.2008 WHEREBY THE SHARES OF VIJAY AGRO MILLS (P) LIMITED, WERE TRANSFERRED BY S AURABH AGROTECH (P) LTD TO DEEPAK VEGPRO (P) LTD. COPY OF THE RESOLUTION PASSED IN THE MEETING DATED 10.04.2008 OF THE BOARD OF DIRECTORS OF SAURABH AGROTECH (P) LTD AUTHORIZING SH. BABU LAL DATA FOR THE SALE OF SHARES OF VIJAY AGRO MILLS (P) LIMITED. MINUTES OF THE BOARD MEETING DATED 10.04.2008 OF V IJAY AGRO MILLS (P) LIMITED APPROVING THE TRANSFER OF SHARES FROM S AURABH AGROTECH (P) LTD TO DEEPAK VEGPRO (P) LTD. RECORD OF ATTENDANCE IN THE BOARDS MEETING HELD O N 10.04.2008 OF VIJAY AGRO MILLS (P) LIMITED. 4.7 DURING THE COURSE OF APPELLATE PROCEEDINGS THE AR HAS STATED THAT THE ADDITION ON THIS GROUND WAS ALSO MADE BY THE AO IN THE CASE OF THE APPELLANT IN LAST YEAR ALSO AND THE SAME HAS BE EN DELETED BY MY ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 12 LD. PREDECESSOR. BUT HE FAIRLY AGREED THAT THE FACT S ARE DIFFERENT IN THIS YEAR AS REGARDS THIS ISSUE IS CONCERNED AS COM PARED TO LAST YEAR. 4.8 IT IS SEEN FROM THE ANNUAL RETURN FILED WITH TH E ROC OFFICE THAT FORM NO. 20B (WHICH IS AN EVIDENCE OF CHANGE IN THE OWNERSHIP) HAS BEEN FILED BY M/S VIJAY AGRO MILLS PVT. LTD. ON 17. 03.2009. THE AO HAS NOT ACCEPTED THE STAND TAKEN BY THE APPELLANT D UE TO THE FACT THAT THE AUDITORS OF THE COMPANY HAD QUALIFIED THE AUDIT REPORT BY STATING VIDE NOTE NO. 11, WHICH IS AS UNDER: ACCOR DING TO LEGAL OPINION, THE COMPANY CONTINUES TO BE THE OWNER OF T HE SHARES OF SAURABH AGROTECH (P) LTD, ALWAR SINCE THE CONSIDER ATION FOR THE TRANSFER OF SHARES HAS NOT BEEN DETERMINED, THEREFO RE, THE COMPANY HAS RESCINDED THE CONTRACT FOR SALE OF SHARES. THIS FACT HAS BEEN EXAMINED BY THE AO AND HAS ALSO BEEN REPRODUCED IN HIS ORDER, WHICH IS AS UNDER: SINCE THE ASSESSEE HAS RESCINDED THE CONTRACT OF SALE HENCE, THE SHARES HO LDING REMAINS THE SAME AS THAT OF LAST YEAR. THEREFORE, THE SHARE HOL DING IS MORE THAN 10% DURING THE A.Y. 2009-10, AS SUCH PROVISION OF S ECTION 2(22)E) ARE APPLICABLE. 4.9 THE AO MADE THE ADDITION BASED ON THE AVAILABLE FACTS THAT THE OWNERSHIP OF SHARES WHICH WAS STATED TO HAVE BEEN T RANSFERRED IN FAVOUR OF SH. BABU LAL DATE, WHICH ULTIMATELY COULD NOT MATERIALIZE. THEREFORE, THE STAND LATER TAKEN BY THE APPELLANT I N THE COURSE OF ASSESSMENT PROCEEDINGS THAT THIS AMOUNT IS ON ACCOU NT OF TRANSFER OF SHARES OF VIJAY SOLVEX PVT. LTD. (ANOTHER CONCERN O F THE SAME GROUP_ CANNOT BE ACCEPTED IN THE ABSENCE OF SPECIFIC PLEA RAISED BY THE APPELLANT. ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 13 4.10 DURING THE COURSE OF APPELLATE PROCEEDINGS NO MATERIAL HAS BEEN BROUGHT ON RECORD TO CONTRADICT THE FINDINGS OF THE AO ON THIS ISSUE. FURTHER APPELLANT HAS FAILED TO EXPLAIN THE REASONS TO COUNTER THE QUALIFICATION OF THE AUDITOR GIVEN IN THE AUDIT REP ORT. THE ISSUE FOR CONSIDERATION IS ONLY THE CHANGE OF OWNERSHIP AND I F THAT CONTINUES TO BE WITH THE COMPANY THAN THE AMOUNT CANNOT BE CONSI DERED ON ACCOUNT OF SALE OF SHARES. FURTHER HOW THE SALE CON SIDERATION OF THE SHARES HAS BEEN ARRIVED AT HAS NOT BEEN EXPLAINED. WHAT HAS BEEN THE VALUATION PER SHARE OF THE PRIVATE COMPANY, WHO SE SHARES ARE PROPOSED TO BE TRANSFERRED. ALL THESE FACTORS DO NO T SUPPORT THE STAND TAKEN BY THE APPELLANT. 4.11 IN VIEW OF THE ABOVE DISCUSSION, I HOLD THAT A O HAS RIGHTLY INVOKED THE PROVISIONS OF SECTION 2(22)(E) OF THE IT ACT AND ACCORDINGLY CONFIRM THE ADDITION OF RS.70 LACS MADE BY THE AO UNDER THIS HEAD. 3.3. DURING THE COURSE OF HEARING, THE LD AR SUBMIT TED THAT SEC. 2(22)(E) OF THE ACT IS ATTRACTED WHERE A COMPA NY MAKES ANY PAYMENT BY WAY OF LOAN OR ADVANCE TO A SHAREHOLDER HOLDING MORE THAN 10% OF THE VOTING POWER IN THAT COMPANY. THE CRUCIA L WORD IN THE SECTION IS THAT THE PAYMENT IS MADE BY WAY OF LOAN OR ADVANCE. IF PAYMENT IS NOT ON ACCOUNT OF LOAN OR ADVANCE, SECTI ON 2(22)(E) IS NOT APPLICABLE. IN THE PRESENT CASE, THE CREDIT OF RS. 70 LACS IN THE ACCOUNT OF SAPL IS NOT ON ACCOUNT OF ANY LOAN OR ADVANCE RE CEIVED FROM THE SAID COMPANY BUT IT IS ON ACCOUNT OF PURCHASE OF SHARES OF VAMPL FROM THAT COMPANY AS EVIDENT FROM THE COPY OF LEDGER ACCOUNT. THIS FACT IS NOT IN DISPUTE. THUS, IT IS NOT A TRANSACTION OF LOAN OR A DVANCE BY SAPL TO THE ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 14 ASSESSEE. THE ASSESSEE BEFORE THE AO HAS SPECIFICAL LY STATED THAT IT HAS NO VOTING POWER IN SAPL AS PER THE COPY OF ROC RETU RN AND ALSO THAT THERE IS NO TRANSACTION OF THE ASSESSEE (BY WAY OF LOAN OR ADVANCE) WITH THE SAID COMPANY. HOWEVER, NEITHER THE AO NOR THE C IT(A) CONSIDERED THE CONTENTION OF THE ASSESSEE THAT CREDIT OF RS.70 LACS IN THE ACCOUNT OF SAPL IS NOT A TRANSACTION OF LOAN OR ADVANCE BUT ON LY THE AMOUNT PAYABLE AGAINST THE PURCHASE OF SHARES. THE CIT(A), INSPITE OF SPECIFIC CONTENTION OF THE ASSESSEE THAT THE CREDIT IN THE A CCOUNT OF SAPL IS NOT ON ACCOUNT OF ANY RECEIPT OF PAYMENT BY WAY OF LOAN OR ADVANCE HAS NOT GIVEN ANY FINDING AND HAS RAISED CERTAIN ISSUES WHI CH ARE NOT RELEVANT TO DECIDE ON THE APPLICABILITY OF SECTION 2(22)(E). HE NCE, THE ADDITION MADE BY THE AO AND CONFIRMED BY CIT(A) BY INVOKING SECTI ON 2(22)(E) IS NOT AS PER LAW AND THE SAME BE DELETED. 3.4 IT WAS FURTHER SUBMITTED THAT AS ON 10.04.2008 WHEN ASSESSEE CREDITED THE ACCOUNT OF SAPL ON ACCOUNT OF PURCHASE OF SHARE OF VAMPL, ASSESSEE WAS NOT HOLDING ANY SHARES OF SAPL IN AS M UCH AS THAT SAPL GOT TRANSFERRED THE ENTIRE SHAREHOLDING HELD BY THE ASSESSEE IN SAPL IN FAVOUR OF SH. BABUL LAL DATA. THIS FACT IS VERIFIED BY THE CIT(A) AS PER PARA 4.5, PAGE 12 OF HIS ORDER WHERE HE HAS GIVEN A FINDING THAT AS PER THE ANNUAL RETURN FILED BY SAPL, THE ENTIRE SHAREHO LDING OF THE ASSESSEE IN SAPL STOOD TRANSFERRED IN FAVOUR OF SH. BABU LAL DATA ON 10.04.2008. ONLY FOR THE REASON THAT SAPL FILED ITS ANNUAL RETU RN WITH ROC WITH SOME DELAY CANNOT BE VIEWED ADVERSELY NOR THE NOTES TO T HE ACCOUNT WOULD CHANGE THE POSITION OF LAW. THUS, WHEN ON 10.04.200 8, THE ASSESSEE WAS NOT HOLDING ANY VOTING POWER IN SAPL, THE QUEST ION OF APPLICATION OF SECTION 2(22)(E) DOES NOT ARISE FOR CONSIDERATION. ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 15 3.5 IT WAS FURTHER SUBMITTED THAT SAPL HAS A DEBIT BALANCE OF RS.28,30,446/- AS ON 31.03.2009 I.E. ASSESSEE HAS A DVANCED THIS AMOUNT TO SAPL. COPY OF THE ACCOUNT IS ENCLOSED. THUS, IT IS A CASE WHERE THE SAID AMOUNT IS DUE FROM SAPL AGAINST THE SUPPLY OF GOODS AND ON THE OTHER HAND RS.70 LACS IS PAYABLE TO SAPL AGAINST TH E PURCHASE OF SHARES OF VAMPL. BOTH THESE TRANSACTIONS ARE NOT LOAN OR A DVANCE AS ENVISAGED U/S 2(22)(E). INFACT IN RESPECT OF TRANSACTION OF P URCHASE OF SHARES, ASSESSEE HAS NOT RECEIVED ANY SUM OF MONEY BUT IT I S ONLY A JOURNAL ENTRY WHERE INVESTMENT IN SHARE ACCOUNT IS DEBITED AND SAPL (SHARE ACCOUNT) IS CREDITED. THUS, THIS TRANSACTION CANNOT BE SAID TO BE A RECEIPT OF LOAN OR ADVANCE SO AS TO ATTRACT SECTION 2(22)(E ). 3.6 IT WAS FURTHER SUBMITTED THAT IT IS A SETTLED L AW THAT SEC. 2(22)(E) IS ATTRACTED ONLY WHEN PAYMENT IS MADE BY THE COMPA NY TO ITS SHAREHOLDER BY WAY OF LOAN OR ADVANCE. IF PAYMENT I S NOT ON ACCOUNT OF LOAN OR ADVANCE, THE SECTION IS NOT APPLICABLE. THE WORD ADVANCE HAS NOT BEEN DEFINED. HOWEVER, IN CASE OF CIT VS. RAJ K UMAR 318 ITR 462 (DEL.) (HC), IT WAS HELD THAT APPLYING THE RULE OF NOSCITUR A SOCIIS WHICH MEANS THAT THE WORDS IN AN ACT OF PARLIAMENT IS TO BE CONSTRUCTED WITH REFERENCE TO THE WORDS FOUND IN IMMEDIATE CONN ECTION WITH THEM, THE WORD ADVANCE HAS TO BE READ IN CONJUNCTION WI TH THE WORD LOAN. USUALLY ATTRIBUTES OF A LOAN ARE THAT (I) IT INVOLV ES A POSITIVE ACT OF LENDING COUPLED WITH ACCEPTANCE BY THE OTHER SIDE O F THE MONEY AS LOAN (II) GENERALLY CARRIES AN INTEREST (III) OBLIGATION OF REPAYMENT. THEREFORE, THE WORD ADVANCE WHICH APPEARS IN THE COMPANY OF THE WORD LOAN COULD ONLY BE SUCH ADVANCE WHICH CARRIES WITH IT AN OBLIGATION OF REPAYMENT. THUS, TRADE ADVANCES WHICH IS IN THE NAT URE OF MONEY ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 16 TRANSACTED TO GIVE EFFECT TO A COMMERCIAL TRANSACTI ON WOULD NOT FALL WITHIN THE AMBIT OF SECTION 2(22)(E). THE TRANSACTI ON OF LOAN INVOLVES LENDING DELIVERY BY ONE PARTY & RECEIPT BY ANOTHER PARTY OF SUM OF MONEY UPON EXPRESS OR IMPLIED AGREEMENT TO REPAY IT WITH OR WITHOUT INTEREST. IN CASE OF BOMBAY STEAM NAVIGATION CO. (P .) LTD. 56 ITR 52, 57 (SC), IT WAS HELD THAT A LOAN OF MONEY RESULTS IN D EBT BUT EVERY DEBT DOES NOT INVOLVE A LOAN. LIABILITY TO PAY A DEBT MA Y ARISE FROM DIVERSE SOURCES & LOAN IS ONLY ONE OF SUCH SOURCE. EVERY CR EDITOR WHO IS ENTITLED TO RECEIVE A DEBT CANNOT BE REGARDED AS A LENDER. I N CASE OF ARDEE FINVSET (P.) LTD. VS. DCIT 79 ITD 547 (TRIB.) (DEL. ) IT WAS HELD THAT LOAN MEANS A LENDING; DELIVERY BY ONE PARTY TO AND RECE IPT BY ANOTHER PARTY OF SUM OF MONEYS UPON AGREEMENT, EXPRESS OR IMPLIED , TO REPAY WITH OR WITHOUT INTEREST. FOR A LOAN THERE MUST BE A LENDER , A BORROWER, A THING LOANED FOR USE, AS WELL AS A CONTRACT BETWEEN THE P ARTIES FOR THE RETURN OF THE THING LOANED. A LOAN CONTRACTED NO DOUBT CRE ATES A DEBT, BUT THERE MAY BE A DEBT WITHOUT CONTRACTING A LOAN. IN A LOAN THE MIND AND INTENTION OF THE TWO PARTIES, THE LENDER AND THE BO RROWER MUST BE AD IDEM. THE EXPRESSION ADVANCE MEANS SOMETHING WHI CH IS DUE TO A PERSON, BUT WHICH IS PAID TO HIM AHEAD OF TIME WHEN IT IS DUE TO BE PAID. IN THE DICTIONARY OF ACCOUNTS BY ERIC L. KOHLER (5 TH EDN.), THE EXPRESSION ADVANCE WAS DEFINED AS PAYMENT OF CASH OR THE TRA NSFER OF GOODS FOR WHICH ACCOUNTING MUST BE RENDERED BY THE RECIPIENT AT SOME LATER DATE. LOAN AND ADVANCES COULD ONLY BE CONSIDERED DEEMED DIVIDEND FOR THE PURPOSE OF SECTION 2(22)(E). IT IS, THEREFORE, SINE QUA NON, TO ASCERTAIN THE CORRECT NATURE OF THE PAYMENTS. IN THE PRESENT CASE THE ASSESSEE COMPANY RECEIVED APPLICATION MONEY FOR THE ALLOTMEN T OF SHARES. THERE IS NOTHING ON RECORD TO INDICATE THAT APPLICATION M ONEY WAS RECEIVED OR ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 17 ALLOTMENT OF SHARES WAS MADE CONTRARY TO THE PROVIS IONS OF COMPANIES ACT, 1956. THE AMOUNT WAS REFLECTED AS SUCH IN THE BALANCE SHEET. ACCOUNTS WERE PREPARED PERFECTLY IN ACCORDANCE WITH THE NORMS SET OUT UNDER THE COMPANIES ACT, 1956. THESE WERE FILED WIT H THE REGISTRAR OF COMPANIES. THE CHIEF INGREDIENT OF S. 2(22)(E) IS T HAT ONE SHOULD BE SHAREHOLDER ON THE DATE THE LOAN WAS ADVANCED TO HI M. WHERE SUCH INGREDIENT IS NOT ESTABLISHED, THE ADVANCE COULD NO T BE TAKEN AS DEEMED DIVIDEND UNDER S. 2(22)(E). IT IS SETTLED RULE OF I NTERPRETATION OF A FICTION THAT THE COURT SHOULD ASCERTAIN FOR WHAT PURPOSE TH E FICTION IS CREATED AND AFTER ASCERTAINING THE PURPOSE, THE COURT HAS T O ASSUME ALL FACTS WHICH ARE INCIDENTAL TO GIVE EFFECT TO THAT FICTION . IT WILL NOT BE GIVEN A WIDER MEANING THAN WHAT IT PURPORTS TO DO. LAW DEAL ING WITH FICTION RELATES TO THAT BREACH OF JURISPRUDENCE WHICH SHOUL D BE NARROWLY WATCHED, ZEALOUSLY REGARDED AND NEVER TO BE PRESSED BEYOND ITS TRUE LIMITS. TAKING INTO CONSIDERATION THE ENTIRE CONSPE CTUS OF THE CASE, THE RECEIPT FROM H LTD. WAS IN THE NATURE OF SHARE APPL ICATION MONEY. IT CANNOT BE CONSTRUED LOAN OR ADVANCE. AS SUCH, THE C ASE OF THE ASSESSEE FALLS BEYOND THE KEN OF S. 2(22)(E). IN VIEW OF THE CASES REFERRED ABOVE PARTICULARLY THE CASE OF ARDEE FINVSET (P.) LTD. (S UPRA) THE CREDIT ON ACCOUNT OF AMOUNT PAYABLE TO SAPL AGAINST PURCHASE OF SHARES OF VAMPL IS NOT LOAN OR ADVANCE AND THEREFORE SECTION 2(22)(E) IS NOT APPLICABLE. HENCE, THE ADDITION CONFIRMED BY CIT(A) BE DIRECTED TO BE DELETED. 3.7. THE LD DR IS HEARD WHO HAS VEHEMENTLY ARGUED THE MATTER AND RELIED ON THE ORDER OF THE LOWER AUTHORITIES. ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 18 3.8 WE HAVE HEARD THE RIVAL CONTENTIONS AND PURSUED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER DURING T HE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE WA S HAVING CREDIT BALANCE OF RS. 70 LACS WHICH WAS TO BE PAID TO M/S SAURABH AGROTECH PVT. LTD. WHEREIN THE ASSESSEE HOLDS 24.7% SHAREHOL DING. ON PERUSAL OF RECORDS, IT IS NOTED THAT THE CREDIT OF RS. 70 L ACS IS TOWARDS THE VALUE OF PURCHASE CONSIDERATION WHICH IS PAYABLE TOWARDS PURCHASE OF 10,000 SHARES OF VIJAY AGRO MILLS PVT. LTD. BY THE ASSESSE E FROM M/S SAURABH AGROTECH PVT. LTD. THE SAID SHARES WERE PURCHASED O N 10.04.2008 BY THE ASSESSEE AND IN SUPPORT, A COPY OF THE SHARE TRANSF ER FORM, A COPY OF RESOLUTION PASSED BY THE BOARD OF DIRECTORS OF BOTH THE COMPANIES AS WELL AS ANNUAL RETURN OF VIJAY AGRO MILLS PVT. LTD. FILED WITH THE ROC HAVE BEEN PLACED ON RECORD. FURTHER, ON THE SAME DATE I. E, 10.04.2008, ANOTHER TRANSACTION HAS TAKEN PLACE WHEREIN THE ENT IRE SHARE HOLDING OF 24.7% HELD BY THE ASSESSEE IN M/S SAURABH AGROTECH PVT. LTD. WERE TRANSFERRED BY THE ASSESSEE IN FAVOUR OF SHRI BABU LAL DUTA. THEREFORE, THERE ARE TWO TRANSACTIONS WHICH HAS HAPPENED. THE FIRST TRANSACTION IS WHERE THE ASSESSEE ACQUIRED SHARES OF VIJAY AGRO MI LLS PVT. LTD. WORTH RS 70 LACS FROM M/S SAURABH AGROTECH PVT LTD AND TH E SECOND TRANSACTION WHERE THE ASSESSEES SHAREHOLDING IN M/ S SAURABH AGROTECH PVT LTD WAS TRANSFERRED IN FAVOUR OF SHRI BABU LAL DUTA. IT IS THE FIRST TRANSACTION WHICH HAS BEEN MADE THE SUBJECT MATTER OF DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT BY THE AO AND CONFIRMED BY THE LD CIT(A) AND UNDER CONSIDERATION BEFORE US. 3.9 IN THE ABOVE FACTUAL MATRIX, WE NOW REFER TO TH E PROVISIONS OF SECTION 2(22)(E) OF THE ACT WHICH READS AS UNDER:- ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 19 ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WH ICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF ANY SUM (WH ETHER AS REPRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) MADE AFTER THE 31 ST DAY OF MAY, 1987, BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WHO IS THE BENEFI CIAL OWNER OF SHARES ( NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN P ROFITS) HOLDING NOT LESS THAN TEN PERCENT OF THE VOTING POWER, OR TO ANY CONCERN, IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST (HEREINAFTER IN THIS CLAUSE REFERRED TO AS THE SAID CONCERN) OR ANY PAYMENT BY ANY SUCH CO MPANY ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POS SESSES ACCUMULATED PROFITS. 3.10 ON PERUSAL OF THE ABOVE PROVISIONS, IT PROVIDE S THAT ANY PAYMENT BY A COMPANY (NOT BEING A COMPANY IN WHICH PUBLIC I S SUBSTANTIALLY INTERESTED) OF ANY SUM BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARE HOLDING NOT LESS THAN 10% OF VOTING POWER TO THE EXTENT TO WHICH THE COMPANY POSSESSES ACCUMULATED PROFITS. THE CONDITIONS WHICH NEED TO BE SATISFIED TO INVOKE THE SAID DEEMING PROVISIONS ARE THAT THER E HAS TO BE A PAYMENT BY WAY OF ADVANCE OR LOAN. SECONDLY, SUCH P AYMENT HAS TO BE MADE TO A SHAREHOLDER OF THE COMPANY AND THIRDLY, T HE AMOUNT OF DEEMED DIVIDEND IS RESTRICTED TO THE EXTENT OF ACCU MULATED PROFITS OF THE COMPANY. ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 20 3.11 FOR PAYMENT BY WAY OF AN ADVANCE OR LOAN AS EM PLOYED IN SECTION 2(22)(E) OF THE ACT, THERE SHOULD BE A OUTGOING OR ACTUAL FLOW OF MONEY FROM THE COMPANY TO ITS SHAREHOLDER. IN THE INSTAN T CASE, THERE IS NO OUTGOING OR ACTUAL FLOW OF MONEY FROM M/S SAURABH A GROTECH PVT. LTD. TO THE ASSESSEE, THEREFORE, IT CANNOT BE SAID THAT THE RE IS ANY PAYMENT BY WAY OF ADVANCE OR LOAN TO THE ASSESSEE BY M/S SAURA BH AGROTECH PVT. LTD. FURTHER, THE TRANSACTION OF LOAN INVOLVES LEND ING, DELIVERY BY ONE PARTY AND RECEIPT BY ANOTHER PARTY OF SUM OF MONEY UPON AGREEMENT EXPRESS OR IMPLIED TO BE REPAID WITH OR WITHOUT INT EREST. A LOAN OF MONEY RESULTS IN DEBT BUT EVERY DEBT DOESNT INVOLVE A LO AN. LIABILITY TO PAY A DEBT MAY ARISE FROM DIVERSE SOURCES AND LOAN IS ONL Y ONE OF SUCH SOURCE. EVERY CREDITOR WHO IS ENTITLED TO RECEIVE A DEBT CA NNOT BE REGARDED AS A LENDER. IN THE INSTANT CASE WHERE THE ASSESSEE HAS PURCHASED SHARES OF VIJAY AGRO MILLS PVT. LTD. FROM M/S SAURABH AGROTEC H PVT. LTD. AND THERE IS AN AMOUNT PAYABLE TO M/S SAURABH AGROTECH PVT. L TD., IT IS A TRANSACTION OF PURCHASE AND SALE OF SHARES AND THE SAME CANNOT FALL WITHIN THE AMBIT OF PAYMENT BY WAY OF LOAN OR ADVAN CE. SECONDLY, ON 10.04.2008, THE DAY WHEN ASSESSEE ACQUIRED SHARES O F VIJAY AGRO MILLS PVT. LTD. FROM M/S SAURABH AGROTECH PVT. LTD, THE A SSESSEE WAS NOT HOLDING ANY SHARES IN M/S SAURABH AGROTECH PVT. LTD . AS PER ANNUAL RETURN FILED WITH THE ROC AND WHICH IS ALSO VERIFIE D BY THE LD. CIT (A), THEREFORE THE SECOND CONDITION FOR INVOKING THE PRO VISIONS OF DEEMED DIVIDEND DOESN'T GET SATISFIED. IN VIEW OF THE FACT THAT ALL THE THREE CONDITIONS ARE TO BE SATISFIED CUMULATIVELY AND THE TWO CONDITIONS NOT BEING SATISFIED IN THE INSTANT CASE, THERE IS NO NE CESSITY TO EXAMINE THE THIRD CONDITION IN TERMS OF EXTENT OF ACCUMULATED P ROFITS WHICH CAN ATTRACT DEEMED DIVIDEND. ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 21 3.12 IN LIGHT OF ABOVE, WE AGREE WITH THE CONTENTIO N OF THE LD AR THAT PROVISIONS OF SECTION 2(22)(E) OF THE ACT ARE NOT A TTRACTED IN THE INSTANT CASE. THE ADDITION MADE BY THE ASSESSING OFFICER U NDER SECTION 2(22)(E) ARE HEREBY DELETED. IN THE RESULT GROUND NO. 1 OF THE ASSESSEES APPEAL IS ALLOWED. 4. IN GROUND NO. 2 OF ASSESSEES APPEAL, THE ASSESS EE HAS CHALLENGED THE ACTION OF LD CIT(A) IN SUSTAINING THE DISALLOWA NCE OF RS 33,90,121 UNDER SECTION 14A READ WITH RULE 8D. 4.1. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASS ESSEE HAS SHOWN INVESTMENT OF RS. 8,74,13,129/- IN SHARES IN ITS BA LANCE SHEET FOR THE YEAR ENDED 31.03.2009. ALL THE INVESTMENTS WERE MAD E IN EARLIER YEARS EXCEPT FOR INVESTMENT OF RS.70,00,000/- IN VIJAY AG RO MILLS PVT. LTD. AND INVESTMENT OF RS.15,68,000/- ON ACCOUNT OF SHARE AP PLICATION MONEY GIVEN TO VIJAY INTERNATIONAL LTD. DURING THE YEAR. NO DIVIDEND IS RECEIVED DURING THE YEAR. THE AO OBSERVED THAT ASSESSEE HAS INTEREST BEARING FUNDS IN THE FORM OF SECURED AND TERM LOAN OF RS.21 ,46,11,813/- TAKEN FROM VARIOUS BANKS AND UNSECURED LOAN OF RS.5,86,70 ,159/- TAKEN FROM PRIVATE PARTIES ON WHICH INTEREST HAS BEEN PAID REG ULARLY. THE ASSESSEE SUBMITTED THAT THERE IS NO NEXUS BETWEEN THE INTERE ST BEARING FUNDS AND INVESTMENT THEREOF IN THE SHARES AND ALSO THAT THER E IS NO EXEMPT INCOME FROM INVESTMENT AND THUS NO QUESTION OF DISA LLOWANCE ARISES. THE AO, HOWEVER, HELD THAT ASSESSEE HAS FAILED TO P ROVE THAT THE INVESTMENTS WERE MADE FROM NON-INTEREST BEARING FUN DS AND THUS IT IS CONSIDERED THAT INTEREST BEARING FUNDS TO THE TUNE OF RS.27,32,81,972/- HAVE BEEN DIVERTED FOR EXTRA COMMERCIAL CONSIDERATI ON ON WHICH THE ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 22 COMPANY HAS INCURRED INTEREST EXPENSES WITHOUT ANY CORRESPONDING RETURN. ACCORDINGLY, THE AO MADE DISALLOWANCE OF RS . 33,90,121/- U/S 14A OF THE I.T. ACT,1961 AS PER RULE 8D OF THE I. T . RULES, 1962 AS CALCULATED AT PAGE 3-4 OF THE ASSESSMENT ORDER. 4.2 BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R IN APPEAL BEFORE THE LD. CIT(A) WHO HAS CONFIRMED THE DISALLOWANCE A ND HIS FINDINGS ARE AS UNDER: 6.3 I HAVE CONSIDERED THE ASSESSMENT ORDER AS WEL L AS ELABORATE SUBMISSIONS MADE BY THE AR ALONG-WITH THE JUDICIAL CITATIONS GIVEN THEREIN AND FIND THAT THE FACTUAL MATRIX OF THE CAS E HAS BEEN DISCUSSED ABOVE AND IS NOT REPEATED AGAIN FOR THE SAKE OF BR EVITY. THE AR OF THE ASSESSEE HAS FAIRLY ADMITTED THAT THIS ISSUE IS COV ERED AGAINST THE ASSESSEE BY THE ORDERS OF THE LD. CIT(A) FOR PRECED ING YEAR IN THE CASE OF THE APPELLANT. A COPY OF THE ORDER HAS ALSO BEEN FI LED ON RECORD IN THE COURSE OF PRESENT PROCEEDINGS. THE CASE LAWS CITED BY THE APPELLANT FOR ALLOWING THE EXPENDITURE U/S 36(1)(III) OF THE IT A CT ARE NOT APPLICABLE TO THE FACTS OF THIS CASE AND MOST OF THEM PERTAIN TO THE PERIOD BEFORE THE INSERTION OF THE PROVISIONS OF RULE OF IT RULES. 6.4 THE APPELLANT HAS NOT DISPUTED THE QUANTUM OF DISALLOWANCE MADE UNDER SECTION 14A OF THE IT ACT READ WITH RULE 8D OF THE IT RULES BUT HAS CONTESTED THE APPLICATION OF THE SAID PROVISIONS. IT IS FURTHER STATED THAT THE INVESTMENTS HAVE BEEN MADE IN THE SHARES OF OTHER COMPANIES FOR BUSINESS REASONS AS SOME TRA NSACTIONS WERE STATED TO HAVE BEEN MADE WITH SUCH COMPANIES. IT IS ALSO STATED THAT THE INVESTMENTS WERE MADE OUT OF THE IN TEREST FREE ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 23 FUNDS AVAILABLE WITH THE COMPANY AND HENCE NO DISAL LOWANCE IS CALLED FOR. IT IS ALSO SUBMITTED THAT NO DIVIDEND H AS BEEN RECEIVED AGAINST SUCH INVESTMENTS AND THEREFORE NO DISALLOWA NCE COULD BE MADE. 6.5 ALL THESE ARGUMENTS TAKEN BY THE APPELLANT WER E ALSO RAISED BEFORE THE AO AND HAVE BEEN DULY CONSIDERED IN THE ASSESSMENT ORDER. I HAVE GONE THROUGH THE SAME AND DO FIND ANY FORCE IN THEM. FURTHER, IT IS SEEN FROM THE BALANCE SHEET OF THE APPELLANT THAT UNDER THE HEAD INVESTMENTS AN AMOUNT OF RS.8,7 4,13,129 HAS BEEN SHOWN FOR THIS YEAR AS COMPARED TO THE AMOUNT OF RS. 7,88,45,129 IN THE PRECEDING YEAR. ON THE OTHER HAN D SECURED LOANS HAVE INCREASED FROM RS. 16,26,61,143 (IN THE LAST YEAR) TO RS. 21,46,11,813 (IN THE CURRENT YEAR). THE UN-SECU RED LOANS ARE RS. 5,86,70,159 ( CURRENT YEAR AND CURRENT LIABILIT IES ARE RS. 9,12,38,848 AS AGAINST CURRENT ASSETS OF RS. 23,61, 91,443. BESIDES THIS THE LOAN AND ADVANCES GIVEN BY THE COMPANY STA ND AT RS. 15,62,61,067. 6.6 DURING THE YEAR SHARE CAPITAL AND RESERVES AND SURPLUSES STAND AT RS. 22,91,26,464 AND AGAINST THIS FIXED AS SETS ARE AT RS. 13,64,56,572. THIS SHARE CAPITAL AND RESERVES AND S URPLUSES HAVE INCREASED ONLY IN THIS YEAR AS IN THE LAST YEAR THE COMPARATIVE FIGURE WAS RS. 17,61,78,263. THE INCREASE OF ABOUT 5 CRORES IN THE OWNED FUNDS IN ON ACCOUNT OF ISSUE OF SHARES AT A S UBSTANTIAL PREMIUM DURING THE YEAR. FURTHER, THE INVESTMENTS H AVE SHOWN ONLY MARGINAL INCREASE AND WERE OF RS. 7.88 CRORES IN THE PRECEDING YEAR. THUS, THESE INVESTMENTS WERE FINAN CED OUT OF THE ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 24 LOANED FUNDS AS NO LINKAGE COULD BE ESTABLISHED BET WEEN THE INVESTMENTS MADE AND SOURCES OF FUND. MOREOVER, IT IS CLEAR FROM THE ABOVE PICTURE, THAT THERE WERE NO FUNDS AVAILAB LE (OTHER THAN THE BORROWED FUNDS) WITH THE COMPANY OUT OF WHICH I NVESTMENTS COULD BE MADE. 6.7 FURTHER, IT MAY BE RELEVANT TO MENTION THAT RE CENTLY HONBLE MUMBAI BENCH OF ITAT HAS IN THE CASE OF DCIT VS. DA MANI ESTATE & FINANCE (P) LTD. (2013) 025 ITR ( TRIB.) 0683 (MU M.) HELD THAT THE PURPOSE FOR WHICH SHARES ARE HELD BY THE INVEST OR COMPANY IS NOT MATERIAL AND WOULD NOT IMPACT THE APPLICABILITY OF THE PROVISIONS OF SECTION 14A OF THE IT ACT. THE PROVIS IONS OF SECTION 14A WERE NOT REQUIRED ON THE STATUE, IF ONLY DIRECT EXPENSES FOR EARNING OF TAX FREE INCOMES WERE TO BE CHARGED. ALL EXPENSES ARE REQUIRED TO BE APPORTIONED BETWEEN TAXABLE AND NON- TAXABLE INCOMES. THE APPORTIONMENT OF EXPENSES COMES INTO PLAY ONLY AS REGARDS IN-DIRECT EXPENSES ARE CONCERNED. THE PROVI SIONS OF RULE 8D DEAL WITH THIS ASPECT. FURTHER, HONBLE ITAT MU MBAI BENCH HAS IN THE CASE OF STREAM INTERNATIONAL SERVICE (P ) LTD. (2013) 023 ITR (TRIB.) 0070 (MUM.), HELD THAT THE APPLICA TION OF SECTION 14A IS JUSTIFIED, EVEN IF NO INCOME HAS BEEN REALIZ ED ON SUCH INVESTMENTS. THE DISALLOWANCE OF EXPENSES INCURRED IN RELATION TO SUCH SOURCES OF INCOME ARE JUSTIFIED U/S 14A OF THE IT ACT. 6.8 IN THE CASE OF PRAKASH NAROTTAM DAS GUPTA VS. ITO (2013) 021 ITR (TRIB.) 0255 ( MUM.), IT HAS BEEN HELD THAT DISALLOWANCE OF EXPENSES I.E. INTEREST PAID U/S 14A OF THE IT AC T IS VALID AND JUSTIFIED. ALSO HONBLE KERALA HIGH COURT HAS UPHEL D THE ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 25 DISALLOWANCE OF EXPENSES U/S 14A OF THE IT ACT IN T HE CASE OF CATHOLIC SYRIAN BANK VS. ADDL. CIT 349 ITR 0569 (KE R.). 6.9 IN VIEW OF THE OVERWHELMING JUDICIAL OPINION I N FAVOUR OF THE APPLICATION OF THE PROVISIONS OF SECTION 14A OF THE IT ACT READ WITH RULE 8D OF INCOME TAX RULE AND THE FACTUAL MATRIX O F THE APPELLANT, I HOLD THAT THE PROVISIONS OF SECTION 14 A OF THE IT ACT HAVE BEEN RIGHTLY INVOKED BY THE AO. ACCORDINGLY, I CONFIRM THE DISALLOWANCE OF RS. 3,90,121 DETERMINED UNDER THE P ROVISIONS OF RULE 8D OF THE IT RULES READ WITH SECTION 14A OF TH E IT ACT. 4.3. DURING THE COURSE OF HEARING, THE FIRST CONTEN TION RAISED BY THE LD. AR IS THAT NO DISALLOWANCE U/S 14A CAN BE MADE WHER E NO DIVIDEND IS RECEIVED. THE LD. CIT(A) IN THIS CONNECTION HAS REL IED ON THE DECISION DT. 11.01.2013 OF HONBLE MUMBAI BENCH IN CASE OF STREA M INTERNATIONAL SERVICE (P.) LTD. (2013) 23 ITR (TRIB.) 0070 WHEREI N BY RELYING ON THE DECISION DT. 05.08.2009 OF SPECIAL BENCH OF THE DEL HI TRIBUNAL IN CASE OF CHEMINVEST LTD. VS. ITO (2009) 124 TTJ 577, IT WAS HELD THAT DISALLOWANCE U/S 14A CAN BE MADE EVEN IF NO DIVIDEN D INCOME IS RECEIVED. IT WAS SUBMITTED THAT THIS DECISION OF SP ECIAL BENCH HAS BEEN OVERRULED BY THE HONBLE DELHI HIGH COURT VIDE ORDE R DT. 02.09.2015 REPORTED AT 378 ITR 0033 WHERE IT WAS HELD THAT THE EXPRESSION DOES NOT FORM PART OF TOTAL INCOME IN SEC. 14A ENVISAGE S THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME, WHICH WAS NOT INCLUDIB LE IN THE TOTAL INCOME, DURING THE RELEVANT PREVIOUS YEAR FOR THE PURPOSE O F DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE SAID INCOME . IN OTHER WORDS, SEC. 14A WILL NOT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. FURTHER, THE HONBLE IT AT, JAIPUR BENCH IN ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 26 CASE OF M/S VIJAY INDUSTRIES VS. DCIT IN ITA NO. 67 3/JP/2015 FOR A.Y. 06-07 ORDER DATED 17.06.2016 WHEREIN ALSO NO DIVIDE ND INCOME WAS RECEIVED DURING THE YEAR, DELETED THE DISALLOWANCE MADE BY THE AO U/S 14A BY RELYING ON THE DELHI HIGH COURT DECISION IN CASE OF CHEMINVEST LTD. (SUPRA). RELIANCE WAS ALSO PLACED ON THE FOLLO WING JUDGMENTS OF THE HONBLE HIGH COURT:- - CIT VS. HOLCIM INDIA (P.) LTD. (2014) 111 DTR 158 (DEL) ORDER DT. 05.09.2014 - CIT VS. SHIVAM MOTORS (P.) LTD. APPEAL NO. 88 OF 2014 (ALL.) ORDER DT. 05.05.2014 - CIT VS. CORRTECH ENERGY (P.) LTD. (2014) 372 ITR 0097 (GUJ.) ORDER DT. 24.03.2014 - CIT VS. LAKHANI MARKETING INCL. (2014) 111 DTR 14 9 (P&H) ORDER DT. 02.04.2014 - CIT VS. WINSOME TEXTILE INDUSTRIES LTD. (2009) 31 9 ITR 0204 (P&H) ORDER DT. 25.08.09 4.4 IT WAS FURTHER SUBMITTED THAT FROM THE PLAIN RE ADING OF RULE 8D, IT IS EVIDENT THAT RECOURSE TO RULE 8D IS NOT AUTOMATI C. ASSESSEE CAN CLAIM THAT HAVING REGARD TO THE BOOKS OF ACCOUNTS, IT HAS NOT INCURRED ANY EXPENDITURE IN RELATION TO INCOME NOT FORMING PART OF HIS TOTAL INCOME. IF THE AO HAVING REGARD TO SUCH ACCOUNTS IS NOT SATISF IED WITH THE CORRECTNESS OF THE ASSESSEES CLAIM, THEN ONLY HE C AN INVOKE SUB CLAUSE (2) OF RULE 8D. HONBLE SUPREME COURT IN CASE OF CI T VS. WALFORT SHARE & STOCK BROKERS PVT. LTD. 326 ITR 001 IN PARA 17 HA S OBSERVED THAT FOR ATTRACTION OF SECTION 14A, THERE HAS TO BE A PROXIM ATE CAUSE FOR DISALLOWANCE, WHICH IS ITS RELATIONSHIP WITH THE TA X EXEMPT INCOME. ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 27 IN THE PRESENT CASE, ASSESSEE HAS CLAIMED THAT IT H AS NOT INCURRED ANY EXPENDITURE BY WAY OF PAYMENT OF INTEREST FOR MAKIN G INVESTMENT IN THE SHARES. THE SOURCE OF INVESTMENT IN SHARES IS OUT O F THE NON-INTEREST BEARING FUNDS OF RS. 2291.26 LACS IN THE FORM OF SH ARE CAPITAL AND RESERVES AND SURPLUS. AN ANALYSIS OF THE SOURCES OF FUNDS AND ITS UTILIZATION IN INVESTMENT WAS FURNISHED. THE YEAR-W ISE POSITION OF RESERVES AND SURPLUS VIS--VIS INVESTMENT IN SHARES WAS ALSO FURNISHED. OUT OF INVESTMENT OF RS.85.68 LACS MADE DURING THE YEAR, INVESTMENT OF RS.15.68 LACS IS ON ACCOUNT OF SHARE APPLICATION MO NEY GIVEN TO VIJAY INTERNATIONAL LTD. WHICH OTHERWISE IS REQUIRED TO B E EXCLUDED WHILE WORKING OUT THE AVERAGE VALUE OF INVESTMENT UNDER R ULE 8D(2)(III) AS HELD BY THE HONBLE KOLKATA TRIBUNAL IN CASE OF ITO VS. LGW LTD. (2016) 130 DTR 201. IN THIS CASE, IT WAS HELD THAT SHARE APPLICATION MONEY IS ONLY IN THE NATURE OF AN OFFER TO BUY THE SHARES MA DE BY THE ASSESSEE. IT IS ONLY AFTER THE OFFER IS ACCEPTED BY THE COMPANY RESULTING IN A CONCLUDED CONTRACT, THE ASSESSEE BECOMES THE SHAREH OLDER IN A COMPANY. TILL THE TIME THE ASSESSEE BECOMES A SHARE HOLDER, THE ASSESSEE CANNOT HAVE ANY RIGHTS TO CLAIM ANY DIVIDE ND THAT MAY BE DECLARED BY THE COMPANY. THEREFORE, WHILE WORKING O UT THE AVERAGE VALUE OF THE INVESTMENT UNDER RULE 8D(2)(III) THE S HARE APPLICATION MONEY SHOULD NOT BE INCLUDED. FURTHER, THE LOWER AU THORITIES HAVE NOT ESTABLISHED THAT ANY BORROWED FUNDS HAVE BEEN USED FOR MAKING INVESTMENT IN THE SHARES. IN VARIOUS CASES, IT HAS BEEN HELD THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST FREE AND OVER DRA FT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOU LD BE OUT OF THE INTEREST FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY, IF THE ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 28 INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INV ESTMENTS. FOR THIS, RELIANCE IS PLACED ON THE FOLLOWING JUDICIAL PRECED ENTS:- - CIT VS. KARNATAKA STATE INDUSTRIAL & INFRASTRUCTU RE DEVELOPMENT CORPN. LTD. (2016) 237 TAXMAN 240 (KAR.) (HC) - HDFC BANK LTD. VS. DCIT & ORS. (2016) 132 DTR 89 (BOM.) (HC) - CIT VS. TAIKISHA ENGINEERING INDIA LTD. (2015) 37 0 ITR 338 (DEL.) (HC) - CIT VS. HDFC BANK LTD. (2014) 107 DTR 140 (BOM.) (HC) - CIT VS. UTI BANK LTD. (2013) 215 TAXMAN 8 (GUJ.) (HC) (MAGZ.) - CIT VS. SUZLON ENERGY LTD. (2013) 354 ITR 630 (GU J.) (HC) - CIT VS. RELIANCE UTILITIES & POWER LTD. 313 ITR 3 40 (BOM.)(HC) 4.5 IT WAS FURTHER SUBMITTED THAT SIMILAR ISSUE CAM E UP BEFORE THE HONBLE BENCH IN ASSESSEES OWN CASE IN A.Y. 06-07 IN ITA NO. 361/JP/11 DT. 21.10.2011 WHEREIN THE HONBLE ITAT AFTER CONSI DERING THE FACT THAT THE BORROWED FUNDS HAVE BEEN UTILIZED IN THE ASSETS FOR WHICH BORROWING IS MADE & THE SHARE CAPITAL & RESERVES I.E. INTERES T FREE FUNDS AVAILABLE WITH THE ASSESSEE ARE MUCH MORE THAN THE INVESTMENT IN SHARES, IN PARA 13.3 OF THE ORDER HELD THAT THEREFORE IN OUR CONSIDERED VIEW, NO DISALLOWANCE U/S 14A IS POSSIBLE. HOWEVER, THE AO I S FREE TO EXAMINE THIS ISSUE AFRESH, IF IN HIS MIND THE INVESTMENT MA DE IN SHARES WAS NOT OUT OF INTEREST FREE FUNDS/RESERVES AVAILABLE WITH THE ASSESSEE. THEREAFTER, IN A.Y. 07-08 AND A.Y. 08-09, THE MATTE R WAS AGAIN SET ASIDE TO THE FILE OF THE AO TO DECIDE AS PER LAW. HOWEVER , IN VIEW OF THE SUBSEQUENT DEVELOPMENT AS PER THE VARIOUS CASE LAWS STATED ABOVE, THE DISALLOWANCE MADE U/S 14A INSTEAD OF BEING SET ASID E TO THE AO SHOULD BE DECIDED ON THE FACTS AND THE CASE LAWS RELIED AB OVE CONSIDERING THE ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 29 DECISION OF HONBLE THIRD MEMBER IN CASE OF ZUARI L EASING & FINANCE LTD. VS. ITO 112 ITD 0205 (DEL.) (TRIB.) (TM) WHEREIN IN PARA 10 OF THE ORDER, IT WAS HELD AS UNDER:- IT IS CLEAR FROM ABOVE THAT PRIMARY POWER, RATHER OBLIGATION OF THE TRIBUNAL, IS TO DISPOSE OF THE APPEAL ON MERITS. TH E INCIDENTAL POWER TO REMAND, IS ONLY AN EXCEPTION AND SHOULD BE SPARI NGLY USED WHEN IT IS NOT POSSIBLE TO DISPOSE OF THE APPEAL FOR WANT O F RELEVANT EVIDENCE, LACK OF FINDING OR INVESTIGATION WARRANTED BY THE C IRCUMSTANCES OF THE CASE. REMAND IN A CASUAL MANNER AND FOR THE SAKE OF REMAND ONLY OR AS A SHORT CUT, IS TOTALLY PROHIBITED. IT HAS TO BE BORNE IN MIND THAT LITIGANTS IN OUR COUNTRY HAVE TO WAIT FOR LONG TO H AVE FRUIT OF LEGAL ACTION AND EXPECT THE TRIBUNAL TO DECIDE ON MERIT. IT IS, THEREFORE, ALL THE MORE NECESSARY THAT MATTER SHOULD BE DECIDED ON MERIT WITHOUT ALLOWING ONE OF THE PARTIES BEFORE THE TRIBUNAL TO HAVE ANOTHER INNING, PARTICULARLY WHEN SUCH PARTY HAD FULL OPPORTUNITY T O ESTABLISH ITS CASE. UNNECESSARY REMANDS, WHEN RELEVANT EVIDENCE IS ON R ECORD, BELIES LITIGANTS LEGITIMATE EXPECTATIONS AND IS TO BE DEP RECATED. HAVING REGARD TO AFORESAID PRINCIPLE, IT IS NECESSARY TO L OOK INTO RECORDS TO SEE WHETHER THERE IS SUFFICIENT MATERIAL ON RECORD TO D ISPOSE OF THE ISSUE ON MERIT AND THERE IS NO NEED TO REMAND THE ISSUE T O PROVIDE A FRESH INNING TO THE REVENUE. 4.6 IT WAS FURTHER SUBMITTED THAT SIMILAR ISSUE CAM E BEFORE HONBLE ITAT IN CASE OF VIJAY INDUSTRIES FOR A.Y. 06-07 IN ITA N O. 673/JP/15 ORDER DT. 17.06.2016 WHERE ALSO THE DISALLOWANCE OF INTEREST MADE BY AO WAS SET ASIDE BY THE HONBLE ITAT BUT AGAIN AO MADE THE DIS ALLOWANCE WHICH IS CONFIRMED BY CIT(A) BUT CONSIDERING THE FACT THAT A SSESSEE HAS SUFFICIENT ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 30 RESERVE AND SURPLUS TO MAKE INVESTMENT IN SHARES AN D IN THE ABSENCE OF DIRECT NEXUS BETWEEN INTEREST BEARING FUNDS AND INV ESTMENT IN SHARES, THE DISALLOWANCE MADE BY THE LOWER AUTHORITIES WAS DELETED. IN DELETING THE DISALLOWANCE, HONBLE ITAT PLACED RELIANCE ON T HE DECISION OF BOMBAY HIGH COURT IN CASE OF CIT VS. RELIANCE UTILI TIES AND POWER LTD. 313 ITR 340 AND ALSO ON VARIOUS OTHER DECISIONS CIT ED BY THE ASSESSEE. 4.7 IT WAS FURTHER SUBMITTED THAT THE HONBLE SUPRE ME COURT IN CASE OF HERO CYCLES PVT. LTD. VS. CIT 379 ITR 347 (PB 11 2-115) WHICH IS IN CONTEXT OF ALLOWANCE OF INTEREST U/S 36(1)(III) IN HAS HELD THAT IN SO FAR AS THE LOANS TO DIRECTORS ARE CONCERNED, IT COULD N OT BE DISPUTED BY THE REVENUE THAT THE ASSESSEE HAD A CREDIT BALANCE IN T HE BANK ACCOUNT WHEN THE SAID ADVANCE OF RS. 34 LAKHS WAS GIVEN. RE MARKABLY, AS OBSERVED BY THE CIT (APPEAL) IN HIS ORDER, THE COMP ANY HAD RESERVE/SURPLUS TO THE TUNE OF ALMOST 15 CRORES AND , THEREFORE, THE ASSESSEE COMPANY COULD IN ANY CASE, UTILIZE THOSE F UNDS FOR GIVING ADVANCE TO ITS DIRECTORS. THUS, HONBLE SUPREME CO URT HAS ALSO RECOGNIZED THAT IF INTEREST FREE FUNDS ARE MORE THA N INTEREST FREE ADVANCES, IT IS TO BE PRESUMED THAT INTEREST FREE F UNDS ARE UTILIZED IN PROVIDING INTEREST FREE ADVANCES. 