JOINT CIT (OSD) CENT CIR. 1(4), MUMBAI V. GRASIM INDUSTRIES LTD., MUMBAI

ITA 2155/MUM/2016

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 3302 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 1996-1997
• Appeal Filed On: 03-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Opportunity of being heard; Source of fund; Question of law; Cost of acquisition; Capital receipt; Set aside
• Section: 12; 143(3); 251; 191; 264; 64; 43; 48; 72; 13; 153; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, ‘G‘ BENCH MUMBAI BEFORE: SHRI M.BALAGANESH, ACCOUNTANT MEMBER & SHRI AMARJIT SINGH, JUDICIAL MEMBER ITA No.2155/Mum/2016 (Assessment Year :1996-97) ITA No.2156/Mum/2016 (Assessment Year :1997-98) ITA No.2165/Mum/2016 (Assessment Year :1998-99) ITA No.2154/Mum/2016 (Assessment Year :1999-00) & ITA No.2157/Mum/2016 (Assessment Year :2000-01) JCIT(OSD)-Central Circle 1(4), Mumbai Room No.902, 9th Floor Old CGO Building M.K.Road, Churchgate Mumbai – 400 020 Vs. M/s. Grasim Industries Limited Corporate Finance Division Aditya Birla Centre A Wing, 2nd Floor SK Ahire Marg, Worli Mumbai – 30 PAN/GIR No. AAACG4464B (Appellant) .. (Respondent) Revenue by Shri J.D. Mistry,Senior Advocate and Shri Ronak Doshi Assessee by Shri P.C.Chhotaray, Special Counsel for the Revenue Date of Hearing 19/04/2022 Date of Pronouncement 29/04/2022 2 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., आदेश / O R D E R PER M. BALAGANESH (A.M): These appeals in ITA Nos.2155/Mum/2016, 2154/Mum/2016, 2165/Mum/2016, 2157/Mum/2016, & 2156/Mum/2016 for A.Yrs.1996-97- 2000-01 arise out of the order by the ld. Commissioner of Income Tax (Appeals)-13, Mumbai in appeal No.CIT(A)-13/ACIT-7(1)(1)/258/2015-16, CIT(A)-13/ACIT-7(1)(1)/329/2015-16, CIT(A)-13/ACIT-7(1)(1)/233/2015-16, CIT(A)-13/ACIT-7(1)(1)/328/2015-16 & CIT(A)-13/ACIT-7(1)(1)/933/2015-16 respectively dated 25/01/2016 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) r.w.s. 254 of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 29/10/2013, 12/03/2014, 23/10/2013,14/03/2014 & 29/10/2013 respectively by the ld. Dy. Commissioner of Income Tax, Circle-6(3), Mumbai (hereinafter referred to as ld. AO). 1.1. As identical issue is involved in all these appeals, they are taken up together and disposed of by this common order for the sake of convenience. With the consent of both the parties, the appeal for the Asst Year 1996-97 is taken as the lead case considering the figures of sales tax subsidy thereon and the decision rendered thereon would apply with equal force for other assessment years also, except with variance in figures. 2. The only effective to be decided in all these appeals is as to whether the sales tax/entry tax exemption i.e subsidy, incentive, etc, by whatever name called, received by the assessee could be construed as capital receipt not chargeable to tax in the facts and circumstances of the case. 3 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., 3. The brief facts of this issue are that the assessee has received sales tax/entry tax/purchase tax/VAT, etc exemptions/incentives under respective schemes from the State Governments of Maharashtra, Madhya Pradesh, Rajasthan and Haryana as the Assessee had set up units in notified areas of those State. During the Asst Year 1996-97, the assessee had availed sales tax exemption incentive of Rs 17,50,22,940/- for setting up new industry in backward areas under the scheme of various state governments. The assessee filed its original return and offered the subsidy as trading receipt. The assessments were completed treating the subsidy as a revenue receipt , but the ld. AO resorted to make certain additions / disallowances on certain other issues. This was agitated by the assessee upto Tribunal. Subsequently, the assessee filed an additional ground before the Tribunal claiming the sales tax exemption as a capital receipt, relying on the decision of Special Bench of Mumbai Tribunal in the case of DCIT v. Reliance Industries Ltd reported in 88 ITD 273. The Tribunal decided the appeals filed by the assessee admitting the additional ground filed by the assessee and directed the ld. AO as under: ―31.1 This ground has also been raised for the first time before us by the assessee; therefore, it requires proper examination and verification of the nature of the benefit and scheme of government under which the benefit has been availed by the assessee. Accordingly, we remit this issue to the record of the Assessing Officer to consider and decide the same as per law and after giving reasonable opportunity of being heard to the assessee.‖ 3.1. It is pertinent to note that against this order of the Tribunal in the first round of proceedings, no appeals were preferred by the revenue before the Hon‟ble High Court. Accordingly, the said finding of Tribunal and directions have become final. 4 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., 3.2. The scheme-wise state-wise details of the various sales tax/entry tax exemption received by the assessee for various assessment years are tabulated below: Sr No. Particulars Year-wise amount of Incentives (Rs. in Lakhs) AY 1996-97 AY 1997-98 AY 1998-99 AY 1999-00 AY 2000-01 1 Maharashtra State - Package Scheme of Incentive, 1988 dated 01.10.1988 1.1 Vikram Ispat Unit 994.23 1,908.86 1,348.58 1,265.73 2,118.17 2 Haryana State - Sales Tax Exemption Scheme (Haryana General Sales Tax Rules 1975) 2.1 Elegant Spinners - - 84.61 84.93 192.63 3 Rajasthan State - Sales Tax New Incentive Scheme for Industries 1989, Rajasthan (S.No.764 : F-4(35)FD Gr.IV/87-39 dated 6.7.1989) 3.1 Aditya Cement - Sales Tax 41.86 169.39 898.15 842.08 698.54 4 Madhya Pradesh State 4A Sales Tax Incentives 4.1 1991 Scheme for units with Capital Investment in fixed assets of Rs.100 Crores or more 4.1.1 Grasim Cement 683.27 1,045.09 1,187.93 1,022.03 1,346.04 4.2 New Industries Notification No.A-3-11-86 (74)-ST-V dated 16.10.1986 under Madhya Pradesh General Sales Tax Act, 5 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., 1958 4.2.1 Poly Aluminium Chloride 15.66 - - - - 4.3 Sales Tax Exemption Scheme (M.P. Vanijyikar Adhiniyam, 1994) 4.3.1 Vikram Woollens 5.08 37.28 44.06 57.18 61.89 4B Entry Tax Incentives 4.4 Entry Tax Notification No.422-6596 dated 09.02.1977 under Madhya Pradesh Sthaniya Kshetra Me Mal ke Pravesh Par Kar Adhiniyam, 1976 4.4.1 Poly Aluminium Chloride 1.21 - - - - 4.4.2 Chloro Sulphuric Acid Division 1.60 1.07 0.65 - - 4.5 New Industry Notification No.A-3-24-94-ST-V(112) dated 06.10.1994 under Madhya Pradesh Sthaniya Khstra Me Mal ke Pravesh Pare Kar Adhiniya, 1976 4.5.1 Caustic Soda Memrance Cell 7.32 23.43 41.99 42.42 4.54 Total 1,750.23 3,185.12 3,605.97 3,314.36 4,421.81 3.3. The said exemption schemes are implemented by the respective sales tax authorities. For example, State Industrial and Investment corporation of Maharashtra (“SICOM”) is the implementing agency in Maharashtra. Exemption is granted to the assessee by way of eligibility certificate where various conditions are stipulated, including requirement of maintaining proper accounts, utilization etc. Generally, the purpose behind the grant of such schemes is for development of backward areas as well as industrial development and generating employment. For example, the preamble of the 6 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., Package Scheme of Incentive (“PSI”), 1988 dated 01.10.1988 by State of Maharashtra is as under:- ―In order to achieve dispersal of industries outside the Bombay- Thane- Pune Belt and to attract them to the underdeveloped and developing areas of the State, Government has been giving a Package of Incentives to New Units / Expansion set-up in developing region of the State since 1964 under a Scheme popularly known as the Package Scheme of Incentive.‖ 3.4. Further, the said Scheme itself defines what is a “notional” sales tax liability (“NSTL”). This is enclosed in Page 375 of the Paper Book 2 filed before us. It is pertinent to note that the Notional Sales Tax Liability (NSTL) is quantified by the Sales Tax Officer. Evidences in this regard are enclosed in Page 553 of the Paper Book 2 filed before us. 3.5. The assessee is eligible for sales tax exemption upto a fixed percentage of capital investment which could be availed over a period of several years. For example - In the Maharashtra Scheme, the assessee falls under the category of „Pioneer unit‟, it is eligible for sales tax exemption upto 95% of fixed capital investment and can avail the same for a period of 10 years. The total amount of subsidy/incentive is thus capped at a particular % of total capital invested and thus over the specified period, the assessee subject to fulfilment of respective conditions under relevant schemes, gets this benefit. The subsidy figure is either determined based on the sales tax returns filed by the assessee or based on the sales tax/entry tax / purchase tax assessment orders passed in respect of various schemes of various state governments, as the case may be. The total subsidy received for each year is summarised in page 1167 of the Paper Book 4 filed before us. As and when the final sales tax liability is determined in the sales tax assessment order, the same amount is treated as notional sales tax subsidy and granted by the competent authority to the assessee. However, in all these cases, the total subsidy 7 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., figure have been capped / outer limit is prescribed in the subsidy / incentive scheme itself. 3.6. Proceedings before the ld. AO in the second round of proceedings: During the course of proceedings u/s 143(3) r.w.s. 254 of the Act, the ld. AO had called for documentary evidences to substantiate the claim of sales tax/entry tax exemption. The evidence in this regard is enclosed in Page 786 of the Paper Book 3 filed for the Asst Year 1996-97. The assessee provided scheme-wise salient features along with its objects and benefit. The assessee filed all the relevant documents of each scheme before the ld. AO which are tabulated in the index pages 1-6 of Paper Book running from Page Nos. 368 to 748. In particular, the assessee filed the following documents for each of the subsidy / incentive scheme:- a. Sales tax/entry tax scheme or State Government notification; b. Eligibility certificate, wherever applicable; c. Entitlement certificate, wherever applicable; d. Sales tax assessment order/ Sales Tax Return/Entry tax returns/etc; The assessee further mapped all the documents with the scheme-wise amount of exemption claimed. The evidence in this regard is enclosed in Page 1167 of the Paper Book 4 filed. The index of the factual submissions made before the ld. AO has also been filed by the assessee vide Paper Book 1, the relevant page numbers of which are as follows: A.Y. Scheme-wise documents filed before the AO (Paper Book 1, Pg. No.) 8 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., 1996-97 31-33 1997-98 37-40 1998-99 47-49 1999-00 51-54 2000-01 55-58 3.6.1. The ld. AO passed order u/s 143(3) r.w.s. 254 of the Act after considering the details in the form of various subsidy schemes of the various state governments and submissions filed by the assessee. The ld. AO rejected the claim of the assessee by treating the receipt of subsidy as a revenue receipt, effectively on the following grounds:- a) Hon‟ble Bombay High Court order in case of Reliance Industries Ltd. has been set aside by the Hon‟ble Apex Court. Hence the issue has not been settled by the Hon‟ble Apex court till date. b) Sales tax incentive is determined based on the sales tax assessment order or the sales tax returns, as the case may be, which happens after the commencement of business. c) Alternatively, the incentives/ subsidies are to be reduced from the cost of assets as per Explanation 10 to section 43(1) of the Act. d) Claim of exemption from tax was not made in the return of income and cannot be allowed following the decision of Hon‟ble Supreme Court in the case of Goetze India Ltd reported in 284 ITR 323 (SC). 3.7. Proceedings before the ld. CIT(A) in the second round of proceedings: The ld. CIT(A) also again verified all the documentary evidences filed by the assessee regarding various incentive /subsidy schemes as detailed supra. The ld. CIT(A) at Para 3.3 of his order, negated the observation of the ld. AO that 9 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., claim cannot be made raised following the decision of Hon‟ble Apex Court in the case of Goetze India Ltd on the ground that the proceedings are in course of second round, post tribunal admitting the additional ground and thus, reliance placed by the ld. AO on Goetze India Ltd in these proceedings is misplaced. The ld. CIT(A) after acknowledging that the assessee has filed all the incentive schemes including notifications of the state governments, relied upon the decision of Hon‟ble Supreme Court in the case of CIT v. Ponni Sugars & Chemicals Ltd reported in 306 ITR 392 (SC) as well as the decision of Special Bench of Mumbai Tribunal in the case of Reliance Industries Ltd reported in 88 ITD 273 held that sales tax incentive/subsidy is a capital receipt. Aggrieved by this, the revenue is in appeals before us. 4. The ld. Special Counsel for the Revenue drew our attention to the eight additional grounds raised by the Revenue for the above mentioned assessment years. We find that all those additional grounds are merely argumentative in nature and are supportive of the main grounds raised already by the Revenue. Hence, the additional grounds and original grounds raised by the Revenue are taken up together for the purpose of adjudication of the issue in dispute before us. 4.1. The ld. Special Counsel for the Revenue argued that assessee had filed its original return for the above years by including sales tax subsidy as revenue receipt. The assessments were completed after making certain additions / disallowances. Those disputed issues were carried in appeal up to the level of the Tribunal by the assessee. When the appeal was pending before this Tribunal for the first time, almost after a gap of 10 years, the assessee chose to file an additional ground before this Tribunal to claim that 10 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., subsidy / incentive / grants received under various schemes / notifications of various state Governments are capital receipts not chargeable to tax. 4.2. The ld. Special Counsel for the Revenue submitted that this Tribunal erred in admitting the additional grounds raised by the assessee in the first round of proceedings, as the decision of Special Bench of this Tribunal in the case of Reliance Industries Ltd., has been reversed by the Hon‟ble Supreme Court. The ld. Special Counsel for the Revenue also criticized the Special Bench decision of this Tribunal in the case of Reliance Industries ltd., to be fallacious, wrong and perverse. He submitted that this Tribunal in the first round of proceedings had admitted the additional ground raised by the assessee on the issue of taxability of subsidy as capital receipt and had remitted the same to the file of the ld. AO to decide the issue in the light of Special Bench decision of this Tribunal in the case of Reliance Industries Ltd., The ld. Special Counsel for the Revenue also submitted that this Tribunal in the first round of proceedings had directed the ld. AO to make thorough examination of the entire subsidy schemes of various State Governments. The ld. Special Counsel for the Revenue took us to the Special Bench decision of Reliance Industries Ltd., reported in 88 ITD 273 and stated that the said decision dealt only with the Maharashtra Subsidy Scheme, whereas in the case of assessee before us, the subsidy schemes notified by four different states are involved including Maharashtra Subsidy Scheme. Hence, he stated that the ld. CIT(A) grossly erred in merely following the Special Bench decision of Tribunal in the case of Reliance Industries Ltd., which dealt only with Maharashtra Subsidy Scheme, while granting relief to the assessee. He also stated that the ld. CIT(A) had merely relied on the statements made by the assessee that all the incentive schemes were submitted before the ld. AO. In the opinion of the ld. Special Counsel for the Revenue, the lower 11 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., authorities had not examined the subsidy scheme at all as directed by this Tribunal in the first round of proceedings. He relied on the order of the ld. CIT(A) wherein no detailed discussions were made with regard to each of the subsidy schemes in the appellate order. The ld. Special Counsel for the Revenue stated that what is received by the assessee is whether the subsidy or incentive itself was not proved by the assessee in the instant case. He drew our attention to the submissions made before the lower authorities that assessee was entitled for notional sales tax subsidy and accordingly, he concluded that notional sales tax subsidy would not fall within the ambit of actual subsidy and hence, the same would have to be treated as a revenue receipt. He vehemently argued that since this subsidy was granted to the assessee after the commencement of business of the assessee, the same would constitute revenue receipt as it was meant for the purpose of supporting working capital requirements of the assessee. The ld. Special Counsel for the Revenue argued that there was some factual discrepancies between the figures of notional subsidy mentioned in the additional grounds furnished by the assessee before this Tribunal in the first round of proceedings with the actual amount of subsidies received by the assessee. The same are tabulated hereunder:- A.Y. Amount (Rs.) (As per asst. order) Amount (Rs.) (As per addl. Ground of appeal) 1996-97 17,50,22,940/- 18 Cr. 1997-98 31,85,11,619/- 30 Cr. 1998-99 36,05,96,547/- 34 Cr. 1999-00 33,14,35,985/- 33 Cr. 12 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., 2000-01 44,21,80,515/- 42 Cr. Total 162,77,47,606/- 157 Cr. 4.3. The ld. Special Counsel for the Revenue vehemently argued that assessee never reconciled these factual discrepancies with supporting documents. He also tried to drive home the point that subsidy figure has to be taken from the final sales tax assessment order as per the various subsidiaries schemes of various State Governments. He stated that the sales tax assessment order would be received by the assessee after the due date of filing the return of the income by the assessee. Hence, there cannot be a proper quantification of the subsidy by the assessee at the time of filing of return of income. This itself clearly goes to prove that the entire concept of notional sales tax subsidy as enumerated in the schemes of various State Governments becomes unworkable. He also vehemently argued that the Income Tax department need not wait for the final quantification of the subsidies in the sales tax assessment orders. Moreover, the sales tax assessment orders would not be final and would be subjected to regular appeal and thereafter, the Income Tax Officer had to correspondingly change the subsidy figures in the Income Tax assessment of the assessee company, which makes the entire gamut of quantification of subsidy unworkable. This itself goes to prove that assessee is not entitled for treating the said subsidy as capital in nature. Moreover, the basis of determination of sales tax subsidy is depending on sales tax assessment order. Hence, the ld. AO has to wait till the sales tax assessment order is finally passed in the hands of the assessee. This could be possible if the return of the assessee is selected for scrutiny. What if the income tax return is not at all selected for scrutiny? In such cases how the final quantification of sales tax subsidy could be determined by the Income Tax Officer? This makes the entire scheme of subsidy completely unworkable. 