Sh. Raj Kumar alias Raju Chaudhary Prop., Jammu V. The ACIT, Jammu

ITA 142/ASR/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51127 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 09-12-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 16-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P N ARORA
• Keywords: Salary income; Capital receipt
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.L. KARWA, HONBLE VICE PRESIDENT AND SH. D.K. SRIVASTAVA, ACCOUNTANT MEMBER I.T.A. NO. 142(ASR)/2010 ASSESSMENT YEAR: 2005-06 SH. RAJ KUMAR ALIAS RAJU CHUDHARY VS. A.C.I.T. PROP. M/S. TAWI CHEMICALS INDUSTRIES, CIRCLE 2, JAMMU. JAMMU PAN:ABSPK 34293 (APPELLANT) (RESPONDENT) APPELLANT BY: SH. P.N. ARORA, ADV. RESPONDENT BY: SH. TARSEM LAL, DR DATE OF HEARING :08.12.2011 DATE OF PRONOUNCEMENT:12.12.2011 ORDER PER H.L. KARWA, VP THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE CIT(A), JAMMU, DATED 22.01.2010 RELATING TO ASSESS MENT YEAR 2005-06. 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED FOLLOWIN G GROUNDS: 1. THAT THE DECISION OF LD. CIT(A) JAMMU IN SUSTAI NING ADDITION OF RS.16,96,021/- ON ACCOUNT OF DISALLOWANCE OF DEDUCT ION U/S 80IB WORKED OUT BY A.O. ON PORTION OF NET PROFIT O N ACCOUNT OF CENTRAL EXCISE DUTY REFUND IS UNWARRANTED, ARBIT RARY, INVALID AND UNCALLED FOR AND CONTRARY TO ACTUAL FACTS AND L AW. 2 2. THAT AUTHORITIES BELOW FAILED TO APPRECIATE THE FACT THAT EXCISE DUTY IS FIRST PAID BY APPELLANT ASSESSEE AND THEN R EFUNDED AND THIS MECHANISM HAS BEEN DEVISED BY EXCISE DEPARTMEN T TO CLAIM EXEMPTION FROM EXCISE DUTY AND THIS EXEMPTIO N IS AVAILABLE TO J&K STATE AND THE SYSTEM HAS BEEN PUT IN VOGUE TO ENCOURAGE INDUSTRIALIZATION IN INDUSTRIALLY BACKWAR D STATE OF J & K. 3. THAT AUTHORITIES BELOW FAILED TO RECOGNIZE THAT THE EXCISE REFUND PRE SUPPOSES THE EXISTENCE OF INDUSTRY AND T HE EXCISE DUTY IS FIRST PAID AND THEN REFUNDED. 3. ALL THE ABOVE GROUNDS ARE INTER-LINKED AND, THER EFORE, WE WILL DISPOSE OF THEM TOGETHER IN SUCCEEDING PARAGRAPHS. 4. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE HAS ESTABLISHED MANUFACTURING UNIT OF CALCIUM CARBIDE & FERRO-CHROME UNDER THE NAME AND STYLE OF M/S. TAWI CHEMICAL INDUSTRIES UNI T-1, WHICH STARTED ITS MANUFACTURING PROCESS IN THE ASSESSMENT YEAR 1998-9 9. IT ESTABLISHED SECOND FURNACE AND COMMENCED ITS OPERATION ON 15.5.2004 I. E. DURING THE CURRENT ASSESSMENT YEAR IN RESPECT OF WHICH SEPARATE BALANC E SHEET AND MANUFACTURING-CUM- TRADING ACCOUNT HAS BEEN PREPARE D. THE ASSESSEE IS ALSO RUNNING MANUFACTURING UNIT UNDER THE NAME AND STYLE OF M/S. TAWI CHEMICAL INDUSTRIES UNIT-II AND IS ENGAGED IN THE BUSINESS O F MANUFACTURING OF M.S. INGOTS. THIS UNIT WAS STARTED ON 13.8.2003 I.E. RE LEVANT TO ASSESSMENT YEAR 2004-05. IN ADDITION TO THIS THE ASSESSEE IS ALSO E ARNING INCOME FROM SALARY, HOUSE PROPERTY, INCOME FROM TRANSPORT BUSINESS AND OTHER SOURCES. WHILE 3 FRAMING ASSESSMENT, THE A.O. DISALLOWED DEDUCTION UNDER SECTION 80IB OF THE INCOME-TAX ACT, 1961 ( IN SHORT, THE ACT), ON THE AMOUNT OF REFUND OF EXCISE DUTY OF AN AMOUNT OF RS.67,84,083/-, HOLDING THAT SAME HAS NO DIRECT NEXUS WITH THE INDUSTRIAL ACTIVITIES. 