4.8 THE LD DR IS HEARD WHO HAS RELIED ON THE ORDER OF THE LOWER AUTHORITIES. 4.9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PURS UED THE MATERIAL AVAILABLE ON RECORD. THE FIRST CONTENTION RAISED BY THE LD. AR IS THAT NO DISALLOWANCE U/S 14A OF THE ACT CAN BE MADE IN THE YEAR UNDER ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 31 CONSIDERATION AS NO DIVIDEND INCOME HAS BEEN RECEIV ED IN RESPECT OF INVESTMENT MADE BY THE ASSESSEE AND IN SUPPORT, THE LD. AR HAS RELIED ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF CHEM INVEST LIMITED (SUPRA). 4.10 THE SUBSTANTIAL QUESTION OF LAW UNDER CONSIDER ATION BEFORE THE HONBLE DELHI HIGH COURT WAS WHETHER DISALLOWANCE UNDER SECTION 14A OF THE ACT CAN BE MADE IN A YEAR IN WHICH NO EXEMPT INCOME HAS BEEN EARNED OR RECEIVED BY THE ASSESSEE. BRIEFLY THE FACTS OF THE CASE BEFORE THE HONBLE DE LHI HIGH COURT WERE THAT IN THE YEAR IN QUESTION, THE APPELLANT BORROWE D FUNDS ON WHICH INTEREST EXPENDITURE OF RS. 1,21,03,367/- WAS INCUR RED. IN THE SAID YEAR, NO DIVIDEND INCOME WAS EARNED BY THE APPELLANT FROM THE AMOUNT INVESTED IN VARIOUS SHARES. THE ASSESSING OFFICER C OMPLETED THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT DISALLOW ING RS. 97,87,570/- OUT OF THE TOTAL EXPENDITURE INCURRED DURING THE YE AR UNDER SECTION 14A OF THE ACT. THE REASON RECORDED BY THE AO FOR THIS DISALLOWANCE WAS THAT THE BORROWED FUNDS WERE UTILIZED FOR THE PURPOSE OF PURCHASE OF SHARES FOR THE PURPOSE TO EARN DIVIDEND INCOME WHICH IS EX EMPTED UNDER SECTION 10(33) OF THE ACT AND THUS, NOT FORMING A P ART OF THE TOTAL INCOME, AND THEREFORE THE INTEREST PAID THEREON HAD TO BE DISALLOWED UNDER SECTION 14A. IN THE ABOVE FACTUAL MATRIX, THE HONBLE DELHI HIGH COURT HAS HELD THAT SECTION 14A OF THE ACT WILL NOT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR AND OB SERVED THAT THE COMPLETE ANSWER IS PROVIDED BY THE DECISION OF THIS VERY COURT IN CIT V. ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 32 HOLCIM INDIA (P.) LTD. (2015) 57 TAXMANN.COM 28 AND IN PARA 15 OF ITS ORDER, IT OBSERVED AS UNDER: 15. IN THAT CASE, A SIMILAR QUESTION AROSE, VIZ., WHETHER THE ITAT WAS JUSTIFIED IN DELETING THE DISALLOWANCE UNDER SECTIO N 14A OF THE ACT WHEN NO DIVIDEND INCOME HAD BEEN EARNED BY THE ASSESSEE IN THE RELEVANT AY. THE COURT REFERRED TO THE DECISION OF THIS COURT IN MAXOPP INVESTMENT LTD.S CASE (SUPRA) AND TO THE DECISION OF THE SPEC IAL BENCH OF THE ITAT IN THIS VERY CASE I.E. CHEMINVEST LTD. V. ITO (20 09) 121 ITD 318. THE COURT ALSO REFERRED TO THREE DECISIONS OF DIFFERENT HIGH COURTS WHICH HAVE DECIDED THE ISSUE AGAINST REVENUE. THE FIRST W AS THE DECISION IN CIT V. LAKHANI MARKETING INC. (2014) 226 TAXMANN 45 /49 TAXMANN.COM 257 OF THE HIGH COURT OF PUNJAB AND HARYANA WHICH IN TURN REFERRED TO TWO EARLIER DECISIONS OF THE SAME COURT IN CIT V. HERO CYCLES LTD. (2010) 323 ITR 518/189 TAXMAN 50 AND CIT V. WINSOME TEXTILE INDUSTRIES LTD. (2009) 319 ITR 204. THE SECOND WAS OF THE GUJARAT HIGH COURT IN CIT V. CORRTECH ENERGY (P.) LTD. ( 2014) 223 TAXMAN 130/45 TAXMANN.COM 116 AND THE THIRD OF THE ALLAHABAD HIG H COURT IN CIT V. SHIVAM MOTORS (P.) LTD.(2015) 230 TAXMAN.COM 262. THESE THREE DECISIONS REITERATED THE POSITION THAT WHEN AN ASS ESSEE HAD NOT EARNED ANY TAXABLE INCOME IN THE RELEVANT AY IN QUESTION CORRESPONDING EXPENDITURE COULD NOT BE WORKED OUT FOR DISALLOWANC E. THEREAFTER, AT PARA 19, THE HONBLE HIGH COURT HAS HELD AS UNDER: 19. IN LIGHT OF THE CLEAR EXPOSITION OF THE LAW IN HOLCIM INDIA (P.) LTD.S CASE (SUPRA) AND IN VIEW OF THE ADMITTED FACTUAL PO SITION IN THIS CASE THAT THE ASSESSEE HAS MADE STRATEGIC INVESTMENT IN SHARE S OF MAX INDIA LTD.; THAT NO EXEMPTED INCOME WAS EARNED BY THE ASSESSEE IN THE RELEVANT AY ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 33 AND SINCE THE GENUINENESS OF THE EXPENDITURE INCURR ED BY THE ASSESSEE IS NOT IN DOUBT, THE QUESTION FRAMED IS REQUIRED TO BE ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. AND AT PARA 23, THE HONBLE HIGH COURT HAS LAID DOW N THE RATIO DECIDENDI AS UNDER: 23. IN THE CONTEXT OF THE FACTS ENUMERATED HEREIN BEFORE, THE COURT ANSWERS THE QUESTION FRAMED BY HOLDING THAT THE EXP RESSION DOES NOT FORM PART OF THE TOTAL INCOME IN SECTION 14A OF TH E ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME, WHICH IS NOT INCLUDIBLE IN THE TOTAL INCOME, DURING THE RELEVANT PREVIOUS YEAR FOR THE P URPOSE OF DISALLOWING AN EXPENDITURE INCURRED IN RELATION TO THE SAID IN COME. IN OTHER WORDS, SECTION 14A WILL NOT APPLY IF NO EXEMPT INCOME IS R ECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. 4.11 IN THE INSTANT CASE, THE FACTS OF THE ASSESSEE COMPANY ARE IDENTICAL IN THE SENSE THAT THERE IS NO DIVIDEND IN COME WHICH IS RECEIVED OR RECEIVABLE FOR THE YEAR UNDER CONSIDERATION IN R ESPECT OF ITS INVESTMENTS IN SHARES. IT IS NOTED THAT SAID FACT IS ON RECORD AND REMAIN UNDISPUTED BEFORE US. NO CONTRARY AUTHORITY HAS BE EN BROUGHT TO OUR NOTICE. IN LIGHT OF ABOVE DISCUSSIONS, RESPECTFULL Y FOLLOWING THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF CHEMINVE ST LIMITED (SUPRA), NO DISALLOWANCE UNDER SECTION 14A CAN BE MADE IN TH E INSTANT CASE. 4.12 NOW COMING TO THE ORDERS PASSED BY THE COORD INATE BENCHES IN EARLIER YEARS WHERE THE MATTERS HAVE BEEN SET-ASIDE TO THE FILE OF THE AO, IT IS NOTED THAT NEITHER SUCH CONTENTION (IN T ERMS OF NON-APPLICABILITY OF SECTION 14A IN ABSENCE OF DIVIDEND INCOME) HAS B EEN RAISED BY THE ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 34 APPELLANT NOR THE DECISION OF THE HONBLE DELHI HIG H COURT IN CASE OF CHEMINVEST LTD. HAS BEEN BROUGHT TO THE NOTICE OF T HE COORDINATE BENCH. IN FACT, THE DECISION IN CASE OF CHEMINVEST LTD. HAS BEEN PRONOUNCED BY HONBLE DELHI HIGH COURT ON 2 ND OF SEPTEMBER, 2015 WHICH IS SUBSEQUENT TO THE LATEST DECISION OF THE C OORDINATE BENCH FOR AY 2008-09 WHICH WAS PASSED ON 2 ND OF DECEMBER, 2014. GIVEN THAT SUCH CONTENTION WAS NOT RAISED EARLIER, THE UNDISPU TED FACT THAT NO DIVIDEND INCOME WAS RECEIVED DURING THE YEAR AND IN LIGHT OF DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF CHEMINVEST LTD WHICH SQUARELY APPLIES IN THE INSTANT CASE, NO USEFUL PURPOSE WOUL D BE SERVED IN SETTING ASIDE THE MATTER TO THE FILE OF THE AO AS HAS BEEN DONE BY THE COORDINATE BENCHES EARLIER AND IN THIS REGARD, WE A RE ALSO GUIDED BY THE DECISION OF COORDINATE BENCH IN CASE OF ZUARI LEASI NG (SUPRA) WHERE THE POWER TO REMAND HAS TO BE STATED TO BE USED SPARILY AND IN ONLY EXCEPTIONAL CASES. 4.13 IN THE LIGHT OF ABOVE DISCUSSIONS AND IN THE E NTIRETY OF FACTS AND CIRCUMSTANCES OF THE CASE, DISALLOWANCE U/S 14A IS HEREBY DELETED AND THE GROUND NO. 2 OF THE ASSESSEES APPEAL IS ALLOWE D. 5. NOW, COMING TO GROUND NO. 3 OF THE ASSESSEES APPEA L WHEREIN THE ASSESSEE COMPANY HAS CHALLENGED THE ACTION OF THE L D CIT(A) IN NOT ALLOWING THE CLAIM OF THE ASSESSEE COMPANY OF RUPEE S 3,24,17,009 BEING VAT REIMBURSEMENT AND IN THE NATURE OF CAPIT AL RECEIPT IN VIEW OF THE BOMBAY HIGH COURT DECISION IN THE CASE OF COMMI SSIONER OF INCOME- TAX-3, MUMBAI V/S RELIANCE INDUSTRIES LIMITED. 5.1. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, UNDER AN INDUSTRIAL INCENTIVE POLICY 2006 OF STATE OF BIHAR, ESTABLIS HED A VANASPATI GHEE ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 35 PLANT AT DURGAWATI, BIHAR WITH A CAPITAL INVESTMENT OF 744.76 LACS WHICH STARTED COMMERCIAL PRODUCTION ON 06.08.2007. THE MA XIMUM ADMISSIBLE AMOUNT OF SUBSIDY AS PER THIS SCHEME BY WAY OF VAT REIMBURSEMENT WAS RS.22.34 CRORES (744.76 LACS*300%). THEREAFTER, THE ASSESSEE UNDER THE EXPANSION PROGRAM INSTALLED AN EDIBLE REF INED PALM OIL PLANT WITH CAPITAL INVESTMENT OF RS.747.53 LACS WHICH WAS COMMISSIONED ON 23.03.2011. THE ADMISSIBLE AMOUNT OF SUBSIDY ON SUC H EXPANSION WAS RS.22.43 CRORES (747.53 LACS*300%). ACCORDINGLY, TH E VAT COLLECTED ON SALE OF GOODS WAS DEPOSITED WITH THE SALES TAX DEPA RTMENT, THE DETAILS OF WHICH ARE ENTERED IN THE PASS BOOK ISSUED BY THE STATE GOVERNMENT AND VERIFIED BY THE COMMERCIAL TAXES DEPARTMENT. 80 % OF SUCH AMOUNT WAS THEREAFTER REIMBURSED TO THE ASSESSEE BY THE IN DUSTRIES DEPARTMENT. 5.2 DURING THE YEAR UNDER CONSIDERATION, ASSESSEE R ECEIVED THE SUBSIDY BY WAY OF VAT REIMBURSEMENT OF RS.3,24,17,0 09/-. IN THE REVISED RETURN, THE ASSESSEE CLAIMED THE VAT REIMBU RSEMENT OF RS.3,24,17,009/- NON TAXABLE BEING IN THE NATURE OF CAPITAL RECEIPT IN VIEW OF THE DECISION DATED 15.04.2009 OF THE BOMBAY HIGH COURT IN CASE OF CIT VS. RELIANCE INDUSTRIES LTD. 339 ITR 0632 WH EREIN BY RELYING ON THE DECISION DT. 23.10.2003 OF SPECIAL BENCH OF MUM BAI TRIBUNAL IN RELIANCE INDUSTRIES 88 ITD 0273 AND DECISION DT. 16 .09.2008 OF SUPREME COURT IN CASE OF CIT VS. PONNI SUGARS AND CHEMICALS LTD. 306 ITR 392, IT WAS HELD THAT WHERE THE OBJECT OF SUBSIDY IS TO SET UP NEW UNITS IN THE BACKWARD AREA TO GENERATE EMPLOYMENT, THE SAME IS C LEARLY ON CAPITAL ACCOUNT. THE AO, HOWEVER, REJECTED THE ASSESSEES CLAIM BY HOLDING THAT THE DEPARTMENT HAS NOT ACCEPTED THE DECISION O F BOMBAY HIGH ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 36 COURT IN THE CASE OF RELIANCE INDUSTRIES (SUPRA) AN D HAS FILED SLP BEFORE THE HONBLE SUPREME COURT WHO HAS STAYED THE OPERAT ION OF THE ORDER. ACCORDINGLY, THE AO DISALLOWED THE CLAIM OF RS.3,24 ,17,009/-. 5.3 BEING AGGREIVED, THE ASSESSEE CARRIED THE MATTE R IN APPEAL BEFORE THE LD CIT(A) WHO HAS CONFIRMED THE ADDITION AND HI S FINDINGS ARE AS UNDER: 8.3 I HAVE CONSIDERED THE ASSESSMENT ORDER AS WELL AS SUBMISSIONS MADE BY THE AR ALONG-WITH JUDICIAL CITA TIONS GIVEN THEREIN. THE INCOME TAX RETURN WAS FILED BY THE APP ELLANT ON 27- 09-2009 FOR A.Y. 2009-10 I.E. THE PERIOD UNDER CONS IDERATION. SUBSEQUENTLY, A REVISED RETURN WAS FILED ON 21-03-2 011 (AFTER THE TIME PERMISSIBLE UNDER THE LAW) SHOWING THE VAT REI MBURSEMENT OF RS. 3,24,17,009 AS CAPITAL RECEIPT AND HENCE NOT TAXABLE. THE CLAIM MADE IN THE REVISED RETURN IS NOT VALID AS IT HAS BEEN FILED AFTER THE TIME LIMIT PERMISSIBLE UNDER THE PROVISIO NS OF THE IT ACT. 8.4 THE CLAIM WAS MADE BY THE APPELLANT IN VIEW OF THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF REL IANCE INDUSTRIES LTD. THIS JUDGMENT HAS BEEN DISCUSSED AN D REPRODUCED ABOVE. THE HONBLE SUPREME COURT HAS VIDE ITS ORDER DATED 09-09- 2012 STAYED THE OPERATION OF SAID JUDGMENT TO THE B OMBAY HIGH COURT AND HAS REMITTED THE MATTER BACK TO THE HIGH COURT FOR CONSIDERATION. 8.5 I HAVE GONE THROUGH THE JUDGMENT STATED ABOVE I N DETAIL AND FIND THAT THE FACTS IN THE CASE OF THE APPELLANT ARE ON A DIFFERENT FOOTING. THE ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 37 SUDDEN U-TURN TAKEN BY THE APPELLANT IS NOT ACCEPTA BLE AND IS NOT BASED ON ACTS. THE APPELLANT HAS HIMSELF TREATED THE RECE IPT AS A REVENUE IN NATURE AND ALSO THE BOOKS OF ACCOUNTS WERE DULY AUD ITED AND RETURN OF INCOME HAS BEEN FILED. IN-FACT IN THE TAX AUDIT REP ORT FILED ALONG-WITH THE RETURN OF INCOME IN FORM-3CD, IN COLUMN NO. 13 OF T HE REPORT UNDER THE HEADING- AMOUNTS NOT CREDITED TO THE PROFIT AND LO SS ACCOUNT, BEING- AGAINST ITEM (E) CAPITAL RECEIPT, IF ANY- IT IS SPE CIFIED THAT SALE OF PLANT AND MACHINERY OF RS. 1,92,197 (OIL DIVISION). THUS, THE APPELLANT HIMSELF HAS BEEN SHOWING SUCH RECEIPT CONSISTENTLY IN ITS B OOKS OF ACCOUNTS AS REVENUE IN NATURE. FURTHER, IN COLUMN NO. 21 OF THE ABOVE SAID FORM, IT IS STATED THAT VAT AND CST HAVE NOT BEEN PASSED THROUG H P& L ACCOUNT (IN RESPONSE TO ANY SUM REFER TO IN SECTION 43B). 8.6 A COPY OF THE INDUSTRIAL INCENTIVE POLICY 2006 ISSUED BY DEPARTMENT OF INDUSTRIES, GOVT. OF BIHAR WAS FILED IN THE COUR SE OF APPELLATE PROCEEDINGS TO SUBSTANTIATE ITS CLAIM. A PERUSAL OF THE SUBSIDY SCHEME OF THE STATE GOVT. REVEALS THAT THE AMOUNT OF SUBSIDY IS REVENUE IN NATURE AND IS LINKED TO THE TAXES PAID IN THE FORM OF VAT TO THE ACCOUNT OF THE GOVT. THIS AMOUNT IS LINKED TO THE PRODUCTION AND S ALES MADE BY THE UNIT. THE PURPOSE IS TO ENCOURAGE ALL AROUND THE DE VELOPMENT OF STATE. THIS, VAT REIMBURSEMENT RECEIVED BY THE APPELLANT C ANNOT BE TREATED AS A CAPITAL RECEIPT AND WAS RIGHTLY TREATED BY THE AO AS REVENUE RECEIPT. HENCE, THE ADDITION OF RS. 3,24,17,009 MADE BY THE AO UNDER THIS HEAD IS CONFIRMED. 5.4 THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT T HE ISSUE IN THIS GROUND IS WHETHER THE SUBSIDY RECEIVED FROM THE STA TE GOVERNMENT OF ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 38 BIHAR UNDER THE INDUSTRIAL INCENTIVE POLICY 2006 FO R GROWTH IN THE PER CAPITA INCOME IN THE STATE, INDUSTRIAL GROWTH AS WE LL AS ACCELERATED EMPLOYMENT OPPORTUNITIES WOULD CONSTITUTE REVENUE R ECEIPT OR CAPITAL RECEIPT. THE SPECIAL BENCH OF ITAT, MUMBAI IN CASE OF DCIT VS. RELIANCE INDUSTRIES LTD. 88 ITD 0273 HELD THAT THE INCENTIVE RECEIVED BY THE ASSESSEE UNDER THE SCHEME FRAMED BY GOVERNMENT OF M AHARASHTRA TO ENCOURAGE THE SETTING UP OF INDUSTRIES IN THE BACKW ARD AREA AND GENERATING EMPLOYMENT THEREIN IS A CAPITAL RECEIPT. FOLLOWING THIS ORDER, THE HONBLE ITAT IN A SUBSEQUENT APPEAL HELD THAT S ALES TAX SUBSIDY IS A CAPITAL RECEIPT. AGAINST THIS ORDER, DEPARTMENT FIL ED AN APPEAL BEFORE THE BOMBAY HIGH COURT WHERE QUESTION NO. D FRAMED WAS WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE TRIBUNAL WAS RIGHT IN HOLDING THAT SALES TAX INCENTIVE IS A CAPI TAL RECEIPT. THE HONBLE HIGH COURT OF BOMBAY IN CASE OF CIT VS. RELIANCE IN DUSTRIES LTD. 339 ITR 0632 ORDER DATED 15.04.2009 DECLINE TO ADMIT TH E ABOVE QUESTION. THE RELEVANT PARA 4 TO 6 OF THIS ORDER IS REPRODUCE D AS UNDER:- 4. SO FAR AS QUESTION (D) IS CONCERNED, THE TRIBUN AL RELIED UPON THE TRIBUNAL MUMBAI BENCH 'J' (SPECIAL BENCH) DECISION IN THE CASE OF ASSESSEE ITSELF IN DY. CIT VS. RELIANCE INDUSTRIES LTD. (2004) 82 TTJ (MUMBAI)(SB)765 : (2005) 273 ITR 16 (MUMBAI)(SB)(AT ). WE MAY GAINFULLY REPRODUCE THE FOLLOWING PORTION: 'THE SCHEME FRAMED BY THE GOVERNMENT OF MAHARASHTRA IN 1979 AND FORMULATED BY ITS RESOLUTION DT. 5TH JAN., 1980 , HAS BEEN ANALYSED IN DETAIL BY THE TRIBUNAL IN ITS ORDER IN RIL FOR THE ASST. YR. 1985-86 WHICH WE HAVE ALREADY REFERRED TO IN EX TENSO. ON AN ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 39 ANALYSIS OF THE SCHEME, THE TRIBUNAL HAS COME TO TH E CONCLUSION THAT THE THRUST OF THE SCHEME IS THAT THE ASSESSEE WOULD BECOME ENTITLED FOR THE SALES-TAX INCENTIVE EVEN BEFORE TH E COMMENCEMENT OF THE PRODUCTION, WHICH IMPLIES THAT THE OBJECT OF THE INCENTIVE IS TO FUND A PART OF THE COST OF THE SETTING UP OF THE FACTORY IN THE NOTIFIED BACKWARD AREA. THE TRIBUNAL HAS, AT MORE THAN ONE PLACE, STATED THAT THE THRUST OF THE MAHAR ASHTRA SCHEME WAS THE INDUSTRIAL DEVELOPMENT OF THE BACKWARD DIST RICTS AS WELL AS GENERATION OF EMPLOYMENT THUS ESTABLISHING A DIRECT NEXUS WITH THE INVESTMENT IN FIXED CAPITAL ASSETS. IT HAS BEEN FOUND THAT THE ENTITLEMENT OF THE INDUSTRIAL UNIT TO CLAIM ELIGIBI LITY FOR THE INCENTIVE AROSE EVEN WHILE THE INDUSTRY WAS IN THE PROCESS OF BEING SET UP. ACCORDING TO THE TRIBUNAL, THE SCHEME WAS ORIENTED TOWARDS AND WAS SUBSERVIENT TO THE INVESTMENT IN FI XED CAPITAL ASSETS. THE SALES-TAX INCENTIVE WAS ENVISAGED ONLY AS AN ALTERNATIVE TO THE CASH DISBURSEMENT AND BY ITS VER Y NATURE WAS TO BE AVAILABLE ONLY AFTER PRODUCTION COMMENCED. THUS, IN EFFECT, IT WAS HELD BY THE TRIBUNAL THAT THE SUBSIDY IN THE FO RM OF SALES-TAX INCENTIVE WAS NOT GIVEN TO THE ASSESSEE FOR ASSISTI NG IT IN CARRYING OUT THE BUSINESS OPERATIONS. THE OBJECT OF THE SUBS IDY WAS TO ENCOURAGE THE SETTING UP OF INDUSTRIES IN THE BACKW ARD AREA.' THUS, IT CAN CLEARLY BE SEEN THAT A FINDING HAS BEE N RECORDED THAT THE OBJECT OF THE SUBSIDY WAS TO ENCOURAGE THE SETT ING UP OF INDUSTRIES IN THE BACKWARD AREA BY GENERATING EMPLOYMENT THERE IN. IN OUR OPINION, IN ANSWERING THE ISSUE, THE TEST AS LAID DOWN BY TH E SUPREME COURT IN CIT VS. PONNI SUGARS & CHEMICALS LTD. & ORS. (2008) 219 CTR (SC) 105 : ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 40 (2008) 13 DTR (SC) 1 : (2008) 306 ITR 392 (SC) WILL HAVE TO BE CONSIDERED. THE SUPREME COURT HAS HELD THAT THE TES T OF THE CHARACTER OF THE RECEIPT OF A SUBSIDY IN THE HANDS OF THE ASSESS EE UNDER A SCHEME HAS TO BE DETERMINED WITH RESPECT TO THE PURPOSE FO R WHICH THE SUBSIDY IS GRANTED. THE COURT FURTHER OBSERVED THAT IN SUCH CASES, WHAT HAS TO BE APPLIED IS THE PURPOSE TEST. THE POINT OF TIME A T WHICH THE SUBSIDY IS PAID IS NOT RELEVANT. THE SOURCE IS IMMATERIAL. FOR M OF SUBSIDY IS MATERIAL. THE COURT THEN PROCEEDED TO OBSERVE AS UN DER: 'THE MAIN ELIGIBILITY CONDITION IN THE SCHEME WITH WHICH WE ARE CONCERNED IN THIS CASE IS THAT THE INCENTIVE MUST B E UTILIZED FOR REPAYMENT OF LOANS TAKEN BY THE ASSESSEE TO SET UP NEW UNITS OR FOR SUBSTANTIAL EXPANSION OF EXISTING UNITS. ON THI S ASPECT THERE IS NO DISPUTE. IF THE OBJECT OF THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO RUN THE BUSINESS MORE PROFITABLY THEN T HE RECEIPT IS ON REVENUE ACCOUNT. ON THE OTHER HAND, IF THE OBJECT O F THE ASSISTANCE UNDER THE SUBSIDY SCHEME WAS TO ENABLE T HE ASSESSEE TO SET UP A NEW UNIT OR TO EXPAND THE EXISTING UNIT THEN THE RECEIPT OF THE SUBSIDY WAS ON CAPITAL ACCOUNT.' THEREFORE, LET US APPLY THE PURPOSE TEST BASED ON THE FINDINGS RECORDED BY THE SPECIAL BENCH. THE OBJECT OF THE SU BSIDY WAS TO SET UP A NEW UNIT IN A BACKWARD AREA TO GENERATE EMPLOYMENT. IN OUR OPINION, THE SUBSIDY IS CLEARLY ON CAPITAL ACCOUNT. IN THAT VIEW OF THE MATTER, QUESTION (D) AS FRAMED, WOULD ALSO NOT ARISE. AGAINST THIS ORDER OF BOMBAY HIGH COURT, DEPARTMENT FILED A CIVIL APPEAL AND SLP TO THE SUPREME COURT. THE HONBLE SUPREME C OURT VIDE ITS ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 41 ORDER DATED 09.09.2011 BY ALLOWING THE CIVIL APPEAL , SET ASIDE THE ORDER OF THE HONBLE HIGH COURT AND REMITTED IT TO THE HI GH COURT TO DECIDE THE QUESTION IN ACCORDANCE WITH LAW. THUS, AS ON DATE, THE DECISION OF HONBLE SPECIAL BENCH HOLDS THE FIELD. THE AO HAS N OT ALLOWED THE CLAIM OF THE ASSESSEE BY WRONGLY STATING THAT HONBLE SUP REME COURT HAS STAYED THE OPERATION OF THE ORDER PASSED BY THE HIG H COURT WHEREAS THE FACT IS THAT AFTER THE ORDER OF THE HONBLE SUPREME COURT, THIS ISSUE IS PENDING FOR DECISION AS PER LAW BEFORE THE HIGH COU RT. THEREFORE, ONCE THERE IS A DECISION OF SPECIAL BENCH, THE SAME WOUL D PREVAIL. 