13 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., Hence, he vehemently denied the basic concept of notional subsidy which has been ultimately received by the assessee in the instant case. He also relied on the decision of the Hon‟ble Supreme Court in the case of B.C. Srinivasa Setty reported in 128 ITR 294 wherein it was held that when the computation provision fails, the charging section also correspondingly fails. 4.4. The ld. Special Counsel for the Revenue vehemently submitted that the Special Bench decision of this Tribunal in the case of Reliance Industries Ltd., reported in 88 ITD 273 was ultimately reversed by the Hon‟ble Supreme Court vide its order dated 09/09/2011. He stated that the order in the first round of appellate proceedings was passed by this Tribunal on 16/05/2012 on which date the order of the Hon‟ble Supreme Court was in force. Hence, the direction of this Tribunal in admitting the additional ground of the assessee and remitting the matter back to the ld. AO to decide the taxability of subsidy in the light of the Special Bench decision in the case of Reliance Industries Ltd., and ignoring the Hon‟ble Supreme Court decision thereon, makes the order of this Tribunal per incuriam. Accordingly, he prayed for restoration of the original assessment framed in the hands of the assessee for all these years. The ld. Special Counsel for the Revenue also submitted that Reliance Industries Ltd., deals with Maharashtra Subsidy Scheme of 1983 whereas, the assessee case deals with different schemes of different years of different states. He argued that the decision of the Hon‟ble Supreme Court in the case of U.P. Rashtriya Chinni vs. State of UP and others dated 02/07/1995 reported in 1995 SCC(4) 738 was not cited anywhere by this Tribunal and accordingly, the decision of Special Bench in the case of Reliance Industries Ltd., becomes non-est and loses its binding precedent. He accordingly argued that the entire gamut of taxability of subsidy should be viewed completely ignoring the decision of Special Bench in the case of Reliance Industries referred to supra. 14 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., 4.5. He also pointed out that assessee had not maintained separate records for sales tax account and the subsidy to be received thereon. Accordingly, he argued that assessee had not maintained even the primary records that are required to prove that subsidy has been received by it for a specific purpose and quantification has been made in a particular manner as contemplated in the scheme. He also placed reliance on the decision of this Tribunal in the case of Bajaj Auto Ltd., reported in 90 ITD 153 which held that the liability for sales tax was not reflected in the accounts and no such claim was made by the assessee in the return of income, and in the return of income there was no mention regarding notional sales tax liability, the assessee would not be entitled for treating the said sales tax subsidy as a revenue receipt. He also relied on the same judgement for driving home the point that the eligibility certificate for granting the subsidy was issued by the implementing agency after the commencement of commercial production and accordingly, it cannot be said that the subsidy so received would be in the capital field. He vehemently relied on the decision of the Hon‟ble Supreme Court in the case of Sahney Steel and Press Works Ltd., reported in 228 ITR 253 wherein it was held that subsidy received after the commencement of business would be revenue receipt chargeable to tax. 4.6. The ld. Special Counsel for the Revenue submitted that the cut-off date should be reckoned as the date of commencement of business and any subsidy or incentive received after that date shall be considered as a revenue receipt in the light of the decision of the Hon‟ble Supreme Court in the case of Sahney Steel referred to supra. He submitted that there is no concept of notional subsidy that could be acceptable and if it is so, it is only revenue receipt. The ld. Special Counsel for the Revenue gave a brief description of 15 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., each of the scheme in its written submissions enclosed in pages 52-56 thereon and finally drew our attention to the summary of the schemes furnished by the assessee and the common features enumerated thereon as under:- (a) The objects are general like dispersal of industries from Bombay-Thane- Pune belt to outside, boost up of new industrial development in the state, accelerating the pace of development. They are common objectives of any incentive system. It does not follow that all incentives would be capital in nature. (b) The incentives are given after the commencement of business. The presumption is that the incentive is of revenue nature [Vide the decision of the Hon‟ble Supreme Court in the case of Sahney Steel and Press Works Ltd. v. CIT, 1997,228 ITR 253( SC) ]. It is for the assessee to establish with documents how it is capital receipt. [Vide Supreme Court decision in the case of Novopan India Ltd. (supra) laying down the doctrine of strict construction of exemption provisions against the assessee]. (c) The incentive continues for years – here 10 years, 5 years, 9 years and 11 years. As discussed in paragraph 20 above, the incentive is continuously received for years and the assessee received incremental indirect benefits, not any direct lump sum receipt. Then the strong presumption according to the normal conduct of business, is that the incentive supplemented the profit of the business and was of revenue nature. The most important point is that assessee in its original return of income treated the transaction, and rightly so, as revenue in character and paid the taxes. But, as narrated earlier, after more than a decade the assessee has raked up the issue of capital receipt. If the assessee claims it to be capital receipt, the burden is for the assessee to establish with evidence that it is a capital receipt.[ Vide Supreme Court decision in the case of Novopan India Ltd. (supra) laying down the doctrine of strict interpretation of exemption provisions against the assessee]. 16 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., 4.7. The ld. Special Counsel for the Revenue relied on para 23 of his written submissions dated 03/09/2020 from pages 57-61 wherein he had sought comments from the ld. AO regarding each of the schemes. For the sake of convenience the comments given by the ld. AO are reproduced hereunder:- “1)Vikram Ispat, Division of Grasim Industries Limited - Sales Tax Exemption In case of this Unit, the Assessee has shown and claimed Sales Tax subsidy of Rs.9,94,22,648/- by way of Purchase Tax, Sales Tax, Central Sales Tax and Turnover Tax. The said scheme availed by the Assessee is covered under the Package Scheme of Incentive 1988 dated 01.10.1988 by the State of Maharashtra. The noteworthy and salient features of this Scheme outlined in the Notification is summarised as under - Page No. Remarks 3 As per Preamble, the New Scheme is launched to intensify and accelerate the process of dispersal of industries outside the Bombay-Thane-Pune Belt and to attract them to the underdeveloped and developing areas of the State. From the above summarised features, it can be seen that the primary and cardinal motive of the Package Scheme of Incentive 1988, is to disperse the industrial units located in Mumbai-Thane-Pune belt. The sole purpose of this Notification that can be deduced from the Notification is de-congestion of this belt being Mumbai-Thane-Pune belt by dispersing such industries located in this area to other areascategorised as B, C and D of the under developed and developing areas. In this case, the converse inference cannot be true, as the Notification does not speak of Industrial Units to be re-located from any other areas of Maharashtra to the backward areas. To put it simply, the industrial units put up in the backward area would not enjoy the same incentives, if they are relocated to backward area, from those areas not covered by the Mumbai-Thane-Pune belt. For the purpose of grant of such subsidies, the methodology of working was based on the value of investments made in these backward/notified areas, which may also include the value of plant & machinery dismantled and relocated to these notified areas from the Mumbai-Thane-Pune belt. The Scheme is silent about relocation of 17 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., Industrial Units from other areas than the specified Mumbai-Thane-Pune belt. Therefore, it cannot be said that the Package Scheme of Incentive 1988, of State Government Maharashtra was meant at large for all the units setup in the notified areas, and hence the purpose of Scheme was not for the setting up of new units, but was primarily for the purpose of decongestion and dispersal of the units located in the Mumbai-Thane-Pune belt/corridor. The subsidy therefore cannot be said to linked to the capital investments for setting of new units or relocation of units but was for the sufferance or disadvantage on setting up or relocating the units from Mumbai-Thane-Pune belt to the backward/ notified areas. Hence, the facts of this case and the intention of the Notification when subjected to the purpose test envisaged in the Hon‘ble Apex Court‘s decision in the case of Sahney Steel and Press Ltd. vs. CIT [(1997) 142 CTR (SC) 261] and CIT v/s Ponni Sugars & Chemicals Limited [(2003) 260 ITR 0605], and the derived benefits fails to qualify as Capital Receipts. Therefore, the receipts by way of subsidies of Purchase Tax, Sales Tax, Central Sales Tax and Turnover Tax amounting to Rs.9,94,22,648/- by the State Government of Maharashtra under the Package Scheme of Incentive 1988 dated 01.10.1988, are revenue in character and not ̳Capital‘ as claimed by the Assessee and accepted by the Ld.CIT(A), Mumbai. (2) Chloro Sulphuric Acid Division and Caustic Soda Membrance Cell Division of Grasim Industries Limited - Entry Tax exemption A) As per Assessee‘s submission for Assessment Year 1996-97, vide page nos.87, the Designated Authority has issued Exemption letter dated 24.9.1996 under the Entry Tax Notification No.422-6596 dated 09.02.1977 of the Madhya Pradesh SthaniyaKshetra Me Mal K Pravesh Par Kar Adhiniyam, 1976. The certificates and other documents filed during the course of set-aside proceedings speak of the capital investmentonly for the purpose of computation/working of subsidy and not indicate the same as the sole criteria for eligibility for the benefit of scheme. B) As per Assessee‘s submission for Assessment Year 1996-97, vide page nos.101, the Designated Authority has issued Certificate of Eligibility 18 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., for Exemption of Entry Tax dated 23.02.1998 under the New Industry Notification No.A-3-24-94-ST-V(112) dated 06.10.1994 Madhya Pradesh SthaniyaKshetra Me Mal K Pravesh Par Kar Adhiniyam, 1976. The certificates and other documents filed during the course of set-aside proceedings speak of the capital investmentonly for the purpose of computation/working of subsidy and not indicate the same as the sole criteria for eligibility for the benefit of scheme. (3) Aditya Cement, Unit of Grasim Industries Limited, Sales Tax Exemption As per the Assessee‘s submission for Assessment Year 1996-97, vide page No.119-120, the Assessee has been issued Eligibility Certificate dated 31.10.1995 for exemption of sales tax of cement clinkers of new unit, citing the eligible fixed capital investment (8a), under the Sales Tax New Incentive Scheme for Industries 1989, Rajasthan [Sr.No.764 : F-4(35)FD Gr.IV/87-39 dated 06.07.1989]. The certificates and other documents filed during the course of set-aside proceedings speak of the capital investment only for the purpose of computation/working of subsidy and not indicate the same as the sole criteria for eligibility for the benefit of scheme. (4) Vikram Woollens, Unit of Grasim Industries Limited, Sales Tax Exemption As per Assessee‘s submission for Assessment Year 1996-97, vide page nos.140, the Designated Authority has issued Certificate of Eligibility for Exemption of Sales Tax under Sales Tax Exemption Scheme (M.P. VinijyikarAdhiniyam, 1994). As per the Assessee‘s submission, the scheme of sales tax exemption is applicable to new industrial undertakings. However, neither the Scheme nor the Eligibility Certificate vide page No.140, clearly establishes any nexus of the exemption granted with the capital investments, The certificates and other documents filed during the course of set-aside proceedings speak of the capital investment only for the purpose of computation/working of subsidy and not indicate the same as the sole criteria for eligibility for the benefit of scheme. (5) Grasim Cement, Unit of Grasim Industries Limited, Sales Tax Exemption On perusal of the Notification No.A-3-27-89-ST-V-(15) dated 15.02.1991, issued by the State Government of Madhya Pradesh, it is observed that the Sales Incentive Scheme is for exempting New Units with Capital Investments of Rs.100 crores or more. As per Assessee‘s 19 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., submission, vide page nos.163-168, the Designated Authority has issued Certificate of Eligibility for Exemption of Sales Tax under Sales Tax Exemption Scheme (Madhya Pradesh Industrial Policy & Action Plan, 1994) citing investment of Rs.280,33,11,056/. The certificates and other documents filed during the course of set-aside proceedings speak of the capital investment only for the purpose of computation/working of subsidy and not indicate the same as the sole criteria for eligibility for the benefit of scheme. (6) Elegant Spinners, Unit of Grasim Industries Limited, Sales Tax Exemption (AY 1997-98) As per Assessee‘s submission for Assessment Year 1996-97, vide page nos.193-194, the Designated Authority has issued Certificate of Eligibility for Exemption of Sales Tax under Sales Tax Exemption Scheme (Haryana General Sales Tax Rules, 1975). As per the Assessee‘s submission for Assessment Year 1996-97, on perusal of the Scheme (Page nos.178-179) of the Assessee, it is seen that the exemption is provided in respect of newly established industrial undertakings or expansion of existing industrial undertakings subject to fulfilment of capital investment and increase in annual production criteria mentioned therein. However, neither the scheme, nor the Eligibility Certificate provide the methodology for quantification of sales tax exemption vis-à-vis capital investment. Hence no exemption available, not being capital subsidy. 4.8. The ld. Special Counsel for the Revenue submitted that the reliance placed by the assessee on the decision of the Hon‟ble Madhya Pradesh High Court in the case of CIT vs. Dusad Industries Ltd., reported in 162 ITR 734 (MP) was overruled by the Hon‟ble Supreme Court in the case of Sahney Steel and Press Works Ltd supra. Hence, Madhya Pradesh Scheme pursuant to which assessee has received subsidy has to be construed as a revenue receipt. 4.9. The ld. Special Counsel for the Revenue stated that the decision relied by the ld. CIT(A) on Hon‟ble Supreme Court in the case of Ponni Sugars and 20 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., Chemicals Ltd., reported in 306 ITR 392 (SC) was not at all applicable in view of the fact that the questions raised in the case of Ponni Sugars and Chemicals Ltd., had two limbs:- “Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the incentive given by the Government in the form of higher free sale quota of sugar towards excise duty and purchase tax should be treated as capital receipt and hence no tax was excisable thereon.‖ 4.10. The ld. Special Counsel for the Revenue submitted that the incentive on purchase tax was held as „revenue receipt‟ by the Hon‟ble Madras High Court in the same case of Ponni sugars reported in 260 ITR 605 which was accepted by the assessee and that limb of the issue was never challenged before the Hon‟ble Supreme Court by the assessee. He submitted that in the case of Ponni Sugars and Chemicals Ltd., there was a categorical finding by the Hon‟ble Madras High Court in page 611 of the judgement that assessee had produced ample materials to show that monies accrued to it by way of incentives are infact properly applied for the purpose of discharging the term loans obtained by it in accordance with terms of the loan agreement. Whereas in the instant case before us, the assessee had not submitted any material regarding the subsidy scheme of various State Governments and had not established the purpose of receipt of such subsidy and the manner in which the same had been quantified and utilised. Accordingly, he argued that the decision of the Hon‟ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd., cannot advance the case of the assessee. The ld. Special Counsel for the Revenue relied on various other decisions of the Hon‟ble High Courts in support of the aforesaid contentions. 