AI Insights
The case involves cross appeals by Dalmia Cement East Limited and the Assistant Commissioner of Income Tax, Satna, against the appellate order of the Commissioner of Income Tax (Appeals)-1, Jabalpur. The primary issues were the disallowance of 'education cess' claimed by the assessee and the taxability of a VAT subsidy received under the Jharkhand Industrial Policy. The Tribunal examined the legal provisions and amendments relevant to the claims, including the retrospective effect of the Finance Act, 2022, and the nature of the VAT subsidy under the said policy. The Tribunal's decision emphasized the legal interpretation of the terms 'capital receipt' and 'revenue receipt' and their implications for tax liability and book profit calculation under the Income Tax Act.
Appeal details
Counselvise Citation
[2022] 140 COUNSELVISE.COM (IT) 112965 (ITAT-JABALPUR)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
4 year(s) 2 month(s) 2 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
20-11-2022
Appeal Filed By
Assessee
Order Result
DismissedPartlyAllowedPartlyAllowed
Bench Allotted
DB
Next Hearing Date
22-08-2022
Assessment Year
2014-2015
Appeal Filed On
17-09-2018
Judgement Text
1 | P a g e IN THE INCOME TAX APPELLATE TRIBUNAL JABALPUR BENCH, JABALPUR (through web-based video conferencing platform) BEFORE SHRI SANJAY ARORA, HON‘BLE ACCOUNTANT MEMBER & SHRI MANOMOHAN DAS, HON'BLE JUDICIAL MEMBER I.T.A. No. 193/JAB/2018 (Asst. Year: 2014-15) I.T.A. No 223/JAB/2018 (Asst. Year: 2014-15) Revenue by : Shri Sanjay Kumar, CIT-DR Assessee by : Shri Soumen Adak, FCA Date of hearing : 23/08/2022 Date of pronouncement : 21/11/2022 O R D E R Per Sanjay Arora, AM: These are cross appeals, by the Assessee and the Revenue, directed against the appellate order dated 07/08/2018 by the Commissioner of Income Tax (Appeals)-1, Jabalpur ( ̳CIT(A)‘, for short), partly allowing the assessee‘s appeal Dalmia Cement East Limited (formerly known as Bokaro Jaypee Cement Ltd.), New Delhi [PAN : AADCB 4903 B] vs. Assistant Commissioner of Income Tax, Circle, Satna (M.P.) (Appellant) (Respondent) Assistant Commissioner of Income Tax, Circle, Satna (M.P.) vs. Dalmia Cement East Limited (formerly known as Bokaro Jaypee Cement Ltd.), New Delhi [PAN : AADCB 4903 B] (Appellant) (Respondent) ITA Nos. 193 & 223/JAB/2018 (AY: 2014-15) Dalmia Cement East Ltd. v. Asst. CIT 2 | P a g e contesting it‘s assessment under section 143(3) of the Income Tax Act, 1961 ( ̳the Act‘ hereinafter) dated 20/12/2016 for Assessment Year (AY) 2014-15. 2. Both appeals raise a single issue each. The sole Ground in the assessee‘s appeal, which we shall take up first, is the disallowance of ̳education cess‘, claimed through profit & loss account at Rs. 68.87 lacs, u/s. 40(a)(ii) of the Act. The same was not pressed at the time of hearing by Shri Adak, the ld. counsel for the assessee, in view of the amendment to s.40(a)(ii) by Finance Act, 2022, w.r.e.f. 01/04/2005 by way of Explanation-3 thereto, which reads as under:- Amounts not deductible 40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",- (a) in the case of any assessee— (i) to (ic) xxxxxxxx (ii) any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains. Explanation 3.—For the removal of doubts, it is hereby clarified that for the purposes of this sub-clause, the term "tax" shall include and shall be deemed to have always included any surcharge or by whatever name called, on such tax; Though, therefore, stated as not pressed, the same is an acceptance by the assessee to have no case on merits in view of the said amendment, even as fairly admitted to by Sh. Adak. The same, to our mind, only makes abundantly clear as to what was always the legal position, and which also explains the amendment with retrospective effect. Education cess, as specified in ss. 2(11) and 2(12) of Finance (No.2) Act, 2014, i.e., the relevant Finance Act u/s.4 of the Act, as explained by ld. CIT(A), reproducing the same in its relevant part in his order, is a surcharge and additional surcharge, explained by the Hon‘ble Apex Court in CIT vs. K. Srinivasan [1972] 83 ITR 346 (SC), as a part of income-tax, as defined u/s. 2(43) of the Act, which falls under Entry 82 in List-I of the Constitution of India. Further, that being the case, ITA Nos. 193 & 223/JAB/2018 (AY: 2014-15) Dalmia Cement East Ltd. v. Asst. CIT 3 | P a g e i.e., of it being a part of income-tax, the same shall consequently also qualify for adjustment under clause (a) of Explanation-1 to s.115JB read with clauses (iii) to (v) to Explanation-2 thereto, i.e., in computing the book-profit thereunder. All the three clauses stand coopted on the statute by Finance Act, 2008, w.r.e.f. 01/4/2001, i.e., much prior to the amendment by Finance Act, 2022, further making it clear, even as apparent, that we are deciding the same on merits and not by treating it as withdrawn. We direct accordingly, dismissing the assessee‘s appeal. 3.1 The subject matter of the Revenue‘s appeal is the exigibility to tax of the VAT subsidy received/receivable by the assessee, claimed exempt on the ground of it being a capital receipt. The brief, undisputed facts of the case are that the assessee, a company in the business of manufacturing and trading of cement, with a cement unit located in Jharkand, returned an income at Rs. 2519.86 lacs (and book- profit u/s. 115JB at Rs. 8622.16 lacs) u/s. 139(1) of the Act on 30/11/2014. Even as the same was subject to the verification procedure under the Act vide notice u/s. 143(2) dated 01/09/2015, the assessee filed a revised return u/s. 139(5) on 31/03/2016, excluding a sum of Rs. 2800.58 lacs, being VAT subsidy, i.e., at an income at nil (with a claim of carry forward of unabsorbed depreciation) and book- profit of Rs. 5821.58 lacs. The same did not find acceptance by the Assessing Officer (AO) who, relying on the decisions in Sahney Steel Works Ltd. v. CIT [1997] 228 ITR 253 (SC) and Apollo Tyres Ltd. vs. CIT [2002] 255 ITR 273 (SC), included the same, both as part of income and book-profit. 3.2 In appeal, the assessee found favour with the ld. CIT(A), who allowed the assessee‘s claim relying on the decisions in CIT vs. Ponni Sugars and Chemicals Ltd. [2008] 306 ITR 392 (SC) and Shree Balaji Alloys v. CIT [2011] 333 ITR 335 (SC), so that the impugned subsidy was a capital receipt, not in the nature of income. Accordingly, it would also not form part of the book-profit u/s. 115JB, and toward which reliance was placed on some decisions by the Tribunal, viz. Asst. CIT v. L.H. Sugar Factory [2016] 46 CCH 354 (Lkw) and Sicpa India (P.) Ltd. v. Dy. ITA Nos. 193 & 223/JAB/2018 (AY: 2014-15) Dalmia Cement East Ltd. v. Asst. CIT 4 | P a g e CIT [2017] 186 TTJ 289 (Kol) in the main. This explains the Revenue‘s appeal, raising the following grounds:- ―1. On the facts and in the circumstances of the case, the ld. CIT(A) erred in law and on facts in deleting the addition of Rs. 28,00,58,195/- on account of VAT subsidy received by the assessee under the Jharkhand Industrial Policy in computation the regular income as well as in computation of books profit under provisions of section 115JB of the Income Tax Act. 2. The ld. CIT(A) has erred in directing the Assessing Officer to re- calculate the interest consequent upon reduction in quantum of addition on the relief granted. 3. The order of the ld. CIT(A) is contrary to the facts and law.‖ 4. We have heard the parties; each relying on the order favourable to it, and perused the material on record. 5.1 We firstly observe that the assessee‘s claim is not legally maintainable as the assessee‘s return furnished on 31/03/2016, per which the impugned claim/s stands made, and it‘s regular income as well as deemed income u/s. 115JB, as originally returned, revised, does not qualify to be a ̳revised return‘ u/s. 139(5) of the Act. Shri Adak, on the Bench querying him in the matter, would submit that this issue does not arise in the instant case and, in any case, the same does not impinge on the power of the Tribunal, an as appellate authority, to admit the claim, even as observed by the Hon‘ble Apex Court in Goetze (I) Ltd. v. CIT [2006] 284 ITR 323 (SC). Sure, the Revenue (appellant) has not raised this legal issue specifically and, besides, it is well-settled that not raising a claim per a revised return would not preclude the appellant to raise it for the first time before an appellate authority. The contentions of Shri Adak are, nevertheless, for the reasons we shall presently set out, not sustainable. The argument has two limbs to it, which we shall take up in that order. 