5.5 IT IS SUBMITTED THAT HONBLE SUPREME COURT IN C ASE OF CIT VS. PONNI SUGARS AND CHEMICALS LTD. 306 ITR 392 DECISIO N DT. 16.09.2008 HAS HELD THAT IF THE OBJECT OF ASSISTANCE UNDER THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO SET UP A NEW UNIT OR TO E XPAND THE EXISTING UNIT, THEN THE RECEIPT OF THE SUBSIDY IS ON CAPITAL ACCOUNT. FORM OR MECHANISM THROUGH WHICH THE SUBSIDY IS GIVEN IS IRR ELEVANT. THUS, THE TEST TO BE APPLIED FOR DETERMINING THE NATURE OF SU BSIDY IS PURPOSE TEST. IN THIS CASE ALSO, THE PURPOSE OF SUBSIDY IS FOR GR OWTH IN THE PER CAPITA INCOME OF THE STATE AND INDUSTRIAL GROWTH AS WELL A S ACCELERATED EMPLOYMENT OPPORTUNITIES. THE SUBSIDY IS GIVEN TO T HE NEW UNITS. THUS, ACCORDING TO THE PURPOSE TEST, IT IS CLEARLY A CAPI TAL SUBSIDY. 5.6 IT WAS FURTHER SUBMITTED THAT THE HONBLE SUPRE ME COURT IN CASE OF CIT VS. SHREE BALAJI ALLOYS & ORS. 138 DTR 0036 DECISION DATED 19.04.2016 BY RELYING ON THE DECISION IN CASE OF PO NNI SUGARS (SC) (SUPRA) DISMISSED THE REVENUES APPEAL AND UPHELD T HE ORDER OF HONBLE HIGH COURT OF J&K IN CASE OF SHREE BALAJI ALLOYS VS . CIT 333 ITR 0335 ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 42 WHEREIN IT WAS HELD THAT THE INCENTIVES RECEIVED BY WAY OF EXCISE DUTY REFUND AND INTEREST SUBSIDY ARE CAPITAL RECEIPTS. IN THAT CASE, THE GOVERNMENT OF INDIA, MINISTRY OF COMMERCE AND INDUSTRY (DEPARTMENT OF INDUSTRIAL POLICY AND PROMO TION), ISSUED ITS OFFICE MEMORANDUM DT. 14TH JUNE, 2002 WHEREBY IT WA S PROVIDED THAT KEEPING IN VIEW THE FACT THAT THE STATE OF JAMMU & KASHMIR HAD LAGGED BEHIND IN INDUSTRIAL DEVELOPMENT; THERE WAS NEED FO R STRUCTURED INTERVENTIONIST STRATEGIES TO ACCELERATE THE INDUST RIAL DEVELOPMENT OF THE STATE BOOSTING INVESTORS CONFIDENCE. THE NEW INITI ATIVES, IN TERMS OF THE MEMORANDUM WERE AIMED AT PROVIDING REQUISITE INCENT IVES AS WELL AS ENABLING ENVIRONMENT FOR INDUSTRIAL DEVELOPMENT, IM PROVING AVAILABILITY OF CAPITAL AND INCREASE IN MARKET ACCESS SO AS TO G IVE A FILLIP TO PRIVATE INVESTMENT IN THE STATE. THESE FISCAL INCENTIVES WE RE TO BE PROVIDED TO THE NEW INDUSTRIAL UNITS AND SUBSTANTIAL EXPANSION OF EXISTING UNITS. THE NEW INDUSTRIAL UNITS AND EXISTING INDUSTRIAL UNITS ON THEIR SUBSTANTIAL EXPANSION, SET UP IN GROWTH CENTER, INDUSTRIAL INFR ASTRUCTURE DEVELOPMENT CENTERS AND OTHER LOCATIONS LIKE INDUSTRIAL ESTATES , PARKS, EXPORT PROCESSING ZONES, COMMERCIAL ESTATES, ETC., AS NOTI FIED BY THE CENTRAL GOVERNMENT, WERE ENTITLED TO 100 PER CENT EXCISE DU TY EXEMPTION FOR A PERIOD OF 10 YEARS FROM THE DATE OF COMMENCEMENT OF COMMERCIAL PRODUCTION. ALL NEW INDUSTRIES IN THE NOTIFIED LOCA TIONS WERE ELIGIBLE FOR CAPITAL INVESTMENT SUBSIDY @ 15 PER CENT OF THEIR I NVESTMENT IN PLANT AND MACHINERY, SUBJECT TO A CEILING OF RS. 30 LACS WHEREAS THE EXISTING UNITS WERE ENTITLED TO SUBSIDY ON SUBSTANTIAL EXPAN SION. BESIDES THESE AND OTHER CONCESSIONS, INTEREST SUBSIDY OF 3 PER CE NT ON THE WORKING CAPITAL AND INSURANCE PREMIUM TO THE EXTENT OF 100 PER CENT ON CAPITAL INVESTMENT TOO WAS PERMISSIBLE TO THE NEW AND EXIST ING UNITS ON THEIR ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 43 SUBSTANTIAL EXPANSION FOR A PERIOD OF 10 YEARS. THE OFFICE MEMORANDUM DT. 14.06.2002 WAS LATER AMENDED TO ACHIEVE THE GOV ERNMENTS OBJECT, AS CONVEYED BY THE HONBLE PRIME MINISTER AT SRINAG AR, FOR CREATION OF ONE LACS EMPLOYMENT AND SELF EMPLOYMENT OPPORTUNITI ES IN JAMMU & KASHMIR. ON THESE FACTS, THE HONBLE HIGH COURT HELD THAT PE RUSAL OF THE OFFICE MEMORANDUM INDICATING NEW INDUSTRIAL POLICY AND OTH ER CONCESSIONS FOR THE STATE OF JAMMU & KASHMIR, MAKES IT EXPLICIT THA T THE CONCESSIONS WERE ISSUED TO ACHIEVE TWIN OBJECTS VIZ. (I) ACCELE RATION OF INDUSTRIAL DEVELOPMENT IN THE STATE OF JAMMU & KASHMIR, WHICH HAD BEEN FOUND LAGGING BEHIND IN SUCH DEVELOPMENT AND (II) GENERAT ION OF EMPLOYMENT IN THE STATE OF JAMMU & KASHMIR. THE PARAMOUNT CONS IDERATION OF THE CENTRAL GOVERNMENT IN PROVIDING THE INCENTIVES TO T HE NEW INDUSTRIAL UNITS AND SUBSTANTIAL EXPANSION OF THE EXISTING UNI TS, WAS THE GENERATION OF EMPLOYMENT THROUGH ACCELERATION OF INDUSTRIAL DE VELOPMENT, TO DEAL WITH THE SOCIAL PROBLEM OF UNEMPLOYMENT IN THE STAT E, ADDITIONALLY CREATING OPPORTUNITIES FOR SELF-EMPLOYMENT, HENCE A PURPOSE IN PUBLIC INTEREST. THE INCENTIVES PROVIDED TO THE INDUSTRIAL UNITS, IN TERMS OF THE NEW INDUSTRIAL POLICY, FOR ACCELERATED INDUSTRIAL D EVELOPMENT IN THE STATE, FOR CREATION OF SUCH INDUSTRIAL ATMOSPHERE A ND ENVIRONMENT, WHICH WOULD PROVIDE ADDITIONAL PERMANENT SOURCE OF EMPLOYMENT TO THE UNEMPLOYED IN THE STATE OF JAMMU & KASHMIR WERE IN FACT, IN THE NATURE OF CREATION OF NEW ASSETS OF INDUSTRIAL ATMOSPHERE AND ENVIRONMENT, HAVING THE POTENTIAL OF EMPLOYMENT GENERATION TO AC HIEVE A SOCIAL OBJECT. SUCH INCENTIVES, DESIGNED TO ACHIEVE PUBLIC PURPOSE, CANNOT, BY ANY STRETCH OF REASONING, BE CONSTRUED AS PRODUCTIO N OR OPERATIONAL ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 44 INCENTIVES FOR THE BENEFIT OF ASSESSEES ALONE. THUS , LOOKING TO THE PURPOSE OF ERADICATION OF THE SOCIAL PROBLEM OF UNE MPLOYMENT IN THE STATE BY ACCELERATION OF THE INDUSTRIAL DEVELOPMENT AND REMOVING BACKWARDNESS OF THE AREA THAT LAGGED BEHIND IN INDU STRIAL DEVELOPMENT, WHICH IS CERTAINLY A PURPOSE IN THE PUBLIC INTEREST , THE INCENTIVES PROVIDED BY THE OFFICE MEMORANDUM AND STATUTORY NOT IFICATIONS ISSUED IN THIS BEHALF, TO THE APPELLANT-ASSESSEES CANNOT BE C ONSTRUED AS MERE PRODUCTION AND TRADE INCENTIVES. MAKING OF ADDITION AL PROVISION IN THE SCHEME THAT INCENTIVES WOULD BECOME AVAILABLE TO TH E INDUSTRIAL UNITS, ENTITLED THERETO, FROM THE DATE OF COMMENCEMENT OF THE COMMERCIAL PRODUCTION, AND THAT THESE WERE NOT REQUIRED FOR CR EATION OF NEW ASSETS CANNOT BE VIEWED IN ISOLATION TO TREAT THE INCENTIV ES AS PRODUCTION INCENTIVES, AS HELD BY THE TRIBUNAL, FOR THE MEASUR E SO TAKEN, APPEARS TO HAVE BEEN INTENDED TO ENSURE THAT THE INCENTIVES WE RE MADE AVAILABLE ONLY TO THE BONA FIDE INDUSTRIAL UNITS SO THAT LARG ER PUBLIC INTEREST OF DEALING WITH UNEMPLOYMENT IN THE STATE, AS INTENDED , IN TERMS OF THE OFFICE MEMORANDUM WAS ACHIEVED. THUS, THE FINDING O F THE TRIBUNAL THAT THE EXCISE DUTY REFUND, INTEREST SUBSIDY AND INSURA NCE SUBSIDY WERE PRODUCTION INCENTIVES, HENCE REVENUE RECEIPT CANNOT BE SUSTAINED, BEING AGAINST THE LAW LAID DOWN BY HONBLE SUPREME COURT OF INDIA IN SAHNEY STEEL AND PONNI SUGARS CASE. THE FINDING OF THE TRI BUNAL THAT THE INCENTIVES WERE REVENUE RECEIPT WAS ACCORDINGLY SET ASIDE HOLDING THE INCENTIVES TO BE CAPITAL RECEIPT IN THE HANDS OF TH E ASSESSEES. 5.7 IT WAS FURTHER SUBMITTED THAT THE HONBLE MUMBA I TRIBUNAL VIDE ITS ORDER DT. 22.06.2016 IN ITA NO. 5675/MUM/2014 IN CA SE OF DCIT VS. M/S HARINAGAR SUGAR MILLS LTD. WHEREIN ALSO THE ASSESSE E RECEIVED ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 45 REIMBURSEMENT OF VAT ON MOLASSES UNDER THE BIHAR IN CENTIVE PACKAGE 2006 FOR SETTING UP DISTILLERY UNIT IN PARA 6 HELD AS UNDER:- IN THE INSTANT ASSESSMENT YEAR, THE ASSESSEE COMPA NY HAS RECEIVED SUBSIDY BY WAY OF REIMBURSEMENT OF COMMERCIAL TAXES (VAT) PAID UNDER BIHAR INCENTIVE SCHEME 2006 OF RS.43,89,465/- ON PURCHASE OF MOLASSES. IT IS NOT DISPUTED THAT THE SUBSIDY SCHEM E FORMULATED BY THE GOVERNMENT OF BIHAR IS FOR THE PURPOSE OF ATTRA CTING CAPITAL INVESTMENT AND TO ENCOURAGE SETTING UP THE INDUSTRY /EXPAND THE EXISTING UNIT. IT IS PERTINENT TO MENTION THAT THE CHARACTER OF A SUBSIDY IN THE HANDS OF THE TAX-PAYER HAS TO BE DETERMINED WITH RESPECT TO THE PURPOSE FOR WHICH THE SUBSIDY IS GIVEN. THE POI NT OF TIME AT WHICH THE SUBSIDY IS PAID AND THE SOURCE OR THE FORMS OF SUBSIDY ARE IMMATERIAL. IF THE OBJECT OF THE SUBSIDY SCHEME IS TO ENABLE THE TAX- PAYER IN SETTING UP THE NEW UNIT OR TO EXPAND THE E XISTING UNIT, THEN THE RECEIPT OF THE SUBSIDY IS TO BE TREATED ON CAPI TAL ACCOUNT. WE HAVE OBSERVED THAT THE LEARNED CIT(A) HAS ALSO ALLOWED T HE CLAIM OF THE ASSESSEE COMPANY IN TREATING REIMBURSEMENT OF COMME RCIAL TAXES (VAT) BASED UPON THE DECISION OF THE TRIBUNAL FOR E ARLIER YEARS WITH RESPECT TO THE REIMBURSEMENT OF EXCISE DUTY HOLDING THAT THE SUBSIDY RECEIVED BY THE ASSESSEE BY WAY OF REIMBURSEMENT OF COMMERCIAL TAXES (VAT) IS FOR SETTING UP OF A NEW UNIT/EXPANSI ON OF EXISTING UNIT AND IS A CAPITAL RECEIPT NOT EXIGIBLE TO TAX. WE HA VE OBSERVED THAT THE REIMBURSEMENT OF COMMERCIAL TAXES (VAT) ON PURCHASE OF MOLASSES UNDER BIHAR INCENTIVE PACKAGE 2006 IS GIVEN TO PROM OTE ESTABLISHMENT OF NEW UNITS AND FOR EXPANSION OF CAP ACITY OF EXISTING UNITS. AS PER THIS SCHEME, THE DISTILLERY IS ENTITL ED FOR REIMBURSEMENT OF COMMERCIAL TAXES (VAT) PAID ON PURCHASE OF MOLAS SES FOR ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 46 PRODUCTION OF ALCOHOL AND THE SAID BENEFIT WILL BE AVAILABLE FOR FIVE YEARS FROM THE DATE OF ESTABLISHMENT OF DISTILLERY UNIT. WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LEARN ED CIT(A) WITH RESPECT TO THIS ISSUE ALSO AS THIS SCHEME OF REIMBU RSEMENT OF COMMERCIAL TAXES (VAT) ON PURCHASE OF MOLASSES UNDE R BIHAR INCENTIVE PACKAGE 2006 IS SIMILAR TO SCHEME OF REIM BURSEMENT OF EXCISE DUTY UNDER BIHAR INCENTIVE PACKAGE 2006 AND WE HOLD THAT THIS IS A CAPITAL RECEIPT WHICH IS NOT CHARGEABLE TO TAX . WE ORDER ACCORDINGLY. 5.8 IT WAS FURTHER SUBMITTED THAT THE HONBLE ITAT KOLKATA BENCH IN CASE OF BUDGE BUDGE REFINERIES LTD. VS. DCIT ORDER DATED 14.10.2016 WHERE THE ASSESSEE RECEIVED INCENTIVE SUBSIDY IN FO RM OF REIMBURSEMENT OF 75% OF SALES TAX/VAT PAID ON THE SALE OF FINISHE D PRODUCTS UNDER THE WEST BENGAL INCENTIVE SCHEME 2000 ISSUED BY THE C OMMERCE AND INDUSTRIES DEPARTMENT, GOVERNMENT OF WEST BENGAL BY RELYING ON THE DECISION OF SUPREME COURT IN CASE OF CIT VS. PONNI SUGARS AND CHEMICALS LTD., CALCUTTA HIGH COURT IN CASE OF CIT VS. RASOI LTD. 335 ITR 438 AND VARIOUS OTHER DECISIONS HELD THAT THE INCEN TIVE SUBSIDY IN FORM OF REFUND/REIMBURSEMENT OF SALES TAX/VAT IS A CAPIT AL RECEIPT NOT CHARGEABLE TO TAX. 5.9 IT WAS FURTHER SUBMITTED THAT THE LD. CIT(A) HA S INCORRECTLY HELD THAT THE REVISED RETURN FILED BY THE ASSESSEE ON 21 .03.2011 IS NOT VALID AS IT IS FILED AFTER THE TIME LIMIT PERMISSIBLE UND ER THE IT ACT. IT IS SUBMITTED THAT THE TIME LIMIT AVAILABLE FOR FILING THE REVISED RETURN U/S 139(5) IS ONE YEAR FOR THE END OF THE RELEVANT ASSE SSMENT YEAR I.E. ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 47 31.03.2011 AND THEREFORE THE REVISED RETURN FILED B Y THE ASSESSEE IS AS PER LAW. FURTHER, NON-MENTIONING OF THE SUBSIDY AMO UNT AS CAPITAL RECEIPT IN FORM NO. 3CD BY THE AUDITOR IS NOT RELEV ANT TO DECIDE THE NATURE OF RECEIPT OF SUBSIDY. THE LD. CIT(A) HAS AD MITTED THAT THE PURPOSE OF SUBSIDY IS TO ENCOURAGE ALL ROUND DEVELO PMENT OF STATE BUT STILL HE TREATED IT AS A REVENUE SUBSIDY FOR THE RE ASON THAT IT IS LINKED TO THE PRODUCTION AND SALES MADE BY THE UNIT. IN HOLDI NG SO, HE IGNORED THE DECISION OF PURPOSE TEST LAID DOWN BY THE SUPREME C OURT IN CASE OF PONNI SUGARS AND CHEMICALS LTD. (SUPRA) WHERE IT IS CATEGORICALLY HELD THAT FORM OR THE MECHANISM THROUGH WHICH THE SUBSID Y IS GIVEN IS IRRELEVANT. ONCE, IT IS ACCEPTED, THAT THE PURPOSE OF SUBSIDY IS ALL ROUND DEVELOPMENT OF THE STATE, THE NATURE OF THE SUBSIDY CLEARLY IS A CAPITAL RECEIPT. IN VIEW OF ABOVE, THE AO BE DIRECTED TO AL LOW THE CLAIM OF THE ASSESSEE TO CONSIDER THE SUBSIDY RECEIVED BY IT AS CAPITAL RECEIPT. 5.10 BEFORE WE ADVERT TO CONTENTIONS RAISED BY BOTH THE PARTIES, IT WOULD BE RELEVANT TO REFER TO THE INDUSTRIAL INVES TMENT POLICY 2006 OF GOVERNMENT OF STATE OF BIHAR UNDER WHICH VAT REIMB URSEMENT HAS BEEN RECEIVED BY THE ASSESSEE. THE SALIENT FEATURE S OF THE SAID POLICY ARE REPRODUCED AS UNDER: INDUSTRIAL INCENTIVE POLICY BIHAR - 2006 SUBJECT: INCENTIVE POLICY 2006 FOR ACCELERATED INDU STRIAL GROWTH OF THE STATE TODAY THERE IS A REQUIREMENT TO PROVIDE A NEW INDUS TRIALIZED SHAPE FULL OF INDUSTRIES TO BIHAR STATE. THERE IS A NEED TO ES TABLISH NEW INDUSTRIES ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 48 AND TO REVIVE THE SICK AND CLOSED UNITS OF THE STAT E. FOR THIS PURPOSE FAVORABLE ENVIRONMENT SHOULD BE CREATED TO ATTRACT THE INVESTORS OF STATE AND FROM ABROAD. IN THIS CONNECTION THE INDUS TRIAL POLICY-2003 HAS BEEN REVIEWED. AFTER REVIEWING THE POLICY, A DECISI ON HAS BEEN TAKEN TO PREPARE A NEW INDUSTRIAL POLICY IN THE PRESENT CIRC UMSTANCES SO THAT THERE MAY BE A BALANCED INDUSTRIES GROWTH IN THE ST ATE. IN THE LIGHT OF THE AFORESAID FACTS A NEW INDUSTRIA L INCENTIVE POLICY- 2006 HAS BEEN PREPARED IN CONSULTATION WITH BIHAR INDUSTRIES ASSOCIATION, BIHAR CHAMBER OF COMMERCE, CONFEDERATI ON OF INDIAN INDUSTRY AND ALL CONCERNED GOVERNMENT DEPARTMENTS. IN THE PREPARATION OF THIS POLICY THE INDUSTRIAL POLICIES OF DIFFERENT STATES HAVE BEEN KEPT IN VIEW. UNDER THIS INDUSTRIAL INCENTIVE POLICIES-2006 THERE ARE PROVISIONS FOR GRANTING PREPRODUCTION INCENTIVE OF SUBSIDY/EX EMPTION FROM STAMP DUTY AND REGISTRATION FEE AND POST PRODUCTION INCEN TIVE OF GRANT/EXEMPTION FOR PREPARATION OF PROJECT REPORTS, PURCHASE OF LAND/SHED, TECHNICAL KNOW-HOW, CAPTIVE POWER GENERA TION/DIESEL GENERATING SET, QUALITY CERTIFICATE VAT, LUXURY TAX , ELECTRICITY DUTY, CONVERSION FEE, MARKET FEE ETC. WITH THE IMPLEMENTATION OF THIS INDUSTRIAL INCENTIV E POLICY- 2006, IT IS EXPECTED THAT THERE WILL BE GROWTH IN THE PE R CAPITA INCOME OF THE STATE AND INDUSTRIAL GROWTH AS WELL AS ACCELERATED EMPLOYMENT OPPORTUNITIES. 1.2 STRATEGY ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 49 (I) TO CREATE FAVORABLE CIRCUMSTANCES IN ORDER TO E STABLISH INDUSTRIES IN THE STATE SO THAT AMONG THE INVESTORS, THERE MAY BE POSITIVE COMMUNICATION. (II) BIHAR SINGLE WINDOW CLEARANCE ACT- 2006- TO PR OMOTE ALL ROUND DEVELOPMENT OF THE STATE AND INDUSTRIAL GROWTH RAP ID CLEARANCE PROCEDURES FOR ESTABLISHING INDUSTRIES, TO ISSUE LI CENSE AND CERTIFICATES, TO PROVIDE A CONGENIAL ATMOSPHERE TO THE INVESTORS OF BIHAR STATE AND IN THIS REGARD AND FOR OTHER CONCERNED SUBJECTS BIHAR SINGLE WINDOW CLEARANCE ACT-2006 HAS BEEN ENACTED. (III) BIHAR INFRASTRUCTURE DEVELOPMENT ENABLING AC T-2006- TO PROVIDE FOR RAPID DEVELOPMENT OF PHYSICAL AND SOCIAL INFRAS TRUCTURE IN THE STATE AND TO ATTRACT PRIVATE SECTOR PARTICIPATION AND TO PROVIDE FOR A COMPREHENSIVE LEGISLATION FOR DESIGNING, FINANCING, CONSTRUCTION, OPERATION, MAINTENANCE OF INFRASTRUCTURE PROJECTS, SO THAT ADMINISTRATIVE AND PROCEDURAL DELAYS ARE REDUCED, FOR IDENTIFYING GENERIC PROJECT RISKS, BIHAR INFRASTRUCTURE DEVELOPMENT ENABLING ACT, 2006 HAS BEEN ENACTED. (IV) IN ORDER TO SIMPLIFY THE INSPECTION OF FACTORI ES, PROVISION OF SELF- CERTIFICATION WILL BE MADE. (V) INDUSTRIAL GROWTH IS ADVERSELY AFFECTED DUE TO THE COMPLICATED LABOUR LAWS. SUCH LABOUR LAWS WILL BE MADE SIMPLE A ND DEVELOPMENT ORIENTED. (VI) HUMAN RESOURCES WILL BE DEVELOPED IN SUCH A W AY, WHICH CAN PROMOTE AND CREATE INDUSTRIALIZATION OF HIGH DEGREE . BESIDES EXISTING DIFFERENT INSTITUTIONS WILL BE STRENGTHENED TO IMPR OVE SKILL. ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 50 (VII) LAND BANK- TO MEET THE REQUIREMENT OF LAND FO R INDUSTRIES AND DEVELOPMENT SCHEMES, LAND BANK WILL BE ESTABLISHED IN THE STATE. BY THIS BANK, LAND WILL BE MADE AVAILABLE ACCORDING TO THE REQUIREMENTS TO DIFFERENT INDUSTRIES AND FOR DEVELOPMENT SCHEMES. (VIII) MARKETING ARRANGEMENTS WILL BE MADE FOR SMA LL, TINY, COTTAGE INDUSTRIES, HANDLOOM AND HANDICRAFT. (IX) FOR THE CREATION OF THE BASIC FACILITIES OF INTERNATIONAL LEVEL, TO ENHANCE CAPITAL INVESTMENT IN THE INDUSTRIAL AREAS AND INVITE THE PRIVATE SECTOR FOR INVESTMENT AND TO ENCOURAGE PUBLIC PRIVA TE PARTNERSHIP FOR THIS PURPOSE. (X) DEVELOPMENT OF INFRASTRUCTURE. (XI) IN ORDER TO REVIVE SICK UNITS, TO IDENTIFY SU CH UNITS AND TO SUGGEST NECESSARY REMEDIAL MEASURES AND TO PREVENT SICKNESS BY DEVELOPING A DISTRICT LEVEL MONITORING SYSTEM. (XII) TO DEVELOP HANDICRAFT, HANDLOOM, KHADI, SILK AND VILLAGE INDUSTRIES. INCENTIVES/EXEMPTION FACILITIES FOR INDUSTRIES IN B IHAR TO ACCELERATE INDUSTRIAL DEVELOPMENT AND TO ATTRACT IN VESTMENTS 1. PRE- PRODUCTION INCENTIVE: STAMP DUTY AND REGISTRATION FEE: TINY, SMALL, MEDI UM AND LARGE SCALE INDUSTRIES WHICH ARE TO BE ESTABLISHED IN THE INDUSTRIAL AREA/SHED AND OUTSIDE THE AREA OF THE AUTHORITY WILL ENJOY TH E FULL (100%) EXEMPTION IN STAMP DUTY AND REGISTRATION FEE IN LEA SE/SALE/TRANSFER. THIS ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 51 FACILITY WILL BE GRANTED ONLY FOR THE FIRST TIME AN D THEREAFTER WILL NOT BE GRANTED. 2. POST-PRODUCTION INCENTIVES (I) PROJECT-REPORT INCENTIVE: REIMBURSEMENT OF THE COST INCURRED IN THE PROJECT REPORT PREPARATION BY THE INDUSTRIAL UN ITS AT THE RATE OF 50% SUBJECT TO A MAXIMUM OF RS. 75,000/- WILL BE MADE A VAILABLE PROVIDED, THE PROJECT REPORT IS PREPARED BY ANY OF THE FIRMS RECOGNIZED BY THE INDUSTRIAL DEPARTMENT. THE REIMBURSEMENT WILL BE MA DE TO THE UNIT AFTER COMMENCEMENT OF THE PRODUCTION. (II) INCENTIVE GRANTED ON LAND/SHED: THE INDUSTRIA L UNITS LOCATED IN BIHAR INDUSTRIAL AREA DEVELOPMENT AUTHORITY/ EXPORT PROMOTION INDUSTRIAL PARK/FOOD PARK/ AGRI EXPORT ZONE WOULD B E ELIGIBLE FOR THE FOLLOWING INCENTIVE/ SUBSIDY. THESE FACILITIES/CON CESSION TO THE INDUSTRIAL UNITS WILL BE MADE AVAILABLE ONLY AFTER THE COMMENC EMENT OF PRODUCTION. SL. NO. INDUSTRIAL GRANT 1. SMALL/TINY UNITS/FINANCIAL LIMIT. 50% OR 7.50 LACS (MAXIMUM) 2. ALL LARGE/MEDIUM/MEGA UNITS/FINANCIAL UNITS 25% OR 15 LACS (MAXIMUM) (III) FINANCIAL ASSISTANCE FOR TECHNICAL-KNOW-HOW: IF AN ENTREPRENEUR OBTAINS TECHNICAL KNOW-HOW FROM ANY RECOGNIZED NAT IONAL RESEARCH CENTER/ LABORATORY OR INSTITUTION TO ESTABLISH OR T O EXPAND HIS INDUSTRY, HE WILL BE REIMBURSED 30% (MAXIMUM) RS. 15.00 LACKS ) OF THE FEE PAID ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 52 TO THE INSTITUTION/ORGANIZATION FOR THE TECHNICAL K NOW-HOW. THIS FACILITY WILL BE PROVIDED TO THE UNIT AFTER COMMENCEMENT OF PRODUCTION. (IV) INCENTIVE GRANT FOR CAPITAL INVESTMENT ON CAPT IVE POWER GENERATION/ DIESEL GENERATING SET.: 50% (FIFTY PERC ENT) OF THE AMOUNT SPENT ON PLANT AND MACHINERY IN THE ESTABLISHMENT OF CAPTIVE POWER GENERATION/DIESEL GENERATING SET WILL BE GRANTED TO THE INDUSTRY. NO UPPER LIMIT FOR THIS AMOUNT HAS BEEN FIXED. THIS FA CILITY WILL BE MADE AVAILABLE AFTER THE UNIT COMES INTO PRODUCTION. (V) NEW INDUSTRIAL UNITS WILL BE GRANTED RELIEF FR OM PAYMENT OF ELECTRICITY DUTY UNDER THE BIHAR ELECTRICITY DUTY A CT, 1948 FOR THE GENERATION AND FOR OWN CONSUMPTION OF ELECTRICITY F ROM D.G. SET AND CAPTIVE POWER UNITS. (VI) SUBSIDY/INCENTIVE ON VAT: THIS FACILITY WILL B E AVAILABLE TO SMALL/LARGE/MEDIUM INDUSTRIES. THE INDUSTRIAL UNIT WILL GET A PASSBOOK FROM THE STATE GOVERNMENT IN WHICH THE DETAILS OF T HE TAX PAID UNDER BIHAR VAT WOULD BE ENTERED AND VERIFIED BY THE COM MERCIAL TAXES DEPARTMENT IN THE FORM PRESCRIBED IN APPENDIX-III. THE DIRECTOR, INDUSTRIES WILL BE AUTHORIZED TO PAY THE INCENTIVE AMOUNT ON THE BASIS OF THE VERIFICATION. THE NEW UNITS WILL AVAIL 80% REIMBURSEMENT AGAINST THE ADMITTED VAT AMOUNT DEPOSITED IN THE ACCOUNT OF THE GOVERNME NT, FOR A PERIOD TO TEN YEARS. THE MAXIMUM SUBSIDY AMOUNT IS PAYABLE 30 0% OF THE CAPITAL INVESTED. CLARIFICATION: THE INCENTIVE WOULD NOT BE PAYABLE O N THE AMOUNTS IMPOSED AS PENALTY AND THE DIFFERENCE OF AMOUNT BE TWEEN TAX ASSESSED ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 53 AND ACCEPTED UNDER THE CENTRAL SALES TAX/BIHAR VALU E ADDED TAX ACT, 2005 AND BIHAR ENTRY TAX ACT. (VII) ZERO VAT: ZERO VAT MEANS THE PRODUCTION OF IT EMS, WHICH DO NOT ATTRACT VAT. SUCH UNITS WHICH PRODUCE ITEMS ATTRACT ING ZERO VAT AND PAY INCOME TAX WOULD BE ELIGIBLE FOR INCENTIVE UPTO A M AXIMUM UTILIZATION OF 70% OF THE INSTALLED CAPACITY (MAXIMUM LIMIT) AS PE R PARA (VI) ABOVE. INCENTIVE WILL BE PAYABLE AFTER THE INSPECTION/RECO MMENDATION BY A COMMITTEE CONSTITUTED UNDER THE CHAIRMANSHIP OF THE DIRECTOR INDUSTRIES ON THE BASIS OF INSPECTION AND RECOMMENDATION BY TE CHNICAL OFFICER OF THE DEPARTMENT. (VIII) BESIDES AFORESAID SUBSIDY/CONCESSIONS, THE F OLLOWING EXEMPTIONS WILL BE PROVIDED: A. 100% EXEMPTION FOR SEVEN YEARS IN LUXURY TAX FOR SEVEN YEARS. B. 100% EXEMPTION IN ELECTRICITY DUTY FOR SEVEN YEA RS. C. 100% EXEMPTION IN CONVERSION CHARGE. D. 100% EXEMPTION IN MARKET FEE FOR SEVEN YEARS. (IX) FACILITIES GRANTED FOR THE UNITS WORKING UNDER ADVERSE SITUATION: SUCH WORKING UNITS WHICH HAVE BEEN WORKING UNDER AD VERSE SITUATION FOR YEARS WILL BE REIMBURSED 25 PERCENT OF THE DEPOSITE D VAT AMOUNT IN THE ACCOUNT OF STATE GOVERNMENT AGAINST ADMITTED VAT AM OUNT. THIS REIMBURSEMENT WILL BE ADMISSIBLE FOR FIVE YEARS CON TINUOUSLY. (X) INDUSTRIAL REHABILITATION FUND: IN ORDER TO REV IVE THE SICK AND CLOSED INDUSTRY, WITH THE CO-OPERATION OF THE COMME RCIAL BANKS, THE ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 54 STATE GOVERNMENT AND BIHAR INDUSTRY ASSOCIATION, A CORPUS FUND WILL BE CREATED. (XI) S.C/S.T./WOMEN/HANDICAPPED: A. UNDER THIS CATEGORY, ENTREPRENEURS WILL AVAIL 5% ADDITIONAL GRANT/EXEMPTION/SUBSIDY THAN THE LIMIT FIXED UNDER THIS POLICY. B. UP TO A TURNOVER LIMIT OF RS. 30 LAKHS PER ANNUM S.C/S.T./WOMEN/HANDICAPPED CATEGORY ENTREPRENEURS W HO RUN SMALL AND TINY INDUSTRIES WILL AVAIL 100% SUBSIDY OF THE DEPOSITED AMOUNT IN THE ACCOUNT OF GOVERNMENT IN THE FORM OF VAT FOR A PERIOD OF TEN YEARS. (XII) EXEMPTION FROM AMG/MMG: WORKING UNITS AT PRE SENT AND NEW UNITS WILL AVAIL EXEMPTION FROM AMG/MMG FROM THE DA TE OF DECLARATION OF THE NEW INDUSTRIAL POLICY. THIS FACILITY WILL BE GR ANTED FOR FIVE YEARS. (XIII) CENTRAL SALES TAX (CST): ONLY 1% CST WILL BE PAYABLE ON THE ITEMS PRODUCED BY THE REGISTERED SMALL AND MEDIUM UNITS I N BIHAR. 5.11 WE NOW REFER TO DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN CASE OF RELIANCE INDUSTRIES LTD. (SUPRA) WHEREIN SALES TAX INCENTIVE WAS HELD IN THE NATURE OF CAPITAL RECEIPT AND NOT LIABLE TO TAX. THE SAID DECISION WAS SUBSEQUENTLY RELIED UPON BY ANOTHER CO ORDINATE BENCH IN CASE OF RELIANCE INDUSTRIES FOR A SUBSEQUENT YEAR A ND THE SAID LATTER DECISION HAS BEEN CHALLENGED BY THE REVENUE BEFORE THE MUMBAI HIGH COURT WHEREIN IT HAS DECLINED TO ADMIT THE SUBSTANT IAL QUESTION OF LAW. THE SAID DECISION HAS SINCE BEEN THE SUBJECT MATTER OF SLP BEFORE THE HONBLE SUPREME COURT WHEREIN IT WAS HELD THAT HON BLE HIGH COURT OUT NOT TO HAVE DISMISSED THE APPEAL WITHOUT CONSIDERIN G THE FOLLOWING ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 55 QUESTIONS WHICH DID ARISE FOR CONSIDERATION. THE M ATTER WAS ACCORDINGLY REMITTED BACK TO THE HONBLE HIGH COURT TO DECIDE THE FOLLOWING QUESTION WHETHER, ON THE FACTS AND IN THE CIRCUMST ANCES OF THE CASE AND IN LAW, THE TRIBUNAL WAS RIGHT IN HOLDING THAT SALES TAX INCENTIVE IS A CAPITAL RECEIPT? 5.12 DURING THE COURSE OF HEARING, IT WAS INFORMED BY THE LD AR THAT HONBLE BOMBAY HIGH COURT HAS NOT DECIDED THE MATTE R A FRESH AND THEREFORE AS ON DATE, THE DECISION OF THE SPECIAL B ENCH OF THE TRIBUNAL CONTINUE TO HOLD GOOD AND RELIED UPON BY THE ASSESS EE COMPANY. FURTHER, THE LD AR ALSO DRAWN OUR REFERENCE TO THE SUBMISSIONS MADE BEFORE THE LD CIT(A) WHEREIN THE ASSESSEE HAS DISCU SSED THE COMPARATIVE FEATURES OF THE MAHARASHTRA SALES TAX I NCENTIVE SCHEME 1979 AND 2006 SCHEME OF BIHAR GOVT AS UNDER: 6 WHILE DECIDING THE ABOVE APPEAL BY SPECIAL BENCH OF INCOME TAX APPELLATE TRIBUNAL, BENCH MUMBAI, THE BENCH HAS LAI D EMPHASIS UPON THE OBJECT AND PURPOSE OF THE INCENTIVE SCHEME, WHE RE-UNDER THE ASSESSEE COMPANY HAS RECEIVED THE INCENTIVE. THE IN COME TAX APPELLATE TRIBUNAL BENCH-MUMBAI, HAD OCCASION TO CONSIDER THE MAHARASHTRA SALES TAX INCENTIVE SCHEME 1979 AND COMPARATIVE SALIENT FEATURES OF THE SAID SCHEME AND THE SCHEME OF BIHAR GOVT., WHEREUNDER T HE ASSESSEE COMPANY HAS RECEIVED THE INCENTIVE ARE AS UNDER:- SALIENT FEATURES 1979 SCHEME OF MAHARASHTRA GOVT. 2006 SCHEME OF BIHAR GOVT. OBJECT OF SUBSIDY PROMOTION OF 1. FOR BALANCED INDU STRIAL ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 56 (SEE PREAMBLE) INDUSTRIALIZATION IN BACKWARD AREAS OF THE STATE OF MAHARASHTRA THROUGH SCHEME OF INCENTIVES. GROWTH AS WELL AS ACCELERATED EMPLOYMENT OPPORTUNITY OF THE BIHAR STATE. 2. TO PROMOTE ALL ROUND DEVELOPMENT OF THE STATE AND INDUSTRIAL GROWTH AND RAPID CLEARANCE PROCEDURES FOR ESTABLISHING INDUSTRIES. 3. TO PROVIDE FOR RAPID DEVELOPMENT OF PHYSICAL AND SOCIAL INFRASTRUCTURE IN THE STATE. 4. TO ADDRESS THE INFRASTRUCTURE, TECHNOLOGY SKILL, SETTING UP OF NEW FOOD PROCESSING UNITS AND ALSO ADD IN EXPANSION AND UP GRADATION OF EXISTING INDUSTRIES. GRANTING OF ELIGIBILITY CERTIFICATE FROM SICOM (IMPLEMENTING EFFECTIVE FROM DATE OF COMMENCEMENT OF COMMERCIAL PRODUCTION/. EFFECTIVE FROM DATE OF COMMENCEMENT OF COMMERCIAL PRODUCTION/. ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 57 AUTHORITY) MODE OF DISBURSEMENT OF SALES TAX INCENTIVE 1. BY WAY OF EXEMPTION OF PURCHASE TAX, SALES TAX ON PURCHASE OF RAW MATERIALS, SALES TAX PAYABLE ON SALE OF FINISHED GOODS, CST ON SALE OF FINISHED GOODS AS A % OF FIXED CAPITAL INVESTMENT. 2. BY WAY OF INTEREST FREE UNSECURED LOANS OR REFUNDS. 1. BY WAY OF REIMBURSEMENT OF VAT AMOUNT DEPOSITED IN THE ACCOUNT OF THE GOVT. AS % OF FIXED CAPITAL INVESTMENT. YOUR HONOUR WILL OBSERVE WHILE GOING THROUGH THE A BOVE COMPARATIVE TABLE, THAT BOTH THE SCHEME VIZ. 1979 S CHEME AND 2006 SCHEME ARE MATERIALLY STANDS ON THE SAME FOOTING A ND THE DECISION GIVEN WITH REFERENCE TO THE 1979 SCHEME FINDS ITS A PPLICABILITY TO THE CASES COVERED BY THE 2006 SCHEME OF THE BIHAR GOVT. 7 THE STATE OF MAHARASHTRA HAS ALSO FORMED PACKAGE D SCHEME OF INCENTIVE FROM TIME TO TIME TO GRANT SALES TAX EXEM PTION AND OTHER FISCAL BENEFITS TO NEW AND EXISTING INDUSTRIES FOR SETTING UP UNITS IN ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 58 UNDEVELOPED AND UNDER-DEVELOPED REGIONS. IN THE PRE AMBLE TO THE SALES TAX INCENTIVE SCHEME THERE IS A SUFFICIENT POINTER THAT THE INCENTIVE UNDER THE 1979 SCHEME IS GIVEN TO ENCOURAGE THE SET TING-UP OF NEW INDUSTRIAL UNITS DURING A PARTICULAR PERIOD IN CERT AIN BACKWARD AREAS OF MAHARASHTRA AS WELL AS FOR DISPERSAL OF THE INDUSTR IES. THE OBJECT OF THE 2006 SCHEME OF BIHAR GOVT. ALSO STANDS IN AGREEMENT WITH THE OBJECT OF THE 1979 MAHARASHTRA GOVT. SCHEME AS IS EVIDENT FRO M THE COPY OF THE SCHEME ENCLOSED WHEREIN THE MAXIMUM QUANTUM OF INCE NTIVE IS RESTRICTED TO 300% OF THE CAPITAL INVESTED. THIS LI NKAGE OF INCENTIVE WITH THE CAPITAL INVESTMENT IS A POINTER TO THE INTENTIO N OF THE BIHAR GOVT., THAT THEY INTEND TO REFUND BACK THE CAPITAL INVEST MENT MADE BY THE ENTREPRENEUR OVER A PERIOD OF TIME. ON THE NATURE OF SUBSIDY GRANTED UNDER THE 1979 SCHEME PROPER THE SPECIAL BENCH OF T HE MUMBAI INCOME-TAX APPELLATE TRIBUNAL HAS HELD IN DEPUTY CI T V. RELIANCE INDUSTRIES LTD. (2005) 273 ITR (AI) 16 THAT THE SA LES TAX INCENTIVE ALLOWED IN TERMS OF THE RELEVANT SCHEME I.E. 1979 C ONSTITUTES CAPITAL RECEIPT AND IS NOT TO BE TAKEN INTO ACCOUNT IN COMP UTATION OF TOTAL INCOME. 5.13 IN LIGHT OF ABOVE, WE NOW REFER TO THE FINDING S OF THE SPECIAL BENCH OF THE TRIBUNAL IN RELIANCE INDUSTRIES AS UND ER: 28. THE QUESTION FOR CONSIDERATION IS WHETHER THE TRIBUNAL IN THE CASE OF RELIANCE INDUSTRIES LTD. (SUPRA) HAD CORRECTLY A PPRECIATED AND INTERPRETED THE RATIO OF THE DECISION OF THE SUPREM E COURT IN SAHNEY STEEL & PRESS WORKS LTD.'S CASE (SUPRA). ON A CAREF UL READING OF THE ORDER OF THE TRIBUNAL IN THE CASE OF RELIANCE INDUS TRIES LTD. (SUPRA), IT APPEARS TO US THAT THE RATIO OF THE JUDGMENT IN SAH NEY STEEL & PRESS ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 59 WORKS LTD.S CASE (SUPRA) HAS BEEN CORRECTLY INTERP RETED AND APPRECIATED BY THE BENCH. IT MAY BE RECALLED THAT THE ASSESSEE BEFORE THE SUPREME COURT RECEIVED THE AMOUNT AS SUBSIDY UNDER THE ANDH RA PRADESH SCHEME, ONE OF THE SALIENT FEATURES OF WHICH, AS NO TED BY THE SUPREME COURT AT PAGE 257 OF THE REPORT, WAS THAT 'THE SCHE ME WAS NOT TO MAKE ANY PAYMENT DIRECTLY OR INDIRECTLY FOR THE SETTING UP OF THE INDUSTRIES'. UNDER THE ANDHRA SCHEME, IT WAS ONLY AFTER THE INDU STRIES HAD BEEN SET UP AND PRODUCTION HAD BEEN COMMENCED THAT THE INCEN TIVES WERE TO BE GIVEN BY WAY OF REFUND OF SALES TAX AND BY WAY OF S UBSIDY ON POWER CONSUMED FOR PRODUCTION. AT PAGE 261, THE SUPREME C OURT NOTICED THAT IN THE CASE BEFORE THEM, 'PAYMENTS WERE MADE ONLY A FTER THE INDUSTRIES HAVE BEEN SET UP' AND IN THE VERY NEXT SENTENCE OBS ERVED THAT 'PAYMENTS ARE NOT BEING MADE FOR THE PURPOSE OF SET TING UP OF THE INDUSTRIES'. THE CONTRAST BETWEEN THE TWO HAS BEEN BROUGHT OUT IN THIS PARAGRAPH. THE SUPREME COURT ALSO NOTED THAT THE PO WER SUBSIDY UNDER THE ANDHRA SCHEME WAS CONFINED TO THE POWER THAT WA S CONSUMED FOR PRODUCTION AND IF ANY POWER IS CONSUMED FOR SETTING UP THE PLANT AND MACHINERY, THE INCENTIVE WAS NOT TO BE GIVEN. THE S UPREME COURT HELD THAT SUCH SUBSIDIES WERE OPERATIONAL SUBSIDIES AND WERE GIVEN 'TO ENCOURAGE SETTING UP OF INDUSTRIES IN THE STATE OF ANDHRA PRADESH BY MAKING THE BUSINESS OF PRODUCTION AND SALE OF GOODS IN THE STATE MORE PROFITABLE'. IT IS IN THIS BACKGROUND THAT WE WILL HAVE TO CONSIDER THE FURTHER OBSERVATIONS OF THE SUPREME COURT AT PAGES 262-263 OF THE REPORT, WHICH WE HAVE EXTRACTED IN THE PRECEDING PA RAGRAPH. THESE OBSERVATIONS, IN OUR HUMBLE UNDERSTANDING OF THE JU DGMENT, CONSTITUTE THE RATIO OF THE JUDGMENT. IT IS HERE THAT THE SUPR EME COURT HAS LAID DOWN THE FOLLOWING PRINCIPLES : ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 60 (1) THE CHARACTER OF THE SUBSIDY (WHETHER REVENUE O R CAPITAL) IN THE HANDS OF THE RECIPIENT WILL HAVE TO BE DETERMINED B Y HAVING REGARD TO THE PURPOSE FOR WHICH THE SUBSIDY IS GIVEN. (2) IF THE SUBSIDY IS GIVEN AS ASSISTANCE TO THE AS SESSEE IN THE CARRYING ON OF HIS TRADE OR BUSINESS, IT IS A TRADING RECEIP T. (3) IN DETERMINING THE CHARACTER OF THE SUBSIDY, TH E SOURCE OF THE FUND IS IMMATERIAL. THE SUPREME COURT ITSELF GAVE AN EXAMPLE TO DEMONST RATE HOW THE RATIO IS TO BE APPLIED. THE SUPREME COURT SUPPOSED THAT IF UNDER THE SCHEME, THE ASSESSEE OBTAINED A REFUND OF SALES TAX ON PURCHASE OF MACHINERY AS WELL AS ON RAW MATERIALS TO ENABLE THE ASSESSEE TO ACQUIRE NEW PLANT AND MACHINERY FOR FURTHER EXPANSION OF IT S MANUFACTURING CAPACITY IN A BACKWARD AREA, THE ENTIRE SUBSIDY WOU LD BE CAPITAL RECEIPT. THIS EXAMPLE DEMONSTRATES THE APPLICABILITY OF THE FIRST PRINCIPLE VIZ., THAT IT IS THE OBJECT OR PURPOSE FOR WHICH THE SUBS IDY IS GIVEN THAT IS DETERMINATIVE OF ITS CHARACTER IN THE ASSESSEES HA NDS. THE OBJECT OF THE SUBSIDY, IN THE EXAMPLE GIVEN, BEING FOR A CAPITAL PURPOSE, THE SUBSIDY ALSO FELL TO BE CONSIDERED AS CAPITAL RECEIPT. THE FIRST PRINCIPLE WAS EMPHASIZED AGAIN BY THE SUPREME COURT BY REFERRING TO THE JUDGMENT OF THE HOUSE OF LORDS IN SEAHAM HARBOUR DOCK CO.S CAS E (SUPRA) AND BY GIVING THAT CASE AS EXAMPLE, WHERE THE SUBSIDY WAS GIVEN WITH THE OBJECT OF HELPING THE ASSESSEE TO SET UP ITS BUSINE SS OR COMPLETE A PROJECT. SINCE THIS IS A CAPITAL PURPOSE, THE SUBSI DY WAS HELD TO BE CAPITAL. THE THIRD PRINCIPLE THAT THE SOURCE OF THE FUND WAS NOT DETERMINATIVE OF THE QUESTION WAS DEMONSTRATED BY T HE SUPREME COURT IN THE SAME EXAMPLE. IT NOTED THAT BOTH IN THE CASE OF REFUND OF SALES ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 61 TAX PAID ON RAW MATERIALS AND FINISHED PRODUCTS, TH E GOVERNMENT WAS PAYING OUT OF PUBLIC FUNDS TO THE ASSESSEE FOR A DE FINITE PURPOSE, VIZ., THE EXPANSION OF ITS CAPACITY. THUS, THE SUPREME CO URT DEMONSTRATED THE PRINCIPLE THAT IT IS THE OBJECT OF THE SUBSIDY THAT MUST BE GIVEN PRIMACY OVER THE