21 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., 4.11. The ld. Special Counsel for the Revenue on yet another occasion devoted maximum time in criticising the Special Bench decision of Reliance Industries Ltd., reported in 88 ITD 273 by observing as under:- a. Special Bench decision is perverse. b. Special Bench did not follow the mandate given to them by the Hon‟ble President of Tribunal. c. Special Bench did not go into facts as to what is notional subsidy, utilisation of subsidy etc., d. Special Bench decision has been very poorly drafted. e. Though Bajaj Auto Ltd., decision of Mumbai Tribunal was distinguished by the Special Bench, the Special Bench did not overrule Bajaj Auto Ltd., f. Special Bench heavily relied on the Sales tax assessment for the purpose of quantification of notional subsidy and reliance placed on the said sales tax assessment is irrelevant. g. Directions of Special Bench would be unimplementable. h. Special Bench twisted the interpretation of the decisions of the Hon‟ble Supreme Court in the case of Sahney Steel and Press Works Ltd and Ponni Sugars and Chemicals ltd., referred to supra. i. Special Bench decision does not lay down any ratio decidendi. j. Special Bench decision has been set aside by the Hon‟ble Supreme Court on the grounds of perversity. k. Special Bench decision has no precedence value. 22 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., 4.12. The ld. Special Counsel for the Revenue again reiterated that quantification of sales tax subsidy in the instant case becomes totally unworkable as the same is dependent on sales tax assessment order which happens after the income tax return is filed. He argued that there cannot be any concept of notional sales tax subsidy. He submitted that notional subsidy is a “Monster”. He argued that Sales Tax and Income Tax department roles are totally different as Sales Tax department in the instant case is concerned with sales tax subsidy subject to maximum cap of Rs.5000 Crores whereas Income Tax department collects tax from assessee. The assessee had not maintained any accounts or details as to how the quantification of sales tax subsidy had been made in the instant case. 4.13 Finally, on without prejudice basis, the ld. Special Counsel for the Revenue argued that even if the aforesaid subsidy is treated as capital receipt, then the same should be reduced from the cost of the asset in terms of Explanation 10 to Section 43 (1) of the Act for A.Yrs. 1999-2000 and 2000-2001 as the said amendment was applicable only from Asst Year 1999-2000 and onwards. 5. We have heard the rival submissions and perused the materials available on record. The short point that arises for our consideration in these appeals is that whether the incentive /subsidy received by the assessee under various schemes of state governments after the commencement of business, could be construed as capital receipts not chargeable to tax. At the outset, in the original return of income, the assessee had not claimed exemption of any sales tax/purchase tax/entry tax incentive/subsidy. However, the assessee raised claim of exemption before the Tribunal for the first time by way of additional ground, which was admitted and restored to file of the ld AO to 23 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., consider and decide the same as per law after giving opportunity of being heard to the assessee. This tribunal order in the first round of proceedings was not challenged by the revenue before the Hon‟ble High Court for the Asst Years 1996-97 and 1997-98. For the Asst Year 1998-99, the revenue filed an appeal to the Hon‟ble High Court against various other issues but did not raise the issue of admission of additional ground on the aspect of taxability of subsidy. For the Asst Years 1999-00 and 2000-01, the revenue challenged the tribunal order on the admission of additional ground on the aspect of taxability of subsidy and the same was dismissed by the Hon‟ble High Court. The Revenue did not further challenge this before the Hon‟ble Supreme Court. These facts are evident from Page 1168 of the Paper Book 5 filed by the assessee. The ld. AR before us met all the arguments of the ld. Special Counsel for the Revenue. The ld. AR even filed para wise rebuttal for each of the arguments of the ld. Special Counsel for the Revenue , which are reproduced herein for the sake of convenience:- Page No / Para No of Submission filed by Department Counsel vide letter dated 01.09.2020 Gist of Department Submission Rejoinder by Assessee 1 to 3/Para 1 Brief Background stating that in the ROI of respective Assessment Years, no claim for exemption of sales tax incentive/subsidy as capital receipt was claimed. Only when for other issues when matter reached the Tribunal, in It is not disputed that in original ROI, the Assessee had not claimed exemption of any sales tax/purchase tax/entry tax incentive/subsidy. However, Assessee raised claim before the Tribunal first time and which was admitted and restored to file of AO to consider and decide the same as per law after giving opportunity of being heard to the Assessee. The Department did not challenge this action of Tribunal for AY 1996-97 & 1997-98 and AY 1998-99 24 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., view of decision of Hon‟ble Special Bench Mumbai Tribunal in the case of DCIT v. Reliance Industries Ltd. (88 ITD 273), the Assessee sought claimed relief first time by filing an additional ground of appeal and has reproduced the finding of ITAT as under: ―This ground has also been raised for the first time before us by the assessee. Therefore, it requires proper examination and verification of the nature of the benefit and the scheme of the Government under which the benefit has been availed by the assessee. Accordingly, we remit this issue to the record of the AO to consider and decide the same as per law and after giving reasonable opportunity of being heard to the assesse‖ and where it did for AY 99-00 & 00-01, the HC dismissed the same. Against the same to best of our knowledge, no SLP has been filed. (Refer Page 1168 of Paper Book 5). 3 to 10/Para 2 Chart on factual data like data of original 143(3) order, ITAT order, submission of Assessee in set aside proceedings, date of 143(3) r.w.s. 254 order, reason of AO in rejecting claim, quantum of claim in second round and quantum of exemption mentioned in additional ground before ITAT and At Para 4 of AO‟s order u/s.143(3) r.w.s. 254 (AY 1996-97), the AO notes that during the assessment proceedings, relevant details have been called for. Assessee submitted the details and explained the same. It may also be noted that during the course of proceedings u/s 143(3) r.w.s. 254, the AO had called for documentary evidences to substantiate the claim of sales tax subsidies/incentives (PB 3, Pg. No. 786) to which the Assessee had duly complied with (See for eg:- PB 1, Pg 31-33 for AY 96-97). 25 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., comments of Department Basis of AO denying exemption in 143(3) r.w.s. 254: Hon‟ble Bombay High Court decision upholding ITAT order in Reliance Industries Ltd. has been set aside by Supreme Court to High Court. In original return of income, assessee treated incentive as of revenue nature Further comments by DR:  ITAT‟s order / directive has not been complied with.  Facts have not been discussed in the order. False averments made by the assessee. Variation between figures of subsidy given to ITAT and to AO not explained.  If the figure is based on investment made in fixed assets, there should be no difference. The basis of computation of subsidy has not been given.  Relies on decision of Supreme Court The AO has discussed this issue at Para 7 and observed as under: Para 7.1: Records Assessee‟s submissions that scheme were framed for necessary infrastructure in backward/notified area and hence incentive is capital in nature. Reliance is placed on the decision of Hon‟ble Special Bench Mumbai Tribunal in the case of DCIT v. Reliance Industries Ltd. (88 ITD 273) (PB 1, Pg No. 217-232). Holds that decision of Hon‟ble Bombay High Court against Special Bench decision has been set aside by Hon‟ble Supreme Court in the case of CIT vs Reliance Industries Limited (Civil Appeal No 7769 of 2011) (PB 1, Pg. No. 243-244) back to Hon‟ble Bombay High Court for fresh adjudication and hence it is clear that issue has not been settled by Apex Court till date. Para 7.2: Holds sales tax incentive is nothing but revenue received. Alternatively, since incentive received is on basis of investments made in Fixed Assets, to be reduced from WDV of assets; Thus, this clearly shows that he has examined the Schemes/Notifications/other documents and only then concluded that incentive is on revenue account. Para 7.3: Holds that Assessee‟s reliance on AY 1995-96, OGE to ITAT wherein such incentive is held to be capital receipt as also CIT(A) order for AY 2006-07 to AY 2008-09 cannot be relied as principle of res judicata does not apply to income tax proceedings. Para 7.4: Holds that other decisions relied by Assessee cannot apply. Also holds that since in Return of Income no claim was made, relying on Hon‟ble Supreme Court in case of Goetz (India) Ltd. vs. CIT (284 ITR 323), claim cannot be allowed. Submissions: 1. All details called for were submitted and explained by the Assessee; 2. For AY 1996-97, please see Letter dated September 27, 2012 at Page 26, 28 of Paper Book 1; 3. For AY 1996-97, please see Letter dated August 28, 2012 at Page 30 of Paper Book 1; 26 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., in the case of Sahney Steel and Press Works Ltd. v. CIT (228 ITR 253). 4. For AY 1996-97, please see letter dated September 27, 2013 at Page 31 of Paper Book 1; 5. Please see Annexure A & B referred to in letters dated August 28, 2012 & September 27, 2013 at Page No 33 to 36 Paper Book 1. Similar details were submitted for subsequent assessment years also (please refer Page No. 37 to 58 of Paper Book 1). Thus, details of Scheme, exemptions claimed, yearwise and scheme wise documents all submitted to AO; 6. Please see legal submission filed before AO at Page 761 to 785 of PB 3. 7. Thus, clearly entire directive of ITAT of examining facts including scheme, purpose and sales tax order/notifications all have been submitted. Unlike the amount referred to in additional ground before ITAT, the AO refers to exact amount claimed by the Assessee in set aside proceedings. 8. Entire written submissions before CIT(A) in second round is from Page 59 to 146 of Paper Book 1; 9. It is a settled law by Hon‟ble Supreme Court and Hon‟ble Bombay High Court that once entire details have been furnished before AO, how the AO writes the order is not in control of the Assessee and merely because there is no discussion in order, it cannot be inferred that AO has not passed a speaking order. See following decisions: Marico Ltd. v. ACIT (111 taxmann.com 253) (Bom HC) ACIT v. Marico Ltd. (117 taxmann.com 244) (SLP Dismissed) Idea Cellular Ltd. v. DCIT (301 ITR 407) (Bom HC) (PB 7, Page 1396) GKN Sinter Metals Ltd. v. ACIT (371 ITR 225) (Bom HC) (PB 7, Para 14, Page 1393) Aroni Commercials Ltd. v. ACIT (367 ITR 405) (Bom HC) CIT v. Prima Paper And Engineering Industry (364 ITR 222) (Bom HC) 10. The Appellant had relied on decisions like 27 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., Special Bench in Reliance Industries (supra), Bombay High Court decision in case of Reliance Industries (which now has been set aside back to Bombay High Court by Apex Court), decision of Hon‟ble Supreme Court in the case of CIT v. Ponni Sugars & Chemicals Ltd. (306 ITR 392 (SC) (PB1, Pg. no. 233-238) 11. The AO only states that decision of Bombay High Court is set aside by SC and thus issue not settled by Supreme Court. Thus, he does not dispute that decision of Special Bench is still a good law. 12. Once ITAT has restored the issue to AO, question of Goetz (Supra) does not arise. In any event, even as per Goetz (supra), appellate authorities can always admit a new claim, which ITAT admitting and hence in present proceedings the AO cannot have any grievance on the same. In any event as stated in rebuttal above, those ITAT orders have become final. 13. The Assessee submits that before the ITAT in Additional Ground an estimated amount was claimed as capital receipt. Nonetheless, before AO, entire details which are schemes, sales tax notifications, sales tax returns and assessment orders were filed and based thereon final amount was claimed as capital receipt. Further, the Assessee has summarized exact figures for each year, scheme wise at Page 1167 (PB 4). Further, the Assessee has also attached the relevant sales tax assessment order/sales tax return and matched each figures, along with eligibility certificates in PB 2. A specimen detailed chart for AY 1996-97 was also filed at the time of physical hearing. Thus, all figures are explained and entire basis of computation of subsidy year wise along with supporting document is given. 14. The DR has made a baseless allegation that false averments have been made by the Assessee without pointing on what those averments are. 28 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., 15. The DR has highlighted that incentives is based on investment made by the Asseessee in fixed asset. It is submitted that as demonstrated for Maharashtra Scheme, the total incentive is capped at % of total capital investment. See Pages 382, 399, Item No (11) at Page 400 of PB 2. Thus, assuming that the sales tax figures would undergo change, then too, the monitoring or implementing agency would ensure that incentive cannot go beyond the ceiling. Thus, at best it is timing difference. However, for tax purposes it would not make a difference as the claim is of exemption of such incentive/subsidy on capital account. 16. In so far as decision of Supreme Court in Sahney Steel (supra) is concerned, it is submitted that right from subsequent decision of Supreme Court in Ponni Sugars (supra), latest decisions of Hon‟ble J&K HC in the case of Shree Balaji Alloys v. CIT (333 ITR 335) (PB 1, Pg. No. 276-284) affirmed by Hon‟ble SC in the case of CIT v. Shree Balaji Alloys (80 taxmann.com 239) (SC) (PB 1, Pg. No. 239-240), Hon‟ble SC in CIT v. Chaphalkar Brothers (252 Taxman 360) (PB 4, Pg. No. 809-817) and DCIT v. Munjal Auto Industries Ltd (Guj) (Tax Appeal No. 450 with 451 to 453 of 2012) (PB 4, Pg. No. 825-836) SLP Dismissed in DCIT v. Munjal Auto Industries Ltd and others (Civil Appeal No. 6226/2013) (PB 4, Pg. No. 822-824), all have consistently considered both the decisions and yet held that if subsidy is for industrialization or for backward development or employment and not to augment profits, then such incentive is a capital receipt. Assessee relies on all decisions cited in all Paper Books filed. Pages 10 to 16/Para 3 Summarizes CIT(A) order for five years and submits that order of CIT(A) is non speaking. Submissions: A detailed written submissions along with factual paper book was filed before the CIT(A). The same is 29 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., DR further comments as under: Does not discuss the facts at all. Does not discuss how subsidy arose and how it was computed. Does not obey the direction of ITAT to examine the facts. Does not explain how decision in Ponni Sugar (supra) case applies. Does not explain how the order of the ITAT(SB) in the case of Reliance Industries Ltd. (supra) still holds good after the Supreme Court‟s judgment setting aside the High Courts order. It is a totally non-speaking, superficial and perverse order. When there are no facts in the order, how Hon‟ble ITAT would decide the matter? Bereft of facts the order cannot be subjected to judicial scrutiny at Page 59 to 146 of Paper Book; The CIT(A) has passed a detailed order. The discussion on this issue starts from Page 4 to 12/Para 3. The CIT(A) at bottom of Page 9 notes that the Appellant has filed details of all the incentive schemes including notifications of the State Government. Also holds that that applying purpose test as canvassed by Supreme Court in Ponni Sugars (supra) holds subsidy to be a capital receipt; At Para 3.3.3. at Page 10, holds that despite the Hon‟ble Supreme Court setting aside Bombay High Court decision in Reliance Industries‟ case (supra), the ITAT Special Bench decision continues. In the original ITAT proceedings, the matter was restored to the AO and not CIT(A), thus the question of CIT(A) not following directions of ITAT in first round does not arise. Reliance is placed on decisions referred above for the proposition that once material is before CIT(A), he has considered the same, then merely because order is not written in manner expected by the DR, it cannot be said that there is no application of mind by the CIT(A). Pages 16 to 19 / Para 4 Reproduces Grounds of appeal raised by Revenue for all the years Factual – No Comments; Grounds are purely legal and don‟t specifically state that facts are not considered and hence order of lower authorities is perverse. The Department has raised Ground No 1, wherein, the ground is CIT(A) erred in following decision of Bombay High Court in Reliance Industries. The premise is factually wrong as the CIT(A) has relied on decision of Special Bench in Reliance Industries (supra); The present submissions of the Department is mainly on the premise that ITAT should have not entertained additional ground, the AO failed to apply mind and 30 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., examine the facts and same for CIT(A). Once it is undisputed that all facts were provided to AO and CIT(A) and they passed orders and also perusing present grounds raised by the Department which are purely legal, can Department be permitted to argue that since no facts were examined, order of CIT(A) is perverse? Para 5(i)/Page 19 Submissions of Revenue The ITAT in first round erred in admitting an additional ground based on decision of Special Bench in case of Reliance Industries The ITAT in its wisdom admitted the additional ground and restored issue to AO to verify facts and allow the claim. While the Assessee had filed additional ground for all five years in present appeals. In so far as it relates to AY 96-97 and 97-98, no appeal was filed before Bombay High Court against the ITAT Order; In so far as It relates to AY 1998-99, the Department filed appeal before the High Court against various other issues but did not raise the issue of admission of additional ground before the High Court; In so