5.2 It is, to begin with, incorrect to say that the issue, i.e., if the impugned claim stands validly raised, as in fact made u/s. 139(5), which reads as under, does not arise in the given facts and circumstances of the case: ITA Nos. 193 & 223/JAB/2018 (AY: 2014-15) Dalmia Cement East Ltd. v. Asst. CIT 5 | P a g e 139. (5) If any person, having furnished a return under sub-section (1) or sub- section (4), discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year from the end of the end of the relevant assessment year or before the completion of the assessment, whichever is earlier. (emphasis, ours) Before we proceed to examine if the ̳revised‘ return in the instant case satisfies the afore-stated ingredients for a valid revision, we may clarify that the AO was conscious of the same and has raised this aspect, i.e., apart from deciding on the merits of the claim, which therefore can only be regarded as decided by him as without prejudice. Para 4.3 (at page 9) of his order reads as under:- ―4.3 It is worthwhile to add that decision of Hon'ble Apex Court in case of Ponni Sugar & Chemicals Ltd. has been rendered on 16/09/2008. The company is assisted by qualified professionals for preparing and submitting the Income Tax Return. At the time of original return filed on 30/11/2014 decision of Apex Court was available for almost long period and still assessee had declared VAT subsidy as revenue receipts and paid taxes u/s 115JB of I.T. Act 1961, i.e., the assessee-company was aware & accepted that the said decision was not applicable in his case......‖ He ends para 4.5 of his order, which is the penultimate para thereof, with the following sentence: “In view of above claim made by assessee’s revised return cannot be entertained.‖ The said reservation by the AO was correctly perceived by the assessee who, accordingly, made it‘s submissions in the matter vide para 5 of it‘s reply before the ld. CIT(A), reproduced at page nos. 32 & 33 of the impugned order, as under: ―5.0 When revised return is filed, it supplants the original return & revised return alone has to be taken into consideration in completing assessment. 5.1 Ld. A.O. in its impugned order u/s. 143(3), dated 20-12-2016, has held that the claim of the appellant regarding VAT incentive cannot be considered since the same was not lodged at the time of filing Original Return of Income dated 30-11-2015. In this regard, the appellant would like to humbly place reliance on the landmark judgment of Hon'ble Allahabad High Court in the case of Dharnpur Sugar Mills Ltd. v. CIT [1973] 90 ITR 236 (All), wherein the Court has held that once revised return is filed by the assessee, the original return stands withdrawn and assessment needs to be completed on the basis of the revised return. ITA Nos. 193 & 223/JAB/2018 (AY: 2014-15) Dalmia Cement East Ltd. v. Asst. CIT 6 | P a g e 5.2 Similarly, Hon'ble Karnataka High Court in the case of CCIT v. Machine Tool Corporation of India Ltd. [1993] 201 ITR 101 (Kar) has held that when revised return has been filed by the assessee, the original return is totally substituted by the revised return. Thereafter, revised return alone has to be taken into consideration for the purpose of completing assessment. Similar view has been adopted in the case of Beco Engineering Co. Ltd. v. CIT [1984] 148 ITR 478 (P&H). 5.3 Further, reliance may also be placed on the decision of Hon'ble Gujarat High Court in the case of Pr. CIT v. Babubhai Ramanbhai Patel [Tax Appeal No. 493 of 2017 dated 17-07-2017], wherein the Court has held that once revised return u/s. 139(5) has been filed, original return ceases to survive. 5.4 In view of the aforesaid judicial pronouncements, the appellant would like to humbly submit that there is no bar under the Income Tax Act to claim admissible deduction through revised return. Once the appellant has filed the revised return of income, the original return of income steps into the shoes of the revised return. As held by various Courts, the revised return of income shall be considered for the purpose of assessment since the Original Return of Income ceases to exist.‖ The ld. CIT(A), however, has neither discussed this aspect of the matter arising from the assessment order nor, consequently, issued any finding in its respect. In fact, even the assessee in it‘s submissions afore-referred does not meet the AO‘s objection of the claim preferred being not on account of any omission, but a conscious decision on it’s part; the decision relied upon being available for long at the time of filing the original return, which objection thus remains in effect unaddressed by the assessee-appellant before the ld. CIT(A). The AO’s finding, i.e., that the assessee revised return is not maintainable, therefore, continues to obtain. It is, accordingly, incorrect to say, as did Shri Adak before us, that this issue does not arise for consideration. The same remains unaddressed by the first appellate authority despite assessee‘s contentions, which we find as skirting the issue rather than meeting it. Further on, the issue being legal, with the relevant facts being admitted and not in dispute, we do not consider it necessary or proper to remand the matter back to the file of the ld. CIT(A) for the purpose, and shall decide the same. ITA Nos. 193 & 223/JAB/2018 (AY: 2014-15) Dalmia Cement East Ltd. v. Asst. CIT 7 | P a g e 5.3 As a bare reading of the provision (refer para 5.2) shows, a revised return can be filed on a bona fide omission or a bona fide wrong statement being discovered in the original return subsequent to filing the same u/s. 139(1) or u/s. 142(1), where it is within the time prescribed for the same, being 31/03/2016 in the instant case inasmuch as the assessment was not completed by that date. That is, the same is: a) to be voluntary; b) to correct a bona fide omission/s or wrong statement/s that has occurred in the original return, on the same being discovered; and c) to be within the time prescribed. The premise of a revised return is thus a bona fide ̳mistake‘ or inadvertence in the original return. Even as the same follows the clear, unambiguous language of the provision, this represents the uniform view across all the Hon'ble High Courts, toward which we may cite some: 1) Sulemanji Ganibhai v. CIT [1980] 121 ITR 373 (MP) 2) F.C. Agarwal v. CIT [1976] 102 ITR 408 (Gauh) 3) Amjad Ali Nazir Ali v. CIT [1977] 110 ITR 419 (All) 4) CIT v. J.K.A. Subramania Chettiar [1977] 110 ITR 602 (Mad) 5) Addl. CIT v. Radhey Shyam [1980] 123 ITR 125 (All) 6) CIT v. Haji P. Mohammed [1981] 132 ITR 623 (Ker) 7) CIT v. A. Sreenivasa Pai [2000] 242 ITR 29 (Ker) Accordingly, where found to be not in agreement with this mandate, as where the assessee had made a conscious departure from his original return, the same was held as not valid in law, on which, again, case law is uniform and legion (Deepnarayan Nagu & Co v. CIT [1986] 157 ITR 37 (MP); CIT v. Girishchandran Haridas & Ors. [1992] 196 ITR 833 (Ker); Sunanda Ram Deka v. CIT [1994] 210 ITR 988 (Gauh); CIT vs. Andhra Cotton Mills Ltd. [1996] 219 ITR 404 (AP)). This, it may be noted, is precisely what the AO adverts to when he states at para 4.3 of his order that the decision in Ponni Sugars & Chemicals Ltd. (supra), on the basis of which the assessee had revised it‘s return; the same finding mention in the computation of income accompanying the revised return (copy of record), even as mentioned in the notice u/s. 142(1) dated 16/11/2016, reproduced at page 4 of his order, being ITA Nos. 193 & 223/JAB/2018 (AY: 2014-15) Dalmia Cement East Ltd. v. Asst. CIT 8 | P a g e available at the time of furnishing the original return, and for long. In other words, there is, merits apart, a conscious departure from the stand previously taken by the assessee, i.e., per the returns