SOURCE OF THE FUND. THE SECOND-PRI NCIPLE WAS DEMONSTRATED BY OBSERVING THAT IF ANY MONIES ARE GI VEN TO THE ASSESSEE FOR ASSISTING HIM IN CARRYING OUT THE BUSINESS OPER ATIONS AND WHERE THE MONEY IS GIVEN ONLY AFTER AND CONDITIONAL UPON COMM ENCEMENT OF PRODUCTION, IT SHOULD BE TREATED AS REVENUE RECEIPT . THE SCHEME FRAMED BY THE GOVERNMENT OF MAHARASHTRA IN 1979 AND FORMUL ATED BY ITS RESOLUTION DATED 5-1-1980 HAS BEEN ANALYSED IN DETA IL BY THE TRIBUNAL IN ITS ORDER IN RIL FOR THE ASSESSMENT YEAR 1985-86 WH ICH WE HAVE ALREADY REFERRED TO IN EXTENSO. ON AN ANALYSIS OF THE SCHEM E, THE TRIBUNAL HAS COME TO THE CONCLUSION THAT THE THRUST OF THE SCHEM E IS THAT THE ASSESSEE WOULD BECOME ENTITLED FOR THE SALES TAX IN CENTIVE EVEN BEFORE THE COMMENCEMENT OF THE PRODUCTION, WHICH IMPLIES T HAT THE OBJECT OF THE INCENTIVE IS TO FUND A PART OF THE COST OF THE SETTING UP OF THE FACTORY IN THE NOTIFIED BACKWARD AREA. THE TRIBUNAL HAS, AT MORE THAN ONE PLACE, STATED THAT THE THRUST OF THE MAHARASHTRA SCHEME WA S THE INDUSTRIAL DEVELOPMENT OF THE BACKWARD DISTRICTS AS WELL AS GE NERATION OF EMPLOYMENT THUS ESTABLISHING A DIRECT NEXUS WITH TH E INVESTMENT IN FIXED CAPITAL ASSETS. IT HAS BEEN FOUND THAT THE ENTITLEM ENT OF THE INDUSTRIAL UNIT TO CLAIM ELIGIBILITY FOR THE INCENTIVE AROSE E VEN WHILE THE INDUSTRY WAS IN THE PROCESS OF BEING SET UP. ACCORDING TO TH E TRIBUNAL, THE SCHEME WAS ORIENTED TOWARDS AND WAS SUBSERVIENT TO THE INVESTMENT IN FIXED CAPITAL ASSETS. THE SALES TAX INCENTIVE WAS E NVISAGED ONLY AS AN ALTERNATIVE TO THE CASH DISBURSEMENT AND BY ITS VER Y NATURE WAS TO BE ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 62 AVAILABLE ONLY AFTER PRODUCTION COMMENCED. THUS, IN EFFECT, IT WAS HELD BY THE TRIBUNAL THAT THE SUBSIDY IN THE FORM OF SAL ES TAX INCENTIVE WAS NOT GIVEN TO THE ASSESSEE FOR ASSISTING IT IN CARRY ING OUT THE BUSINESS OPERATIONS. THE OBJECT OF THE SUBSIDY WAS TO ENCOUR AGE THE SETTING UP OF INDUSTRIES IN THE BACKWARD AREA. 29. THUS, THE INTERPRETATION OF THE TRIBUNAL, OF T HE RATIO LAID DOWN IN THE JUDGMENT OF THE SUPREME COURT IN SAHNEY STEEL & PRESS WORKS LTD.S CASE (SUPRA) CANNOT BE STATED TO BE ERRONEOUS. THE TRIBUNAL DID RECOGNISE, AS THE SUPREME COURT ITSELF RECOGNISED, THAT THE OBJECT WITH WHICH THE SUBSIDY WAS GIVEN IS DECISIVE. IT DID REC OGNISE, FOLLOWING THE DISTINCTION POINTED OUT BY THE SUPREME COURT THAT I F THE SUBSIDY IS GIVEN FOR SETTING UP OR EXPANSION OF THE INDUSTRY IN A BA CKWARD AREA, IT WILL BE CAPITAL, IRRESPECTIVE OF THE MODALITY OR THE SOURCE OF FUNDS THROUGH OR FROM WHICH IT IS GIVEN AND THAT IF MONIES ARE GIVEN FOR ASSISTING THE ASSESSEE IN CARRYING OUT THE BUSINESS OPERATIONS ON LY AFTER, AND CONDITIONAL UPON, THE COMMENCEMENT OF PRODUCTION, I T WOULD BE REVENUE. IT WAS ONLY FOR THE PURPOSE OF BRINGING OU T THIS DISTINCTION THAT THE TRIBUNAL HAD ANALYSED THE FEATURES OF THE MAHAR ASHTRA SCHEME OF 1979 AND HAD COME TO THE CONCLUSION THAT THE SUBSID Y GIVEN UNDER THE SCHEME HAD A DIRECT NEXUS WITH THE FIXED CAPITAL IN VESTMENT AND THAT IT COULD NOT BE SAID THAT THE SUBSIDY WAS GIVEN WITH T HE OBJECT OF ASSISTING OR LENDING A HELPING HAND TO THE ASSESSEE IN ITS BU SINESS OPERATIONS. THE TRIBUNAL ALSO TOOK THE VIEW THAT SINCE THE MADHYA P RADESH SCHEME WAS FOUND BY THE SUPREME COURT IN SAHNEY STEEL & PRESS WORKS LTD.S CASE (SUPRA) TO BE MORE OR LESS IN THE SAME GENRE AS THE ANDHRA PRADESH SCHEME, IT OBSERVED AT PAGE 267 OF THE REPORT SAHNE Y STEEL & PRESS WORKS LTD.S CASE (SUPRA), VIS-A-VIS THE MADHYA PRA DESH SCHEME AND ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 63 WHILE OVERRULING THE JUDGMENT OF THE M.P. HIGH COUR T IN DUSAD INDUSTRIESS CASE (SUPRA), THAT MERE SETTING UP OF THE INDUSTRY DID NOT QUALIFY AN INDUSTRIALIST FOR GETTING ANY SUBSIDY AN D THAT THE SUBSIDY WAS GIVEN AS HELP NOT FOR SETTING UP OF THE INDUSTRY WH ICH WAS ALREADY THERE, BUT AS AN ASSISTANCE AFTER THE INDUSTRY COMMENCED P RODUCTION. THIS ASPECT OF THE MATTER HAS BEEN NOTED BY THE TRIBUNAL IN CASE OF RELIANCE INDUSTRIES LTD. ( SUPRA) IN PARA 112 OF ITS ORDER. IN THE SAME PARAGRAPH, IT HAS ALSO BEEN NOTED BY THE TRIBUNAL THAT DUSAD I NDUSTRIES CASE (SUPRA) (ASSESSEE BEFORE THE MADHYA PRADESH HIGH CO URT) HAD COMMENCED PRODUCTION ON 5-1-1973, MUCH BEFORE THE G OVERNMENT MEMORANDUM SANCTIONING THE SCHEME HAD BEEN ISSUED O N 30-8-1973. THE TRIBUNAL HAS FURTHER NOTED THAT UNDER THE M.P. SCHEME, AN ASSESSEE COULD SEEK ELIGIBILITY ONLY AFTER HAVING COMMENCED PRODUCTION, WHEREAS UNDER THE MAHARASHTRA SCHEME, AN ASSESSEE COULD SEE K ELIGIBILITY IMMEDIATELY UPON HAVING TAKEN SOME INITIAL STEPS TO WARDS SETTING UP OF THE INDUSTRIAL UNIT. 30. THE TRIBUNAL WAS THUS AWARE OF THE DISTINCTION BETWEEN THE SUBSIDY GIVEN WITH THE OBJECT OF SETTING UP THE IND USTRY AND THE SUBSIDY GIVEN AFTER THE INDUSTRY COMMENCES PRODUCTION AND C ONDITIONAL UPON THE COMMENCEMENT OF PRODUCTION. FACTUALLY, THE TRIBUNAL FOUND THAT THE ASSESSEES CASE WHICH FELL UNDER THE MAHARASHTRA SC HEME, WAS A CASE WHERE THE SUBSIDY WAS GIVEN FOR THE PURPOSE OF FACI LITATING THE ASSESSEE TO SET UP AN INDUSTRY IN PATALGANGA, RAIGAD DISTRIC T, WHICH IS A NOTIFIED AREA. THE ACTUAL DISBURSEMENT TOOK PLACE AFTER THE ASSESSEE COMMENCED PRODUCTION, BUT, ACCORDING TO THE TRIBUNAL, IT WAS ONLY A MODE OF DISBURSEMENT AND HAD NOTHING TO DO WITH THE OBJECT FOR WHICH THE SUBSIDY WAS GIVEN. IN PARAGRAPH 115 AT THE BOTTOM O F PAGE 121 OF ITS ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 64 ORDER (PAGE 336 OF THE PAPERBOOK NO. 1), THE TRIBUN AL OBSERVED AS FOLLOWS : 'ON A DETAILED CONSIDERATION OF VARIOUS SCHEMES OF GOVERNMENT OF MAHARASHTRA AND 1979 SCHEME IN PARTICULAR, WE FIND THAT THE INVESTMENT IN FIXED CAPITAL ASSETS IS NOT MERELY A MEASURE OF THE AMOUNT OF INCENTIVE. THE ENTIRE SCHEME OF INCENTIVE HAS BEEN ORIENTED AND IS SUBSERVIENT TO INVESTMENT IN FIXED CAPITAL ASSETS IN THE SPECIFIED DISTRICTS OF THE STATE. THE IMPORTANCE OF THIS ASPECT HAS BEEN EMPHASISED IN THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF SAHNEY STEEL AND PRESS WORKS LTD. ITSELF AT PAGE 263 IN THE FOLLOWING WORDS...............' THUS, WE FIND THAT THE TRIBUNAL DID NOTICE THE CRUC IAL OBSERVATIONS OF THE SUPREME COURT IN SAHNEY STEEL & PRESS WORKS LTD .S CASE (SUPRA) WHICH GAVE PRIMACY TO THE OBJECT OF THE SUBSIDY OVE R THE FACT THAT IT WAS GIVEN AFTER THE COMMENCEMENT OF PRODUCTION. 31. IN THE SAME PARAGRAPH, IN PAGE 123 OF THE ORDE R (PAGE 338 OF THE PAPERBOOK NO.1), THE TRIBUNAL NOTED AS UNDER : 'IN OUR VIEW, THE MERE FACT THAT THE AMOUNT OF INCE NTIVE WAS ALLOWED TO THE ASSESSEE AFTER THE PURCHASE AND INSTALLATION OF PLANT AND NOT BEFORE HAND CANNOT DEFLECT FROM THE ESSENTIAL POSIT ION OF THE MAHARASHTRA SCHEME, THAT THE PAYMENT IS BY VIRTUE O F AND TO THE EXTENT OF INVESTMENT MADE IN THE FIXED ASSETS. IT I S A FACT OF LIFE OF THE SETTING UP OF INDUSTRIES IN THE MODERN ERA THAT THE COST OF MACHINERY AND PLANT, ETC., ARE GENERALLY DEFRAYED BY WAY OF R EPAYMENT OF BORROWINGS FROM OUT OF THE INTERNAL ACCRUALS OF THE INDUSTRY DURING THE COURSE OF ITS BUSINESS OPERATIONS. EVEN THE ASS ESSEE BEFORE US IN ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 65 ITS APPLICATION DATED 16-12-1980 SUBMITTED TO SICOM THAT THE AGGREGATE COST OF PROJECT ESTIMATED AT RS. 66.21 CR ORES WAS PROPOSED TO BE MET BY THE FOLLOWING MEANS OF FINANCE : SHARE CAPITAL AND INTERNAL CASH ACCRUALS 1,350 RUPEE LOANS/DEBENTURES 2,576 FOREIGN CURRENCY LOAN 2,695 TOTAL 6,621 SALES TAX INCENTIVE WHICH HAS BEEN ENVISAGED IN THE MAHARASHTRA SCHEME AS AN ALTERNATIVE TO CASH DISBURSEMENT, BY I TS VERY NATURE COULD BE AVAILABLE TO THE ASSESSEE ONLY AFTER THE PRODUCT ION HAD COMMENCED. SECONDLY, IT OBVIOUSLY MADE GREAT SENSE FROM THE PO INT OF VIEW OF THE STATE TO ENSURE THAT THE INCENTIVE WAS GIVEN TO A G ENUINE PROJECT AND NOT MERELY TO THE PROJECTS ON PAPER ONLY.' 32. IN THE VERY NEXT PARAGRAPH, I.E., IN PARAGRAPH 116, THE TRIBUNAL AGAIN REFERRED TO THE OBSERVATIONS IN SAHNEY STEEL & PRESS WORKS LTD.S CASE (SUPRA) AT PAGES 260-261 OF THE REPORT AND HEL D AS FOLLOWS : '116. WE ARE OF THE VIEW THAT THE FACT THAT THE ASS ESSEE BEFORE US APPLIED FOR INCENTIVE AT THE STAGE OF BLUE PRINT OF THE PROJECT AND OBTAINED FROM THE STATE GOVERNMENT A LETTER OF INTE NT INDICATING IMPLEMENTING AGENCYS WILLINGNESS TO GRANT INCENTIV E TO THE ASSESSEE GOES A LONG WAY TO ESTABLISH THAT THE ASSESSEE APPL IED FOR AND OBTAINED THE INCENTIVE ON ACCOUNT OF ITS FIXED CAPI TAL INVESTMENT. WE FIND STRONG SUPPORT TO THIS FINDING FROM THE FOLLOW ING OBSERVATIONS OF HONBLE SUPREME COURT IN THE CASE OF SAHNEY STEEL A ND PRESS WORKS LTD. AT PAGES 260-261 : MR. GANESH STRONGLY RELIED ON SEAHAM HARBOUR DOCK C O.S CASE [1931] 16 TC 333 (HL) WHICH DOES NOT COME TO THE AS SISTANCE OF HIS ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 66 CONTENTION IN ANY WAY. IN THAT CASE APPLICATION FOR ASSISTANCE WAS MADE EVEN BEFORE THE WORK OF EXPANSION OF DOCK COMM ENCED. THE MONEY WAS FOR EXTENSION OF THE DOCKS OF THE COMPANY . THE EXTENSION WOULD HAVE ENABLED SOME PERSONS TO BE KEPT IN EMPLO YMENT WHO WOULD OTHERWISE HAVE LOST THEIR JOBS. MONEY WAS GIV EN FOR THE EXPRESS PURPOSE WHICH WAS NAMED. IT WAS FOUND BY TH E HOUSE OF LORDS THAT IT HAD NOTHING TO DO WITH THE TRADING OF THE COMPANY.' 33. THE ABOVE OBSERVATIONS OF THE TRIBUNAL MADE ON THE BASIS OF THE OBSERVATIONS OF THE SUPREME COURT IN SAHNEY STEEL & PRESS WORKS LTD.S CASE (SUPRA) ALSO SHOW THAT THE TRIBUNAL WAS ALIVE TO THE DISTINCTION BETWEEN THE CHARACTER OF THE SUBSIDY GIVEN WITH THE OBJECT OF PROMOTING INDUSTRIAL GROWTH IN A PARTICULAR AREA AND THE SUBS IDY GIVEN CONDITIONAL UPON THE COMMENCEMENT OF PRODUCTION AND AFTER ACTUA L COMMENCEMENT OF PRODUCTION. IN OUR OPINION ALSO, IT IS NOT CORRE CT TO UNDERSTAND THE JUDGMENT AS LAYING DOWN THE BROAD PROPOSITION THAT WHEREVER THE SUBSIDY IS GIVEN AFTER THE COMMENCEMENT OF PRODUCTI ON AND CONDITIONAL UPON THE SAME, IT SHOULD BE TREATED AS A REVENUE RE CEIPT IN THE HANDS OF THE ASSESSEE, IRRESPECTIVE OF THE OBJECT FOR WHICH THE SUBSIDY WAS GRANTED. THE OBJECT FOR WHICH THE SUBSIDY IS GRANTE D, IN OUR OPINION ALSO, TAKES PRIMACY OVER THE FACT THAT IT WAS GIVEN AFTER THE COMMENCEMENT OF PRODUCTION AND CONDITIONAL UPON THE SAME. THAT THE SUPREME COURT ITSELF RECOGNISED THIS POSITION HAS BEEN AMPLY MADE CLEAR IN ITS OBSERVATIONS MADE AT PAGES 262-263 OF THE REPORT. 34. WITH GREAT RESPECT, WE ARE THEREFORE UNABLE TO SHARE THE OPINION EXPRESSED IN BAJAJ AUTO LTD.S CASE (SUPRA) THAT TH E TRIBUNAL IN ITS ORDER IN THE CASE OF RELIANCE INDUSTRIES LTD. (SUPRA) FOR THE ASSESSMENT YEAR ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 67 1985 86 DID NOT CORRECTLY INTERPRET THE RATIO LAID DOWN BY THE SUPREME COURT IN SAHNEY STEEL & PRESS WORKS LTD.S CASE (SU PRA). 37. IN THE PAPERBOOK FILED BY THE DEPARTMENT CONTA INING THE ABOVE JUDGMENTS, WE NOTICED A JUDGMENT OF THE MADRAS HIGH COURT IN CIT V. PONNI SUGARS & CHEMICALS LTD. [2003] 260 ITR 605 . IN THIS CASE, THE ASSESSEE RECEIVED TWO TYPES OF SUBSIDIES. ONE WAS U NDER A SCHEME OF THE GOVERNMENT FRAMED WITH THE OBJECT OF AUGMENTING INDIGENOUS SUGAR PRODUCTION AND TO PROVIDE INCENTIVES TO NEW SUGAR F ACTORIES AND EXPANSION PRODUCTS. THE SCHEME ENABLED THE ENTREPRE NEUR TO INITIALLY FUND THE CAPITAL COST BY OBTAINING LOANS FROM PUBLI C FINANCIAL INSTITUTIONS AND DISCHARGING THEM WITH THE HELP OF THE INCENTIVE S AFTER THE COMMENCEMENT OF PRODUCTION. THE INCENTIVES WERE PRO VIDED EXCLUSIVELY FOR THE PURPOSE OF REPAYMENT OF LOANS FOR MEETING T HE CAPITAL COSTS. THESE INCENTIVES WERE HELD BY THE HIGH COURT TO BE CAPITAL IN NATURE. THE OTHER TYPE OF INCENTIVES WAS THE SUBSIDY WHICH WAS LINKED TO THE PURCHASE TAX AND WAS IN NO WAY LINKED TO THE EXPEND ITURE INCURRED IN SETTING UP THE SUGAR INDUSTRY. THE OBJECT OF THE SU BSIDY WAS TO GIVE A CONCESSION TO THE ASSESSEE FOR MEETING THE COST OF RUNNING THE BUSINESS AFTER PRODUCTION. THERE WAS ALSO NO CONDITION TO TH E EFFECT THAT THE SUBSIDY SHALL BE USED FOR A PARTICULAR PURPOSE ONLY . IN THESE CIRCUMSTANCES, THE HIGH COURT HELD THAT THIS SUBSID Y WAS A TRADING RECEIPT IN THE HANDS OF THE ASSESSEE. THIS CASE EMP HASISES THAT THE OBJECT WITH WHICH THE SUBSIDY IS GIVEN IS THE PRIME OR FOREMOST CONSIDERATION WHILE DETERMINING THE NATURE OF THE R ECEIPT. THE HIGH COURT HELD AS UNDER : ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 68 'THE NATURE OF THE RECEIPT OF THE INCENTIVE, THEREF ORE, HAS TO BE EXAMINED IN THE LIGHT OF THAT OBJECT. LAW HAS TO KE EP UP WITH THE NEWER DEVICES AND METHODS ADOPTED IN THE WORLD OF B USINESS AS ALSO IN THE SEVERAL SCHEMES THAT POLICY MAKERS DRAW UP F ROM TIME TO TIME TO ENSURE THE DESIRED DEVELOPMENT IN THE DIFFERENT SECTORS OF INDUSTRY. IF THE GOVERNMENT FOUND IT CONVENIENT TO ADOPT A PO LICY OF ENABLING THE ENTREPRENEURS TO INITIALLY FUND THE CAPITAL COS T OF THE PROJECT BY OBTAINING LOANS FROM THE PUBLIC FINANCIAL INSTITUTI ONS BY INDUCING THE ENTREPRENEUR AND THE LENDER INSTITUTION TO RELY UPO N THE INCENTIVES PROVIDED UNDER THE SCHEME FOR DISCHARGING SUCH LOAN S, IT CANNOT BE SAID THAT THE INCENTIVE GIVEN BEING POST PRODUCTION , THOUGH MEANT EXCLUSIVELY FOR MEETING THE CAPITAL COST, THE AMOUN T OF THE INCENTIVE WOULD BE A TRADING RECEIPT IN THE HANDS OF THE RECI PIENT. THE FACT THAT THE TIME OF PAYMENT IS SUBSEQUENT TO THE COMMENCEME NT OF PRODUCTION WOULD NOT IN THE LARGER PERSPECTIVE MAKE A DIFFERENCE. AS OBSERVED BY THE SUPREME COURT IN THE CASE OF K.C.P. LTD. V. CIT [2000] 245 ITR 421 , IT IS NOT THE NAME GIVEN BY THE ASSESSEE OR EVEN THE REVENUE OR ANYONE ELSE THAT MATTERS, BUT I S THE TRUE CHARACTER OF THE RECEIPT THAT DETERMINES ITS TAXABI LITY AND BEING REGARDED AS FALLING WITH THE CAPITAL FIELD OR OUT O F IT. IF THE TRUE CHARACTER OF THE INCENTIVE HERE IS TO E NABLE THE ASSESSEE TO MEET THE CAPITAL COST, THEN THAT TRUE CHARACTER MUS T BE GIVEN FULL RECOGNITION AND THE FACT THAT THE RECEIPT WAS SUBSE QUENT TO THE COMMENCEMENT OF PRODUCTION NOT BE ALLOWED TO STAND IN THE WAY OF ITS PROPER TREATMENT AS A RECEIPT IN THE CAPITAL FI ELD MEANT TO MEET A CAPITAL COST. THE LINE SEPARATING 'CAPITAL' FROM 'R EVENUE' IS A LINE WHICH IS NOT FIXED AND UNALTERABLE, BUT ONE WHICH S HIFTS FROM TIME TO ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 69 TIME DEPENDING UPON THE PECULIAR FACTS OF A GIVEN C ASE. IT IS THE SUM TOTAL OF ALL THE RELEVANT FACTS OF A GIVEN CASE, WH ICH WILL DETERMINE THE ULTIMATE DECISION AS TO WHETHER A PARTICULAR ITEM O F RECEIPT OR EXPENDITURE IS TO BE REGARDED AS BEING IN THE CAPIT AL OR IN THE REVENUE FIELD. THE PURPOSE AND OBJECT OF THE SCHEME, THEREFORE, IS OF VITAL SIGNIFICANCE AND DECIDED CASES WHICH TURN UPON THE SPECIAL FACTS CANNOT PRE-DETERMINE THE OUTCOME OF ANOTHER CASE ME RELY ON THE GROUND THAT POST PRODUCTION RECEIPTS ARE NORMALLY R EGARDED AS TRADING RECEIPTS.' THE MADRAS HIGH COURT ALSO REFERRED TO THE JUDGMENT OF THE SUPREME COURT IN SAHNEY STEEL & PRESS WORKS LTD.S CASE (SU PRA) AND HELD THAT THE SUPREME COURT 'CLEARLY RECOGNISED THE POSSIBILI TY OF THE PAYMENTS BEING MADE NOT DIRECTLY BUT INDIRECTLY FOR THE SETT ING UP OF THE INDUSTRIES' AND THAT SINCE IN THE CASE BEFORE THE SUPREME COURT THE PAYMENTS 'HAD BEEN MADE POST PRODUCTION AND WERE IN NO WAY LINKED TO THE STEPS THAT HAD BEEN TAKEN BY THE ASSESSEE THEREIN IN SETTING U P THE INDUSTRY, IT WAS OBSERVED THAT THE INCENTIVES HAD BEEN GIVEN ONLY AF TER PRODUCTION HAD COMMENCED'. THESE OBSERVATIONS OF THE MADRAS HIGH C OURT (AT PAGE 612 OF THE REPORT) RECOGNISE THE POSSIBILITY, DEPENDING UPON THE NATURE AND OBJECT OF THE SCHEME, OF EVEN POST-PRODUCTION PAYME NTS BEING LINKED, ALBEIT INDIRECTLY, TO THE STEPS TAKEN BY THE ASSESS EE TO SET UP THE INDUSTRY. THE HIGH COURT ALSO OBSERVED EARLIER AT P AGE 611 OF THE REPORT, WHICH WE HAVE EXTRACTED ABOVE, THAT WHAT IS OF VITA L SIGNIFICANCE IS THE PURPOSE AND OBJECT OF THE SCHEME AND THAT THE DECID ED CASES WHICH TURN UPON THE SPECIAL FACTS CANNOT PREDETERMINE THE OUTC OME OF ANOTHER CASE ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 70 MERELY ON THE GROUND THAT POST-PRODUCTION RECEIPTS ARE NORMALLY REGARDED AS TRADING RECEIPTS. IN OTHER WORDS, THE H IGH COURT HAS HELD THAT MERELY BECAUSE THE MONIES ARE RECEIVED AFTER P RODUCTION COMMENCES, IT CANNOT BE SAID, IRRESPECTIVE OF THE P URPOSE AND OBJECT OF THE SCHEME, THAT THE RECEIPT IS OF REVENUE NATURE. THIS OBSERVATION OF THE MADRAS HIGH COURT AND THE MANNER IN WHICH THE J UDGMENT OF THE SUPREME COURT IN SAHNEY STEEL & PRESS WORKS LTD.S CASE (SUPRA) HAS BEEN EXPLAINED AT PAGE 612 OF THE REPORT ALSO SHOW THAT THE TRIBUNAL IN THE CASE OF RELIANCE INDUSTRIES LTD. (SUPRA) FOR TH E ASSESSMENT YEAR 1985-86 CORRECTLY INTERPRETED THE JUDGMENT OF THE S UPREME COURT IN SAHNEY STEEL & PRESS WORKS LTD.S CASE (SUPRA). THE OBSERVATIONS OF THE MADRAS HIGH COURT LEND SUPPORT TO THE VIEW THAT THE PURPOSE AND OBJECT OF THE SCHEME UNDER WHICH THE SUBSIDY IS GIVEN IS O F MORE FUNDAMENTAL IMPORTANCE THAN THE FACT THAT THE SUBSIDY WAS RECEI VED AFTER THE COMMENCEMENT OF PRODUCTION OR CONDITIONAL UPON IT. THEREFORE, IN OUR VIEW AND WITH RESPECT, THE TRIBUNAL IN THE CASE OF RELIANCE INDUSTRIES LTD. ( SUPRA) HAD CORRECTLY INTERPRETED AND UNDERST OOD THE RATIO OF THE JUDGMENT OF THE SUPREME COURT IN SAHNEY STEEL & PRE SS WORKS LTD.S CASE (SUPRA). 