far as it relates to AY 1999-00 & 2000-01, the Department raised issue of admission of additional ground by the ITAT, however, the High Court dismissed the said plea of the Revenue. Department did not file/urge the same before Supreme Court; For AY 2001-02, which is not presently fixed before ITAT in this bunch, the Department went to Supreme Court against the Bombay High Court order but did not challenge this issue before Supreme Court; It is thus submitted that in present proceedings, Department cannot be permitted to argue on correctness or otherwise of the ITAT order in first round on admitting additional ground. Thus, there matter stands concluded. Now again Department cannot challenge the settled position. Para 5(ii)/Page 19 The decision of Special Bench in Reliance cannot be basis of unsettling assessment in case of Assessee The decision of Special Bench until stayed or reversed by the Bombay High Court cannot be ignored and being a Jurisdictional ITAT order, it is binding on ITAT. Infact, even till date following the Special Bench, the Hon‟ble ITAT has been passing order in other cases. In fact, apart from decision of Ahmedabad Tribunal in the case of ACIT v. Genus Electrotech Ltd. (71 31 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., taxmann.com 101) (PB 4, Pg No. 801-808), the Hon‟ble Mumbai ITAT in the case of Welspun India Ltd. v. DCIT (104 taxmann.com 267) also considering the Supreme Court set aside Bombay High Court decision in Reliance Industries SB (supra), decided in favour of Assessee. Said decision of Mumbai ITAT has been affirmed by Hon‟ble Bombay High Court in the case of PCIT v. Welspun Steel Ltd. (103 taxmann.com 436) (PB 4, Pg. No. 1012-1017). The Assessee has also filed the order of Jurisdictional High Court in Assessee‟s own case for AY 2001-02 (ITA No. 778 of 2015) where at Para 5, the High Court has observed that decision of Special Bench as on today stands and is not reversed. The Department has not agitated this observation before Supreme Court. Para 5(iii) to 5(iv)/Page20 & 21 Reproduces in part the order of Hon‟ble Supreme Court in Reliance wherein matter was set aside to Bombay High Court; The Supreme Court interfered because decision of Special Bench was perverse The Supreme Court has merely allowed SLP by setting aside matter afresh to Bombay High Court and directed the Bombay High Court to decide the question of law. The Supreme Court has not commented on Reliance Industries SB decision at all. Thus, to make a statement that Supreme Court held the decision to be perverse is a fallacy. It is settled law that until a decision is reversed by a higher court, it is binding. Para 5(v)/Page 21 By the time of passing the fresh assessment order, the Hon‟ble Supreme Court‟s judgment was available to the Assessing Officer. In view of the judgment of the Hon‟ble Supreme Court, the Assessing Officer did not examine the case further and disallowed the claim of the assesse At para 7.4 of the assessment order for AY 1999-00 in remand proceedings, the AO held that “Assessee also relied upon various judgements of different High Courts. The said judgements are not applicable to the assessee‟s case...” This shows that AO has examined the issue in detail and it is not a case that AO did not examine the case further in view of Hon‟ble Supreme Court decision in the case of Reliance Industries. Para 5(vi)/Page 21 The CIT(A) did not deal with the stand taken by the Assessing Officer consequent upon the The CIT(A) has correctly relied on the decision of SC in Ponni Sugars (Supra) and also decision of Special bench in Reliance Industries SB (supra). He correctly held that validity of Reliance Special Bench continues 32 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., crucial judgment of the Hon‟ble Supreme Court. It made a passing reference to the judgment of the Supreme Court and allowed the appeal purportedly following the judgment of the Hon‟ble Supreme Court in the case of Ponni Sugars (supra) notwithstanding the remittance of the matter by Supreme Court to Bombay High Court. The Hon‟ble Ahmedabad ITAT in case of Genus Electrotech (supra) held as under ―Mere admission of appeal against a decision, as is elementary, does not affect the binding nature of a judicial precedent. The Special Bench decision, in the case of Reliance Industries Ltd. (supra), was not reversed by Supreme Court, but was directed to be examined, on merits, by Bombay High Court. That is quite different from disapproving the special bench decision, but it appears that the co-ordinate bench was led to believe, and there could not have been any other reason for ignoring the special bench decision, that this Special Bench decision is reversed. That is patently incorrect, and when it is pointed out to the Commissioner (DR), he did not have much to say except to rely upon the co-ordinate bench decision which seems to have followed that approach. When posed with a special bench decision and a division bench directly on the issue, though touching different chords, there is no difficulty in recognizing the limitations. The wisdom of a division bench, even if superior-as strenuously argued by the Commissioner, has to make way for the higher wisdom of a larger bench. It is this faith of judicial hierarchical system that is the strength of functioning of Tribunal and one must follow the same. The Tribunal rather be guided by the special bench decision - which is exactly what another division bench, on the same set of facts, did in the case of Ajanta Manufacturing Ltd. (supra). There is no dispute that the scheme under which the sales tax and excise duty subsidy are given to this assessee are the same as in the case of Ajanta Manufacturing Ltd. (supra). All the material facts being the same, there is no reason to take any other view 33 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., of the matter than the view so taken by the Tribunal. Therefore, the conclusions arrived at by the Commissioner (Appeals), which are in consonance with the Special Bench decision in the case of Reliance Industries Ltd. (supra) are upheld.‖ Para 5(vii) & 5(viii)/Pages 22 & 23 The Assessee had not claimed exemption in its original return and assessments were settled. The same was correct as sales tax is a trading receipt, following Supreme Court decision in case of Chowringhee Sales Bureau v. CIT (WB) [1973]87 ITR 542 (SC) and Sinclair Murray and Co. Pvt. Ltd. V. CIT, Calcutta,[1974]97 ITR 615. The concluded assessment are now sought to be reopened on controversial decision of Reliance Special Bench. Assessee is seeking to claim refund of taxes paid years ago. Now that that decision of the ITAT Special Bench has been set aside, the raison d‟etre is gone. This decision of the Hon‟ble Supreme Court will relate back and the decision of the Hon‟ble ITAT setting aside the assessments on the basis of this controversial decision of ITAT Special Bench The decision of Hon‟ble Supreme Court in Chowringhee (supra) and Sinclair (supra) both are in different context. It is not disputed the generally the sales tax collected by an Assessee from its customer is a trading receipt. However, the question in present appeals is whether the exemption from sales tax due to Schemes/Notification of the respective State Government due to setting up industries in notified area is exempt or not. The Supreme Court in case of Ponni Sugars (supra), Balaji Alloys (supra) and Chaplakar Brothers (supra) have consistently held that subsidy/incentive in whichever form, if received for setting up industries or industrialization or employment then it is a capital receipt. The decision of Special bench in Reliance has not been set-aside by the Supreme Court and thus presently the said decision is subsisting and binding. The Tribunals even post set-aside of Bombay High Court order in Reliance Industries by Hon‟ble Supreme Court, follows Reliance Industries Special Bench decision; Reliance is misplaced of decision of U.P. Rashtriya (SC) (supra). In present case, the CIT(A) has followed decision of Supreme Court in Ponni Sugar (supra) decision in Reliance Industries. Both the decisions are subsisting and not stayed by any Court. In fact, as on date, post Ponni Sugars (SC) (supra), the Supreme Court in Balaji Alloys (supra) and also Chapalkar Brothers (supra) have reiterated that subsidy for development of back ward area is a capital receipt. 34 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., becomes non-est. Reliance is placed on Hon‟ble Supreme Court in the case of U.P. Rashtriya Chinni v. The State of U.P. and Ors. Dated 2nd July 1995 , 1995 AIR 2148, 1995 SCC(4) 738 for the proposition that once the correctness of a judgement is doubted by the higher court, the said judgement is to be treated as non est. Post Chapalkar Brothers (supra) too, SLPs filed by Department have been dismissed. In Appellant‟s own case for (PCIT Central -1 v. Grasim Industries Ltd., (ITXA 778/2015 AY 2001-02), the Jurisdictional High Court inter alia observed as under: ―It is true that the judgment of this court confirming the order of the Tribunal in the case of Reliance Industries Ltd. has been partially reversed by the Supreme Court. A question of law has been framed and has been placed for consideration of the High Court. However, this does not mean that the judgment of the Tribunal as on today stands reversed or stayed‖ Lastly it is settled law that the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected. Reliance is placed on the decision of Hon‟ble Bombay HC in the case of Balmukund Acharya v. DCIT (310 ITR 310) whereby Article 265 of the Constitution has been relied upon to hold that entitled to where the tax is levied or collected without authority of law. Now if the Supreme Court holds that subsidy is capital receipt, Assessee is entitled to claim refund of taxes wrongly paid earlier. Para 5(ix) and 5(x)/Page 23 & 24 The Bombay High Court in Assessee‟s own case for AY 2001-02 (wherein the High Court held that additional ground on sales tax subsidy can be admitted and dismissed Department appeal) is per in curium since it did not consider Supreme Court decision in U.P.Rashtriya Chinni (supra). Please see comments in Para above. In any event, against the Bombay High Court decision, though department filed SLP they did not challenge observation on the aspect of admission of additional ground. In any event, as of date, the decision of Reliance Special Bench is valid and subsisting. Para 6(i)/Page 24 While setting aside the assessment, the Hon‟ble ITAT had observed that the issue requires proper examination and Para 6 is entire repetition to the effect that neither AO not CIT(A) has discussed any facts. The Assessee relies on submissions made on this aspect against Para 2 and 3 above. 35 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., verification of the nature of the benefit and the scheme of the Government under which the benefit has been availed by the Assessee. Accordingly the Hon‟ble ITAT has restored this issue back to the file of the Assessing Officer and directed the Assessing Officer to decide the issue afresh after considering the decision of the Special Bench in the case of Reliance Industries Ltd. (88 ITD 273 and after giving reasonable opportunity of being heard to the assessee Para 6(ii), 6(iii), 6(iv) & 6 (v)/Page 24 and 25 The AO did not follow direction of ITAT. He simply noted that decision of Special Bench has been set aside by the Supreme Court. He has not examined the facts of any scheme to come to any conclusion as to whether they are revenue or capital receipt. So, for whatever reason, the purpose for which the asessments have been set aside have not been achieved. The CIT(A) also has not discussed any facts but has given complete relief. He has passed five identical appellate orders for the five assessment years giving a relief of 36 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., over Rs.162 crores without discussing facts of any case. The CIT(A) does not discuss the schemes and their objectives. He does not mention what papers were filed before him. He does not mention how he was satisfied that the „purpose test‟ laid down by the Hon‟ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd. has been satisfied in respect of each of the schemes. The CIT(A) has not taken cognisance of the fact that the Assessing Officer has not decided the issue of sales tax incentive in accordance with the direction of the Hon‟ble ITAT. Hence, in compliance with the direction of the Hon‟ble ITAT, the CIT(A) ought to have called for a full factual remand report from the Assessing Officer about the objective and nature and quantum of the purported subsidy in respect each scheme. He has not done that. In the alternative, the CIT(A) ought to have conducted the necessary enquiries himself as his powers are co-terminus with the 37 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., powers of the Assessing Officer. All the facts should have been brought on record and the basis of arriving at the conclusion should have been evident from a self-contained comprehensive speaking order of the CIT(A) so that his order could have been subjected to judicial scrutiny. The CIT(A) has not done that also. It is a brief order completely bereft of facts. The CIT(A) seems to say that he has seen the papers and has been satisfied and nothing further needs to be done. The order of the CIT(A) is in complete violation of the direction of the Hon‟ble ITAT and is perverse. Para 8/Page 27 Exemption provisions should be strictly construed against the subject A cardinal principle of statutory interpretation is that while taxing income, in case of ambiguity, the provisions of tax laws should be liberally interpreted in favour of the subject, whereas, while applying the exemption provisions, the tax laws should be strictly interpreted against the subject in case of ambiguity. This is because The moot issue in present proceedings is whether sales tax/purchase tax/ entry tax subsidy/incentive, by whatever name called, by State Governments for development of specific areas/under-developed or backward areas is a capital receipt and hence not chargeable to tax. The question whether Assessee was eligible sales tax/entry tax subsidy, whether it complied with the conditions under respective schemes or notifications etc were to be decided by respective State Government and their monitoring or implementing agency. It has to be noted that as on date there is no dispute by such authorities on eligibility of Assessee to claim exemptions. Once the subsidy or benefit under the Scheme is not disputed by respective State Government, the question under the Income Tax Act is whether such 38 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., by getting exemption, the burden of taxation is shifted to other taxpayers. This is discussed in the decisions of the Hon‟ble Supreme Court in the case of Novopan India Ltd. Hyderabad v. Collector of Central Excise and Customs, Hyderabad dated 14th September 1994 (Case : Appeal (Civil) 3556 of 1984) (1994 Supp(3) Supreme Court Cases 606 benefits are on capital account or not. The Supreme Court has repeatedly in Ponni Sugars (supra), Balaji Alloys (supra) and Chaphalkar (supra) have held the same to be on capital receipt. Also, unlike deductions or exemption like section 10 or Chapter VI, which may or may be conditional or subject to compliance of specific requirement, in present case, there are no conditions to be complied with under Income Tax Act. In fact, the decision of Supreme Court in Novopan (supra) was in context of whether the assessee claimed that manufactured melamine faced particle boards MFPB was same as unveneered particle boards which were entitled to total exemption from tariff under item 6 of Exemption Notification No.55 of 1979. In this context the Supreme Court held “The principle that in case of ambiguity, a taxing statute should be construed in favour of the assessee – assuming that same principle is good and sound- does not apply to the construction of an exception or an exemption provision; they have to be construed strictly. A person invoking an exception or an exemption provision to relieve him of the tax liability, must establish clearly that he is covered by the said provision. In case of doubt or ambiguity benefit of this must go to the State‖ Thus, clearly in Novopan‟s case, the question was whether assessee was covered under an exemption notification or not and in that context, it was held that where a person invokes an exemption provision, he must prove he is covered by it and in case of doubt, the benefit should go to the State. Para 9 (a)/Page 30 and 31 This doctrine of strict interpretation of exemption provision has been rampantly violated in this case and uncalled -for indulgence has been given to the assessee If Department has any grievance against decision of Reliance Special Bench (supra), it can challenge the same before appropriate forum. Reliance is placed on the decision of Hon‟ble Bom HC in the case of ITO v. Universal Ferro & Allied Chemicals Ltd. (172 ITR 30) (PB 7 Pg. no. 1378-39 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., Para 9(a): Decision of Reliance Industries (Special Bench) The ITAT Special Bench did not consider Novopan; The ITAT Special Bench decision has serious flaws 1383, specifically Para 7) whereby it was held that once the Special Bench of the Tribunal records the decision after considering the judgement given by the High Court, then the decision of the Special Bench is binding on all other authorities subordinate to the Tribunal. Lastly, in Assessee‟s submission, as stated above, reliance placed by DR on Novopan (supra) is misplaced. Para 9(b)/Page 31 The order of the Hon’ble ITAT setting aside the assessment for five assessment years is against the law laid down by the Supreme Court discussed above; The assessee was allowed exemption by the State Government for all five years; Following Chowringhee Sales Bureau v. CIT (WB) [1973]87 ITR 542 (SC) and Sinclair Murray and Co. Pvt. Ltd. V. CIT, Calcutta,[1974]97 ITR 615), sales tax collected was part of turnover and since nothing was paid, it became profits. The auditors accepted the same, returns were filed and taxes were paid; No appeal was filed before CIT(A), only after ten years this additional ground was raised for the At the cost of repetition, the Assessee again submits that the present appeals by Department is against the order of CIT(A) in second round wherein the CIT(A) held that sales tax incentive/subsidies/exemptions is a capital receipt but directed the AO to verify the quantification thereof. The Department had challenged the action of ITAT in admitting the additional ground in first round before the Hon‟ble High Court. The Hon‟ble High court has decided the matter in favour of the Assessee. The Department filed SLP against Bombay HC Order for AY 01-02 but not challenged the ground of admission of add. ground by the ITAT. In fact, for other years, the Department has not even filed SLP before Supreme Court. Once this issue is settled, Department cannot be allowed to agitate this in present proceedings. Also, this is not the ground before ITAT in present proceedings. In so far as decision of Chowringhee (supra) and Sinclair Murray (supra), the question before Supreme Court as not whether sales tax incentive is a capital receipt or not. If today the Supreme Court in Ponni Sugars (supra), Balaji Alloys (supra) and Chaphalkar Brothers (supra) have consistently held that sales tax incentive 40 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., first time before ITAT; The ITAT should have asked searching questions as this ground would reduce assessed income below returned income; It is unfair to the Department to give refund of amount of tax suo motto paid by the Assessee and this would be burden on the non exempt tax payers; The only basis for filing additional ground before ITAT was decision of Reliance Industries Special Bench. There the so -called subsidy related to only one state where here the subsidy concerned several states under different schemes. On this ground alone, the additional ground should have been thrown out as vexatious. The ITAT admitted the additional ground and set aside for examination and verification of nature of schemes and benefits. Additional ground cannot be entertained for fresh investigation into facts. It can be entertained on a pure question of law. under State Policies for development of areas of State is capital receipt, then it is settled law that State cannot retain tax wrongly paid or recovered. In so far as refund of tax suo-moto paid by the Assessee is considered, reliance is placed on the decision of Hon‟ble Bom HC in the case of Balmukund Acharya (Supra) referred to above. 