filed for AYs. 2012-13 and 2013-14, and the original return for AY 2014-15, the current year. Even though, without doubt, for all purposes, it is the original return filed on 30/11/2014 that is relevant, reference to the return for preceding years is made to emphasize the fact that the same represents the continuing stand of the assessee. As explained by Shri Adak upon enquiry during hearing, the assessee‘s entitlement under the subsidy scheme was for 5 years, i.e., beginning the date of commencement of production on 01/12/2011. While no claim, he explained, was preferred for AYs. 2012-13 & 2013-14, as well as per the original return for the current year (AY 2014-15), it was for AY 2015-16 (not on record), which though was not selected for being subject to verification, while the law was amended w.e.f. AY 2016-17, so that no claim for the said or the following year could be made. That is, the claim was not preferred even as the assessee had applied for and claimed the impugned subsidy/incentive, with it‘s audited accounts for all the years, including for the years for which the claim was preferred, continuing to reflect the subsidy as a part of it‘s operating income, conveying clearly it‘s understanding of the same as being on revenue account, which further found endorsement by the Auditor, who did not report adversely thereon, either in the Notes to the Accounts, or in his report. The same, it may be noted, has a direct bearing on the subject matter of his report, the primary objective of which is to obtain, on the basis of the evidences led, and the explanations furnished by the auditee, an opinion by an expert as to if the Auditee‘s accounts reflect a true and fair picture of it‘s operating results for the accounting period, as well as of it‘s state of affairs at its end. Further, the decision, i.e., Ponni Sugars & Chemicals Ltd. (supra), stated to be the basis of revision, was available for several years prior to the filing of the original return of income in November, 2014. In fact, it does not hold any differently; rather, follows the same purposive test propounded by the former, i.e., Sahney Steel Works Ltd. (supra). Further still, and in any case, it cannot be regarded ITA Nos. 193 & 223/JAB/2018 (AY: 2014-15) Dalmia Cement East Ltd. v. Asst. CIT 9 | P a g e as a change of law which, where so, could be validly taken into account, as it may well be that a later decision, though available, did not come to the notice of the assessee-company till after filing the original return for the current year. No case for any change in law, but only of it being applicable in the facts and circumstances of the case, has been made before us, i.e., even on merits, even as we also do not observe any such change. In other words, the plea taken, besides being inapplicable on facts, false. The assessee‘s revised return, thus, does not qualify to be a revised return u/s. 139(5). Needless to add, the assessee‘s case before the ld. CIT(A), and even before us, did not concern the said fundamental aspect, but was, citing case law, based on the revised return substituting/replacing the original return. True, and it is nobody‘s case that it is not so, but that would only be where it first qualifies to be a revised return, which we have found it to not. Further, the assessee‘s claim before us, that this would not impact it‘s case inasmuch as non-preferring a claim before the AO (u/s. 139(1)) would in any case not impact it‘s right to do so before the Tribunal for the first time, again, misses the point. The argument would be valid where the assessee had not preferred the claim per the revised return, and not, on the contrary, where it actually has, and is found, in the given facts and circumstances of the case and the law in the matter, as not qualified for being so made; the leeway provided by law – and unmistakably so, being to correct bona fide mistakes, and not to raise fresh issues on a change of opinion/stance. It is trite law that what can not be done directly and also cannot be done indirectly, as that would amount to by-passing the law, which cannot have the approval of the judicial system (refer: Goetze (I) Ltd. v. CIT [2006] 284 ITR 323 (SC); Indian Bank’s Association vs. Devkala Consultancy Service AIR 2004 SC 2615; Orissa Rural Housing Development Corp. Ltd. v. Asst. CIT [2012] 343 ITR 316 (Ors)). Rather, as we see it, given the unambiguously clear statutory mandate of s. 139(5), and the unequivocal judicial opinion, it is a clear case of an abuse of the process of law. ITA Nos. 193 & 223/JAB/2018 (AY: 2014-15) Dalmia Cement East Ltd. v. Asst. CIT 10 | P a g e 5.4 We may, nevertheless; in view of the claimed overlapping in law (refer para 5.1), also consider the claim as if it was made for the first time before us; the issue being primarily legal, law on which is well-settled. We may toward this refer to the decision by the Apex Court in Jute Corporation of India Ltd. v. CIT [1991] 187 ITR 688 (SC) which, being by it‘s larger Bench, holds the field. The same though in respect of the appellate power of the first appellate authority, is equally applicable for the Tribunal. It held as under: ―(i) Power to tax on discovery of a new source of income is quite different from granting deduction on the admitted facts fully supported by the decision of the Supreme Court. If the tax liability of the assessee is admitted and if the Income-tax Officer is afforded an opportunity of hearing by the appellate authority in allowing the assessee‘s claim for deduction on the settled view of the law, there is no good reason to curtail the powers of the appellate authority under section 251(1)(a) of the Income-tax Act, 1961. (ii) An appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellant authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income-tax Officer. (iii) The observations in the case of Gurjargravures P. Ltd. [1978] 111 ITR 1 (SC) do not rule out a case for raising an additional ground before the Appellate Assistant Commissioner if the ground so raised could not have been raised at the stage when the return was filed or when the assessment order was made or if the ground became available on account of change of circumstances or law. There may be several factors justifying the raising of such a new plea in an appeal, and each case has to be considered on its own facts. If the Appellate Assistant Commissioner is satisfied, he would be acting within his jurisdiction in considering the question so raised in all its aspects. He must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. While permitting the assessee to raise an additional ground, the Appellate Assistant Commissioner should exercise his discretion in accordance with law and reason.‖ (emphasis, ours) The law, thus, postulates the same reasons, viz. bona fides, change of circumstances or in law, etc. which would validate a return u/s. 139(5), justifying the exercise of appellate power in admission of a new claim. In the facts of that case, the additional ITA Nos. 193 & 223/JAB/2018 (AY: 2014-15) Dalmia Cement East Ltd. v. Asst. CIT 11 | P a g e ground was occasioned by the decision by the Apex Court in Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971 82 ITR 363 (SC), coupled with the fact that the purchase-tax liability, disputed by it, was decided against it in the appellate proceedings under the relevant tax statute. In the instant case, no reason has been explained despite the AO questioning the same. On the contrary, we find the stated reason for the claim, i.e., the decision in Ponni Sugars and Chemicals Ltd. (supra), as not a valid reason for pressing a claim for the first time, again for the same reason, i.e., the said decision having been, firstly, rendered years ago, even prior to the filing the original return and, two, it only adopts the law as laid in Sahney Steel Works Ltd. (supra). The assessee‘s case is, thus, also not liable in law for admission on the ground of it raising a legal plea. 5.5 Continuing further, the issue arising is avowedly a mixed question of fact and law. This is as it is only on a perusal of the objects and the terms of the scheme under which the subsidy/grant is given, that, given the clear law that it is the purpose for which the subsidy is allowed, on capital or revenue account, i.e., to subsidize the project cost and, thus, enable setting it up, or to enable carrying on the business or doing it more profitably, the matter could be determined. Why, Shri Adak would himself, toward the same, take us through different parts of the Policy (at PB pgs. 37-38, 95-96, 120-129/130), placed in the assessee‘s paper-book, to emphasize the character of the subsidy, i.e., while arguing the assessee‘s case on merits. That is, apart from the case law relied upon. Both the assessment and the appellate order reproduce the object clause of the relevant policy, i.e., Jharkhand Industrial Policy 2012, under which the impugned subsidy stands granted, though arrive at different conclusions, so that the issue before us is essentially factual. Inference/s of fact is as much a finding of fact, and it is this different findings of fact that has resulted in the varying orders by the assessing and the first appellate authority in the instant case. And which shall be, on similarly perusing the Policy, required to approve/disapprove while considering the issue on the merits of the claim. Why, even in the various decisions by the Hon‘ble Apex Court and the ITA Nos. 193 & 223/JAB/2018 (AY: 2014-15) Dalmia Cement East Ltd. v. Asst. CIT 12 | P a g e Hon'ble High Courts referred to by the assessee, it is the terms of the policy that have been referred to for arriving at a decision one way or the other, which may though require further, corroborative facts. It is only where the issue is purely legal, with the relevant facts admitted and not in dispute, that a ground could be raised before us for the first time. This explains our exploring the nature of the issue raised before us, assuming it to be for the first time, to find it as being a mixed question of fact and law. 5.6 In our clear view, therefore, the assessee‘s claim is, in view of the settled law, not admissible in the given facts and circumstances of the case. 6.1 We may, next, and without prejudice, examine the assessee‘s case on merits. 6.2 The law that governs the matter is no different from what it is qua the nature of a receipt, i.e., capital or revenue, with abundant case law by the Apex Court itself. We need not, however, travel thereto, as the decision in Sahney Steel Works Ltd. (supra), since followed and adopted by it in it‘s subsequent decisions, is a torch bearer, rendered on a review of judicial precedents. As explained by it: ―If payments in the nature of subsidy from public funds are made to the assessee to assist him in carrying on his trade or business, they are trade receipts. The character of the subsidy in the hands of the recipient - whether revenue or capital - will have to be determined having regard to the purpose for which the subsidy is given. The source of the fund is quite immaterial. However, if the purpose is to help the assessee to set up its business or complete a project the monies must be treated as having been received for capital purposes. But if monies are given to the assessee for assisting him in carrying out the business operations, and the money is given only after and conditional upon commencement of production, such subsidies must be treated as assistance for the purpose of the trade.‖ (emphasis, ours) Accordingly, it held as under: ―The payments were nothing but supplementary trade receipts. It was true that the assessee could not use this money for distribution as dividend to its shareholders. But the assessee was free to use the money in its business entirely as it liked and was not obliged to spend the money for a particular purpose. The subsidies had not been granted for production of, or brining into existence any new asset. The subsidies were granted year after year, only after the setting up of the new industry and commencement of production. Such a subsidy could only be treated as assistance given for the purpose of carrying on of the business of ITA Nos. 193 & 223/JAB/2018 (AY: 2014-15) Dalmia Cement East Ltd. v. Asst. CIT 13 | P a g e the assessee. The subsidies were of revenue nature and would have to be taxed accordingly. (emphasis, ours) 6.3 In Ponni Sugars and Chemicals Ltd. (supra), relied upon by the assessee, the Hon‘ble Court went back to Sahney Steel Works Ltd. (supra), to reiterate the purposive test laid down therein, with a view to determine the character of the receipt. That is, the purpose for which the subsidy was given, so that if the object of the subsidy, as was case in Sahney Steel Works Ltd. (supra), is to enable the assessee to run the business or to run its more profitably, it would be on revenue account. And if, on the other hand, it was to set up a new unit or expand the existing unit, it is on capital account. This being the basic test, it went on clarify that the point of time when the subsidy was given, or the source from which it was, including the form or mechanism through which it was given, irrelevant and immaterial (para 14). It is thus this purpose, on applying this basic test, as discerned on a perusal of the Policy, which is to guide the decision. The Hon'ble Court went on to note that, as opposed to Sahney Steel Works Ltd. (supra), the assessee (in Ponni Sugars & Chemicals Ltd. (supra)) was not free to use the amount received in any manner, but was obliged, as noted by it with reference to clause (7) of the policy/scheme earlier (at para 5), to repay the term loans undertaken to set up the undertaking or for expansion of the existing unit, as indeed was the case in Seaham Harbour Dock Co. v. Crook [1931] 16 TC 333 (HL), referred to and adopted by the Apex Court in Sahney Steel Works Ltd. (supra). The subsidy was accordingly found as not given in the course of trade, as claimed by the Revenue, but as capital in nature (paras 16, 17). In CIT v. Chaphalkar Brothers [2018] 400 ITR 279 (SC), the Apex Court, after reiterating the law as explained by it in it‘s earlier judgments, decided the issue with reference to the provisions of the Act under which the subsidy was given, reproducing the same as under: ―26. In coming to the West Bengal cases, we find that the West Bengal Finance Act, 2003 which amended the Bengal Amusements Tax Act of 1922 also provided: The Bengal Amusements Tax Act, 1922. ITA Nos. 193 & 223/JAB/2018 (AY: 2014-15) Dalmia Cement East Ltd. v. Asst. CIT 14 | P a g e The provision seeks to provide, in order to encourage development of multiplex theatre complex, a very modern and highly capital-intensive entrainment centre, financial assistance to the proprietors of such complex by allowing them to retain, by way of subsidy, the amount of entertainment tax collected against the value of ticket for admission to such multiplex theatre complex for a period not exceeding four years; 27. Since the subsidy scheme in the West Bengal case is similar to the scheme in the Maharashtra case being to encourage development of Multiplex Theatre Complexes which are capital intensive in nature, and since the subsidy scheme in that case is also similar to the Maharashtra cases, in that the amount of entertainment tax collected was to be retained by the new Multiplex Theatre Complexes for a period not exceeding four years, we are of the view that West Bengal cases must follow the judgment that has been just delivered in the Maharashtra case.‖ The Apex Court in that case also noted with approval the decision in Shree Balaji Alloys (supra), as under: ―24. After setting out both the Supreme Court judgments referred to hereinabove, the High Court found that the concessions were issued in order to achieve the twin objects of acceleration of industrial development in the State of Jammu and Kashmir and generation of employment in the said State. Thus considered, it was obvious that the incentives would have to be held capital and not revenue. Mr. Ganesh, learned Senior Counsel, pointed out that by an order dated 19.04.2016, this Court stated that the issue raised in those appeals was covered, inter alia, by the judgment in Ponni Sugars & Chemicals Ltd. case (supra) and the appeals were, therefore, dismissed. 25. We have no hesitation in holding that the finding of the Jammu and Kashmir High Court on the facts of the incentive subsidy contained in that case is absolutely correct. In that once the object of the subsidy was to industrialize the State and to generate employment in the State, the fact that the subsidy took a particular form and the fact that it was granted only after commencement of production would make no difference.‖ This sums up the assessee‘s case, toward which the reference was made by Shri Adak primarily to the object clause (para 2) and subsidy/incentive on VAT (para 32.5) of the Policy (PB pgs.37-38, 95-96). The Revenue, on the other hand, would rely on the same parts of the policy as well as on the decision in Sahney Steel Works Ltd. (supra). ITA Nos. 193 & 223/JAB/2018 (AY: 2014-15) Dalmia Cement East Ltd. v. Asst. CIT 15 | P a g e 6.4 We have given our careful consideration to the matter. Subsidy/incentive, which is by way of refund of VAT (Value Added Tax), levied on purchase and sale of goods, at 75% of the net VAT (difference between VAT realised and paid, on output and input respectively), is not in pursuance of any specific subsidy scheme, but a part of Jharkhand Industrial Policy, 2012 (PB pgs.32-127), which succeeds the earlier (2001) policy. The VAT subsidy/incentive is listed at para 32.5 of the Policy, whose salient features, insofar as the assessee is concerned, are as: a) it is to be for a duration of 5 years (para 32.5 (a)); b) cement units shall be included provided they use at least 25% (by weight) of ̳Fly Ash‘ or ̳Blast Furnace Slag‘ as raw material and, two, the product conforms to BIS or equivalent international standard (para 32.5(d)(ii)); c) subsidy shall be by way of reimbursement, on an annual basis, and claim entertained after working for full one financial year (para 32.5 (i/j)); d) the unit shall have to maintain tax compliance for the same number of years for which it has availed VAT reimbursement, as for 5 years in the instant case (para 32.5 (l)) e) the subsidy shall be capped at 75% of the fixed capital investment (para 32.5 (d)(i)/(ii)); and f) the State reserves the right to take appropriate directions, including amendment, deletion or substitution of any incentives as granted in this policy after the implementation of the goods and service tax system in the state. (Noted, with emphasis, below para 32.5 of the Policy) The incentive, thus, is available to all existing as well as new units, as delineated in the Scheme. Clearly, the policy uses incentive/subsidy as an instrument to attract Industries in specified sectors or locations (within the State). The Industries included are irrespective of the time when they are set up or commence production. Only the Industries under production would thus be entitled to the subsidy, which is to be on production after the commencement of the Policy. However, as long as production stands commenced, either before or after coming into effect of the Policy, which thus becomes a condition precedent for availing subsidy, the time of said commencement becomes irrelevant. Cement units are included as they have the potential of reducing pollution inasmuch as they could use the industrial waste ITA Nos. 193 & 223/JAB/2018 (AY: 2014-15) Dalmia Cement East Ltd. v. Asst. CIT 16 | P a g e generated by other industries. Actual user, at a threshold of 25% by weight of such waste, while maintaining product standard, is an essential condition for cement units for being eligible for VAT reimbursement. How could, that being the case, it be said that the VAT incentive is toward subsidising the project cost? A project set up years prior to the commencement of the Policy would, if it otherwise qualifies therefor, be eligible for reimbursement of VAT, while another, which does not so qualify, would not be entitled thereto even if set up or commences production after the Policy comes into force. The project cost, for which the books of account would be determinative, may, for existing units, have since been recovered by the enterprise through depreciation, a non-cash charge. However, as long it promotes a cleaner environment, it shall be entitled to the VAT incentive. The Scheme, thus, rather, becomes much more of an incentive for the existing units, as, having been established, and capital cost recovered, or nearly so, they would yet be entitled to subsidy at the same rate on satisfying the user test as the newly set-up units. Further, their products and product lines having been established, and processes stabilized, the same would normally fetch higher realisation and/or suffer lower costs and, consequently, a higher VAT reimbursement. Needless to add, there is no obligation to use the subsidy in any manner, even as indicated in the instant case by the credit of the incentive by the assessee-company to its profit & loss account (operating statement) for the year. This is also the reason that the Policy has revival of sick units as one of its objects (# 2.11). There is in fact no whisper of subsidising the capital cost in it‘s relevant part. The Policy is in fact a very comprehensive document, envisaging and addressing a range of objectives, and to be administered by the industrial area development authority. It has separate sections for mines, water, infrastructure, human resources development, skills and entrepreneurship development, strategy, export promotion, sickness etc., as indeed for separate industries, viz. agro food processing; automobiles and auto component energy; information technology (IT); biotechnology; tourism; film industry, etc. (para 32.1). Para 32 of the Policy (of which para 32.5, relating to VAT incentive, is a part) is ITA Nos. 193 & 223/JAB/2018 (AY: 2014-15) Dalmia Cement East Ltd. v. Asst. CIT 17 | P a g e titled ̳Incentives and Concessions‘. Para 32.1 is in respect of Comprehensive Project Investment Subsidy (CPIS), which seeks to subsidise the investment in mega projects at defined rates varying from 7% to 15% of the qualifying amount of investment depending upon their location, subject to a maximum of Rs. 5 crores, to be paid over a period of 5 years, @ 20% each year. Stamp duty and registration fee is also to be reimbursed @ 50%/100%, depending upon direct employment per acre of land. That is, it is one time subsidy, based on investment criteria, made in non- excluded projects, viz. Mega, and, further, in specified items. It is this subsidy (CPIS), then, and not the VAT subsidy (VATS), that is the capital subsidy under the Policy, to which there has surprisingly been no reference by the assessee at any stage. No wonder, the assessee has in it‘s audited accounts neither accounted for the subsidy as a capital receipt nor reduced it from the capital cost of the project, which it is obliged to, both in terms of Accounting Standards as well as s. 43(1) of the Act, but accounted for as part of operating income. There is, again surprisingly, no whisper of the purpose of the incentive/ subsidy, or an explanation for the adopted accounting treatment, in annual accounts, which have been made a part of record in a truncated manner. Its credit to the operating income statement of the assessee- company, as revenue from operations, which is constant throughout, clearly suggests of it, in it‘s opinion, arising to it on revenue account by way of accretion to it‘s revenues. Nothing more and, nothing less. In fact, the said accounting treatment, and the preparation of the annual accounts, the prime purpose of which is the representation of the true and fair statement of the operating results of the enterprise for the accounting period and of it‘s affairs as at the end thereof, and claim of depreciation u/s. 32(1) in breach of ss.43(1) and 43(6), defeats it‘s case at the threshold. Sec. 43(1) of the Act defines ̳actual cost‘ of an asset, so that it is the actual expenditure incurred on acquisition of the asset and bringing it to its working condition for intended use, i.e., the cost to the assessee by definition, as reduced by any part thereof met directly or indirectly by any other person or authority, which is to be taken into account for the purposes of sections 28 to 41 as well as s. 43 of the ITA Nos. 193 & 223/JAB/2018 (AY: 2014-15) Dalmia Cement East Ltd. v. Asst. CIT 18 | P a g e Act. No reduction in cost in respect of VAT incentive has been stated in computing depreciation u/s. 32(1) r/w s. 43(1). In sum, the VAT subsidy/incentive, by refunding by the State a part (75%) of the net VAT realised from an enterprise, only seeks to augment the revenue realised from operations, i.e., is wholly revenue in character, without any reference to the date of commencement of production, with a view to facilitate its operations and help stabilize it by increasing the realisation on sale of output. Any product sold in the market which is not exempt from VAT, is at a price inclusive of this tax, so that the enterprise suffers, in effect, a reduced VAT outgo. Indeed, revival of sick units is also one of the policy objects (para 2.11). Would not that, one may ask, meet the object of industrialization? We say so, as industrialization, surely a Policy object, was argued as being indicative of the capital nature of the VAT subsidy. The argument is tenuous. Could, even as questioned by the Bench during hearing, to no answer by Shri Adak, industrialisation be attributed to setting up of industries any more than to running them? Further, that the same is kept at 75% of the fixed investment (in project) would not detract from the revenue nature thereof, which is to be determined on the basis of its purpose, i.e., the purposive test aforesaid. No State could possibly provide fiscal support for an indefinite period of time or without any financial limit. The said capping, as indeed of the time limit of 5 years, is only to place an outer limit to the fiscal support that the State commits itself to under the Policy, allowing thereby the beneficiary units to stabilise their operations. In fact, even here, it makes a disclaimer by reserving a right to amend, delete, substitute, etc. any incentive upon the implementation of Goods and Service Tax (GST). This is, again, apparently done as the State was not clear as to the impact on it‘s revenues under the GST regime. There is thus no question of VAT subsidy/incentive being a capital grant with a view to subsidise or meet the project cost, as is clearly the case with CPIS, another subsidy under the same Policy, making a clear distinction between the two. ITA Nos. 193 & 223/JAB/2018 (AY: 2014-15) Dalmia Cement East Ltd. v. Asst. CIT 19 | P a g e 6.5 Next, we may consider the consequence of the unstated and unexpressed (in any document, except of course the revised return of income for the current year or, for that matter, the returns for the subsequent two years) understanding of the VAT subsidy/incentive being toward the capital cost of the project and, thus, a capital receipt. The accounting treatment under AS-12, titled ̳Accounting for Government Grants‘, which is the applicable AS, reads as under in its relevant part: Main Principles 13. Government grants should not be recognised until there is reasonable assurance that (i) the enterprise will comply with the conditions attached to them, and (ii) the grants will be received. 14. Government grants related to specific fixed assets should be presented in the balance sheet by showing the grant as a deduction from the gross value of the assets concerned in arriving at their book value. Where the grant related to a specific fixed asset equals the whole, or virtually the whole, of the cost of the asset, the asset should be shown in the balance sheet at a nominal value. Alternatively, government grants related to depreciable fixed assets may be treated as deferred income which should be recognised in the profit and loss statement on a systematic and rational basis over the useful life of the asset, i.e., such grants should be allocated to income over the periods and in the proportions in which depreciation on those assets is charged. Grants related to non- depreciable assets should be credited to capital reserve under this method. However, if a grant related to a non-depreciable asset requires the fulfilment of certain obligations, the grant should be credited to income over the same period over which the cost of meeting such obligations is charged to income. The deferred income balance should be separately disclosed in the financial statements. 15. Government grants related to revenue should be recognised on a systematic basis in the profit and loss statement over the periods necessary to match them with the related costs which they are intended to compensate. Such grants should either be shown separately under ̳other income‘ or deducted in reporting the related expense. 21. The amount refundable in respect of a grant related to revenue should be applied first against any unamortised deferred credit remaining in respect of the grant. To the extent that the amount refundable exceeds any such deferred credit, or where no deferred credit exists, the amount should be charged to profit and loss statement. The amount refundable in respect of a grant related to a specific fixed asset should be recorded by increasing the book value of the asset or by reducing the capital reserve or the deferred income balance, as appropriate, by the amount refundable. In the first alternative, i.e., ITA Nos. 193 & 223/JAB/2018 (AY: 2014-15) Dalmia Cement East Ltd. v. Asst. CIT 20 | P a g e where the book value of the asset is increased, depreciation on the revised book value should be provided prospectively over the resident useful life of the asset. Disclosure 23. The following should be disclosed: (i) the accounting policy adopted for government grants, including the methods of presentation in the financial statements; (ii) the nature and extent of government grants recognised in the financial statements, including grants of non-monetary assets given at a concessional rate or free of cost.‖ It, therefore, becomes incumbent on the business enterprise to either credit such ̳capital subsidy‘ directly to the capital reserve, or to reduce the cost of the related fixed (capital) assets, presenting them in the balance-sheet at reduced (book) value. This has not been done. There is, alternatively, no release of the subsidy to the profit & loss account, i.e., to the extent it relates to the depreciable assets, so as to offset the deprecation charge to the operating income statement in their respect. A grant on revenue account is to be, on the other hand, credited to the operating statement, matching the credit with the related cost/s, if any, or even presented by way of reduction therefrom. Surely, being toward supplementing it‘s revenues, the same is credited directly to the operating statement for the sum received/receivable under the Policy, under the account head ̳revenue from operations‘. What does that mean? Very clearly, and simply, that the same has not been considered by the assessee as a capital grant except, as afore-stated, in the tax returns, but as on revenue account. The same is further in agreement with the accounting treatment for the preceding year, i.e., fy 2012-13 – whereat the VAT subsidy was in fact even at a higher amount (Rs. 3674.21 lacs) than for the current year, as was again presumably the case for fy 2011-12. The annual statements placed on record (PB pgs.128-130) do not include the ̳Significant accounting policies and Notes to the accounts‘ (Sch. 1 & 2). Why, unless, inferably, the same is not supportive of it’s case. A failure to adduce the best evidence that a party can furnish, being that which is supposed to be in its possession, would raise the presumption as to an adverse inference (Union of ITA Nos. 193 & 223/JAB/2018 (AY: 2014-15) Dalmia Cement East Ltd. v. Asst. CIT 21 | P a g e India v. Rai Deb Singh Bist [1973] 88 ITR 200 (SC); Kalayani Medical Store v. CIT [2016] 386 ITR 387 (Cal); CIT v. Krishnaveni Ammal [1986] 158 ITR 826 (Mad)). The Disclosure requirement, it may be noted, is an integral part of AS, which is applicable in law, i.e., qua the preparation and presentation of financial statements, both under Companies Act, 1956 and Companies Act, 2013. The non-furnishing of the relevant Schedules to the annual accounts before us is clearly deliberate, entitling an adverse inference. That apart, the presumption in law would only be that the accounting treatment is consistent with the AS and, further, that the Auditor is in agreement therewith. Further, AS-12 itself is only in agreement with the fundamental accounting precept of capital and revenue receipts, even as the ASs by ICAI have since, i.e., w.e.f. 01/10/1998, acquired statutory force u/s. 211 of the Companies Act, 1956, and which continues under Companies Act, 2013. In sum, the accounting treatment by the assessee-company, which is consistent with the AS, since mandatory under law, clearly reflects, and is in agreement with the understanding of VAT subsidy/grant arising to it as being toward supplementing its revenues and, thus, on revenue account. We next, and in continuation, advert to s. 43(1), referred to earlier, which in its relevant part reads as under: ―Definitions of certain terms relevant to income from profits and gains of business or profession. 