5. ON APPEAL, THE LD. CIT(A) FOLLOWING THE ORDER OF THE ITAT, AMRITSAR BENCH, IN THE CASE OF SHREE BALAJI ALLOYS, KATHUA, DATED 26.11.2009, PASSED IN ITA NOS. 255/ASR/2009 & 305/ASR/2009 , CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 6. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES AND HAVE ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE PLEA TAKEN BY THE ASSESSEE IS THAT DEDUCTION OF EXCISE DUTY REFUND IS PART OF SCHEME OF CENTRAL GOVERNMENT FOR BOOSTING INFRASTRUCTURE IN THE STATE IS NOT ASSESSABLE TO INCOME-TAX BEING CAPITAL RECEIPT. IT IS SEEN THAT O RDER OF THE TRIBUNAL PASSED IN THE CASE OF SHREE BALAJI ALLOYS, KATHUA (SUPRA), WAS CHALLENGED BY THE ASSESSEE BEFORE THE HONBLE JAMMU & KASHMIR HIGH C OURT, IN APPEAL. THE ISSUE BEFORE THE HONBLE JAMMU & KASHMIR HIGH COURT WAS AS UNDER: WHETHER THE AMOUNT OF EXCISE REFUND AND INTEREST S UBSIDY RECEIVED BY THE APPELLANTS-ASSESSES, IN PURSUANCE OF THE INC ENTIVES ANNOUNCED AND SANCTIONED VIDE GOVERNMENT OF INDIA, MINISTRY O F COMMERCE AND INDUSTRY (DEPARTMENT OF INDUSTRIAL POLICY AND PROMO TION)S OFFICE MEMORANDUM NO.1(13)2000-NER DATED JUNE 4, 2002 AND CENTRAL 4 EXCISE NOTIFICATION NOS.56 AND 57, DATED NOVEMBER 1 4,2002 AND OTHER NOTIFICATIONS ISSUED ON THE SUBJECT, PERTAINI NG TO THE INDUSTRIAL POLICY INTRODUCED IN THE STATE OF JAMMU & KASHMIR, IS A CAPITAL RECEIPT AND, THUS, NOT LIABLE TO TAX UNDER THE PROV ISIONS OF THE ACT, OR REVENUE RECEIPT, AS OPINED BY THE AUTHORITIES UNDER THE ACT? 6.1. THE HONBLE JURISDICTIONAL HIGH COURT DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE, WHICH IS REPO RTED IN (2011) 333 ITR 335. THE RELEVANT OBSERVATIONS OF THE HONBLE JURIS DICTIONAL HIGH COURT ARE AS UNDER: IN THIS VIEW OF THE MATTER, THE INCENTIVES PROVI DED TO THE INDUSTRIAL UNITS, IN TERMS OF THE NEW INDUSTRIAL PO LICY, FOR ACCELERATED INDUSTRIAL DEVELOPMENT IN THE STATE, FO R CREATION OF SUCH INDUSTRIAL ATMOSPHERE AND ENVIRONMENT, WHICH W OULD PROVIDE ADDITIONAL PERMANENT SOURCE OF EMPLOYMENT T O THE UNEMPLOYED IN THE STATE OF JAMMU AND KASHMIR, WERE IN FACT, IN THE NATURE OF CREATION OF NEW ASSETS OF INDUSTRI AL ATMOSPHERE AND ENVIRONMENT, HAVING THE POTENTIAL OF EMPLOYMENT GENERATION TO ACHIEVE A SOCIAL OBJECT. SUCH INCENT IVES, DESIGNED TO ACHIEVE PUBLIC PURPOSE, CANNOT, BY ANY STRETCH O F REASONING, BE CONSTRUED AS PRODUCTION OR OPERATIONAL INCENTIVE S FOR THE BENEFIT OF ASSESSEES ALONE. THUS, LOOKING TO THE PURPOSE, OF ERADICATION OF THE SOCIAL PROBLEM OF UNEMPLOYMENT IN THE STATE BY ACCELERATIO N OF THE INDUSTRIAL DEVELOPMENT AND REMOVING BACKWARDNESS OF THE AREA THAT LAGGED BEHIND IN INDUSTRIAL DEVELOPMENT, WHICH IS CERTAINLY A PURPOSE IN THE PUBLIC INTEREST, THE INCENTIVES PR OVIDED BY THE OFFICE MEMORANDUM AND STATUTORY NOTIFICATIONS ISSUE D IN THIS BEHALF, TO THE APPELLANTS-ASSESSEES, CANNOT BE CONS TRUE AS MERE PRODUCTION AND TRADE INCENTIVES, AS HELD BY THE TRI BUNAL. MAKING OF ADDITIONAL PROVISION IN THE SCHEME THAT INCENTIVES WOULD BECOME AVAILABLE