38. IN THIS VIEW OF THE MATTER, WE ANSWER THE QUES TION REFERRED TO US IN THE AFFIRMATIVE. SINCE THERE ARE OTHER GROUNDS I N THE APPEAL OF THE ASSESSEE AND SINCE THERE IS ALSO AN APPEAL BY THE D EPARTMENT, THEY WILL GO BACK TO THE DIVISION BENCH FOR BEING DISPOSED OF IN ACCORDANCE WITH LAW. 5.14 WE NOW REFER TO THE DECISION OF THE HONBLE SU PREME COURT IN CASE OF PONNI SUGARS AND CHEMICALS LTD (SUPRA) WHICH HAS AFFIRMED ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 71 THE DECISION OF THE HONBLE MADRAS HIGH COURT IN CA SE OF PONNI SUGARS AND CHEMICALS LTD WHICH HAS BEEN REFERRED AND RELIE D UPON BY THE SPECIAL BENCH IN CASE OF RELIANCE INDUSTRIES (SUPRA ). THE HONBLE SUPREME COURT HAS HELD AS UNDER: 13. THE MAIN CONTROVERSY ARISES IN THESE CASES BEC AUSE OF THE REASON THAT THE INCENTIVES WERE GIVEN THROUGH THE MECHANIS M OF PRICE DIFFERENTIAL AND THE DUTY DIFFERENTIAL. ACCORDING T O THE DEPARTMENT, PRICE AND COSTS ARE ESSENTIAL ITEMS THAT ARE BASIC TO THE PROFIT-MAKING PROCESS AND THAT ANY PRICE-RELATED MECHANISM WOULD NORMALLY BE PRESUMED TO BE REVENUE IN NATURE. IN OTHER WORDS, ACCORDING TO THE DEPARTMENT, SINCE INCENTIVES WERE GIVEN THROUGH PRICE AND DUTY DIFFERENTIALS, THE CHARACTER OF THE IMPUGNED INCENTIVE IN THIS CASE WA S REVENUE AND NOT CAPITAL IN NATURE. ON THE OTHER HAND, ACCORDING TO THE ASSESSEE, WHAT WAS RELEVANT TO DECIDE THE CHARACTER OF THE INCENTI VE IS THE PURPOSE TEST AND NOT THE MECHANISM OF PAYMENT. 14. IN OUR VIEW, THE CONTROVERSY IN HAND CAN BE RES OLVED IF WE APPLY THE TEST LAID DOWN IN THE JUDGMENT OF THIS COURT IN THE CASE OF SAHNEY STEEL & PRESS WORKS LTD. (SUPRA). IN THAT CASE, ON BEHALF OF THE ASSESSEE, IT WAS CONTENDED THAT THE SUBSIDY GIVEN WAS UP TO 10 P ER CENT OF THE CAPITAL INVESTMENT CALCULATED ON THE BASIS OF THE Q UANTUM OF INVESTMENT IN CAPITAL AND, THEREFORE, RECEIPT OF SUCH SUBSIDY WAS ON CAPITAL ACCOUNT AND NOT ON REVENUE ACCOUNT. IT WAS ALSO URGED IN TH AT CASE THAT SUBSIDY GRANTED ON THE BASIS OF REFUND OF SALES TAX ON RAW MATERIALS, MACHINERY AND FINISHED GOODS WERE ALSO OF CAPITAL NATURE AS T HE OBJECT OF GRANTING 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 ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 72 WAS DISMISSED BY THE TRIBUNAL AND, THEREFORE, THE A SSESSEE HAD COME TO THIS COURT BY WAY OF A SPECIAL LEAVE PETITION. IT W AS HELD BY THIS COURT ON THE FACTS OF THAT CASE AND ON THE BASIS OF THE ANAL YSES OF THE SCHEME THEREIN THAT THE SUBSIDY GIVEN WAS ON REVENUE ACCOU NT BECAUSE IT WAS GIVEN BY WAY OF ASSISTANCE IN CARRYING ON OF TRADE OR BUSINESS. ON THE FACTS OF THAT CASE, IT WAS HELD THAT THE SUBSIDY GI VEN WAS TO MEET RECURRING EXPENSES. IT WAS NOT FOR ACQUIRING THE CA PITAL ASSET. IT WAS NOT TO MEET PART OF THE COST. IT WAS NOT GRANTED FOR PR ODUCTION 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 IN DUSTRY AND ONLY AFTER COMMENCEMENT OF PRODUCTION AND, THEREFORE, SUCH A S UBSIDY COULD ONLY BE TREATED AS ASSISTANCE GIVEN FOR THE PURPOSE OF C ARRYING ON THE BUSINESS OF THE ASSESSEE. CONSEQUENTLY, THE CONTENT IONS RAISED ON BEHALF OF THE ASSESSEE ON THE FACTS OF THAT CASE STOOD REJ ECTED AND IT WAS HELD THAT THE SUBSIDY RECEIVED BY SAHNEY STEEL COULD NOT BE REGARDED AS ANYTHING BUT A REVENUE RECEIPT. ACCORDINGLY, THE MA TTER WAS DECIDED AGAINST THE ASSESSEE. THE IMPORTANCE OF THE JUDGMEN T OF THIS COURT IN SAHNEY STEEL & PRESS WORK'S LTD.'S CASE (SUPRA) LIE S IN THE FACT THAT IT HAS DISCUSSED AND ANALYSED THE ENTIRE CASE LAW AND IT HAS LAID DOWN THE BASIC TEST TO BE APPLIED IN JUDGING THE CHARACTER O F A SUBSIDY. THAT TEST IS THAT THE CHARACTER OF THE RECEIPT IN THE HANDS OF T HE ASSESSEE HAS TO BE DETERMINED WITH RESPECT TO THE PURPOSE FOR WHICH TH E SUBSIDY IS GIVEN. IN OTHER WORDS, IN SUCH CASES, ONE HAS TO APPLY THE PURPOSE TEST. THE POINT OF TIME AT WHICH THE SUBSIDY IS PAID IS NOT R ELEVANT. THE SOURCE IS IMMATERIAL. THE FORM OF SUBSIDY IS IMMATERIAL. THE MAIN ELIGIBILITY CONDITION IN THE SCHEME WITH WHICH WE ARE CONCERNED IN THIS CASE IS THAT THE INCENTIVE MUST BE UTILIZED FOR REPAYMENT OF LOA NS TAKEN BY THE ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 73 ASSESSEE TO SET UP NEW UNITS OR FOR SUBSTANTIAL EXP ANSION OF EXISTING UNITS. ON THIS ASPECT THERE IS NO DISPUTE. IF THE O BJECT OF THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO RUN THE BUSINE SS MORE PROFITABLY THEN THE RECEIPT IS ON REVENUE ACCOUNT. ON THE OTHE R HAND, IF THE OBJECT OF THE ASSISTANCE UNDER THE SUBSIDY SCHEME WAS TO E NABLE THE ASSESSEE TO SET UP A NEW UNIT OR TO EXPAND THE EXISTING UNIT THEN THE RECEIPT OF THE SUBSIDY WAS ON CAPITAL ACCOUNT. THEREFORE, IT I S THE OBJECT FOR WHICH THE SUBSIDY/ASSISTANCE IS GIVEN WHICH DETERMINES TH E NATURE OF THE INCENTIVE SUBSIDY. THE FORM OF THE MECHANISM THROUG H WHICH THE SUBSIDY IS GIVEN IS IRRELEVANT. 5.15 IN LIGHT OF ABOVE DISCUSSION, THE LEGAL PROPOS ITION WHICH HAS BEEN LAID DOWN BY THE SPECIAL BENCH IN CASE OF RELIANCE INDUSTRIES AFTER TAKING INTO CONSIDERATION THE DECISION OF THE HONB LE SUPREME COURT IN CASE OF SAHNEY STEEL & PRESS WORKS LTD AND BY THE S UBSEQUENT DECISION OF THE HONBLE SUPREME COURT IN CASE OF PONNI SUGAR AND CHEMICAL LTD, THE CHARACTER OF THE SUBSIDY IN THE HANDS OF THE AS SESSEE HAS TO BE DETERMINED WITH RESPECT TO THE PURPOSE FOR WHICH TH E SUBSIDY IS GIVEN. THE POINT OF TIME AT WHICH THE SUBSIDY IS NOT RELEV ANT. THE SOURCE IS IMMATERIAL. THE FORM OR THE MECHANISM THROUGH WHIC H THE SUBSIDY IS GIVEN IS IMMATERIAL. IF THE OBJECT OF THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO RUN BUSINESS MORE PROFITABLY, THEN THE RECEIPT IS ON REVENUE ACCOUNT. ON THE OTHER HAND, IF THE OBJECT OF THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO SET UP A NEW U NIT OR TO EXPAND THE EXISTING UNIT, THEN THE RECEIPT OF SUBSIDY WAS ON CAPITAL ACCOUNT. ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 74 5.16 IN THE INSTANT CASE, THE SUBSIDY IN THE FORM O F VAT REIMBURSEMENT IS PROVIDED TO THE ASSESSEE COMPANY IN TERMS OF THE INDUSTRIAL INCENTIVE POLICY OF STATE OF BIHAR FORMULATED IN THE YEAR 200 6. THE OBJECTIVE OF THE POLICY WAS TO ESTABLISH NEW INDUSTRIES AND TO R EVIVE THE SICK AND CLOSED UNITS IN THE STATE OF BIHAR AND TO CREATE FA VORABLE ENVIRONMENT TO ATTRACT THE INVESTORS OF STATE AND FROM ABROAD. TH E THRUST OF THE POLICY WAS GROWTH IN THE PER CAPITA INCOME OF THE STATE AN D INDUSTRIAL GROWTH AS WELL AS ACCELERATED EMPLOYMENT OPPORTUNITIES. UN DER THIS INDUSTRIAL INCENTIVE POLICIES-2006, THERE ARE PROVISIONS FOR G RANTING PRE-PRODUCTION INCENTIVE OF SUBSIDY/EXEMPTION FROM STAMP DUTY AND REGISTRATION FEE AND POST PRODUCTION INCENTIVE OF GRANT/EXEMPTION FOR PR EPARATION OF PROJECT REPORTS, PURCHASE OF LAND/SHED, TECHNICAL KNOW-HOW , CAPTIVE POWER GENERATION/DIESEL GENERATING SET, SUBSIDY/INCENTIVE ON VAT, EXEMPTION IN LUXURY TAX, ELECTRICITY DUTY, CONVERSION FEE, MARKE T FEE ETC. 5.17 UNDER THE SAID POLICY, ONE OF SUBSIDY/INCENTIV E AVAILABLE TO THE NEW UNITS, WHICH IS UNDER CONSIDERATION BEFORE US, IS THE REIMBURSEMENT TO THE EXTENT OF 80% AGAINST THE ADMITTED VAT AMOUN T DEPOSITED IN THE ACCOUNT OF THE GOVERNMENT FOR A PERIOD OF 10 YEARS. THE MAXIMUM SUBSIDY/INCENTIVE AMOUNT WAS RESTRICTED TO 300% OF THE CAPITAL EMPLOYED. APPLYING THE PURPOSE TEST, THE OBJECTIVE AND THE PURPOSE OF PROVIDING THE VAT SUBSIDY (TO THE EXTENT OF 300% OF CAPITAL EMPLOYED) IS CLEARLY RELATED TO ENCOURAGING SETTING UP OF THE NEW UNITS WHICH COMMENCES PRODUCTION WITHIN FIVE YEARS FROM 1.4.200 6 AND TO GENERATE FRESH EMPLOYMENT OPPORTUNITIES IN THE STATE. IT IS NOTED THAT EVEN THE LD CIT(A) HAS GIVEN A SIMILAR FINDING WHERE HE STATES THAT THE PURPOSE OF THE INDUSTRIAL INCENTIVE SCHEME IS TO ENCOURAGE ALL ROUND DEVELOPMENT OF ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 75 THE STATE OF BIHAR. FURTHER, THE SUBSIDY IS CALCULA TED ON THE AMOUNT OF VAT COLLECTED AND DEPOSITED WITH THE GOVERNMENT WHI CH WOULD SUBSEQUENTLY BE ENTERED IN THE PASSBOOK AND VERIFIE D BY THE COMMERCIAL TAXES DEPARTMENT. THERE IS A DISTINCTION BETWEEN TH E ENTITLEMENT TOWARDS THE SAID SUBSIDY AND ITS SUBSEQUENT DISBURS EMENT. THE ASSESSEE BECOMES ENTITLED TO SUCH SUBSIDY ONCE IT H AS SET UP THE NEW UNIT IN THE STATE OF BIHAR AND THE DISBURSEMENT HAP PENS WHEN THE ASSESSEE COMPANY ACTUALLY STARTS PRODUCTION. FROM A MONITORING AND IMPLEMENTATION STAND POINT, IT IS ESSENTIAL THAT SU BSIDY IS PROVIDED TO GENUINE INDUSTRIES SETTING UP NEW UNITS, MAKING CAP ITAL INVESTMENT, BUILDING INFRASTRUCTURE, ACTUALLY COMMENCES PRODUCT ION AND GENERATE EMPLOYMENT OPPORTUNITIES IN THE STATE OF BIHAR. TO THIS EFFECT, THE QUANTUM OF SUBSIDY IS LINKED TO CAPITAL INVESTED AN D ALSO THE DISBURSEMENT THEREOF IS LINKED TO VAT WHICH IS COLL ECTED AND DEPOSITED ON GOODS ACTUALLY PRODUCED AND SOLD. BY ITS VERY N ATURE, THE SUBSIDY WOULD THUS BE PAYABLE AFTER THE COMMENCEMENT OF PRO DUCTION BUT THAT WOULD NOT MAKE IT A REVENUE RECEIPT AS IT WAS ONLY A MODE OF DISBURSEMENT AND HAD NOTHING TO DO WITH THE OBJECT FOR WHICH THE SUBSIDY WAS GIVEN. THE OBJECT FOR WHICH THE SUBSIDY IS GRANTED, WOULD TAKES PRIMACY OVER THE FACT THAT IT WAS GIVEN AFTER THE COMMENCEMENT OF PRODUCTION AND CONDITIONAL UPON THE SAME. THE S UBSIDY IS THUS ON CAPITAL ACCOUNT. 5.18 IT IS NOTED THAT A SIMILAR VIEW HAS BEEN TAKEN BY THE COORDINATE BENCH IN CASE OF HARINAGAR SUGAR MILLS (SUPRA) WHIL E EXAMINING THE REIMBURSEMENT OF VAT ON MOLASSES UNDER THE BIHAR IN CENTIVE PACKAGE 2006. ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 76 5.19 FURTHER, WE HAVE NOTICED THAT THE FINANCE ACT, 2015 W.E.F. 1-4- 2016, HAS ENLARGED THE DEFINITION OF INCOME GIVEN U /S 2(24) BY INSERTING SUB-CLAUSE (XVIII), WHICH READS AS UNDER:- (XVIII) ASSISTANCE IN THE FORM OF A SUBSIDY OR GRA NT OR CASH INCENTIVE OR DUTY DRAWBACK OR WAIVER OR CONCESSION OR REIMBURSEM ENT (BY WHATEVER NAME CALLED) BY THE CENTRAL GOVERNMENT OR A STATE G OVERNMENT OR ANY AUTHORITY OR BODY OR AGENCY IN CASH OR KIND TO THE ASSESSEE OTHER THAN THE SUBSIDY OR GRANT OR REIMBURSEMENT WHICH IS TAKE N INTO ACCOUNT FOR DETERMINATION OF THE ACTUAL COST OF THE ASSET IN AC CORDANCE WITH THE PROVISIONS OF EXPLANATION 10 TO CLAUSE (1) OF SECTI ON 43. 5.20 IN LIGHT OF ABOVE AMENDMENT IN THE DEFINITION OF INCOME, ANY SUBSIDY GIVEN BY THE CENTRAL GOVERNMENT OR A STATE GOVERNMENT OR ANY AUTHORITY ETC. FOR ANY PURPOSE, EXCEPT WHERE IT IS TAKEN INTO ACCOUNT FOR DETERMINATION OF THE ACTUAL COST OF THE ASSET UNDER EXPLANATION 10 SECTION 43(1), HAS BECOME CHARGEABLE TO TAX. EVEN I F A SUBSIDY IS GIVEN TO ATTRACT INDUSTRIAL INVESTMENT OR EXPANSION, WHIC H IS A OTHERWISE A CAPITAL RECEIPT UNDER THE PRE-AMENDED ERA, SHALL HE NCEFORTH BE TREATED AS INCOME CHARGEABLE TO TAX, EXCEPT WHERE IT HAS BE EN TAKEN INTO ACCOUNT FOR DETERMINING THE ACTUAL COST OF ASSETS I N TERMS OF EXPLANATION 10 TO SECTION 43(1). THIS AMENDMENT IS WITH EFFECT FROM 1-4-2016 AND IS PROSPECTIVE IN ITS APPLICATION. IN THE INSTANT CASE , AS THE ASSESSMENT YEAR UNDER CONSIDERATION IS 2009-10, SECTION 2(24)( XVIII) SHALL HAVE NO OPERATION. 5.21 IN LIGHT OF ABOVE DISCUSSIONS AND IN THE ENTIR ETY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, VAT SUBSIDY RECEIVED BY THE ASSESSEE FROM THE GOVERNMENT OF BIHAR IS A CAPITAL RECEIPT AND AC CORDINGLY NOT ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 77 CHARGEABLE TO TAX. IN THE RESULT, GROUND NO. 3 OF THE ASSESSEES APPEAL IS ALLOWED. ITA NO. 116/JP/14 6. IN ITS SOLITARY GROUND OF APPEAL, THE REVENUE HA S CHALLENGED THE ORDER OF THE LD CIT(A) IN DELETING THE ADDITION OF RS. 27,77,310/- MADE BY AO ON ACCOUNT OF DISALLOWANCE OF DEDUCTION UNDER SECTION 80IA CLAIMED ON THE PROFITS OF THE WIND MILLS. 6.1 AT THE OUTSET, THE LD AR SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF ASSESSEE BY ORDER DT. 02.12.2014 OF HONB LE ITAT, JAIPUR IN ASSESSEES OWN CASE IN ITA NO. 934/JP/11 FOR A.Y. 0 7-08 AND IN ITA NO. 15/JP/12 FOR A.Y. 08-09. 6.2 THE LD AR FURTHER PLACED ON FOLLOWING CASES:- - CIT VS. SRI RANGANATHAR INDUSTRIES PVT. LTD. (201 5) 118 DTR 285 (MAD.) - CIT VS. R. YUVARAJ (2015) 231 TAXMAN 609 (MAD.) - JIVRAJ TEA & INDUSTRIES LTD. VS. ACIT (2014) 101 DTR 217 (AHD.) 6.3 THE LD AR FURTHER SUBMITTED THAT THE HONBLE SU PREME COURT HAS DISMISSED THE SLP OF THE DEPARTMENT REPORTED IN 389 ITR 5 (STATUTE.) FILED AGAINST THE ORDER OF MADRAS HIGH COURT IN CAS E OF ACIT VS. VELAYUDHASWAMY SPINNING MILLS (P) LTD IN T.C.A. NO. 909 OF 2009 REPORTED IN 340 ITR 477 WHEREBY THE HIGH COURT HELD THAT IN THE COMPUTATION OF SPECIAL DEDUCTION UNDER SECTION 80 I A LOSS IN THE YEAR EARLIER TO INITIAL ASSESSMENT YEAR ALREADY ABSORBED CANNOT BE NOTIONALLY ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 78 BROUGHT FORWARD AND SET OFF AGAINST PROFITS OF ELIG IBLE BUSINESS AND WHERE THE DEPARTMENT DID NOT DISPUTE FINDING OF THE COMMISSIONER (APPEALS) AS TO THE INITIAL ASSESSMENT YEAR IT WAS NOT ENTITLED IN THE ASSESSEES APPEAL TO DISPUTE IT. 6.4 THE LD AR FURTHER BROUGHT TO THE NOTICE OF THE BENCH THAT THE HONBLE SUPREME COURT HAS DISMISSED THE SLP OF THE DEPARTMENT REPORTED IN (SC ) 2016 ITL 4951 FILED AGAINST THE O RDER OF MADRAS HIGH COURT IN CASE OF COMMISSIONER OF INCOME-TAX VS. BE ST CORPORATION LTD. (2016) 76 TAXMANN.COM 286 WHICH HAS FOLLOWED THE EA RLIER DECISION IN CASE OF VELAYUDHASWAMY SPINNING MILLS (P) LTD AND T HE HEAD NOTES READ AS UNDER: DEDUCTIONS- PROFITS AND GAINS FROM INFRASTRUCTURE UNDERTAKINGS (COMPUTATION OF DEDUCTION) ASSESSEE CLAIMED DEDUCTI ON UNDER SECTION 80-IA-TRIBUNAL FOLLOWING DECISION OF MADRAS HIGH CO URT IN CASE OF VELAYUDHASWAMY SPINNING MILLS (P.) LTD. V. ASSTT. CIT, WHICH WAS PENDING APPEAL BEFORE SUPREME COURT, HELD THAT ASS ESSEE WAS ENTITLED TO DEDUCTION UNDER SECTION 80-IA WITHOUT SETTING OF F LOSSES/UNABSORBED DEPRECIATION PERTAINING TO WINDMILL, WHICH WERE SET OFF IN EARLIER YEAR AGAINST OTHER BUSINESS INCOME. IT ALSO HELD THAT IN ITIAL ASSESSMENT YEAR IN SECTION 80-IA(5) WOULD ONLY MEAN YEAR OF CLAIM O F DEDUCTION UNDER SECTION 80-IA AND NOT YEAR OF COMMENCEMENT OF ELIGI BLE BUSINESS. IT FURTHER HELD THAT ASSESSEE HAD OPTION TO CHOOSE FIR ST/INITIAL ASSESSMENT YEAR OF CLAIM FOR DEDUCTION UNDER SECTION 80-IA- RE VENUE FILED APPEAL BEFORE HIGH COURT HIGH COURT HELD THAT SINCE IT H AS CONSISTENTLY FOLLOWED DECISION IN CASE OF VELAYUDHASWAMY SPINNI NG MILLS (P.) LTD. ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 79 (SUPRA) AND ON BASIS OF SAID DECISION CBDT HAD ISS UED CIRCULAR NO. 1 OF 2016, DATED 15.02.2016 CLARIFYING TERM INITIAL A SSESSMENT YEAR IN SECTION 80-IA(5), ORDER OF TRIBUNAL DESERVED TO BE UPHELD AND SLP FILED AGAINST ORDER OF HIGH COURT WAS TO BE DISMISSED. 6.5 THE FINDINGS OF THE LD CIT(A) ARE REPRODUCED A S UNDER:- I HAVE CONSIDERED THE ASSESSMENT ORDER AS WELL AS SUBMISSIONS MADE BY THE AR ALONG-WITH JUDICIAL CITATION GIVEN T HEREIN. IT IS SUBMITTED THAT THIS ISSUE HAS BEEN DECIDED IN FAVOU R OF THE ASSESSEE BY THE LD. CIT(A) IN THE CASE OF THE APPEL LANT IN A.Y. 2007-08 AND A.Y. 2008-09. A COPY OF THE ORDERS HAS BEEN PLACED ON RECORD. I HAVE GONE THROUGH THE SAME AND FIND TH AT THIS ISSUE HAS BEEN ELABORATELY DISCUSSED BY MY LD. PREDECESSO R IN THE CASE OF THE APPELLANT FOR A.Y. 2008-09 VIDE APPEAL NO. 3 25/2010-11 DATED 24-10-2011. SINCE DISALLOWANCE OF RS. 27,77,3 10 MADE BY THE AO U/S 80IA OF THE IT ACT IS DELETED. 6.6 THE FACTS AS NOTED BY THE COORDINATE BENCH IN A SSESSEES OWN CASE IN ITA 934/JP/2011 FOR A.Y. 2007-08 AND ITS RE LEVANT FINDINGS ARE NOTED AND REPRODUCED AS UNDER: 15. THE ASSESSEE INSTALLED WINDMILLS AND STARTED PR ODUCING ELECTRICITY IN THE ASSESSMENT YEAR 2003-04. THE DEP RECIATION AND BUSINESS LOSSES OF THE WINDMILLS UPTO ASSESSMENT YE AR 2006-07 WERE ADJUSTED AGAINST OTHER BUSINESS INCOME OF TH E ASSESSEE. ASSESSMENT YEAR 2007-08, THE YEAR UNDER CONSIDERATI ON, IS THE INITIAL YEAR IN WHICH THE ASSESSEE HAS CLAIMED DEDU CTION U/S 80IA ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 80 (4)(IV)(A) OF THE ACT @ 100% OF THE PROFIT AND GAI NS OF ELIGIBLE BUSINESS I.E. WINDMILL. 