41 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., Para 10/Page 33 Exemption of payment of sales tax is not a subsidy “Subsidy” and “Incentive” are different concepts – Different dictionary cited. The above definition clearly states that the subsidy is a quantified sum given from a government agency to a private enterprise. It is directly from the government to the private party and there is no ambiguity about the amount of subsidy. It is not like sale tax exemption where sales tax is purportedly collected from the customers and retained by the party and is deemed to be a subsidy; a third party, Sales-tax Officer, adjudicates about the quantum of notional sales tax subsidy and the assessee expects the Income-tax Department to adopt that figure; Thereafter, decisions tabulated to substantiate that in all cases, it was actual subsidy received and not notional List of judgements of Hon‟ble SC relied upon by the Assessee wherein tax incentive/exemption was held to be a subsidy capital in nature:  Sahney Steel (supra): apart from other incentives received, there was exemption from payment of water rate;  Ponni Sugars and Chemicals (supra): The incentives conferred under that scheme were two-fold. First, in the nature of a higher free sale sugar quota and second, in allowing the manufacturer to collect the excise duty on the sale price on the free sale sugar in excess of the normal quota, but to pay to the Government only the excise duty payable on the price of levy sugar;  Munjal Auto Industries Ltd. (SLP Dismissed) (supra):  Chaphalkar Brothers Pune (supra) Further Hon‟ble Mum T in the case of Reliance Industries Ltd (subsequent assessment years viz. AY 2010-11 to 2012-13) vide order dated 28.09.2018 followed the decision of Special Bench and held that ―7. We heard the parties on this issue and perused the record. The assessee has been given Sales tax exemption by Government of Gujarat and Uttar Pradesh and the Special bench of Tribunal in the asseessee’s own case (referred supra) has held the notional sales tax receipt is Capital in nature. We notice that the co-ordinate benches of Tribunal has followed the decision rendered by the Special bench in AY 2003-04 to 2009-10 and upheld the decision rendered by Ld CIT(A) in holding that the Sales tax incentive is capital in nature....― Attention is also invited to amendment to definition of “income” u/s.2(24)(xviii)....where the Legislature has used expression “..assistance in the form of subsidy, grant, incentive....(by whatever name called)”. Thus, the Assessee submits that form of 42 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., assistance and nomenclature is not relevant and as stated above various decisions have used incentive, subsidy, grant interchangeably. The Assessee also submits that the amount of subsidy/incentive/notional subsidy as per relevant Scheme is quantified generally as a % of capital investment and thus fixed. The State Government only provides the said incentives based on the amount of notional sales tax yearly. Outer limit of incentive is fixed. Further, it is only mode of granting the incentive which can be different. The State Government may give cash incentive or State Government would forgo its right to certain state revenues and thereby fulfil its promise to provide incentive in an indirect manner. Para 11/Page 38 Exemption from payment of sales-tax is only an incentive provide to the industry. Unlike subsidy, which, by its very nature is quantifiable, incentive is rather abstract and cannot be easily quantified The quantification was based on State Government Schemes. Once the State Government has not disputed the same, it cannot be questioned in income tax proceedings where the only issue is whether such incentives are capital receipt or revenue receipts. Para 12/Page 39 Incentive – exemption from payment of sales tax cannot be quantified. The concept of notional subsidy may be relevant for statistical purposes for estimating roughly what sales tax has been foregone for assembly debates or formulation of economic policies, but it has no place in the Income-tax Act for allowing deduction The incentives on account of exemption of sales tax, purchase tax or entry tax, etc is given by respective State Governments; The respective State Government would have a monitoring or an implementing agency who would govern and monitor the grants/subsidy or incentive as also compliance of terms for the said subsidy/grant. In so far as Maharashtra Scheme is concerned, the Scheme itself defines and explains what is a “notional” sales tax liability (NSTL) (PB 2/Page 376). In present case, the NSTL is also quantified by sales tax officer (PB 2/Page 553). 43 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., The third situation is when he collects the full sales tax and does not pay to the government. Though it is against the law, as the assessee is required to pass on the benefit to the customers, that is an issue to be addressed by the Sales-tax Department. The Income-tax Department is concerned with the quantum of the exemption claimed. It is for the assessee to establish with proper sales bills showing sales- tax amount separately and maintaining the so-called subsidy register meticulously for verification. Hence, it is impossible to find out what is the exact amount of the so-called notional subsidy unless the assessee maintains proper sale bills and registers on the basis of which the exact amount of sales-tax collected and not paid during the year can be found out. Thus, relying on decision of the Hon‟ble Supreme Court in the case of Novopan India Ltd. Hyderabad v. Collector of Central Excise and Customs, Hyderabad dated 14th September 1994 (Case : Appeal (Civil) 3556 of Further, please see eligibility certificate at PB 2/Page 400 where SICOM has issued Eligibility Certificate, where various conditions are stipulated, including requirement of maintaining proper accounts, etc (PB 2/Page 401 & 402). Thus, the authorities who are in charge of monitoring and implementing have not found fault with the Assessee‟s claim based on eligibility certificate and hence, it is submitted the entire argument of DR that no one has monitored, how and when the subsidy is computed etc should not be accepted. Infact, as rightly stated by DR, the issues, if any are to be addressed by the Sales Tax Department. In present case, the Assessee has quantified in absolute terms as seen from PB4/Page 1167 and all supporting document including sales tax return or order are part of record and no adverse comment has been made by the respective authorities and the AO and CIT(A). Reliance on Novopan (supra) in present proceedings to determine whether a receipt is capital or revenue is misplaced. 44 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., 1984) (1994 Supp(3) Supreme Court Cases 606 (supra), the assessee has failed this test and the claim of exemption should be rejected outright Para 13 and 14 /Pages 41 to 45 Letter dated July 17, 2019 and May 3, 2019 filed by Department Counsel seeking certain factual differences etc 1. Additional ground on the impugned issue was filled with Honb‟ble Tribunal in April 2006. The Tribunal remanded the matter to the file of AO to consider and decide the issue as per the provisions of the Income-tax Act, 1961 („the Act‟). Subsequently, the Assessee made elaborate submissions before the AO in proceedings u/s. 143(3) r.w.s. 254 of the Act. These documents are available at page 26 to 58 of the paper book-1. The relevant index containing list of documents filed with AO are at following pages for respective years. AY Page No. of Paper Book 1 1996-97 33 1997-98 40 1998-99 49 1999-00 54 2000-01 58 The AO did not accept the contention of the Assessee and decided the matter against it. Accordingly, the Assessee filed an appeal before CIT(A) against the order u/s. 143(3) r.w.s. 254 of the Act. Subsequently, CIT(A) vide order dated 25.01.2016, allowed the claim of the Assessee and directed the AO to verify the claim in terms of quantification thereof. The AO gave effect to the order of CIT(A) vide order dated 25.04.2016. Copy of order giving effect to the order of CIT(A) is enclosed at Page No. 78 to 89 of Paper Book – 4. 2. Basis of calculating subsidy and supporting documents such as scheme related papers, 45 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., eligibility certificate etc. were already filed before the AO during proceedings u/s. 143(3) r.w.s. 254 of the Act. The same can be checked at page 26 to 58 of the paper book -1. 3. The amount of sales tax subsidy is based on the amount as per final assessment order in each of the years except in few cases the amount is as per return where the case was not selected for assessment. Please see PB 4/Page 1167. 4. The AO while giving effect to ITAT direction has right adopted the exact figures supported by documents like Scheme/Notification/Returns or Assessment orders under respective state laws. Post CIT(A) order also, once again he has reconfirmed the figures of exemption claimed. Thus, in present proceedings, the Department cannot improve its case where both AO and CIT(A) have not disputed the amount. In any event, as stated above, the subsidy/incentive is generally linked to % of capital investment and thus there is a fixed cap on the same and variation, if any in a particular year would only lead to change in subsequent year and thus, at best, is a timing difference. 5. On perusal of the record, the Assessee is not able to understand from where Ld. DR is referring in point no. 6 of his letter dated 17.07.2019. 6. With reference to point no. 7 of letter dated 17.07.2019, it is submitted that the amount of sales tax subsidy is embedded in the value of sales and not accounted separately. 7. With reference to point no. 8 of letter dated 17.07.2019, it is submitted that no implementing agency who has power to monitor has made any adverse comments. 8. With reference to point no. 9 of letter dated 17.07.2019, it is submitted that all the facts were duly submitted before the AO and CIT(A) and there is no mention of incomplete details by the AO / CIT(A). 9. It is humbly submitted that since the figures of the subsidies/incentives are not disputed by the AO or CITA(A) or the AO post CIT(A)‟s order, 46 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., the DR cannot now raise the issue and make a completely new case. Para 15/Page 45 In subsequent hearings also the Department made request to ITAT to direct Assessee to give all details but the Counsel of Assessee was evasive. It may be noted the Assessee is a respondent and appeal is filed by the Department. The Assessee has given all documents before AO, CIT(A) and ITAT. In present proceeding also, the DR has not referred to those documents as accordingly to DR, the same are irrelevant. If DR chooses not to specifically point out any error from documents filed, it cannot be alleged that the Assessee is evasive. The Assessee has referred to PB4 Pg. 1167 and it has established nexus between various schemes and Sales tax assessment orders/Sales tax Return. Further the Assessee also specifically demonstrated the same for AY 1996-97 since the Department has not at all disputed the chart on Pg 1167 by way of a separate chart filed during the course of hearing on April 7, 2022. Para 16/Page 45 The assessee is not co-operating in providing the vital information which is material for proper disposal of the appeal. The information is within the personal knowledge of the assessee In absence of all data being submitted, it should be presumed that assessee has no answer to queries. All the details filed before AO and CIT(A) in second round (post set aside after admission of additional ground by the ITAT) are in Paper Books. Detailed submission to counter this allegation made above. Para 17/Pages 46 to 48 Reliance is placed on decision of Mumbai Tribunal in Bajaj Auto (90 ITD 153) for definition of “Notional Sales Tax Subsidy”. The observations made in case of Bajaj Auto (supra) in respect of ITAT order in Reliance for AY 1985-86 have been considered and dealt with by Special Bench decision in case of Reliance Industries (supra). 47 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., Thus, definition is not simple. The definition does not deal with the situations discussed in paragraph 12(ii) where no sales -tax has been collected or less sales tax has been collected. In such cases the assessee will get relief from income-tax in respect of part of its non-exempt profit. Second – the time lag. If the concept of notional subsidy and its determination by the Sales Tax authorities is adopted into income-tax, no income-tax returns can be filed in time. -The notional sales subsidy cannot be subjected to audit. Para 18/Page 49 Reliance is placed on decision of Supreme Court in CIT Bangalore v. B. C. Srinivas Shetty [1981] 128 ITR 294(SC). There is no provision in the Income-tax Act for quantifying the so-called notional subsidy. The assessee does not maintain the primary records on the basis of which the notional subsidy can be worked out independently. The reliance in decision of Supreme Court in B.C. Srinivas Setty (supra) is misplaced. In present case, the simple issue is based on the purpose of the scheme of State Government, the sales tax/entry tax incentive is capital receipt or not. The amount of such incentive is to be quantified by the respective State Governments or implementing agencies. They monitor the conditions in the eligibility certificates. Once they have not objected to the same and granted incentives, for the direct tax proceedings, the Department cannot draw support to say that if machinery provisions fails, the charge fails. Para 19, 20/Page 49 Legal Position: Notional Sales Tax Subsidy is In so far as decision of Chowringhee (supra) and Sinclair Murray (supra), the question before Supreme 48 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., and 50 revenue receipt. Sales tax was collected from the customer and not paid and hence profits increased. See Chowringhee (SC). Because of the nature of regular transactions and incremental profits accruing to the assessee on day to day basis, there is no scope of holding it to be of the nature of capital receipt. The natural presumption is that it is a revenue receipt. If the assessee claims it to be capital receipt, as held by the Hon‟ble Supreme Court in the case of Novopan India Ltd. (supra), the burden is on the assessee to establish it with documentary evidence as to how it was accounted for and utilized Court is not whether sales tax incentive is a capital receipt or not. The Supreme Court in Ponni Sugars (supra), Balaji Alloys (supra) and Chapalkar Brothers(supra) have consistently held that sales tax incentive under State Policies for development of areas of State is capital receipt. Also, once Sales Tax and Entry tax department has not disputed the claim of exemption, under the Income Tax Act, the question is whether such incentive/subsidy is “capital receipt” and not income. Thus, the reliance on decision of Novopan (supra) is misplaced. Para 21/Page 50 Reliance is placed on Hon‟ble Calcutta High Court in the case of Kesoram Industries and Cotton Mills Ltd. v. CIT [1991] 191 ITR 518 (Cal.) What was the matter between the assessee and the Sales- Tax Department is no concern to the income-tax Department. The matter would have been different if it had Subsequent to the decision of Kesoram Ind (supra), the Hon‟ble SC in the case of Ponni Sugars and subsequently in its recent decisions of Chaphalkar (supra), Balaji Alloys (supra) and Munjal (supra) has consistently held that the only test to hold whether a subsidy is a capital receipt or revenue is its object and purpose. Further, Hon‟ble Tribunal in the case of DCIT v. Indo Rama Textiles Ltd (25 taxmann.com 161) (Del. Trib.) (PB 4 Pg no. 1116-1120) held that sales tax subsidy is a capital receipt despite reliance placed by the DR on the decision of Kesoram (Supra). Further, Hon‟ble SC in the case of Ponni Sugars 49 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., received a fixed sum from the government. In that case the taxability of that receipt – whether revenue or capital - could have been issues before the Income -tax Department. Exemption from sales tax is not an issue. However, if the assessee is of the view that it is entitled to exemption, it has to establish its case for exemption independently with supporting primary books and documents, under the doctrine of strict construction of exemption provisions as propounded by the Hon‟ble Supreme Court in the case of Novopan India Ltd. (supra). It cannot wake up after 10 years, cite an inapplicable judgment of a Tribunal, which in any case not relevant now in view of the Supreme Court setting it aside. (supra) has observed that form and the point of time at which subsidy is paid is irrelevant. Also, Sales tax exemption is a fixed sum is quantified as a % of capital investment and thus a fixed sum of money to be received over a period of time. Similar were the facts in the case of Munjal Auto Ind (Guj HC) (SLP Dismissed) (supra) wherein the sales tax exemption was to the extent of a fixed percentage of capital investment which could be availed over a period of 9 years (Pg 831 of PB 4). As already stated above, the reliance placed on Novopan (supra) is misplaced. If some benefit of tax arises to the Assessee, as held by various Hon‟ble HCs and Hon‟ble SC, then the Assessee cannot be stopped from acting as it may deem fit, to seek the refund as may be due to it as per the law. Reliance is placed on the decision of Balmukund Acharya (Supra). Para 22 (i)/Page 52 to 56 The Department reproduces the summary of Schemes prepared by Assessee; Factual. No comments Para 22(ii)/Page 56 and 57 From the summary of the scheme furnished by the assessee the The DR is wrong in his conclusion that object of 50 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., common features of the schemes are as under: (d) The objects are general like dispersal of industries from Bombay-Thane- Pune belt to outside. boost up of new industrial development in the state, accelerating the pace of development. They are common objectives of any incentive system. It does not follow that all incentives would be capital in nature. (e) The incentives are given after the commencement of business. The presumption is that the incentive is of revenue nature [Vide the decision of the Hon‟ble Supreme Court in the case of Sahney scheme generally is dispersal of industries from Bombay-Thane-Pune belt (Assessee would specifically address this point); The Department is correct that some objectives are for industrial development in the State and also to accelerate development. The judicial pronouncements relied by Assessee clearly hold that if a subsidy is for industrialisation, growth and employment generation, it is on capital account; If incentives are given after commencement of business, presumption is that the incentives is of revenue nature – The Assessee submits that this submission of Department is contrary to ratio and observations of following decisions of High Court and Supreme Court Para 14 of decision of Supreme Court in Ponni Sugars (supra) wherein specifically, it has been held that “it is the purpose test is which is relevant and the point in time and form and source of subsidy is immaterial” The J&K High Court in Shree Balaji Alloys Vs. CIT (supra) held that the Tribunal erred in concluding that incentives in form excise refund and interest subsidy received were revenue by emphasising on the fact that incentives were not available unless commercial production started as also that the incentives were recurring in nature and limited to period of 10 years from date of commencement of commercial production. The High Court applied purpose test and reversed decision of Tribunal and held above incentives were capital receipt. The SLP filed by Department is dismissed. The Supreme Court in CIT Vs. Chaphalkar Brothers (supra) affirming decision of Jurisdictional Bombay High Court held that where object of subsidy was 51 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., Steel and Press Works Ltd. v. CIT, 1997,228 ITR 253( SC) ]. It is for the assessee to establish with documents how it is capital receipt. [Vide Supreme Court decision in the case of Novopan India Ltd. (supra) laying down the doctrine of strict construction of exemption provisions against the assessee]. (f) The incentive continues for years – here 10 years, 5 years, 9 years and 11 years. As discussed in paragraph 20 above, the incentive is continuously received for years and the assessee received incremental indirect benefits, not any direct development of multi theatre complexes, it would be a capital receipt. Para 25 of Supreme Court decision at PB4 Page 817 clearly holds that once object of the subsidy was to industrialise and generate employment, the fact that subsidy too a particular form and fact that it was granted only after commencement of production would not make any difference. The Supreme Court in CIT Vs. Munjal Auto (supra) (PB4 Pages 822 to 824) while dismissing SLP filed by Department upheld view of Gujarat High Court. The Revenue had taken a specific argument at Para 3 (PB4/Page 829) that since subsidy would be received only once unit goes for production, subsidy was of revenue nature. The High Court referred to the relevant Scheme, also noted that concession was capped at 125% of fixed capital investment and could be availed within 9 years. After considering decision of Supreme Court in Ponni Sugar (supra) & Sahney Steel (supra), the High Court held that though the subsidy was computed in terms of sales tax deferment and necessarily therefore, accrue after commercial production, this by itself would not be sole or concluding factor. Applying purpose test, the subsidy was held to be on capital account. Thus, in each of above cases, the Courts have been mindful of the fact that subsidy was to be received after commencement and to be availed within 9, 10 or 12 years, yet applying purpose test, it was held that subsidy was on capital account. The Department is consistently repeating that in the original return the Assessee did not claim exemption paid taxes and now after decades assessee has raked up the issue of capital receipt. The Assessee submits that post its filing its return of income, if subsequent judicial pronouncement hold that subsidy received is a capital receipt, and such view is also rendered by the Supreme Court then there should be no bar on the Assessee in making additional claim and seeking 52 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., lump sum receipt. Then the strong presumption according to the normal conduct of business, is that the incentive supplemented the profit of the business and was of revenue nature. The most important point is that assessee in its original return of income treated the transaction, and rightly so, as revenue in character and paid the taxes. But, as narrated earlier, after more than a decade the assessee has raked up the issue of capital receipt. If the assessee claims it to be capital receipt, the burden is for the refund of taxes paid inadvertently. In any event, the order of Tribunal in admitting additional ground has become final. 53 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., assessee to establish with evidence that it is a capital receipt.[ Vide Supreme Court decision in the case of Novopan India Ltd. (supra) laying down the doctrine of strict interpretation of exemption provisions against the assessee]. Para 23/Page 57 to 61 At the instance of Department Counsel, the AO gave comments on submissions of the assessee on the Schemes as under: While as demonstrated above that the AO and CIT(A) has examined all the Schemes, Notifications, Eligibility Certificates, etc, this further proves that now 3rd time, AO is examining the said documents. Vikram Ispat, Division of Grasim Industries Limited - Sales Tax Exemption As per Preamble, the New Scheme is launched to intensify and accelerate the process of dispersal of industries outside the Bombay-Thane-Pune Belt and to attract them to the underdeveloped and developing areas of the State. Package Scheme of Incentive(“PSI”), 1988 dated 01.10.1988 by State of Maharashtra Preamble:- In order to achieve dispersal of industries outside the Bombay- Thane- Pune Belt and to attract them to the underdeveloped and developing areas of the State, Government has been giving a Package of Incentives to New Units / Expansion set-up in developing region of the State since 1964 under a Scheme popularly known as PSI. (Page 369 of PB) In light of the experience gained from earlier schemes, the Government has decided to bring in new Scheme i.e. Package Scheme of Incentives 1988. The Department conclusion that only if an existing unit is relocated to backward area is eligible is fallacious. See PB 2/Page 369/370 which list down 54 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., Only if existing industry in Bombay-Thane-Pune belt are relocated in backward area then they would enjoy incentives. However, if a unit is set up in backward area but not relocated from Bombay-Thane-Pune belt then incentives not available. For the purpose of grant of such subsidies, the methodology of working was based on the value of investments made in these backward/notified areas, which may also include the value of plant & machinery dismantled and relocated to these notified areas from the Mumbai-Thane-Pune belt. The Scheme is silent about relocation of Industrial Units from other areas than the specified Mumbai-Thane-Pune belt. Therefore, it cannot be said that the Package Scheme of Incentive 1988, of State Government Maharashtra was meant at large for all the units setup in the notified Group A,B,C & D specifying developed, under developed areas of the State. Page 373 further states that an existing or a new unit....would also be eligible. New Unit has been defined at Page 376. Pioneer Unit has been defined at Pg. 378 as a large scale New unit set up after October 1, 1988. The Assessee is a Pioneer Unit (PB 2 Page 399 is the eligibility certificate issued by SICOM which recognises Vikram Ispat unit as a Pioneer Unit). Thus, under the Maharashtra 1988 Scheme, even new units are entitled to notional sales tax subsidy. Judgments relied upon by the Assessee wherein the subsidy received under the PSI Sales tax exemption scheme of Maharashtra has been held to be capital in nature is tabulated in a Chart attached herewith as Annexure A. 55 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., areas, and hence the purpose of Scheme was not for the setting up of new units, but was primarily for the purpose of decongestion and dispersal of the units located in the Mumbai-Thane-Pune belt/corridor. (7) Chloro Sulphuric Acid Division and Caustic Soda Membrance Cell Division of Grasim Industries Limited - Entry Tax exemption The certificates and other documents filed during the course of set-aside proceedings speak of the capital investment only for the purpose of computation/working of subsidy and not indicate the same as the sole criteria for eligibility for the benefit of scheme. The Department itself refers to certificates and other documents filed in course of Set-Aside proceedings. Thus, all documents are in possession of AO. Entry Tax Notification No.422-6596 dated 09.02.1977 under Madhya Pradesh Sthaniya Kshetra Me Mal ke Pravesh Par Kar Adhiniyam, 1976 Exemption granted to new industry including any such substantial expansion of an existing industry as may be approved by the Government (Pg. 460 of PB) with the object of promoting industrial development in the State by setting up of new industrial units within the State of Madhya Pradesh. New Industry Notification No.A-3-24-94-ST-V(112) dated 06.10.1994 under Madhya Pradesh Sthaniya Khstra Me Mal ke Pravesh Pare Kar Adhiniya, 1976 Exemption granted to new industry including any such substantial expansion of an existing industry as may be approved by the Government (Pg. 472 of PB) with the object of promoting industrial development in the State by setting up of new industrial units within the State of Madhya Pradesh. Judgment relied upon by the Assessee wherein the subsidy received under the Entry tax exemption scheme of Madhya Pradesh has been held to be capital in nature is tabulated in a Chart attached herewith as 56 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., Annexure A. The highlighted portion in Department submissions clearly prove that subsidy was capped based on % of capital investment. Further, the Department has not pointed out any clause of the Scheme which suggests that Subsidy was to augment profits of the Company. In fact, the Scheme clearly provides for industrialisation (by granting benefits to new units or expansion of existing units) and in some cases, generation of employment and thus, applying purpose test, it be held that subsidy is a capital receipt. Aditya Cement, Unit of Grasim Industries Limited, Sales Tax Exemption The certificates and other documents filed during the course of set-aside proceedings speak of the capital investment only for the purpose of computation/working of subsidy and not indicate the same as the sole criteria for eligibility for the benefit of scheme. Sales Tax New Incentive Scheme for Industries 1989, Rajasthan (S.No.764 : F-4(35)FD Gr.IV/87-39 dated 6.7.1989) This Scheme exempts the industrial unit from payment of tax on the sales made in the course of inter-state trade or commerce of the goods including bye-products and waste items manufactured by them within the State and in case of packing material used therewith, the benefit is available only if it is linked with fixed capital investment (Pg. 481 of PB) with the object of promoting industrial development in the State of Rajasthan. Objective at Pg 489 (this does not appear to be scheme document but some commentary on the same) :- To boost up industrial development in the State the Government have enacted provisions for giving relief to the industries in some form or the other so as to assist them in their development, particularly during the initial period required by the industries to come to full maturity. (para 1.1 refers to industrial policy 1990, whereas, above scheme is of 1989) Judgments relied upon by the Assessee wherein the subsidy received under the Sales tax exemption scheme of Rajasthan has been held to be capital in nature is tabulated in a Chart attached herewith as 57 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., Annexure A. The highlighted portion in Department submissions clearly prove that subsidy was capped based on % of capital investment. Further, the Department has not pointed out any clause of the Scheme which suggests that Subsidy was to augment profits of the Company. In fact, the Scheme clearly provides for industrialisation (by granting benefits to new units or expansion of existing units) and in some cases, generation of employment and thus, applying purpose test, it be held that subsidy is a capital receipt. Vikram Woollens, Unit of Grasim Industries Limited, Sales Tax Exemption The certificates and other documents filed during the course of set-aside proceedings speak of the capital investment only for the purpose of computation/working of subsidy and not indicate the same as the sole criteria for eligibility for the benefit of scheme Notification no. A-3-24-94-ST-V(108) dated 6.10.1994 (Madhya Pradesh) Exemption granted to new industrial unit with a capital investment in fixed assets above specified limit (Pg. 492 to 494 of PB) with the object of promoting industrial development in the State by setting up of new industrial units within the State of Madhya Pradesh. Judgments relied upon by the Assessee wherein the subsidy received under the Sales tax exemption scheme of Madhya Pradesh has been held to be capital in nature is tabulated in a Chart attached herewith as Annexure A. The highlighted portion in Department submissions clearly prove that subsidy was capped based on % of capital investment. Further, the Department has not pointed out any clause of the Scheme which suggests that Subsidy was to augment profits of the Company. In fact, the Scheme clearly provides for industrialisation (by granting benefits to new units or expansion of existing units) and in some cases, generation of employment and thus, applying purpose test, it be held that subsidy is a capital receipt. Grasim Cement, Unit 1991 Scheme for units with Capital Investment in 58 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., of Grasim Industries Limited, Sales Tax Exemption The certificates and other documents filed during the course of set-aside proceedings speak of the capital investment only for the purpose of computation/working of subsidy and not indicate the same as the sole criteria for eligibility for the benefit of scheme fixed assets of Rs. 100 crore or more [Notification no. A-3-27-89-ST-V-(15) dated 19.02.1991 (Madhya Pradesh)] Exemption granted to eligible industrial unit established in any district in Madhya Pradesh with a capital investment in fixed assets of Rs. 100 crore or more (Pg. 517 to 518 of PB) with the object of accelerating pace of industrialisation in the State of Madhya Pradesh. Judgments relied upon by the Assessee wherein the subsidy received under the Sales tax exemption scheme of Madhya Pradesh has been held to be capital in nature is tabulated in a Chart attached herewith as Annexure A. The highlighted portion in Department submissions clearly prove that subsidy was capped based on % of capital investment. Further, the Department has not pointed out any clause of the Scheme which suggests that Subsidy was to augment profits of the Company. In fact, the Scheme clearly provides for industrialisation (by granting benefits to new units or expansion of existing units) and in some cases, generation of employment and thus, applying purpose test, it be held that subsidy is a capital receipt. Elegant Spinners, Unit of Grasim Industries Limited, Sales Tax Exemption (AY 1997-98) As per the Assessee‟s submission for Assessment Year 1996-97, on perusal of the Scheme (Page nos.178-179) of the Assessee, it is seen that the exemption is provided in Sales Tax Exemption Scheme (Haryana General Sales Tax Rules 1975) Exemption granted to eligible industrial unit being a new industrial unit or a unit undertaking expansion or diversification (Pg. 536 of PB) with the object of promoting investment in backward area. Judgments relied upon by the Assessee wherein the subsidy received under the Sales tax exemption scheme of Haryana has been held to be capital in nature is tabulated in a Chart attached herewith as 59 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., respect of newly established industrial undertakings or expansion of existing industrial undertakings subject to fulfilment of capital investment and increase in annual production criteria mentioned therein. However, neither the scheme, nor the Eligibility Certificate provide the methodology for quantification of sales tax exemption vis-à-vis capital investment. Hence no exemption available, not being capital subsidy Annexure A. The highlighted portion in Department submissions clearly prove that subsidy was capped based on % of capital investment. Further, the Department has not pointed out any clause of the Scheme which suggests that Subsidy was to augment profits of the Company. In fact, the Scheme clearly provides for industrialisation (by granting benefits to new units or expansion of existing units) and in some cases, generation of employment and thus, applying purpose test, it be held that subsidy is a capital receipt. Para 24 / Pages 61 to 63 It is impossible to make out from the submissions of the assessee as to how they are relevant to the crucial issue for determination of the notional subsidy being of revenue or capital nature. The assessee has confused that any reference to investment in fixed assets for measuring the quantum of subsidy is same as investment in capital assets. It is a settled position of law that reference to investment in capital assets is only a measure for quantification of the The Assessee has never stated that only because the incentive is linked to amount invested in capital asset, the incentive is capital receipt. The Assessee has always emphasized upon the purpose test. The Assessee has given all Scheme documents to AO. The CIT(A) has allowed the appeals and it is Department appeal to the Tribunal. It is for the Department to show from the Schemes that purpose of subsidy is to augment profits of the Company. The Assessee has never contended that all the Schemes are alike. The Assessee has submitted all the Schemes which have been considered by the AO and CIT(A). For brevity, the Assessee is attaching herewith Annexure A which lists down decisions of Tribunal where similar schemes of State Government (in the present case, Maharashtra, Haryana, Rajasthan and Madhya Pradesh) have been considered and Tribunal has held the subsidy/incentive/grant to be a capital receipt. In any event, neither the AO nor the DR while arguing his appeals have referred to specific 60 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., subsidy and it does not lead to the inference that the subsidy is of capital nature; The assessee is making general submission treating all the schemes alike ignoring the observation on facts by the ITAT Special Bench in the case of Reliance Industries Ltd, that the schemes of Maharashtra are different from those of Madhy Pradesh and Andhra Pradesh. As directed by the Hon‟ble Bombay High Court in assessee‟s own case cited in paragraph 5(ix) above, assessee was required to point out the specific clauses in each agreement pertaining to each assessment year instead of making generalized submission Without any assistance from the assessee, the Assessing Officer has faced imponderable difficulty in trying to make a sense out of the irrelevant submissions scheme and pointed out that they are for augmenting the profits. Para 25/Page 63 and 64 The assessee is diverting attention from facts by focussing on case laws. For example for each year it is relying on the All five years, it is department appeal and hence if the grounds are defective then on that ground Department appeal should be dismissed. 61 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., decision of the Special Bench in the case of Reliance Industries Lt. 88 ITD 273. The decision has created the controversial concept of notional subsidy. Then in some appeals the word notional is removed and they refer to sales tax subsidy. Several grounds of appeal mentioned in this order suffer from this defect The decision of the Special Bench in Reliance Industries Ltd. would create a dangerous trend and ought to be nipped in the bud. It is a wrong decision challenging the basic integrity of the Income-tax Act. The Assessee has not merely relied on decision of Reliance Industries (SB). In fact it has also relied on other decisions of Supreme Court and other High Courts (Please refer legal submissions made before AO and CIT(A) at Page No. 761 to 785 of Paper Book 3 and Page No. 59 to 146 of the Paper Book 1 respectively); The Assessee submits that despite the Hon‟ble Supreme Court directing the Bombay High Court to consider the question of law raised in Reliance Industries, the decision of Special Bench is subsisting and in force and binding on all benches of ITAT. Para 26-39/Pages 64 to 97 Reliance is placed on decision of Supreme Court in Sahney Steel and Press Works Ltd. v. CIT [1997] 228 ITR 253 (SC) Further reliance is placed on the following decisions which have followed the ratio laid down by Sahney Steels (supra):  CIT v. Dusad Essentially, the Department has relied on decision of Supreme Court in Sahney Steel(supra). Other decisions cited by the Department are prior to decision of Supreme Court in Ponni Sugars (supra). The Department in its Written submissions at Page 64 (iv) has reproduced part of decision of Supreme Court in Sahney (supra) where it was hled that the subsidies were given to encourage setting up of industries in State of Andhra Pradesh by making the business of production and sale of goods in the state more profitable”. Thus, it appears that object of the Scheme in case before Sahney was to make industries more profitable. 62 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., Industries [1986]162 ITR 784 (MP)  CIT v. Chhindwara Fuels [2000]245 ITR 9,(Cal)  CIT v. Rajaram Maize Products [1998] 234 ITR 667 (MP)  CIT v. Rajaram Maize Products [2001] 251 ITR 427 (SC)  V.S.S.V. Meenakshi Achi [1966] LXI ITR 253 (SC)  Merinoply and Chemicals Ltd. v, CIT [1994] 209 ITR 508 (Cal.)  CIT v. Godavari Plywood Ltd [1987] 168 ITR 632(AP)  CIT v. P J Chemicals Ltd. [1994]210 ITR 830 (SC)  K.C.P. Ltd.v. CIT [2001]245 ITR421 (GC)  Bajaj Auto Ltd. v. DCIT [2004] 90 ITD 153 (Mumai) The Department has stressed on the fact that in Ponni Sugars, the Madras High Court held that subsidy linked to purchase tax was of revenue nature and same has not been challenged before the Supreme Court. It is submitted that firstly, the Madras High Court observed that terms of concession shows that concession was given to meet the cost of running the business after it has gone to production (In the present case, the Department has not pointed out any Scheme which proves that subsidy was for meeting cost of running the business). Secondly, the mere fact that in Ponni, the said question was not challenged before Supreme Court cannot lead to conclusion that any incentives after commencement are of revenue nature. The Supreme Court in Ponni Sugars (supra) after considering the decision of Sahney held that the only relevant test for identifying whether a subsidy is capital in nature or revenue is its Object i.e. if the object is to set up a new unit of expansion of existing unit then it is revenue in nature but if it is to augment profits then it is revenue in nature. The relevant para of the said decision is reproduced below: ―That test is that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. The main eligibility condition in the scheme with which we are concerned in this case is that the incentive must be utilized for repayment of loans taken by the assessee to set up new units or for substantial expansion of existing units. On this aspect there is no dispute. If the object of the subsidy scheme was to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand the existing unit 63 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., then the receipt of the subsidy was on capital account. Therefore, it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form of the mechanism through which the subsidy is given is irrelevant.‖ Lastly, the DR has wrongly observed that even before Supreme Court in Ponni, the Supreme Court solely decided in favour as the subsidy was only for repayment of loan. The exact same argument was taken in case of M/s. Jindal Steel & Power Ltd. (ITA No. 167/Del/2009), however, the Tribunal rejected the same at Paras 36 to 38 and ultimately following decision of Balaji Alloys (supra) and Chaphalkar (supra) decided in favour and held at Para 43 that subsidy received under the Madhya Pradesh scheme is a capital receipt. Copy of the decision in case of Jindal Steel (supra) is attached herewith as Annexure B. The subsequent decisions of High Court and Supreme Court have consistency applied the following tests, ignoring the form, time and source of subsidy:  Shree Balaji Alloys (J & K HC) (supra) affirmed by Hon‟ble SC (supra)  Chaphalkar Brothers (SC) (supra)  Munjal Auto (Guj), SLP Dismissed(supra)  PCIT v. Welspun Steel Ltd. (103 taxmann.com 436) (Bom HC) (PB 4, Pg. No. 1012-1017)  PCIT v. Capgemini India P. Ltd. (90 taxmann.com 409) (Bom HC) (PB 4, Pg No. 1018-1020)  CIT v. Indian Petrochemicals Corpn. Ltd. (102 taxmann.com 181) (Bom HC) (PB 4, Pg No. 1164-1166)  CIT v. Nirma Ltd. (88 taxmann.com 481) (Guj) (PB 4, Pg. No. 837-840)  CIT v. Rasoi Ltd. (245 CTR 667) (Calcutta HC) Lastly, the DR relied on the fact that decision in case of Dusad Industries (MP) (supra) was relied before AO and which has been overruled by decision in case of Sahney Steel (supra). The Assessee submits as evident from 143(3) order of AY 98-99, the AO at Para 5.4 held that facts of Dusad (supra) and in the present case is different. If facts are different then the question of commenting on Dusad does not asrise. 64 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., In any event, post Chaphalkar (supra) various Tribunals have in context of incentive under 1994 and recent schemes of MP, decided in favour and held subsidy to be capital receipt. Moreover, before the Hon‟ble Tribunal, presently the Assessee has neither cited nor relied on Dusad Industries (supra). Page 97/98 II. ISSUE -WHETHER CAPITAL SUBSIDY SHOULD BE DEDUCTED FROM THR ACTUAL COST FOR THE PURPOSE OF CALCULATION OF DEPRECIATION 40. The common ground of appeal on this issue is as under: ―On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not allowing the cost of the Block of Assets to be reduced by amount of subsidy treated as capital receipt in view of Explanation 10 to section 43(1) of the I.T. Act.” This ground will arise in case the subsidy is held to be capital receipt. The ground is self- explanatory. Particularly from The sales tax exemption received by the Assessee has not been granted for any specific plant or machinery but to encourage industrial development. Firstly, explanation 10 to section 43(1) has been inserted by Finance Act (No. 2), 1998 w.e.f. April 1, 1999, hence the question of applying Explanation 10 would not arise for AY 96-97 to 98-99. In any event, reliance is placed on the following judicial pronouncements wherein after considering the provisions of explanation 10 to section 43(1) as well as the decision of Hon‟ble SC in the case of P.J. Chemicals (210 ITR 830), it was held that sales tax incentive cannot be reduced from the cost of capital investment as the percentage of capital investment is only a mode of quantification of subsidy and not a payment to meet any portion of the „actual cost‟:  PCIT v. Welspun Steel Ltd. (103 taxmann.com 436) (Bom HC) (PB 4 pg. 1012-1017)  Nestle India Ltd v. DCIT (1954/Del/2014) (PB 4 pg. 1089-1115)  CIT v. Rasoi Ltd. (46 taxmann.com 214) (Kol T)  Sasisri Extractions Ltd. v. ACIT (122 ITD 428) (Vizac T) (PB 1 Pg. No. 364-367) 65 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., the assessment year 1999-2000 when the Explanation 10 was inserted in section 43(1), the law is clear that the subsidy will be reduced from the actual cost for the purpose of calculating depreciation. Further as explained while discussing the Supreme Court decision the case of P.J. Chemicals Ltd. (supra), not deducting the so called notional subsidy while calculating the depreciation has weakened the main case of claiming exemption of notional subsidy from taxation. 66 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., 5.1. Further the ld. AR also filed yet another rejoinder to the oral submissions made by the ld. Special Counsel for the Revenue as under:- I: Ground (i) and (ii): Sr. No. DR’s Arguments Assessee’s Submissions 1. The Assessee had filed its original return for above years and included the sales as trading receipt following decision of Chowringhee Sales Bureau v. CIT (87 ITR 542) (SC) and Sinclair Murray and Co. Pvt. Ltd. v. CIT (97 ITR 615) (SC). . The AO completed assessment by making certain other additions/disallowances. Only after 10 years, the Assessee choose to file additional ground before the Tribunal to claim that subsidy/incentive/grants/etc received under various Schemes/Notifications of State Governments are capital receipt not chargeable to tax and thereby sought to seek refund of taxes suo moto paid by the Assessee The Assessee does not dispute that the claim of subsidies/incentives being capital receipt was first time raised before the Tribunal. The claim was based on the decision of Hon‟ble Special Bench Mumbai Tribunal in the case of DCIT v. Reliance Industries Ltd. (88 ITD 273) (PB 1, Pg No. 217-232). However, post the said decisions, consistently, the Supreme Court, High Court and ITAT have been holding that subsidy received as a result of setting up of units or industrialisation of backward area is a capital receipt. If Supreme Court also has rendered numerous decisions to the said effect, it means that no tax was leviable on such subsidy/incentive. It is a settled law that Department cannot levy any taxes without the authority of law. Reliance is placed on the decision of Hon‟ble Bom HC in the case of Balmukund Acharya v. DCIT (310 ITR 310) and Article 265 of the Constitution of India. Thus, the Assessee was at full liberty to file additional ground for seeking refund of taxes on such subsidy. If such subsidies/incentives are capital receipt and not chargeable to tax, the fact that claim is raised before Tribunal for the first time should not be relevant. 67 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., Sr. No. DR’s Arguments Assessee’s Submissions 2. The ITAT in first round wrongly admitted the additional ground raised by the Assessee. The decision of Reliance Special Bench (supra) has been found to be erroneous by the Supreme Court and hence, the entire act of admitting additional ground by ITAT is wrong. Reliance Special Bench (supra) decision is fallacious and wrong and perverse on various grounds. The Assessee submits that if Department had any grievance against the order of ITAT admitting additional ground, it should have challenged the same before the High Court. The Department did not challenge this action of Tribunal for AY 1996-97 & 1997-98 and AY 1998-99 and where it did for AY 99-00 & 00-01, the HC dismissed the same. Against the same to best of our knowledge, no SLP has been filed. (Refer Page 1168 of Paper Book 5). Once the Department has not challenged and the issue on admission of additional ground has become final, it is not open for Department to now raise this issue in the present proceedings. 3. The AO and CIT(A) have not followed the direction of the Tribunal. The AO has not examined any facts/schemes/amount of claim The CIT(A) has passed mechanical orders There is no proper discussion by the AO and CIT(A) The Assessee submits that the ITAT in each of the five years had directed AO to examine the issue after affording opportunity to the Assessee. Thus, the ITAT had not issued any directives to the CIT(A). At Para 4 of AO‟s order u/s.143(3) r.w.s. 254 (AY 1996-97), the AO notes that during the assessment proceedings, relevant details have been called for. Assessee submitted the details and explained the same. It may also be noted that during the course of proceedings u/s 143(3) r.w.s. 254, the AO had called for documentary evidences to substantiate the claim of sales tax subsidies/incentives (PB 3, Pg. No. 786) to which the Assessee had duly complied with (See for eg:- PB 1, Pg 31-33 for AY 96-97). The AO has discussed this issue at Para 7 and observed as under: Para 7.1: Records Assessee‟s submissions that scheme were framed for necessary infrastructure in backward/notified area and hence incentive is capital in nature. Reliance is placed on the decision of Reliance Industries SB (supra). Holds that decision of Hon‟ble Bombay High Court against Special Bench decision has been set aside by Hon‟ble Supreme Court in the 68 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., Sr. No. DR’s Arguments Assessee’s Submissions case of CIT vs Reliance Industries Limited (Civil Appeal No 7769 of 2011) (PB 1, Pg. No. 243-244) back to Hon‟ble Bombay High Court for fresh adjudication and hence it is clear that issue has not been settled by Apex Court till date. Para 7.2: Holds sales tax incentive is nothing but revenue received. Alternatively, since incentive received is on basis of investments made in Fixed Assets, it is to be reduced from WDV of assets. Thus, this clearly shows that he has examined the Schemes/Notifications/other documents and only then concluded that incentive is on revenue account. Para 7.3: Holds that Assessee‟s reliance on AY 1995-96, OGE to ITAT wherein such incentive is held to be capital receipt as also CIT(A) order for AY 2006-07 to AY 2008-09 cannot be relied as principle of res judicata does not apply to income tax proceedings. Para 7.4: Holds that other decisions relied by Assessee cannot apply. Also holds that since in Return of Income no claim was made, relying on Goetze India Limited (SC), claim cannot be allowed. Submissions: 17. All details called for were submitted and explained by the Assessee; 18. For AY 1996-97, please see Letter dated September 27, 2012 at Page 26, 28 of Paper Book 1; 19. For AY 1996-97, please see Letter dated August 28, 2012 at Page 30 of Paper Book 1; 20. For AY 1996-97, please see letter dated September 27, 2013 at Page 31 of Paper Book 1; 21. Please see Annexure A & B referred to in letters dated August 28, 2012 & September 27, 2013 at Page No 33 to 36 Paper Book 1. Similar details were submitted for subsequent assessment years also (please refer Page No. 37 to 58 of Paper Book 1). Thus, details of Scheme, exemptions claimed, year-wise and scheme wise documents all submitted to AO; 22. Please see legal submission filed before AO at Page 761 to 785 of PB 3. 