TO THE INDUSTRIAL UNITS, ENTITLED THERETO, FROM THE DATE OF COMMENCEMENT OF THE COMMERCIAL PRODUCTION, AND THAT THESE WERE NOT REQU IRED FOR CREATION OF NEW ASSETS CANNOT BE VIEWED IN ISOLATIO N, TO TREAT THE 5 INCENTIVES AS PRODUCTION INCENTIVES, AS HELD BY THE TRIBUNAL, FOR THE MEASURE SO TAKEN, APPEARS TO HAVE BEEN INTENDED TO ENSURE THAT THE INCENTIVES WERE MADE AVAILABLE ONLY TO THE BONA FIDE INDUSTRIAL UNITS SO THAT LARGER PUBLIC INTEREST OF DEALING WITH UNEMPLOYMENT IN THE STATE, AS INTENDED, IN TERMS OF THE OFFICE MEMORANDUM, WAS ACHIEVED. THE OTHER FACTORS, WHICH HAD WEIGHED WITH THE TRIBU NAL IN DETERMINING THE INCENTIVES AS PRODUCTION INCENTI VES MAY NOT BE DECISIVE TO DETERMINE THE CHARACTER OF THE INCEN TIVE SUBSIDIES, WHEN IT IS FOUND, AS DEMONSTRATE IN THE OFFICE MEMORANDUM, AMENDMENT INTRODUCED THERETO AND THE ST ATUTORY NOTIFICATION TOO THAT THE INCENTIVES WERE PROVIDED WITH THE OBJECT OF CREATING AVENUES FOR PERPETUAL EMPLOYMENT , TO ERADICATE THE SOCIAL PROBLEM OF UNEMPLOYMENT IN THE STATE BY ACCELERATED INDUSTRIAL DEVELOPMENT. FOR ALL WHAT HAS BEEN SAID ABOVE, THE FINDING OF TH E TRIBUNAL ON THE FIRST ISSUE THAT THE EXCISE DUTY RE FUND, INTEREST SUBSIDY AND INSURANCE SUBSIDY WERE PRODUCTION INCEN TIVES, HENCE REVENUE RECEIPT, CANNOT BE SUSTAINED, BEING A GAINST THE LAW LAID DOWN BY THE HONBLE SUPREME COURT OF INDIA IN SAHNEY STEEL CASE [1997] 228 ITR 253 AND PONNI SUGARS CASE [2008] 306 ITR 391. THE FINDING OF THE TRIBUNAL THAT THE INCENTIVES WER E REVENUE RECEIPT IS, ACCORDINGLY, SET-ASIDE HOLDING THE INCENTIVES TO BE CAPITAL RECEIPTS IN THE HANDS OF THE ASSESSE E. IN VIEW OF OUR ABOVE FINDING ON THE FIRST ISSUE, TH ERE IS NO NEED TO OPINE ON THE SECOND ISSUE, WHICH WAS RAISED IN THE ALTERNATIVE. 6.2. RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S. SHREE BALAJI ALLOYS, KATHUA (SUPRA), WE HOLD THE EXCISE DUTY REFUND TO BE CAPITAL RECEIPT IN THE HANDS OF ASSESSEE AND NOT LIABLE TO TAX UNDER THE PROVISIONS OF THE ACT. ACCO RDINGLY, THE AO WILL GIVE 6 RELIEF TO THE ASSESSEE AFTER VERIFYING THE CORRECT AND EXACT AMOUNT OF EXCISE DUTY REFUND. 6.3. SH. P.N. ARORA, THE LD. COUNSEL FOR THE ASSESS EE ALSO SUBMITTED THAT THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 80IB OF THE A CT ON THE AMOUNT OF EXCISE DUTY REFUND. SINCE WE HAVE HELD THAT THE EXCISE DUT Y REFUND IS A CAPITAL RECEIPT AND NOT LIABLE TO TAX UNDER THE ACT AND, TH EREFORE, WE DO NOT THINK IT NECESSARY TO GIVE COMMENTS ON THE ABOVE PLEA OF THE ASSESSEE. 7. NO OTHER POINT WAS RAISED OR ARGUED BEFORE US. 8. IN THE ABOVE TERMS, THE APPEAL OF THE ASSESSEE I S ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH DECEMBER, 2011. SD/- SD/- (D.K.SRIVASTAVA) (H.L. KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED: 12 TH DECEMBER, 2011 /SKR/ COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE:SH. RAJ KUMAR ALIAS RAJU CHAUDHARY PRO P. M/S. TAWI CHEMICALS INDUSTRIES, JAMMU. 2. THE ACIT, CIR.2, JAMMU. 3. THE CIT(A), 4. THE CIT, 5. THE SR DR TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL 7 AMRITSAR BENCH : AMRITSAR.