16. THE CIT(A) HAS GRANTED THE RELIEF TO THE ASSESS EE BY HOLDING AS UNDER:- THE DECISION OF GOLDMINES CASE AS RELI ED UPON BY THE ASSESSING OFFICER, IS NO MORE A GOOD SOURCE OF LAW, IN AS MUCH AS IN A SUBSEQUENT DECISION OF HONBLE MADRAS HIGH C OURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS (P.) LTD. VS. ACIT 231 CTR 368, AS RIGHTLY RELIED UPON BY THE COUNSEL, THE ISS UE IS DECIDED IN FAVOUR OF THE ASSESSEE AFTER CONSIDERING THE DECISI ON OF GOLDMINES CASE. THE MAIN ISSUE IS AS TO WHEN THE PROVISION OF SECTI ON 80IA WILL BECOME APPLICABLE UPON THE APPELLANT. THE APPELLANT HAS OPTED TO CLAIM THE DEDUCTION U/S 80IA W.E.F. ASSESSMENT YEAR 2007-08, THOUGH THE PRODUCTION COMMENCED FROM THE ASSESSMENT YEAR 2003-04, THEREFORE PROVISION IS MADE APPLICABLE FRO M THE ASSESSMENT YEAR 2007-08. THE OPTION TO CLAIM THE DE DUCTION U/S 80IA RESTS WITH THE APPELLANT TO CLAIM IT IN 10 YEA RS OUT OF 15 YEARS. THE INITIAL ASSESSMENT YEAR FOR THE APPELLAN T IS ASSESSMENT YEAR 2007-8 AND FROM SUCH ASSESSMENT YEAR, THE ELIG IBLE INDUSTRIAL UNDERTAKING WILL BE CONSIDERED AS INDEPENDENT SOURC E OF INCOME OF THE APPELLANT AND NOT PRIOR TO THAT. THE ASSESSING OFFICER HAS MADE APPLICABLE THE PROVI SIONS OF SECTION 80IA FROM THE ASSESSMENT YEAR 2003-04, WHEN THE APPELLANT HAS NOT EVEN CLAIMED THE DEDUCTION UNDER THE SAID PROVISION. THE ASSESSING OFFICER HAS MISUNDERSTOOD THE FIRST YEAR OF COMMENCEMENT OF PRODUCTION AND INITIAL ASSESSMEN T YEAR AS ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 81 SYNONYMOUS. THE YEAR OF COMMENCEMENT OF PRODUCTION AND INITIAL ASSESSMENT YEAR BEARS THE DIFFERENT CONNOTATION. FO R THIS PROPOSITION, STRENGTH IS DRAWN FROM THE STATUTORY A UDIT REPORT FORMAT IN FORM NUMBER 10CCB AS RELIED UPON BY LEARN ED COUNSEL. I HAVE NO HESITATION IN GIVING A FINDING THAT THE INI TIAL ASSESSMENT YEAR FOR THE APPELLANT IS ASSESSMENT YEAR 2007-08 A ND FROM SUCH ASSESSMENT YEAR, IT WILL BE CONSIDERED AS INDEPENDE NT SOURCE OF INCOME. WHILE GIVING THIS FINDING I ALSO DRAW STRENGTH FROM TAXMANNS READY RECKNOR BY DR. VINOD K. SINGHANIA 33 RD EDITION FROM PAGE NUMBER A-241 TO A-244. FURTHER, HONBLE RAJASTHAN H IGH COURT IN CASE OF MEWAR SUGAR MILLS 271 ITR 311 HAVE DECIDED THAT IT IS NOT AT ALL REQUIRED THAT LOSSES OR OTHER DEDUCTION WHIC H HAVE ALREADY BEEN SET OFF AGAINST THE INCOME OF THE PREVIOUS YEA R SHOULD BE REOPENED AGAIN FOR THE PURPOSE OF COMPUTING ADMISSI BLE DEDUCTION U/S 80IA OF THE INCOME TAX ACT, 1961. THERE IS NO PROVISION UNDER THE INCOME TAX ACT, 196 1 OR ANY IOTA OF REFERENCE SUPPORTING THE STAND OF THE ASSESSING OFFICER FOR REVIVING THE EARLIER YEARS ALREADY ADJUSTED BUSINE SS LOSSES AND UNABSORBED DEPRECIATION IN THE SUBSEQUENT YEAR. DECISION OF VELAYUDHASWAMY SPINNING MILLS (P) LIMIT ED (SUPRA), IS LATEST ON THE SUBJECT, WHEREIN THE DECISION OF HON BLE RAJASTHAN HIGH COURT IN CASE OF MEWAR SUGAR MILLS HAVE ALSO B EEN FOLLOWED. SIMILAR ISSUE CAME UP BEFORE ME IN THE APPEAL NUMBE R 192/2009- 10 OF SAURABH AGROTECH (P) LTD. AND IN APPEAL NUMBE R 191/2009- 10 OF VIJAY INDUSTRIES, KHAIRTAL & VIDE ORDER DT. 1 2.07.2011 & ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 82 11.07.2011 RESPECTIVELY, I HAVE TAKEN A VIEW THAT T HE APPELLANT IS ENTITLED FOR DEDUCTION U/S 80IA OF THE I.T. ACT, 19 61 AS CLAIMED BY IT IN ITS RETURN OF INCOME. THEREFORE, CONSIDERING ALL THESE ISSUES & ON THE PRINCIPLE OF CONSISTENCY, IT IS HELD THAT TH E ACTION OF AO IS NOT JUSTIFIED IN DENYING DEDUCTION OF RS. 24,62,950 /- WITHIN THE MEANING OF SECTION 80IA OF THE I.T. ACT, 1961. 19. AFTER HEARING BOTH THE SIDES AND CONSIDERING TH E CASE LAWS, WE FIND NO FAULT IN THE ORDER OF THE CIT(A) AND DISMIS S THIS GROUND OF REVENUES APPEAL. 6.7 UNDISPUTEDLY, THERE IS NO CHANGE IN THE FACTS A ND CIRCUMSTANCES OF THE CASE OR IN THE LEGAL POSITION. THE COORDINATE B ENCH IN ASSESSEES OWN CASE FOR A.Y. 2007-08 HAS ALREADY TAKEN A VIEW IN FAVOUR OF THE ASSESSEE FOLLOWING THE DECISION OF HONBLE MADRAS H IGH COURT IN CASE OF CIT VS. VELAYUDHASWAMY SPINNING MILLS (P) LIMITED A ND AN SLP FILED AGAINST THE SAID DECISION HAS BEEN DISMISSED BY THE HONBLE SUPREME COURT. IN A SIMILAR CASE OF BEST CORPORATION LIMIT ED (SUPRA) WHEREIN THE DECISION OF HONBLE MADRAS HIGH COURT IN CASE OF VE LAYUDHASWAMY SPINNING MILLS (P) LIMITED WAS FOLLOWED, AN SLP HA S AGAIN BEEN DISMISSED BY THE HONBLE SUPREME COURT. IN LIGHT OF ABOVE, WE DO NOT SEE ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A). I N THE RESULT, THE DEDUCTION OF RS. 27,77,310 AS CLAIMED BY THE ASSESS EE COMPANY U/S 80IAIS HEREBY ALLOWED. IN THE RESULT, THE GROUND T AKEN BY THE REVENUE IS DISMISSED. ITA NO. 704/JP/2014 & 705/JP/2014 ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 83 7. IN ITA NO. 704/JP/2014 AND IN ITA NO. 705/JP/201 4 PERTAINING TO AY 2010-11, ADMITTEDLY, THE GROUND OF APPEAL NO. 2 TAKEN BY THE REVENUE AND ALL THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE ARE SIMILAR TO GROUNDS OF APPEAL UNDER IDENTICAL FACTS AND CIRC UMSTANCES OF THE CASE AS TAKEN IN ITA NO. 110/JP/14 & 116/JP/14. OUR FIN DINGS AND DIRECTIONS CONTAINED IN ITA NO. 110/JP/14 & 116/JP/14 SHALL TH EREFORE APPLY MUTATIS MUTANDIS TO ALL THESE GROUNDS OF APPEAL. 8. WE NOW COME TO REVENUES GROUND OF APPEAL NO. 1 IN ITA NO. 705/JP/2014 WHEREIN THE REVENUE HAS CHALLENGED THE ACTION OF THE LD CIT(A) IN DELETING THE ADDITION OF RS. 5,00,000/-/- MADE BY AO AFTER INVOKING THE PROVISIONS OF SECTION 145(3) OF THE AC T. 8.1 IN THIS REGARD, THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING AND MANUFACTURIN G OF EDIBLE OIL, OIL CAKE AND VANASPATI GHEE. IT IS ALSO ENGAGED IN THE BUSINESS OF POWER GENERATION FROM WINDMILLS. DURING THE YEAR, IT DECL ARED GROSS PROFIT OF RS.2499.58 LACS ON TURNOVER OF RS.30026.09 LACS GIV ING A G.P. RATE OF 8.32% AS AGAINST GROSS PROFIT OF RS.2308.05 LACS ON TURNOVER OF RS.32232.71 LACS GIVING A G.P. RATE OF 7.16% IN THE IMMEDIATELY PRECEDING YEAR. THE N.P. RATE DECLARED DURING THE Y EAR IS 0.99% AS AGAINST N.P. RATE OF 0.31% DECLARED IN THE LAST YEA R. 8.2 THE AO OBSERVED THAT ASSESSEE HAS CLAIMED SHORT AGE OF MUSTARD SEED OF 1.610 MT IN THE MONTH OF APRIL, 2009 AND 34 .536 MT IN THE MONTH OF MARCH, 2010 WHEREAS NO SHORTAGE HAS BEEN C LAIMED IN THE MONTHS OF MAY, 2009 TO FEBRUARY, 2010. ACCORDINGLY, HE REQUIRED THE ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 84 ASSESSEE TO EXPLAIN THE REASONS FOR ALARMING SHORTA GE OF MUSTARD SEED AND FOR NOT DECLARING ANY SHORTAGE IN THE MONTHS OF MAY 2009 TO FEB, 2010. THE ASSESSEE SUBMITTED THAT THE SHORTAGE CLAI MED BY IT IS VERIFIABLE FROM THE DAY TO DAY STOCK RECORDS. FURTH ER, AS THE NEW CROP OF MUSTARD STARTS ARRIVING IN THE MARKET IN THE MONTH OF MARCH AND THE SAME CONTAINS MOISTURE, IT HAS TO BE DRIED BEFORE P UTTING THE SEED IN THE EXPELLER AND IT IS ON ACCOUNT OF DRYING THE MOISTUR E OF SEEDS WHICH ARRIVES IN MARCH, THE SHORTAGE HAS BEEN SHOWN IN TH E MONTHS OF APRIL 09 AND MARCH 10. THE AO AFTER CONSIDERING THE AFORESAI D SUBMISSION MADE THE FOLLOWING OBSERVATIONS:- (I) THE ASSESSEE HAS NOT MAINTAINED THE DETAILS OF DAY TO DAY SHORTAGE IN ITS STOCK REGISTER. (II) THE SHORTAGE IN THE MUSTARD SEEDS CLAIMED BY T HE ASSESSEE IS ON ESTIMATE BASIS WITHOUT ANY JUSTIFICATION. IT MAY BE POSSIBLE THAT THE QUANTITY OF MOISTURE IN THE MUSTARD SEEDS IS LITTLE MORE THAN WHAT IS SHOWN IN THE MONTH OF APRIL 2009 DUE TO ARRIVAL OF MUSTARD CROP. (III) NO EXPLANATION HAS BEEN FURNISHED BY THE ASSE SSEE REGARDING NOT SHOWING ANY SHORTAGE IN THE MONTH OF MAY 2009 TO FE B 2010. (IV) NO LABORATORY REPORTS HAVE BEEN PRODUCED. ACCORDINGLY, THE AO BY HOLDING THAT ASSESSEE HAS SO LD THE MUSTARD OIL OUT OF THE BOOKS AND THE SAME HAS BEEN SHOWN IN THE GARB OF EXCESS CLAIM OF SHORTAGE, MADE LUMP-SUM TRADING ADDITION O F RS. 5 LACS BY APPLYING PROVISIONS OF SECTION 145(3) OF THE ACT. ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 85 8.3 THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE DELETED THE SAME BY HOLDING THAT AO HAS FAILED TO B RING ON RECORD ANY ADVERSE MATERIAL BEFORE REJECTING THE BOOK RESULTS DECLARED BY THE ASSESSEE AND ALSO CONSIDERING THE FACT THAT THE G.P . RATE DECLARED BY THE ASSESSEE AT 8.32% FOR THE YEAR UNDER CONSIDERATION IS BETTER THAN 7.16% DECLARED FOR THE PRECEDING YEAR. 8.4 DURING THE COURSE OF HEARING, THE LD. AR SUBMIT TED THAT THE ASSESSEE MAINTAINS DAY TO DAY BOOKS OF ACCOUNTS, WH ICH IS SUBJECT TO AUDIT. THESE BOOKS ARE DULY SUPPORTED WITH BILLS AN D VOUCHERS. THE AO HAS NOT POINTED OUT ANY SALES OR PURCHASE WHICH IS OUT OF THE BOOKS OR NOT VOUCHED. DAY TO DAY STOCK RECORDS IS ALSO MAINT AINED. THE SHORTAGE OF MUSTARD SEEDS CLAIMED BY THE ASSESSEE IN THE MON TH OF APRIL 09 AND MARCH 10 IS VERIFIABLE FROM THE DAY TO DAY STOCK RE GISTER OF THE SAID MONTHS WHEREIN THE SHORTAGE IS SHOWN ON DAY TO DAY BASIS WHENEVER THE SAME HAS OCCURRED. THE REASON AS TO WHY THE SHO RTAGE HAS BEEN CLAIMED IN THE MONTH OF APRIL 09 AND MARCH 10 AND N OT IN THE MONTHS OF MAY 2009 TO FEB 2010 HAS BEEN DULY EXPLAINED BEFORE THE AO. SO FAR AS NON-PRODUCTION OF LABORATORY TEST REPORTS ARE CONCE RNED, IT IS SUBMITTED THAT EVERY LOT OF SEEDS CONTAIN DIFFERENT QUALITY O F OIL AND CONSIDERING THE CONTENT OF OIL IN THE SEED, PAYMENT IS MADE TO THE SUPPLIER. THE MAINTENANCE OF LABORATORY TEST REPORT HAS THUS NO R ELEVANCE FOR APPLICATION OF SECTION 145(3). THE LD. CIT(A) AFTER CONSIDERING ALL THESE FACTS HELD THAT AO HAS NO MATERIAL FOR REJECTING TH E BOOK RESULTS DECLARED BY THE ASSESSEE. THE DEPARTMENT HAS NOT CHALLENGED THIS FINDING OF THE CIT(A) WHERE IT IS HELD THAT SECTION 145(3) IS NOT APPLICABLE. HENCE, ON ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 86 THIS ACCOUNT ITSELF, THE GROUND OF THE DEPARTMENT B E LIABLE TO BE DISMISSED. 8.5 IT WAS FURTHER SUBMITTED THAT IN A.Y. 03-04 TO 07-08 ALSO, THE AO REJECTED THE BOOKS OF ACCOUNTS BY MAKING VARIOUS OB SERVATIONS INCLUDING THE NON MAINTENANCE OF LABORATORY TEST REPORT AND S HORTAGE OF MUSTARD SEED CLAIMED BY THE ASSESSEE AND MADE TRADING ADDIT ION. HOWEVER, THE HONBLE ITAT ACCEPTED THE BOOKS OF ACCOUNTS AND DEL ETED THE TRADING ADDITION IN A.Y. 03-04 VIDE ITA NO.415/JP/07 ORDER DT. 27.06.08, IN A.Y. 04-05 VIDE ITA NO. 359/JP/09 ORDER DT. 11.02.10, IN A.Y. 05-06 VIDE ITA NO. 910/JP/2009 ORDER DT. 07.05.2010, IN A.Y. 06-07 VIDE ITA NO. 387/JP/11 ORDER DT. 21.10.2011, IN A.Y. 07-08 VIDE ITA NO. 934/JP/11 ORDER DT. 02.12.2014. 8.6 THE LD AR FURTHER PLACED RELIANCE ON HONBLE RA JASTHAN HIGH COURT DECISION IN CASE OF PR. CIT VS. BHAWANI SILIC ATE INDUSTRIES (2016) 236 TAXMAN 0596. IN THIS CASE, ASSESSEE FIRM WAS CA RRYING ON THE BUSINESS OF MANUFACTURING OF EDIBLE OIL AND OIL CAK E FROM MUSTARD SEEDS AND SALE THEREOF. THE AO REJECTED THE BOOKS OF ACCO UNT ON THE GROUND THAT STOCK REGISTER/PRODUCTION REGISTER WERE NOT MA INTAINED QUALITY WISE AND IN THE ABSENCE OF QUALITY OF SEEDS, PROPER/ACTU AL ANALYSIS OF YIELD OF EDIBLE OIL AND OIL CAKE FROM MUSTARD OIL COULD NOT BE ASCERTAINED. HE ALSO MADE CERTAIN TRADING ADDITION BY APPLYING GP RATE. TRIBUNAL FOUND THAT EXCEPT QUALITY, QUANTITY WISE STOCK DETAILS HAD BEE N MAINTAINED AND NO OTHER DEFECT WAS NOTICED BY THE AO IN QUANTITATIVE DETAILS. ONCE STOCK REGISTER HAD BEEN HELD TO BE PROPERLY MAINTAINED AN D HAD BEEN HELD TO BE PROPER, NO TRADING ADDITION COULD HAVE BEEN MADE AND RIGHTLY SO, ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 87 EVEN OTHERWISE, MINOR DISCREPANCIES COULD RESULT IN TO REJECTION OF BOOKS OF ACCOUNTS. MERELY BECAUSE THERE WAS SOME DEFICIEN CY OF QUALITY WISE RECORD IN BOOKS OF ACCOUNTS OR MERELY BECAUSE OF RE JECTION OF BOOKS OF ACCOUNTS, IT DID NOT MEAN THAT IT MUST NECESSARILY LEAD TO ADDITION IN RETURN OF INCOME OF ASSESSEE. EVEN AO ESTIMATED THE INCOME BY MAKING ESTIMATED ADDITION BY APPLYING PARTICULAR GP RATE A LSO CIT(A) REDUCED IT , THEREFORE, THOSE TWO AUTHORITIES EVEN WHILE RESOR TING TO BEST JUDGMENT HAD NO BASIS FOR COMING TO CONCLUSION REACHED AND E VEN IN CASE OF ESTIMATED/ADHOC ADDITION, PRIMA-FACIE, SOME MATERIA L WAS REQUIRED TO BE BROUGHT ON RECORD. THUS, ORDER OF TRIBUNAL WAS JUST AND PROPER AND NO SUBSTANTIAL QUESTION OF LAW AROSE OUT OF ORDER OF T RIBUNAL. 8.7 THE LD AR FURTHER SUBMITTED THAT THE G.P. RATE OF THE ASSESSEE IS BETTER AS COMPARED TO THE LAST YEAR. THE HONBLE RA JASTHAN HIGH COURT IN CASE OF CIT VS. INANI MARBLES PVT. LTD. 316 ITR 125 HAS OBSERVED THAT IN THE ABSENCE OF ANY CHANGE IN THE FACTUAL POSITION, NORMALLY THE PROFIT RATE DECLARED & ACCEPTED IN THE PRECEDING YEAR, CON STITUTES A GOOD BASIS FOR WORKING OUT THE GROSS PROFIT. IN THE PRESENT CA SE, THE RESULT DECLARED BY THE ASSESSEE IN THE PRECEDING YEAR HAS BEEN ACCE PTED. THE G.P. RATE DECLARED DURING THE YEAR IS BETTER AS COMPARED TO T HE PRECEDING YEAR. NOT ONLY THE G.P. RATE BUT THE N.P. RATE IS ALSO BE TTER AS COMPARED TO EARLIER YEARS. IT IS A SETTLED LAW THAT, NO TRADING ADDITION IS CALLED FOR IF THE RESULT DECLARED IS BETTER AS COMPARED TO THE RE SULT DECLARED IN EARLIER YEAR. 8.8 WE HAVE HEARD THE RIVAL CONTENTIONS AND PURSUED THE MATERIAL AVAILABLE ON RECORD. IT IS NOTED THAT ON SIMILAR GR OUND OF SHORTAGE OF ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 88 MUSTARD SEEDS AND THE REASONING ADOPTED BY THE AO, THE ADDITIONS HAVE BEEN MADE IN THE EARLIER YEARS AND THE MATTER AFTER BEEN EXAMINED HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE COMPANY BY T HE COORDINATE BENCHES. FURTHER, WE DONOT SEE ANY INFIRMITY IN TH E ORDER PASSED BY THE LD. CIT(A) AND HIS FOLLOWING FINDINGS REMAIN UNCONT ROVERTED BEFORE US AND WHICH ARE HEREBY CONFIRMED: 4.3 I HAVE PERUSED THE ASSESSMENT ORDER AS WELL AS SUBMISSIONS MADE BY THE APPELLANT AND FIND THAT A LUMP SUM TRADING A DDITION OF RS. 5,00,000/- WAS MADE BY THE AO ON THE GROUND THAT CL AIM OF SHORTAGE BY THE ASSESSEE IS QUITE EXCESSIVE. AO HAS ALSO NOTED THAT SHORTAGE HAS BEEN CLAIMED IN THE MONTH OF APRIL, 2009 TO THE TUN E OF 1.610 MT, AND THEN AGAIN IN THE MONTH MARCH, 2010 OF 34.536 MT, W HEREAS NO SHORTAGE WAS CLAIMED IN THE INTERVENING MONTHS. 4.4. THE APPELLANT HAS STATED THAT COMPANY IS ENGAG ED IN THE MANUFACTURING OF OIL AND GHEE BY MEANS OF CRUSHING OF OIL SEEDS. NEW CROP OF MUSTARD SEEDS COMES IN THE MARKET IN THE MO NTH OF MARCH AND IT CONTAINS MOISTURE AND THEREFORE THE CLAIM OF SHORTA GE WAS MADE IN THOSE TWO MONTHS, AS STATED BY THE AO. COMPLETE DA Y TO DAY RECORDS, STOCK REGISTER ETC. HAVE BEEN MAINTAINED AND THEREF ORE THE ADHOC ADDITION MADE BY THE AO IS UNJUSTIFIED. NO SPECIFI C DISCREPANCY HAS BEEN POINTED OUT BY THE AO. FURTHER, RELIANCE HAS BEEN PLACED ON CERTAIN JUDICIAL DECISIONS, AS STATED ABOVE. THE G ROSS PROFIT DECLARED IS BETTER AS COMPARE TO THE EARLIER PERIOD AND THERE I S NO JUSTIFICATION FOR MAKING THE TRADING ADDITION. ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 89 I HAVE CAREFULLY CONSIDERED THE DETAILED SUBMISSION S MADE BY THE APPELLANT AND FIND FORCE IN THE ARGUMENTS TAKEN BY THE APPELLANT. IT IS SEEN THAT THE GP RATE DECLARED BY THE APPELLANT AT 8.32% FOR THE YEAR UNDER CONSIDERATION IS BETTER THAN 7.16% DECLARED F OR THE PRECEDING YEAR. AO HAS FAILED TO BRING ON RECORD ANY ADVERSE MATERIAL BEFORE REJECTING THE BOOK RESULT DECLARED BY THE APPELLANT . THUS, CONSIDERING ALL THESE FACTORS, I DELETE THE TRADING ADDITION OF RS. 5,00,000/- MADE BY THE AO ON ESTIMATE BASIS UNDER THIS HEAD. 8.9 IN LIGHT OF ABOVE DISCUSSIONS AND RESPECTFULLY FOLLOWING THE DECISIONS PASSED BY THE COORDINATE BENCHES EARLIER, THE ADHOC TRADING ADDITION OF RS. 5,00,000/- IS HEREBY DELETED. IN TH E RESULT GROUND NO. 1 OF THE REVENUE IS DISMISSED. ITA NO. 275/JP/2015 & 173/JP/2016 12. IN ITA NO. 275/JP/2015 FOR AY 2011-12 AND IN ITA NO . 173/JP/2016, FOR AY 2012-13, ADMITTEDLY, BOTH THE G ROUNDS OF APPEAL TAKEN BY THE ASSESSEE ARE SIMILAR TO GROUNDS OF APP EAL UNDER IDENTICAL FACTS AND CIRCUMSTANCES OF THE CASE AS TAKEN IN ITA NO. 110/JP/14. OUR FINDINGS AND DIRECTIONS CONTAINED IN ITA NO. 110/JP /14 SHALL THEREFORE APPLY MUTATIS MUTANDIS TO BOTH THE GROUNDS OF APPEA L FILED BY THE ASSESSEE IN RESPECT OF BOTH THE YEARS UNDER CONSIDE RATION. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE AR E ALLOWED AND THE APPEALS FILED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24/04/2017. ITA NO.110,116,704&705/JP/2014 AND 275/JP/2015 & 173/JP/2016 DEEPAK VEGPRO (P) LTD.,ALWAR VS. ACIT, CIRLE -1, ALWAR 90 SD/- SD/- DQY HKKJR FOE FLAG ;KNO (KUL BHARAT) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 24/04/2017. * SANTOSH*. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S DEEPAK VEGPRO PVT. LTD. OLD INDUSTRIAL AREA, ITARANA, ROAD, ALWAR (RAJ.). 2. IZR;FKHZ@ THE ACIT, CIRCLE-1, ALWAR. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 110,116,704 &705/JP/2014 AND 275/JP/2015 & 173/JP/2016}. VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR