Hydro Carbons & Chemicals, Kolkata V. ACIT, Circle - 28, Kolkata

ITA 1982/KOL/2009

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 6657 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2001-2002
• Appeal Filed On: 23-11-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S C JAIN
• Assessee Lawyers: J P KHAITAN; D K MITRA
• Keywords: Reopening of assessment; Business income; Audit objection; Retrospective amendment; Capital receipt; Reason to believe; Reassessment proceedings
• Section: 143(3); 147; 154

Judgement Text

, A , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA () , , , !' ) [BEFORE HONBLE SRI MAHAVIR SINGH, JM & HONBLE SHR I AKBER BASHA, AM] # # # # / I.T.A NOS. 1982 TO 1986/KOL/2009 $% &' $% &' $% &' $% &'/ // / ASSESSMENT YEARS: 2001-02 TO 2005-06 HYDRO CARBONS & CHEMICALS VS. ASSISTANT COMMISSI ONER OF INCOME-TAX (PAN-AADFH 2785 A) CIRCLE-28, KOLKATA. ()* /APPELLANT ) (+,)*/ RESPONDENT ) FOR THE APPELLANT: S/SHRI J. P. KHAITAN & D. K. MITRA FOR THE RESPONDENT: SHRI S. C. JAIN ! / ORDER PER SHRI MAHAVIR SINGH/ : ALL THESE APPEALS BY ASSESSEE ARE ARISING OUT OF TH E ORDER OF CIT(A)-XIV, KOLKATA IN APPEAL NO. 569, 570, 571, 572, 573/CIT(A)-XIV/07-08 DATED 12.08.2009. THE ASSESSMENTS WERE FRAMED BY DCIT, CIRCLE-28, KOLKATA, U/S.147/14 3(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSME NT YEARS 2001-02 TO 2005-06. 2. THE TWO INTER-CONNECTED ISSUES, I.E. REGARDING J URISDICTION AS WELL AS ON MERITS, ARE INVOLVED IN THESE FIVE APPEALS OF THE ASSESSEE. TH E LEGAL ISSUE IS REGARDING REOPENING U/S. 147 R.W.S. 148 AND ON MERITS, THE DISPUTE IS REGARDING NATURE OF RECEIPT, WHETHER CAPITAL OR REVENUE RECEIVED ON ACCOUNT OF INDUSTRIAL PROMOTION ASSISTA NCE UNDER THE WEST BENGAL INDUSTRIAL PROMOTION (ASSISTANCE TO INDUSTRIAL UNITS) SCHEME, 1994 (HEREINAFTER REFERRED TO AS THE SCHEME). THE ASSESSEE HAS RAISED COMMON GROUNDS I N ALL THE FIVE ASSESSMENT YEARS I.E. FROM ASSESSMENT YEAR 2001-02 TO 2005-06 EXCEPT THE QUANT UM. FOR THE SAKE OF BREVITY, WE ARE REPRODUCING THE GROUNDS AS RAISED IN ASSESSMENT YEA R 2001-02, WHICH READ AS UNDER: 1. FOR THAT THE CIT(A) ERRED IN UPHOLDING THE NOTI CE AND PROCEEDINGS UNDER SECTIONS 147/148 OF THE ACT AND SHOULD HAVE QUASHED THE SAME AS BEING WITHOUT JURISDICTION AND ILLEGAL. 2. FOR THAT THE CIT(A) ERRED IN HOLDING THAT THE IN DUSTRIAL PROMOTION ASSISTANCE OF RS.23,16,824/- RECEIVED UNDER THE WEST BENGAL IN DUSTRIAL PROMOTION (ASSISTANCE TO INDUSTRIAL UNITS) SCHEME, 1994 WAS A REVENUE RECEIPT CHARGEABLE TO TAX. 2 ITA NOS. 1982 TO 1986/KOL/2009A.Y.01-02 TO 05-06 3. FOR THAT THE PURPORTED FINDINGS OF THE CIT(A) DE NYING RELIEF TO THE APPELLANT ARE ARBITRARY, UNREASONABLE AND PERVERSE. SINCE BOTH THE ISSUES ARE INTER-CONNECTED AND INTE R-DEPENDENT ON THE FACTS, WE WILL DECIDE THESE ISSUES AT ONE GO. 3. THE BRIEF FACTS LEADING TO THE ABOVE ISSUES ARE THAT IN ALL THE FIVE ASSESSMENT YEARS, THE ORIGINAL RETURNS FILED BY THE ASSESSEE FIRM WERE PR OCESSED U/S. 143(1) OF THE ACT. SUBSEQUENTLY, ASSESSING OFFICER INITIATED ACTION U/S. 148 FOR FRA MING ASSESSMENT BY ISSUING NOTICE U/S. 148 OF THE ACT. FOR THIS, THE ASSESSING OFFICER HAS RECOR DED REASONS, WHICH ARE COMMON IN ALL THE YEARS EXCEPT QUANTUM. THE REASONS AS RECORDED IN A SSESSMENT YEAR 2001-02, AND FILED IN ASSESSEES PAPER BOOK AT PAGE 61, READS AS UNDER: IT APPEARS FROM THE TAX AUDIT REPORT ENCLOSED ALON GWITH THE RETURN VIDE POINT NO. 13(E), THE ASSESSEE HAS RECEIVED RS.23,16,824/- AS INDUSTRIAL PROMOTIONAL ASSISTANCE FROM GOVT. OF WEST BENGAL WHICH IT REGARDED AS CAPI TAL RECEIPT AND DID NOT OFFER AS INCOME FOR TAXATION. FROM THE PERUSAL OF THE FOLLOWING DECISIONS: 1. SAHNEY STEEL & PRESS WORK LTD. VS. CIT (1997) 2 28 ITR 253 (SC), 2. KESHORAM INDUSTRIES & COTTON MILLS LTD. VS. CIT (1991) 191 ITR518 (KOL.). IT IS UNDERSTOOD THAT OPERATIONAL SUBSIDY PROVIDED BY THE GOVT. OF W.B. AFTER COMMENCEMENT OF PRODUCTION TO BE REGARDED AS REVENU E RECEIPT AND NOT CAPITAL RECEIPT. HENCE I HAVE GOT REASON TO BELIEVE THAT RS.23,16,82 4/- HAS ESCAPED ASSESSMENT. AS SUCH PROCEEDING U/S. 147 SHOULD BE INITIATED. AS THE PROCEEDING TO BE INITIATED RELATES TO ASSESS MENT YEAR 2001-02 AND HAS ELAPSED MORE THAN FOUR YEARS, THE CASE IS PUT UP BEFORE ADD L. CIT, RANGE-28, KOLKATA FOR HIS APPROVAL. 4. THE ASSESSEE DISCLOSED THE FACT REGARDING RECEIP T OF INDUSTRIAL PROMOTION ASSISTANCE UNDER THIS SCHEME IN AUDIT REPORT FILED ALONG WITH ORIGINAL RETURNS AS WELL AS RETURNS FILED IN RESPONSE TO NOTICE U/S. 148 OF THE ACT. THE ASSESSI NG OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S. 147/143(2) REQUIRED THE ASSESSEE A S TO WHY INDUSTRIAL PROMOTION ASSISTANCE I.E. SALES TAX REFUND RECEIVABLE FROM GOVT. OF W.B, BE NOT TREATED AS REVENUE RECEIPT INSTEAD OF CAPITAL RECEIPT AS CLAIMED BY THE ASSESSEE. BEFORE THE ASSESSING OFFICER, THE ASSESEE RELIED ON THE DECISION OF ITAT, E BENCH, KOLKATA IN THE CAS E OF RASOI LTD. VS. DCIT, ITA NO.1080/CAL/1998 BUT THE ASSESSING OFFICER RELYING ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF SAHANEY STEEL & PRESS WORKS LTD. VS. C IT (1997) 228 ITR 253 AND THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF KESORAM INDUSTRIES & COTTON MILLS LTD. VS. CIT (1991) 191 ITR 518 (CAL.) HELD THAT THE INDUSTRIAL PROMOTION ASSISTANCE RECEIVED BY THE ASSESSEE IS REVENUE IN NATURE ASSESSABLE U/S. 28(I IIB) OF THE ACT BY GIVING FOLLOWING FINDING IN PARA 12: 3 ITA NOS. 1982 TO 1986/KOL/2009A.Y.01-02 TO 05-06 12. IN VIEW OF THE JUDICIAL DECISIONS ON IDENTICAL ISSUE MENTIONED ABOVE THE CONTENTION OF THE ASSESEE FIRM THAT THE AMOUNT OF RS.23,16,824 /- RECEIVED FROM THE GOVT. OF WEST BENGAL WAS CAPITAL RECEIPT IS FOUND TO BE ABSOLUTEL Y UNJUSTIFIED, HAS NO LEGAL FORCE AND HENCE NOT TENABLE. SO, THE AMOUNT OF RS.23,16,824/ - BEING THE SALES TAX REFUND RECEIVED FROM THE GOVT. OF WEST BENGAL IS TAKEN INTO ACCOUNT BY INVOKING THE PROVISIONS OF SECTION 28(IIIB) OF THE ACT IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEAR. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A) AND HE UPHELD THE ACTION OF THE ASSESSING OFFICER IN ALL FIVE ASSESSMENT YEARS, HOLDING THAT INDUSTRIAL PROMOTION ASSISTANCE RECEIVED OR RECEIVABLE BY ASSESSEE AS REVENUE RECEIPT ASSESSABL E IN THE HANDS OF THE ASSESSEE BY GIVING FOLLOWING FINDING: WHEN WE CONSIDER THE FACTS OF THE CASE OF THE ASSE SSEE IN THE LIGHT OF THESE RATIOS WE FIND THAT THOUGH THE SCHEME STATED THAT THE ASSISTA NCE IS GIVEN FOR THE PURPOSE OF EXPANSION, MODERNIZATION ETC. BUT THE ASSESSEE WAS FREE TO USE THE MONEY IN ITS BUSINESS ENTIRELY AS IT LIKED AND WAS NOT REQUIRED TO GIVEN ANY ACCOUNT OF THE EXPENDITURE; IN CASE OF THE ASSESEE THE ASSISTANCE WAS GIVEN YEAR AFTER YEAR AFTER COMMENCEMENT OF THE PRODUCTION. THE ASSISTANCE WAS CLOSELY LINKED TO THE CARRYING ON OF THE PRODUCTION ON A REGULAR BASIS WITHOUT ANY BREAK. THUS THE PRINCIPLES LAID DOWN IN THE ABOVE RATIOS SQUARELY APPLIED IN THE CA SE OF THE ASSESSEE AND THE ASSISTANCE HAS TO BE TREATED AS GIVEN FOR THE PURPO SE OF CARRYING ON THE BUSINESS OF THE ASSESSEE. THEREFORE, THE NATURE OF THIS ASSIST ANCE HAS TO BE REVENUE. FURTHER, IT IS ARGUED THAT A PART OF THE ASSISTANCE GIVEN BY THE STATE GOVERNMENT SHOULD NOT BE TAKEN AWAY BE THE CENTRAL GOVERNMENT. IN THIS REGARD, IT MAY BE NOTED THAT THE ASSESSEE IS GETTING THIS ASSISTANCE OUT OF PUBLIC FUNDS FREE OF CHARGE. IF HE HAS TO PART WITH SOME OF THESE FUNDS AS TAXES HE SH OULD NOT MIND IT. LASTLY, THE LD. A.R. HAS TAKEN OBJECTION TO SEC. 28 (IIIB) REFERRED TO BY THE A.O. IN HIS ORDER. IN THIS RESPECT, IT IS SEEN THAT THE A.O. H AS NOT TAXED THIS AMOUNT U/S. 28(IIIB). BY REFERRING TO SEC. 28(IIIB) THE A.O. IS MERELY TR YING TO DRAW A PARALLEL BETWEEN THIS ASSISTANCE AND THE CASH ASSISTANCE RECEIVED AGAINST EXPORT. 11. IN VIEW OF THE ABOVE DISCUSSION I HOLD THAT THE INDUSTRIAL PROMOTION ASSISTANCE RECEIVABLE/RECEIVED BY THE ASSESSEE FOR ALL THESE 5 A.YRS. IS TAXABLE IN ITS HANDS OF THE ASSESSEE AS A REVENUE RECEIPT. AGGRIEVED, NOW THE ASSESSEE IS IN APPEAL BEFORE US. 5. BEFORE US, THE LD. SR. COUNSEL SHRI J. P. KHAITA N NARRATED FACTS THAT IN ALL ASSESSMENT YEARS UNDER CONSIDERATION THE BASIC ISSUE HAS BEEN THE SAME I.E. THE TAXABILITY OF INDUSTRIAL PROMOTION ASSISTANCE GRANTED BY THE GOVT. OF WEST B ENGAL. HE STATED THE BASIC NATURE OF THE INDUSTRIAL PROMOTION ASSISTANCE GRANTED BY THE GOVT . OF WEST BENGAL FOR THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEARS UNDER CONSIDERATIO N AND ARGUED THAT IN EACH YEAR INDUSTRIAL PROMOTION ASSISTANCE AS HAS BEEN CLAIMED, IN ACCORD ANCE WITH THE SCHEME, WAS ACCOUNTED FOR ON ACCRUAL BASIS BY THE ASSESSEE IN ITS BOOKS OF AC COUNT AND CLAIMED TO BE CAPITAL RECEIPT AND EXEMPT FROM INCOME TAX. THE LD. COUNSEL FOR THE AS SESSEE ON LEGAL ISSUE ARGUED THAT THE 4 ITA NOS. 1982 TO 1986/KOL/2009A.Y.01-02 TO 05-06 SIMILAR ISSUE HAS BEEN TAKEN BY THE AO FOR THE ASSE SSMENT YEAR 1995-96, WHICH WAS THE FIRST YEAR FOR THE CLAIM OF INDUSTRIAL PROMOTION ASSISTAN CE, WHEREIN HE INITIATED PROCEEDINGS U/S. 147 OF THE ACT FOR INCOME ESCAPING ASSESSMENT. HE STATE D THAT HONBLE ITAT D BENCH OF KOLKATA DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE . HE NARRATED THE FACTS OF ASSESSMENT YEAR 1995-96 THAT THE AO WHILE FRAMING ASSESSMENT U/S. 1 43(3) OF THE ACT ORIGINALLY ALLOWED THE CLAIM OF INDUSTRIAL PROMOTION ASSISTANCE RECEIVED B Y ASSESSEE AT RS.8,35,765/- AS CAPITAL RECEIPT AS CLAIMED BY THE ASSESSEE THE SUBSIDY OF S ALES TAX REFUND. HE FURTHER NARRATED THAT SUBSEQUENTLY THE AO ISSUED NOTICE U/S. 154 OF THE A CT STATING THAT MISTAKE OCCURRED IN COMPUTATION OF BUSINESS INCOME IN RESPECT OF ALLOWA NCE OF THE DEDUCTION REGARDING INDUSTRIAL PROMOTION ASSISTANCE BEING A CAPITAL RECEIPT AND A FTER GETTING REPLY FROM THE ASSESSEE HE DROPPED THE PROCEEDINGS INITIATED U/S. 154/155 OF T HE ACT. LD. COUNSEL FOR THE ASSESSEE STATED THAT THE AOS ORIGINAL ORDER PASSED U/S. 143(3) OF THE ACT DATED 26.2.1997 IS ENCLOSED IN ASSESSEES PAPER BOOK AT PAGE 132. FURTHER, HE REF ERRED THAT NOTICE U/S. 154 OF THE ACT DATED 30.12.1998 IS ALSO ENCLOSED AT ASSESSEES PAPER BOO K PAGE 136 AND THE REPLY OF THE ASSESSEE DATED 2.2.1999 IS ENCLOSED AT PAGE 139 OF THE ASSES SEES PAPER BOOK. LD. COUNSEL FOR THE ASSESSEE STATED THAT WHILE ADJUDICATING THE PROCEED INGS U/S. 154 OF THE ACT AND DROPPED THE PROCEEDINGS AFTER CONSIDERING THE REPLY OF THE ASSE SSEE VIDE DATED 12.07.1999. HE STATED THAT THE ASSESSEES CLAIM WAS LOOKED INTO BY THE ITO IN DETAIL TWICE AND HE TREATED INDUSTRIAL PROMOTION ASSISTANCE AS CAPITAL RECEIPT. THE AO ON THE BASIS OF AUDIT OBJECTION I.E. ON THE LETTER OF CHIEF AUDITOR INITIATED REASSESSMENT PROC EEDINGS U/S. 147 OF THE ACT AND HE INFORMED THAT THE TRIBUNAL, D BENCH OF KOLKATA, AFTER CONS IDERING THE ISSUE IN DETAIL HAS DECIDED THE JURISDICTIONAL ISSUE AS WELL AS ON MERITS IN FAVOUR OF THE ASSESSEE IN ITA NO.1648/KOL/2003 VIDE ORDER DATED 6.6.2005. HE ARGUED THAT THE AO TA KEN NOTE OF THE ORDER OF ITAT AND HAD INTERPRETED ACCORDING TO HIS OWN PERSONAL CONCEPTIO N WHICH DEFINITELY CANNOT SUPERCEDE THE WISDOM AND/OR JUDGMENT OF THE BENCH OF ITAT AND IN LAW THAT IS NOT PERMITTED AT ALL WHEN THE ISSUE BEING EXACTLY THE SAME. MOREOVER, IT WAS PATENTLY UNTRUE WHEN THE A.O. HAD OBSERVED THAT SAID ITAT JUDGMENT IN FAVOUR OF ASSESSEE HAD B EEN AGAINST RE-OPENING OF THE ASSESSMENT. LD. COUNSEL FURTHER STATED THAT HONBLE MEMBERS HAD ALSO ALLOWED THE APPEAL IN FAVOUR OF ASSESSEE ON MERIT WHICH A.O. HAD DELIBERATELY NOT C ONSIDERED WHILE REOPENING OF ASSESSMENTS ON SIMILAR ISSUES FOR THE ASSESSMENT YEARS UNDER CO NSIDERATION. IT IS NOT PERMITTED IN LAW AND THAT TOO BY A LOWER AUTHORITY BY FORMING A SECOND O PINION ON THE EXACTLY SIMILAR ISSUE AS THE SAID JUDGMENT OF ITAT, WHICH IS BINDING ON THE A.O. FURTHER, IN THE SAID JUDGMENT HONBLE MEMBERS HAD GONE INTO THE MERITS ALSO WHILE REFERRI NG TO THE FOLLOWING JUDGMENTS AS WAS POINTED OUT BY ASSESSEE. (I) CASE OF RASOI LTD. [ITA NO. 1080/CAL/1998]. 5 ITA NOS. 1982 TO 1986/KOL/2009A.Y.01-02 TO 05-06 (II) CASE OF PHARMA IMPEX [ITA NO. 4761/CAL/2000] THE LAST SENTENCE OF THE JUDGMENT OF D BENCH OF I TAT, CALCUTTA DELIVERED IN FAVOUR OF THE ASSESSEE DID VERY MUCH SUGGEST THAT TRIBUNAL WAS VE RY MUCH AWARE OF THE FACTS AND HENCE CASE WAS ALLOWED ALSO ON MERIT. IT WAS, THEN TOTALLY ILL EGAL ON THE PART OF A LOWER AUTHORITY AS A.O. TO HAVE HIS OWN INTERPRETATION OF THE JUDGMENT DELIVER ED BY HIGHER AUTHORITY HAVING JURISDICTION OVER HIM. HENCE, THE ORDERS U/S 147/143(3) FOR THE ASSESSMENT YEARS UNDER CONSIDERATION WERE VOID ABINITIO HAVING NO FORCE IN LAW AND LIABLE TO BE CANCELLED WHEN THE EXACTLY SIMILAR ISSUE HAD BEEN DECIDED AND RESOLVED IN ASSESSEES FAVOUR BY ITAT HAVING JURISDICTION OVER A.O. 6. HE FURTHER NARRATED FACTS THAT ORDERS U/S 147/14 3(3) WERE PASSED BY A.O. IN RESPECT OF ASSESSMENT YEARS UNDER CONSIDERATION ON THE BASIS O F THE FOLLOWING CASE DECISIONS. (I) SAHNEY STEEL AND PRESS WORKLTD. VS. CIT (1997) 228 ITR 253 S.C. (II) KESHORAM INDUSTRIES & COTTON MILLS LTD. VS. CI T (1991) 191 ITR 518 CAL. LD. COUNSEL FURTHER ARGUED THAT A.O. HAD OPINED THA T DUE CONSIDERATIONS HAD NOT BEEN GIVEN BY ITAT, CALCUTTA TO THE JUDGMENTS MENTIONED AS ABOVE WHILE PASSING THE ORDERS IN ROSOI LTD.S CASE (SUPRA) OR FOR THAT MATTER PHARMA IMPEXS CASE (SUPRA) AND BECAUSE OF THIS A PURELY PERSONAL OPINION OF A.O, WHO HAPPENS TO BE A QUASI JUDICIAL LOWER LEVEL AUTHORITY, DECIDED NOT TO CONSIDER THE JUDGMENT OF ITAT, CALCUTTA IN ITA N O. 1648 (K) 03 DATED 06.06.2005. THEREFORE, IT IS A CASE WHERE A.O. HAD FORMED HIS O WN OPINION BY REJECTING THE WISDOM OF THREE DIFFERENT BENCHES OF ITAT, CALCUTTA ON EXACTLY THE SIMILAR ISSUES. 7. ON MERITS ALSO LD. COUNSEL ARGUED, WHETHER INDU STRIAL PROMOTIONAL ASSISTANCE WAS CAPITAL OR REVENUE IN NATURE. HE REFERRED TO SCHEME FRAMED BY THE GOVT. OF WEST BENGAL (COPIES OF WHICH HAVE ALREADY BEEN FILED IN ASSESSEES PAPE R BOOK) FOR GRANTING OF INDUSTRIAL PROMOTION ASSISTANCE TO CERTAIN INDUSTRIES. LD. COUNSEL STATE D THAT THE TRIBUNAL WAS AWARE OF THE JUDGMENTS DELIVERED IN SAHANEY STEELS (S.C.) (SUPR A) AND KESORAM INDUSTRIES (CAL) (SUPRA) CASES, AS IT HAD DISCUSSED THE SUBJECT MATTER OF TH E SAID TWO CASES RELIED UPON BY THE REVENUE. LD. COUNSEL FURTHER STATED THAT THE TRIBUNALS DECI SION IN ASSESSEES OWN CASE FOR THE A.Y. 1995-96 HAS BEEN CHALLENGED BEFORE HONBLE HIGH COU RT BUT THE SAME WAS DISMISSED AS UNADMITTED DUE TO DELAY. ACCORDING TO HIM, THE DEC ISION OF TRIBUNAL IN SUCH CIRCUMSTANCES HAS BECOME FINAL. 8. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDE RS OF THE LOWER AUTHORITIES. 6 ITA NOS. 1982 TO 1986/KOL/2009A.Y.01-02 TO 05-06 9. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT RECEIPTS IN QUESTION WERE INDUSTRIAL PROMOTION ASSISTANCE GRANTED BY THE GOVT. OF WEST BENGAL IN ACCORDANCE WITH A DULY FRAMED SCH EME. THIS SCHEME WAS AMENDED WITH CERTAIN AMENDMENTS WITH RETROSPECTIVE EFFECT TO THE EARLIER RESOLUTION NO.1460-F.T. DATED 27.05.94. FOR THE SAKE OF CLARITY THE RELEVANT POR TION OF WHICH IS REPRODUCED AS UNDER:- (1) FOR THE PREAMBLE BEGINNING WITH THE WORDS WHE REAS CERTAIN INDUSTRIES IN AND ENDING WITH THE WORDS HEREINAFTER APPEARING, SUBSTITUTE THE FOLLOWING WORDS : WHEREAS THE GOVERNOR IS OF THE OPINION THAT INDUST RIAL UNITS MANUFACTURING CERTAIN GOODS IN WEST BENGAL ARE IN NEED OF FINANCIAL ASSIS TANCE FOR EXPANSION OF THEIR CAPACITIES, MODERNIZATION AND IMPROVING THEIR MARKETING CAPABIL ITIES AND ACCORDINGLY IT IS NECESSARY TO FORMULATE A SCHEME OF INDUSTRIAL PROMOTION TO ASSIS T SUCH UNITS FOR THE PURPOSE MENTIONED HEREINBEFORE. WE ARE OF THE VIEW THAT THE ASSISTANCE WAS JUST IN DUSTRIAL PROMOTION ASSISTANCE DESIGNED TO TIDE OVER THE FINANCIAL CRISIS FACED BY SOME SPECIFIED INDUSTRIES. THE BASIC IDEA WAS TO PROMOTE THOSE UNITS WHO HAD OTHERWISE VIABLE BUS INESS ACTIVITIES IN SPITE OF FINANCIAL CRISIS. THEREFORE ITS BASIC AIM WAS TO SUPPLEMENT CAPITAL NOT TRADING RECEIPT. IT WAS NOT AT ALL A SALES-TAX REFUND OR SALES-TAX PAID HAD ONLY BEEN USED TO CALCULATE THE ELIGIBILITY QUANTUM OF THE ASSISTANCE. BUSINESS FOR ITS FUNCTIONING NEED S INVESTMENT IN WORKING CAPITAL APART FROM THE INVESTMENT IN FIXED CAPITAL AND FURTHER INVES TMENT IN FIXED CAPITAL ENSURES PRODUCTION CAPACITY OF A BUSINESS IN AN ECONOMIC AND COMPETITI VE MANNER AND WORKING CAPITAL, IS CONSIDERED TO BE THE BLOOD OR LIFELINE OF A BUSIN ESS. A BUSINESS CANNOT FUNCTION WITHOUT WORKING CAPITAL. THEREFORE, IT IS NOT NECESSARY T HAT AN ASSISTANCE/INCENTIVE SHOULD ALWAYS BRING IN TANGIBLE FIXED ASSETS. THIS IS ALSO TRUE AS THE PURPOSE OF THE INDUSTRIAL PROMOTION ASSISTANCE WAS TO HELP A UNIT IN STRENGTHENING ITS VIABILITY BY SUPPLEMENTING ITS WORKING CAPITAL. NATURE OF THE RECEIPT, WHETHER REVENUE O R CAPITAL, WILL HAVE TO BE DETERMINED, HAVING REGARD TO THOSE PURPOSE OR INTENTION BEHIND WHICH T HE RECEIPT WAS GRANTED. IN THE INSTANT CASE THE GOVERNMENT HAD NEVER EXPRESSED ITS DESIRE TO GI VE SUBSIDY ON SALES-TAX AND IT WAS DESIGNED TO GRANT INDUSTRIAL PROMOTION ASSISTANCE I N GENERAL FOR THE PROMOTION OF BUSINESS. WE FURTHER FIND THAT IN THE CASE OF SAHNEY STEELS (SU PRA) HONBLE APEX COURT OBSERVED THAT THE PAYMENTS WERE MADE TO ASSIST THE NEW INDUSTRIES AT ITS COMMENCEMENT OF BUSINESS TO CARRY ON THEIR BUSINESS. THE PAYMENTS WERE HELD TO BE SUP PLEMENTARY TRADE RECEIPTS. THE PAYMENTS WERE IN THE NATURE OF INCENTIVES IN THE FOLLOWING F ORMS: (I) REFUND OF SALES TAX ON RAW MATERIALS, MACHINER IES AND FINISHED GOODS. (II) SUBSIDY 1ON POWER CONSUMED. (III) EXEMPTION FROM PAYMENT OF WATER TAX. 7 ITA NOS. 1982 TO 1986/KOL/2009A.Y.01-02 TO 05-06 (IV) REFUND OF WATER RATE ETC. ACCORDINGLY, HONBLE APEX COURT IN THIS CASE DECIDE D UPON THREE CASES OF REFUNDS FROM STATE GOVT. UNDER INCENTIVE SCHEME. THE REFUNDS WERE REFU ND OF SALES TAX ON PURCHASE OF MACHINES, REFUND OF SALES TAX ON PURCHASE OF RAW MATERIALS AN D REFUND OF SALES TAX PAID ON SALE OF FINISHED GOODS. HONBLE APEX COURT HELD THAT IN THE SCHEME N O ASSISTANCE WAS GRANTED FOR THE SETTING UP OF INDUSTRY AND THE SUBSIDY OR INCENTIVE WAS GRANTE D ONLY WHEN THE ASSESSEE HAD COMMENCED ITS BUSINESS AND PRODUCTION. WE FURTHER FIND THAT H ONBLE APEX COURT IN CASE OF CIT V. P. J. CHEMICALS LTD. [1994] 210 ITR 830 WAS NOT ONLY CONC ERNED WITH THE DEFINITION OF ACTUAL COST BUT ALSO THE CHARACTER OF THE RECEIPT AND HELD THE RECEIPT AS CAPITAL. 10. IN THE INSTANT CASE THE INDUSTRIAL PROMOTION A SSISTANCE CAN NEVER BE SAID TO BE REFUND OF SALES-TAX ALTHOUGH SALES-TAX PAYMENT WAS THE MEA SURE OF QUANTUM OF ASSISTANCE. ANY CONTRARY INTERPRETATION OF THE SCHEME IS MOST UNWAR RANTED WHEN THE STATE GOVERNMENT ITSELF DID NOT WANT TO REFUND THE SALES-TAX THROUGH THE SC HEME. THE BASIC INTENSION OF THE GOVERNMENT WAS TO LEND CAPITAL SUPPORT SO THAT THE SPECIFIC UNITS CAN TIDE OVER THE CRISIS PERIOD AND TO SUSTAIN DURING CRISIS PERIOD A BUSINESS UNIT NEEDS CAPITAL SUPPORT IN THE FORM OF INVESTMENT IN RUNNING OR WORKING CAPITAL SO THAT DA Y-TO-DAY OPERATIONS CAN BE FINANCED AND THE PRODUCTION AND EMPLOYMENT CAN BE MAINTAINED. WHAT T HE GOVERNMENT WANTED WAS THAT UNIT SHOULD CONTINUE TO FUNCTION BY UTILIZING THE ASSIST ANCE OR CAPITAL SUPPORT IN ANY MANNER WHETHER BY CREATING PHYSICAL ASSETS OR BY INVESTING IN RUNN ING CAPITAL IN TERMS OF PURPOSE DETAILED IN THE PREAMBLE OF THE SCHEME. WE FIND THAT THE LOWER AUTH ORITIES HAVE WRONGLY APPLIED THE RATIOS OF SAHNEY STEELS CASE (SUPRA) AND KESORAM INDUSTRIES CASE (SUPRA) AS IN THE CASE OF THE ASSESSEE THERE HAD BEEN NO SUBSIDY OR ASSISTANCE ON SPECIFIC OPERATING ITEMS. FURTHER, IT IS AGAIN ODD THAT THE CENTRAL GOVERNMENT SHOULD TAKE AWAY A PART OF T HE INCENTIVE OR ASSISTANCE OR GRANT GIVEN BY THE STATE GOVERNMENT WITHOUT ANYTHING TO INDICATE A LEGITIMATE EXPECTATION OF SUCH LIABILITY AT THE TIME OF GRANT. 11. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, L EGAL POSITION OF THE CASE, WE ARE OF THE VIEW THAT INDUSTRIAL PROMOTION ASSISTANCE GRANTED B Y THE GOVT. OF WEST BENGAL IS IN THE NATURE OF THE INDUSTRIAL PROMOTION ASSISTANCE GRANTED BY T HE GOVT. OF WEST BENGAL FOR THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEARS UNDER CONSIDE RATION AND IS CAPITAL RECEIPT EXEMPT FROM INCOME TAX. HONBLE APEX COURT IN THE CASE OF P. J . CHEMICALS LTD. (SUPRA) HAS CONSIDERED THIS ASPECT OF SUBSIDY AND NATURE OF SUBSIDY IN THIS CAS E AND HELD AS UNDER: THE QUESTION IN THE PRESENT CONTEXT IS NOT WHETHER IF A PORTION OF THE COST IS MET DIRECTLY OR INDIRECTLY BY ANY OTHER PERSON OR AUTHORITY, IT SHOULD BE DEDUCTED OR NOT. QUITE OBVIOUSLY, THE PLAIN MEANING OF THE SECTION IS THAT IT SHALL BE. BUT THE REAL QUESTION IS AS 8 ITA NOS. 1982 TO 1986/KOL/2009A.Y.01-02 TO 05-06 TO THE CHARACTER AND NATURE OF A SUBSIDY WHETHER I T WAS REALLY INTENDED TO SUBSIDISE THE COST OF THE CAPITAL OR WAS INTENDED AS AN INCENTIV E TO ENCOURAGE ENTREPRENEURS TO MOVE TO BACKWARD AREAS AND ESTABLISH INDUSTRIES, TH E SPECIFIED PERCENTAGE OF THE FIXED CAPITAL COST WHICH IS THE BASIS FOR DETERMINING THE SUBSIDY BEING ONLY A MEASURE ADOPTED UNDER THE SCHEME TO QUANTIFY THE FINANCIAL AID. THE CONTENTION IS THAT IT IS NOT A PAYMENT, DIRECTLY OR INDIRECTLY, TO MEET ANY PORT ION OF THE 'ACTUAL COST' BUT INTENDED AS AN INCENTIVE TO ENTREPRENEURS, ITS QUANTIFICATIO N DETERMINED AT A PERCENTAGE OF THE FIXED CAPITAL COST. IN VIEW OF THIS SCHEME AND FACTS OF THE CASE, WE AR E OF THE VIEW THAT THE NATURE OF RECEIPT IN THESE ASSESSMENT YEARS IS CAPITAL IN NATURE AND NOT REVENUE. 12. IN RESPECT OF ASPECT OF REOPENING, THE FACTS OF THE CASE AS NARRATED ABOVE REVEALS THAT IN ASSESSMENT YEAR 1995-96 THE AO WHILE FRAMING ASSESS MENT U/S. 143(3) OF THE ACT ORIGINALLY ALLOWED THE CLAIM OF INDUSTRIAL PROMOTION ASSISTANC E RECEIVED AS CAPITAL RECEIPT AS CLAIMED BY THE ASSESSEE. SUBSEQUENTLY, THE AO ISSUED NOTICE U/ S. 154 OF THE ACT STATING THAT MISTAKE OCCURRED IN COMPUTATION OF BUSINESS INCOME IN RESPE CT OF ALLOWANCE OF THE DEDUCTION REGARDING INDUSTRIAL PROMOTION ASSISTANCE BEING A CAPITAL REC EIPT AND AFTER GETTING REPLY FROM THE ASSESSEE HE DROPPED THE PROCEEDINGS INITIATED U/S. 154/155 OF THE ACT. WE FIND THAT THE ASSESSEES CLAIM WAS LOOKED INTO BY THE ITO IN DETA IL TWICE AND HE TREATED INDUSTRIAL PROMOTION ASSISTANCE AS CAPITAL RECEIPT. THE AO ON THE BASIS OF AUDIT OBJECTION I.E. ON THE LETTER OF CHIEF AUDITOR INITIATED REASSESSMENT PROCEEDINGS U/S. 147 OF THE ACT OVERLOOKING THE ORDER OF TRIBUNAL, D BENCH OF KOLKATA, WHEREIN TRIBUNAL AF TER CONSIDERING THE ISSUE IN DETAIL HAS DECIDED THE JURISDICTIONAL ISSUE AS WELL AS ON MERI TS IN FAVOUR OF THE ASSESSEE IN ITA NO.1648/KOL/2003 VIDE ORDER DATED 6.6.2005. WE FIND THAT THE AO TOOK NOTE OF THE ORDER OF ITAT AND HAD INTERPRETED ACCORDING TO HIS OWN PERSO NAL CONCEPTION. FURTHER, WE FIND THAT THE TRIBUNAL HAD GONE INTO THE MERITS ALSO WHILE REFERR ING TO THE FOLLOWING JUDGMENTS AS WAS POINTED OUT BY ASSESSEE. (I) CASE OF RASOI LTD. [ITA NO. 1080/CAL/1998]. (II) CASE OF PHARMA IMPEX [ITA NO. 4761/CAL/2000] EVEN WHILE REOPENING THE CASE IT IS NOT THE CASE OF THE REVENUE THAT THE FACTS ARE NOT AVAILABLE ON RECORDS IN RESPECT TO ASSESSMENT YEAR 1995-96, W HICH WAS THE VERY FIRST YEAR FOR ALLOWANCE OF INDUSTRIAL PROMOTION ASSISTANCE HELD AS CAPITAL RECEIPT. FOR REOPENING, IN CASE THE DEDUCTION IS ALLOWED IN THE FIRST YEAR AND REOPENING IS MADE IN SUBSEQUENT YEARS, THE REOPENING IS HELD TO BE BAD REASON BEING THE VERY FIRST YEAR THE SAME DE DUCTION IS ALLOWED AS CAPITAL RECEIPT. THE AO CANNOT DISTURB THE RELIEF GRANTED IN INITIAL YEA RS ON THE SAME ISSUE IN SUBSEQUENT YEARS. HONBLE GUJARAT HIGH COURT IN THE CASE OF SAURASHTR A CEMENT & CHEMICAL INDUSTRIES LTD. VS. CIT (1980) 123 ITR 669 (GUJ.) WHEREIN IT IS HELD TH AT WHETHER THE ITO WAS JUSTIFIED IN REFUSING 9 ITA NOS. 1982 TO 1986/KOL/2009A.Y.01-02 TO 05-06 TO CONTINUE THE RELIEF OF TAX HOLIDAY GRANTED TO TH E ASSESSEE-COMPANY FOR THE ASSESSMENT YEAR 1968-69, IN THE ASSESSMENT YEAR UNDER REFERENCE, T HAT IS, 1969-70, WITHOUT DISTURBING THE RELIEF GRANTED FOR THE INITIAL YEAR. HONBLE COURT HELD TH AT IT SHOULD BE STATED THAT THERE IS NO PROVISION IN THE SCHEME OF S. 80J SIMILAR TO THE ONE WHICH WE FIND IN THE CASE OF DEVELOPMENT REBATE WHICH COULD BE WITHDRAWN IN SUBSEQUENT YEARS FOR BR EACH OF CERTAIN CONDITIONS AND NO DOUBT, THE RELIEF OF TAX HOLIDAY UNDER S. 80J CAN BE WITHH ELD OR DISCONTINUED PROVIDED THE RELIEF GRANTED IN THE INITIAL YEAR OF ASSESSMENT IS DISTUR BED OR CHANGED ON VALID GROUNDS. FURTHER, HONBLE COURT HELD THAT WITHOUT DISTURBING THE RELI EF GRANTED IN THE INITIAL YEAR, THE ITO CANNOT EXAMINE THE QUESTION AGAIN AND DECIDE TO WITHHOLD O R WITHDRAW THE RELIEF WHICH HAS BEEN ALREADY ONCE GRANTED. ACCORDING TO COURT LEARNED AD VOCATE FOR THE REVENUE, INVITED ATTENTION TO CERTAIN OBSERVATIONS MADE BY THIS COURT IN CIT V. SATELLITE ENGINEERING LTD. [1978] 113 ITR 208 (GUJ), WHERE THE COURT WAS CONCERNED WITH THE QUESTION, WHETHER AN INDUSTRIAL UNDERTAKING WHICH DID NOT SATISFY THE PRESCRIBED CONDITIONS SO AS TO ENTITLE ITSELF TO THE RELIEF UNDER S. 80J IN THE INITIAL YEAR CAN SUCCESSFULLY CLAIM THE RELI EF, IF THE PRESCRIBED CONDITIONS ARE SATISFIED IN THE SUBSEQUENT YEARS. HONBLE COURT ANSWERED THAT THIS DECISION OF THIS COURT IN SATELLITE ENGINEERING LTD.'S CASE [1978] 113 ITR 208 (GUJ) C AN BE OF ANY ASSISTANCE TO THE CAUSE OF THE REVENUE, BECAUSE THE QUESTION WITH WHICH THIS COURT WAS CONCERNED IN THAT CASE WAS ALTOGETHER A DIFFERENT ONE IN THE CONTEXT IN WHICH THE DIVISI ON BENCH WAS SPEAKING. HONBLE COURT FINALLY HELD THAT IT SHOULD BE UNDERSTOOD THAT THIS IS SUBJ ECT TO THE RIGHT OF THE ITO TO ADJUST THE RELIEF BY FIXING THE QUANTUM HAVING REGARD TO THE RESPECTI VE CAPITAL EMPLOYED IN THE NEW UNDERTAKING IN THE YEAR WITH WHICH HE IS CONCERNED. 13. SIMILARLY, HONBLE MADHYA PRADESH HIGH COURT IN THE CASE OF CIT VS. BHILAI ENGINEERING CORPORATION PVT. LTD. (1982) 133 ITR 68 7 (MP) HAS HELD THAT NO FRESH MATERIAL WAS BROUGHT IN IN THE ASSESSMENT PROCEEDINGS FOR TH E YEARS 1974-75 AND 1975-76 TO SHOW THAT THE FINDING REACHED BY THE ITO IN THE ASSESSMENT FO R THE YEAR 1973-74 THAT THE ASSESSEE HAD INSTALLED NEW PLANT AND MACHINERY AND HAD CONSTRUCT ED A NEW BUILDING WAS IN ANY WAY ERRONEOUS. FURTHER, THE RELIEF UNDER S. 80J COULD B E OBTAINED WHEN NEW PLANT AND MACHINERY WERE ERECTED FOR PRODUCING THE SAME COMMODITY WHICH AN ASSESSEE WAS PRODUCING EARLIER. HONBLE HIGH COURT HELD THAT IT CANNOT, THEREFORE, BE SAID THAT THE ITO IN GRANTING THE RELIEF UNDER S. 80J FOR THE ASSESSMENT YEAR 1973-74 PROCEE DED UPON A WRONG INTERPRETATION OF THE SECTION. HENCE, FOR THE ASSESSMENT YEARS 1974-75 AN D 1975-76, THE DISALLOWANCE OF THE RELIEF UNDER S. 89J TO THE ASSESSEE WAS NOT VALID. FOR THI S, HONBLE HIGH COURT HELD AS UNDER: IT IS CONTENDED BY THE LEARNED COUNSEL FOR THE DEP ARTMENT THAT THE PRINCIPLE OF RES JUDICATA HAS NO APPLICATION TO PROCEEDINGS UNDER TH E I.T. ACT AND THE FINDINGS REACHED FOR ONE PARTICULAR ASSESSMENT YEAR CANNOT BE HELD T O BE BINDING IN THE ASSESSMENT 10 ITA NOS. 1982 TO 1986/KOL/2009A.Y.01-02 TO 05-06 PROCEEDINGS FOR A SUBSEQUENT YEAR. AS A GENERAL RUL E, THERE CAN BE NO DISPUTE WITH THIS PRINCIPLE. BUT THIS GENERAL RULE IS SUBJECT TO THE QUALIFICATION THAT A FINDING REACHED IN THE ASSESSMENT PROCEEDINGS FOR AN EARLIER YEAR WOUL D NOT BE REOPENED IN A SUBSEQUENT YEAR IF IT IS NOT ARBITRARY OR PERVERSE, HAS BEEN A RRIVED AT AFTER DUE ENQUIRY AND IF NO FRESH FACTS ARE PLACED IN THE SUBSEQUENT ASSESSMENT YEAR. THIS IS ON THE PRINCIPLE THAT THERE SHOULD BE FINALITY AND CERTAINTY IN ALL LITIG ATIONS INCLUDING LITIGATIONS ARISING OUT OF THE I.T. ACT (SEE BURMAH-SHELL REFINERIES LTD. V. G . B. CHAND [1976] 61 ITR 493 (BOM) AND CIT V. DALMIA DADRI CEMENT LTD. [1970] 77 ITR 4 10 (P & H). IN THE INSTANT CASE, NO FRESH MATERIAL WAS BROUGHT IN, IN THE ASSESSMENT PROCEEDINGS FOR THE YEARS 1974-75 AND 1975-76, TO SHOW THAT THE FINDING REACHED BY TH E ITO IN THE ASSESSMENT PROCEEDINGS FOR THE YEAR 1973-74, THAT THE ASSESSEE HAD INSTALL ED NEW PLANT AND MACHINERY AND HAD CONSTRUCTED A NEW BUILDING, WAS IN ANY WAY ERRONEOU S. AS EARLIER POINTED OUT BY US, THE ITO, IN GRANTING THE RELIEF FOR THE YEAR 1973-74, H AD RELIED UPON THE DECISION OF THE CALCUTTA HIGH COURT IN INDIAN ALUMINIUM CO.'S CASE [1973] 88 ITR 257. THAT DECISION WAS CONFIRMED IN APPEAL BY THE SUPREME COURT IN CIT V. INDIAN ALUMINIUM CO. LTD. [1977] 108 ITR 367. THE SUPREME COURT IN TEXTILE MA CHINERY CORPN. LTD. V. CIT [1977] 107 ITR 195, HELD THAT THE RELIEF UNDER S. 8 0J COULD BE OBTAINED ALSO WHEN NEW PLANT AND MACHINERY WERE ERECTED FOR PRODUCING THE SAME COMMODITY WHICH THE ASSESSEE WAS PRODUCING EARLIER. IT CANNOT, THEREFOR E, BE SAID THAT THE ITO, IN GRANTING THE RELIEF UNDER S. 80J FOR THE ASSESSMENT YEAR 197 3-74, PROCEEDED UPON A WRONG INTERPRETATION OF THE SECTION. ON THESE FACTS AND C IRCUMSTANCES, IT WAS NOT OPEN TO THE ITO, IN DEALING WITH THE ASSESSMENT FOR THE YEARS 1 974-75 AND 1975-76, TO REFUSE TO GRANT THE RELIEF UNDER S. 80J TO THE ASSESSEE. WE A RE INFORMED THAT THE RELIEF UNDER THAT SECTION HAS ALREADY BEEN GRANTED TO THE ASSESSEE FO R THE YEARS 1976-77 AND 1977-78. FOR THE REASON GIVEN ABOVE, WE ANSWER THE QUESTION AS FOLLOWS : ' ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE INCOME TAX OFFICER WAS NOT COMPETENT TO DISALLOW THE RELIEF UNDER SECTION 80J FOR THE ASSESSMENT YEARS 1974-75 AND 1975-76. ' IN VIEW OF THE ABOVE LEGAL POSITION ENUMERATED BY H IGH COURTS, AS NOTED ABOVE, WE ARE OF THE VIEW, IN THE GIVEN FACTS AND CIRCUMSTANCES, THE REOPENING IN THESE YEARS IS BAD IN LAW AND ACCORDINGLY QUASHED. 14. IN THE RESULT, APPEALS OF THE ASSESSEE ARE ALLO WED. 15. ORDER IS PRONOUNCED IN THE OPEN COURT ON 29.4.2 011 SD/- SD/- , !' , (AKBER BASHA) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER ( -' -' -' -') )) ) DATED 29TH APRIL, 2011 ./ $01 2 JD.(SR.P.S.) 11 ITA NOS. 1982 TO 1986/KOL/2009A.Y.01-02 TO 05-06 ! 3 +4 5!4&6- COPY OF THE ORDER FORWARDED TO: 1 . )* / APPELLANT M/S. HYDRO CARBONS & CHEMICALS, 25, CH ANDITALA MAIN ROAD, KOLKATA-700 053. 2 +,)* / RESPONDENT ACIT, CIRCLE-28, KOLKATA. 3 . $ ( )/ THE CIT(A), KOLKATA 4. 5. $ / CIT KOLKATA 4<= +$ / DR, KOLKATA BENCHES, KOLKATA ,4 +/ TRUE COPY, ! $>/ BY ORDER, 1 /ASSTT. REGISTRAR .