43. In sections 28 to 41 and in this section, unless the context otherwise requires— (1) "actual cost" means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority: Provided that where the actual cost of an asset, being a motor car which is acquired by the assessee after the 31st day of March, 1967, but before the 1st day of March, 1975, and is used otherwise than in a business of running it on hire for tourists, exceeds twenty-five thousand rupees, the excess of the actual cost over such amount shall be ignored, and the actual cost thereof shall be taken to be twenty-five thousand rupees: Provided further ........ Explanation 10—Where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other ITA Nos. 193 & 223/JAB/2018 (AY: 2014-15) Dalmia Cement East Ltd. v. Asst. CIT 22 | P a g e person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee: Provided that where such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee. Now, even as the assessee, by own admission (of course only per tax returns under the Act, as indeed per pleading in tax proceedings), regards the VAT subsidy/ incentive as toward subsidising and meeting the project cost, it does not, quizzically, reduce the subsidy amount from the capital cost of the fixed assets for the purpose of depreciation allowance u/s. 32(1) of the Act. We find no answer or any explanation to this at any stage. That is, even as we find the assessee‘s stand per the revised return untenable, it makes it internally inconsistent, both with it‘s accounts and w.r.t. the applicable provisions of the Act. That is, irrespective of and without prejudice to the accounting treatment aforesaid, where the assessee regards the VAT incentive as toward project cost, subsidizing it‘s actual cost, which forms the basis for it regarding it as a capital receipt and not income, it is only the cost of different assets, net of that met directly or indirectly, that is liable for depreciation, which is without doubt being claimed without such reduction. We are conscious that sec. 2(24) stands amended to include as income any subsidy, grant, etc. from the Central or a State Government (or any other body or authority etc.), other than, inter alia, which is taken into account for determination of actual cost u/s. 43(1) r/w Explanation 10 thereto, by Finance Act, 2015 w.e.f. 01/04/2016. How would that, one wonders, alter the legal position of a subsidy received prior to the previous year relevant to AY 2016-17, as the current year, on revenue account, as taxable as income under the Act? And, further, where received toward the cost of an asset/s, as liable to be reduced in reckoning it‘s cost for computing depreciation thereon under the Act? The definition of income u/s. 2(24) is, to begin with, inclusive, and not ITA Nos. 193 & 223/JAB/2018 (AY: 2014-15) Dalmia Cement East Ltd. v. Asst. CIT 23 | P a g e exhaustive in character. The same, further, includes ―profits and gains‖, which thus would include profits and gains of any business carried on by the assessee assessable u/s. 28(i) (s. 2(24)(i)), as indeed any sum taxable u/s. 28(iv) (s.2(24)(va)), being the value of any benefit or perquisite, whether convertible into money or not, arising from business. Reading otherwise would make light; rather, a travesty of the plethora of judgments by the Hon'ble Apex Court qua the nature of a capital or revenue receipt, as indeed in Sahney Steel Works Ltd (supra), laying down the ̳purposive test‘ after a review of judicial precedents, and which stands adopted and followed by a series of decisions by it since, also referred to in this order, settling the law in the matter. It is, again, needless to add, the ratio decidendi of a judgment, i.e., the statement or the governing principle of law, that has precedence value and is judicial binding, and not its application in the facts and circumstances of the case as found. It is this difference that results in varying decisions given the same law, as indeed in the instant case as well; the common denominator all through being the purposive test, i.e., the nature and purpose of the grant, found by us as on capital and revenue account for CPIS and VATS respectively. The assessee‘s stand, which it now adopts, is self-contradictory. Though, true, there is no estoppel against law – which we find in effect unchanged, there is no warrant for the changed stance. It‘s earlier and consistent stand, besides being backed by the Policy statement, which is explicit in it being a revenue grant, is implicit in it‘s declared understanding of the incentive being revenue from operations; the regular accounts having evidentiary value u/s. 34 of the Evidence Act, as indeed the Auditor‘s – who we infer as having not reported adversely thereon, opinion, which carries the status of an expert‘s opinion. That is, by all available accounts, the changed stance is no more than a duplicity and an artifice. Whichever way thus one may look at it, the assessee‘s case is a non-starter, without any factual or legal basis. The only manner for it to have raised a valid claim in its respect was to, stating the basis for it‘s changed stance, reduce the subsidy amount (estimated for the period of its tenure), from the cost of the project inasmuch as it ITA Nos. 193 & 223/JAB/2018 (AY: 2014-15) Dalmia Cement East Ltd. v. Asst. CIT 24 | P a g e ̳claims‘ the same to be received toward setting up the project, u/s. 43(1), even if after the commencement of production. Furthermore, the annual accounts for the subsequent years should in any case explain the changed stand, as indeed bear the necessary adjustments. It is this that led us to state earlier of it defeating it’s own case. Merits apart, the same also has a debilitating impact on it‘s case u/s. 139(5), as indeed raising a legal plea for the first time in view of the admitted undisputed facts, being both internally inconsistent and sans bona fides. 6.6 Finally, we may consider the assessee‘s case on merits qua book profit u/s. 115-JB. It is, placing reliance on decisions by the Tribunal, as in L.H. Sugar Factory (supra); Sicpa India Pvt. Ltd. (supra); and Asst. CIT v. J.S.W. Steel [2019] 112 taxmann.com 55 (Mum), stated that the impugned subsidy being a capital receipt and not in the nature of income, is liable to be reduced from the profit disclosed per the profit and loss account in computing book-profit u/s. 115JB. The decision in Apollo Tyres Ltd. (supra) is inapplicable as the same concerned income exempt under the Act, but not receipt which is not in the nature of income at all. That is, once a receipt is a capital receipt, not in the nature of income as defined u/s. 2(24) of the Act, the same cannot be regarded as coming within the fold of book- profit u/s. 115JB of the Act, also distinguishing the decision in Apollo Tyres Ltd. (supra) by the Apex Court on that basis. Our finding qua this is two-fold, as under: [[ (A) The argument, its merits apart, is not tenable on facts. The moot question, having regard to the facts of the case, is if the VAT subsidy credited to the profit & loss account as ̳revenue from operations‘ is a capital receipt. We have found it as not. The argument, thus, is not applicable in the facts of the case and, in any case, does not help the assessee‘s case in face of our clear finding of the VAT subsidy to be indeed, as described, revenue from operations. VAT, as indeed sales-tax, inasmuch as the price of goods to the customer is inclusive thereof, is part of trading receipt (Chowringhee Sales Bureau P. Ltd. [1973] 87 ITR 542 (SC); Sinclair Murray & Co. P. Ltd. v. CIT [1974] 97 ITR 615 (SC)). The reimbursement of a part ITA Nos. 193 & 223/JAB/2018 (AY: 2014-15) Dalmia Cement East Ltd. v. Asst. CIT 25 | P a g e thereof by the State Government would thus assume the same character. Why, the assessee-company itself regards it as so, i.e., going by it‘s regular accounts, which have not been shown as violating the accounting principles or the applicable accounting standards or in violation of the provisions of the governing Act, i.e., the Companies Act. Like-wise, indeed, is the case w.r.t. the provisions of Act, where we have found it as claiming depreciation without reducing the cost stated to be met by the State Government. The assessee‘s case qua book-profit is, again, false. (B) In our clear opinion, though, the argument advanced is also not valid in law. Capital gain chargeable u/s. 45, admittedly a capital receipt, is income u/s. 2(24)(vi) of the Act. Similarly, receipts u/s. 28(va), 56(2) [(v) to (vii)], et. al., to cite some, all admittedly capital receipts, are though income under the Act, falling under separate clauses of the defining section (s. 2(24)). In short, there is no warrant to correspond the credits to the profit & loss account of a company with reference to the same forming part of income or otherwise under the Act. Further, though largely the case, there is no rule that credits and debits of capital nature cannot be credited or debited to the operating statement of a company. Depreciation, a capital charge, is one such prime example. Why, sec.115JB itself provides for adjustments qua depreciation as well as transfer to and withdrawal from depreciation reserve and capital reserve. As we have seen in relation to AS-12 (para 6.5 above), the Standard itself provides for credit to the profit & loss account on a systematic basis, off-setting the depreciation charge in respect of an asset cost of which stands wholly or partly met through Government grant. In other words, the stand which found favour with the Tribunal is wholly untenable and de hors the fundamental accounting precepts as well as the provisions of the Act as also the Companies Act. Lest we be charged of having violated the judicial precedents, we may clarify that we have shown the stand adopted to be contrary to the provisions of law itself and, further, per contra, our argument as consistent therewith, citing some provisions in illustration for both. As regards the decision in Apollo Tyres Ltd. (supra), the same stands perused to find it as nowhere stating what is attributed thereto. In the facts of that case, the ITA Nos. 193 & 223/JAB/2018 (AY: 2014-15) Dalmia Cement East Ltd. v. Asst. CIT 26 | P a g e AO sought to compute the book-profit by adding back to the profit as reflected (in the profit & loss account) the provision for arrears of depreciation, which was discountenanced by the Apex Court. Depreciation being a capital charge, whereby the capital cost of an asset is amortized over its useful life, the decision is on facts contrary to the stand being advanced. The Assessing Officer, while computing the book-profit, the Apex Court held, has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. He, thereafter, has the limited power of making increases and reductions as provided for in the Explanation to section 115J. The Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation. The use of the words ―in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act‖ in section 115J was made for the limited purpose of empowering the Assessing Officer to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the company, the Assessing Officer has to accept the authenticity of the accounts with reference to the provisions of the Companies Act, which obligate the company to maintain its accounts in a manner provided by that Act and the same to be scrutinised and certified by statutory auditors and approved by the company in general meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and be satisfied that the accounts of the company are maintained in accordance with the requirements of the Companies Act. Further, sub-section (1A) of section 115J does not empower the Assessing Officer to embark upon a fresh enquiry in regard to the entries made in the books of account of the company. The foregoing represents the ratio of the said decision which, rendered in the context of s.115J of the Act, is equally valid for book-profit u/s. 115JB; the two provisions being in pari materia and, fairly, it is nobody‘s case that it is not so. Both, in ratio and on facts, the said decision, rather than supporting, thus, defeats the assessee‘s case. Rather, the assessee‘s stand is found inconsistent ITA Nos. 193 & 223/JAB/2018 (AY: 2014-15) Dalmia Cement East Ltd. v. Asst. CIT 27 | P a g e with the provisions of the Companies Act. No doubt, the adjustments by way of reduction from and add-back to the profit as prescribed for computation of book- profit has the object of arriving at the true working result of the assessee-company. That, in fact, is also the mandate of the profit and loss account under the Companies Act, and which also explains the profit as per the operating statement as being the starting point for computing the book-profit. Unless, therefore, the same is inconsistent with the accounting prescription, in which case it would stand to be reported adversely by the Auditor, or otherwise shown to be not in terms of the relevant provisions of the Companies Act, the same has to necessarily follow the postulate of book-profit as defined in s. 115-JB, which is also the law laid down in Appollo Tyres Ltd. (supra). The decision in Indo Rama Synthetics (I.) Ltd. v. CIT [2011] 330 ITR 363 (SC), also relied upon, again, only accords with the proposition of primacy to be given to the provision of s. 115-JB of the Act. The adjustment in that case was qua revaluation reserve, decidedly a capital reserve, credited to the P&L A/c, which was found to be subject to the adjustment in terms of s. 115-JB. As explained by the Apex Court in Kesub Mahindra [in Curative Petition Nos. 39-42 of 2010 in Criminal Appeal Nos. 1672-1675 of 1996], at para 4 of the said decision dated 11/5/2011, no decision by any court, itself included, can be read in the manner as to nullify the express provisions of an Act or the Code. The assessee, thus, has no case for reduction of the book-profit by the amount of VATS credited to it‘s profit and loss account prepared in terms of the provisions of the Companies Act. (C) Considered either way, i.e., (A) or (B) above, there is no merit in the claim for reduction of book-profit u/s. 115-JB by the VATS credited to the P & L A/c. 7. In view of the foregoing (paras 5 & 6), the Revenue succeeds on it‘s Gd.1 8. Gd. 2 of the Revenue‘s appeal challenges the direction by the ld. CIT(A) for recalculating the interest liability consequent upon reduction in quantum of addition on the relief granted. We find no infirmity therein. The interest liability, being compensatory, is to be, as per clear and settled law, to be determined only with ITA Nos. 193 & 223/JAB/2018 (AY: 2014-15) Dalmia Cement East Ltd. v. Asst. CIT 28 | P a g e reference to the income as finally assessed. The Revenue‘s said Ground is without merit and, accordingly, fails. 9. In the result, the assessee‘s appeal is dismissed and the Revenue‘s appeal, partly allowed. Order pronounced in open Court on November 21, 2022 Sd/- Sd/- (Manomohan Das) (Sanjay Arora) Judicial Member Accountant Member Dated: 21/11/2022 Copy to: 1. The Assessee: Da l mia Ce ment East Li mited (for me rly known as Bokaro Jaype e Ce ment Li mite d), 11 th Floor, Hansala ya Building, 15 Bara kha mba Road, Ne w Delhi - 110001 2. The R evenue : ACIT, Cir cle, Central Revenue Building, Civil Line Chowk, Satna (MP) 3. The Principal CI T-2, Jabalpur (MP) 4. The CI T( A)-1, Jabalpur. 5. The CI T-D.R., I TAT, Jabalpur. 6. Guard File. By order (VUKKEM RAMBABU) Sr. Private Secretary, ITAT, Jabalpur.