23. Thus, clearly entire directive of ITAT of examining facts including scheme, purpose and sales tax order/notifications all have been submitted. Unlike the amount referred to in additional ground before ITAT, the AO refers to exact amount claimed by the Assessee in set aside proceedings. 24. Entire written submissions before CIT(A) in second round is from Page 59 to 146 of Paper Book 1; 25. It is a settled law by Hon‟ble Supreme Court and Hon‟ble 69 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., Sr. No. DR’s Arguments Assessee’s Submissions Bombay High Court that once entire details have been furnished before AO, how the AO writes the order is not in control of the Assessee and merely because there is no discussion in order, it cannot be inferred that AO has not passed a speaking order. See following decisions: Marico Ltd. v. ACIT (111 taxmann.com 253) (Bom HC) ACIT v. Marico Ltd. (117 taxmann.com 244) (SLP Dismissed) Idea Cellular Ltd. v. DCIT (301 ITR 407) (Bom HC) (PB 7, Page 1396) GKN Sinter Metals Ltd. v. ACIT (371 ITR 225) (Bom HC) (PB 7, Para 14, Page 1393) Aroni Commercials Ltd. v. ACIT (367 ITR 405) (Bom HC) CIT v. Prima Paper And Engineering Industry (364 ITR 222) (Bom HC) 26. The Appellant had relied on decisions like Special Bench in Reliance Industries (supra), Bombay High Court decision in case of Reliance Industries (which now has only been set aside to Bombay High Court by Apex Court for framing a question of law), decision of Hon‟ble Supreme Court in the case of CIT v. Ponni Sugars & Chemicals Ltd. (306 ITR 392 (SC) (PB1, Pg. no. 233-238) 27. The AO only states that decision of Bombay High Court is set aside by SC and thus issue not settled by Supreme Court. Thus, he does not dispute that decision of Special Bench is still a good law. 28. Once ITAT has restored the issue to AO, question of Goetz (India) Ltd. vs. CIT (284 ITR 323) (SC) does not arise. In any event, even as per Goetz (supra), appellate authorities can always admit a new claim, which ITAT admitted and hence in present proceedings the AO cannot have any grievance on the same. In any event as stated in rebuttal above, those ITAT orders have become final. 29. The CIT(A) has passed a detailed order. The discussion on this issue starts from Page 4 to 12/Para 3. 30. The CIT(A) at bottom of Page 9 notes that the Appellant has filed details of all the incentive schemes including notifications of the State Government. Also holds that that applying purpose test as canvassed by Supreme Court in Ponni Sugars (supra) holds subsidy to be a capital receipt; 31. At Para 3.3.3. at Page 10, holds that despite the Hon‟ble 70 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., Sr. No. DR’s Arguments Assessee’s Submissions Supreme Court (supra) setting aside Bombay High Court decision in Reliance Industries‟ case, the ITAT Special Bench decision (supra) continues. 32. Reliance is placed on decisions referred above for the proposition that once material is before CIT(A), he has considered the same, then merely because order is not written in manner expected by the DR, it cannot be said that there is no application of mind by the CIT(A). The Assessee submits that all factual documents like Schemes/Notification/Eligibility Certificates/Sales Tax Orders/Returns/etc. all are also filed before the Tribunal and if Department has not disputed the same specifically, it is submitted that order of CIT(A) cannot be reversed. 4. Quantification  Sales tax assessment orders were not available at the time of filing ROI.  Highlights sales tax assessment orders at Pg. No. 554-559 for AY 96-97, Pg. No. 660-662 for AY 98-99, Pg. No. 676-679 for AY 99-00, Pg. No. 709-711 for AY 00-01 of FPB 2 to prove the same  The figures of subsidy have changed. See grounds before ITAT and relief now allowed by the The Assessee had raised the additional ground before the Tribunal, which was admitted and send back to the Assessing Officer. The fact that amount mentioned in those ground and as finally determined by the AO may be different as the figures taken in additional ground were an estimate. No relief has been given based on amounts taken in additional grounds. In fact, the AO and CIT(A) have based on actual documents now quantified the amount of subsidy. The AO firstly determined the amount while passing order u/s.143(3) r.w.s. 254. Again, post CIT(A) order also, he passed OGE to CIT(A) and reconfirmed the amount of exemption. Page 1167 of Paper Book 4 summarise total subsidy for each year and also give reference to relevant schemes and pages of Paper Book. For specimen basis, for AY 1996-97, chart is separately given during the course of hearing on April 7, 2022 where the aggregate amount of subsidy in each state and relevant returns/assessment orders are matched with document in Paper Book. Also, if AO and CIT(A) have examined and analysed the factual documents, the matter cannot be remitted to AO for re verification. Reliance is placed on Hon‟ble Jurisdictional Tribunal decision of Prism Cement Ltd. v. DCIT (ITA No. 804 & 805/Mum/2018) (PB 7 Para 42 at Page 1305/06) The Assessee submits that the sales tax/purchase tax/entry tax department or the State Government or its implementing agencies/monitoring agencies have to determine the incentive/subsidy 71 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., Sr. No. DR’s Arguments Assessee’s Submissions CIT(A). The Assessee has not explained the difference in amounts.  The amount of sales tax incentive/subsidy may be changed by the respective authorities, how would income tax department keep track of the same. The Tax Department are not trained in sales tax and expert in those laws.  The Assessee has not maintained separate account, how the subsidy is accounted, utlilized, etc.  AO cannot be expected to do something that is impossible to do, relies upon the decision of Hon‟ble Supreme Court in the case of CIT Bangalore v. B.C. Srinivasa Shetty (128 ITR 294) (DR based on Schemes and Notification of the State Government. The returns filed/assessment orders have already been placed on record. It is undisputed by above authorities that Assessee was entitled to subsidy/incentives. Infact, since the Assessee has received the said subsidies/incentives, the only question of whether it is capital receipt or revenue receipt arises. The Assessee on specimen basis had referred to PB 2, Pg. 400 where in so far as Maharashtra Scheme is concerned, SICOM being the implementing agency, had listed various conditions to be complied with including accounting, utilisation etc. It is thus submitted that it is only the domain of the respective agencies to examine conditions that they have been listed down and the fact that the Assessee has received the subsidies/incentives, it implies that the respective conditions have been satisfied and there are no adverse observations by those agencies. Thus, the DR cannot question any aspects as to whether Assessee complied with conditions, whether it maintained separate accounts, etc. All those facets are examined by respective authorities. Further, neither the AO nor the CIT(A) has made any adverse comments on the documents filed by the Assessee including schemes, notifications, eligibility certificates etc. The Assessee has quantified the subsidy/incentives based on the factual documents and based on relevant orders of authorities or based on returns filed. Assuming that the higher amount of sales tax is determined, it would increase amount of exemption in a particular year and correspondingly reduce exemption in subsequent year. However, whatever change happens, once Assessee is entitled to an incentive, the outer limit is fixed and no incentive beyond that can be allowed by the respective authorities. Thus, at worst, it could be timing difference. On facts, the decision of B.C. Srinivasa Shetty (supra) is not applicable 72 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., Sr. No. DR’s Arguments Assessee’s Submissions PB Pg. no. 150-157)  A‟s Maharashtra scheme provides for merely shifting existing units from Mumbai-Pune-Thane belt to backward areas which cannot amount to industrialisation. The said scheme is for shifting and not for setting up new units. The DR has relied only on the Maharashtra Scheme for said allegation. However, it is submitted that said allegation is baseless. Infact, the Maharashtra scheme clearly specifies that even a new unit can claim sales tax exemption. See FPB 2 Pg No. 373/376 Commencement:  Period when subsidy received is relevant. If subsidy is received with reference to sales tax/purchase tax/etc, clearly it is post commencement of business, hence revenue in nature  Reliance was placed on Hon‟ble Supreme Court in case of Sahney Steel & Press Works Ltd. v. CIT It has been settled by Hon‟ble Supreme Court in case of Ponni Sugars (supra) that the form/mechanism of computing subsidy is irrelevant and merely because subsidy is granted post commencement of production, does not mean it is to augment profits. Further reliance is placed on the following judicial precedents wherein the subsidy received was held to be capital in nature even when received post commencement of production:  CIT v. Ponni Sugars & Chemicals Ltd. (Supra)  Shree Balaji Alloys v. CIT (J&K HC) (333 ITR 335) [PB 1 Pg. no. 276-284] Affirmed by SC (80 taxmann.com 239) [PB 1 Pg. no. 239-240]  DCIT v. Munjal Auto Industries Ltd (Guj) (Tax Appeal No. 450 with 451 to 453 of 2012) (PB 4 Pg. no. 825-836) {SLP dismissed by SC (Civil Appeal No. 6226/2013) (PB 4 Pg. no. 822-824)}  CIT v. Chaphalkar Brothers (252 Taxman 360) (SC) (PB4 Pg. No. 809-817) (Para 9 and 22)  MAN Industries India Ltd v. ACIT v. ACIT (ITA No. 6696, 6697 & 6698/MUM/2014) (PB 1 Pg. no. 322-350)  Mahindra & Mahindra Ltd. v. DCIT (7382/Mum/2017) (PB 1 Pg. no. 1021-1079)  Grasim Industries Ltd. (Successor to Aditya Birla Nuvo Limited) v. ACIT (ITA No. 7062/M/2014) (Mum.) [PB4 Pg. 73 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., Sr. No. DR’s Arguments Assessee’s Submissions (228 ITR 253) (SC) [DR PB Pg. No. 158-173] anything before commencement is capital, after commencement is revenue. No. 841-863] Purpose:  If subsidy is given for acquiring a capital asset then it‟s a capital subsidy, if it is for supplementing profits then it‟s a revenue subsidy  If it is to enable running of business, subsidy is revenue even if it is used to establish units in backward areas. Clearly sales tax subsidy is to enable running of business, since purchase, sales and entry tax are all after commencement. Relies upon Hon‟ble High Court in case of Kesoram Industries & Cotton Mills Ltd. v. CIT (191 ITR 518) It has been settled by Hon‟ble HCs after considering Sahney Steel(Supra) , Ponni Sugars (supra) and Chaphalkar Brothers (supra) that where the object of the subsidy is to for development of state and setting up of industries in backward areas it is capital in nature and where it is to augment profits, it is a revenue subsidy. Few such decisions are as under:  PCIT v. Ankit Metal & Power Ltd. (Cal. HC) (416 ITR 591) (PB7 Pg. no. 1367-1374)  PCIT v. Shyam Steel Industries Ltd. (Cal. HC) (303 CTR 628) (PB7 Pg. no. 1375-1377) The Jurisdictional HC in CIT v. Kirloskar Oil Engines Ltd. (364 ITR 88) (Pg 245-247/PB 1) after referring to both the decisions of Sahney Steel (supra) and Ponni Sugars (supra) has held that ―If the object of the subsidy scheme is to enable the assessee to run the business more profitably then the receipt is on the revenue account. On the other hand, if the object of the assistance under the subsidy scheme was to enable the Assessee to set up a new unit then the receipt of subsidy was on the capital account.‖ The DR has not referred to any specific schemes filed in the Paper Book to point out any clauses of the scheme which prove that scheme was for supplementing profits. The Schemes provide that the subsidy is for encouraging growth, industrialisation, employment and in some cases, dispersal of industries. The decision of Hon‟ble High Court in case of Kesoram (supra) was relied upon by DR, but despite the same the Hon‟ble Tribunal in the case of DCIT v. Indo Rama Textiles Ltd (25 taxmann.com 161) (Del. Trib.) (PB 4 Pg no. 1116-1120) held that sales tax subsidy is a capital receipt as Kesoram (supra) was prior to recent SC decision. The Assessee submits that the total subsidy receivable is based on % of capital/fixed asset investments made. Thus, the outer limit is quantified. Thus, under the sales tax/purchase tax laws etc, the total 74 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., Sr. No. DR’s Arguments Assessee’s Submissions (Cal HC) (DR PB Pg. No. 133-147)  If subsidy was a fixed sum, the matter would have been different. % of capital investment provided in the schemes is only a measure of calculation  Assessee has dumped 2000 pages which are not relevant. amount of subsidy would not change. Based on assessments, etc only amounts in some years may change but the outer limit fixed based on capital investment would always remain the same. The Paper books contain all factual details including schemes/notifications/returns/assessment order under sales tax etc. The Assessee submits the same are relevant. 5 Since Assessee is claiming exemption from direct tax, strict interpretation has to be applied. Assessee has to substantiate that it has satisfied all conditions for getting the subsidy from the State. Reliance was placed on decision of Hon‟ble Supreme Court in case of Novopan India Ltd. Hyderabad v. CCEC {Supp (3), Supreme Court Cases, 606} (DR PB Pg. no. 123-132) and CC (Import) v. M/s. Dilip Kumar & Company & Ors. (Civil Appeal No. The Assessee submits that the claim of exemption from tax raised by the Assessee and allowed by the CIT(A) is on the ground that subsidy being capital receipt is not chargeable to tax u/s. 4. The Supreme Court, High Court and ITAT have consistently held that subsidy for industrialisation or for setting up industry in backward area or generating employment is capital receipt. The Assessee is not claiming deduction under section 80IA/80IB etc. which specifies conditions to be complied with. In present case the incentive was given by State Government and if relevant authorities of State Government which implement or monitor the Schemes, have granted incentive, for present appeal, only relevant issue is, based on purpose test whether it is capital or revenue. Thus, reliance on decisions of Hon‟ble apex court decisions in case of Novopan (supra) and M/s. Dilip Kumar (Supra) is misplaced. 75 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., Sr. No. DR’s Arguments Assessee’s Submissions 3327 of 2007) 6 DCIT v. Reliance Industries Ltd. (88 ITD 273 (Mum) (SB) (PB 1 Pg. No. 217-232) decision is perverse  Hon‟ble SC has set aside the SB decision to Hon‟ble Bom HC and hence the same is not a good law.  The Hon‟ble Tribunal did not look into aspects like whether subsidy a/c maintained, utilisation, it is poorly drafted;  Order of Reliance (SB) is perverse;  Made various allegation on manner in which Reliance (SB) was decided, etc;  In Assessee‟s own case, the Tribunal has not followed Reliance (SB), See PB 4 (Page 841 onwards) After considering the Hon‟ble SC (PB 1 Pg. no. 243-244) setting aside to Hon‟ble Bom HC, Hon‟ble Mumbai Tribunal SB decision in the case of Reliance Industries Ltd (supra) has been still held to be binding, valid and subsisting in the Assessee‟s own case for AY 2001-02 (ITA No. 778 of 2015) by Hon‟ble Bombay High Court which is the Jurisdictional HC (SLP dismissed). Further, various Tribunals have consistently taken a view that post Supreme court also, the decision of Reliance (SB) is binding and subsisting; ACIT v. Genus Electrotech Ltd (71 taxmann.com 101) (Ahm. T) (PB 4 Pg. no. 801-808) Welspun India Ltd. v. DCIT (104 taxmann.com 267) (Mum T) affirmed by Hon‟ble Bombay High Court in the case of PCIT v. Welspun Steel Ltd. (103 taxmann.com 436) (PB 4, Pg. No. 1012-1017). Further it has been held by Hon‟ble Bom HC in the case of ITO v. Universal Ferro & Allied Chemicals Ltd (172 ITR 30) (PB 7 Pg. no. 1378-1383, specifically Para 7) that once the Special Bench of the Tribunal records the decision after considering the judgement given by the High Court, then the decision of the Special Bench is binding on all other authorities subordinate to the Tribunal. In any event, to best of our knowledge, the decision of Reliance (SB) (supra) itself has not been challenged before Bombay High Court. It is for Department to demonstrate that very same decision of SB is challenged and pending before Bombay High Court. In our view, the Reliance Special Bench has passed a detailed order after considering the preamble of the scheme as also various decisions including those of Supreme Court and hence, same cannot be ignored. Lastly, the ITAT in Appellant‟s own case (as successor to Aditya Birla Nuvo Limited) (PB 4, Pg 852) has never held or observed anything contrary to Reliance (SB), but decided to apply purpose test as held by Ponni Sugars (supra) and decided in favour independently of Reliance SB by holding that VAT incentive under UP State Government Scheme is a capital receipt 7 Incentive v. The amendment to section 2(24)(xviii) which is made effective from 76 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., Sr. No. DR’s Arguments Assessee’s Submissions Subsidy The Assessee has merely received an incentive and not a subsidy. Sales tax exemption is only a so-called notional subsidy. There is difference between an incentive, a subsidy and there is nothing like notional subsidy. April 1, 2016 whereby subsidy has been held to be taxable also uses the term “assistance in the form of a Subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called)” Thus, even legislation has not made any distinction between the term Subsidy or Incentive etc. Further, in so far as Maharashtra Scheme is concerned, the Scheme itself defines and explains what is a “notional” sales tax liability (NSTL) (PB 2/Page 376). In present case, the NSTL is also quantified by sales tax officer (PB 2/Page 553). Various Hon‟ble Tribunals have either only used the term incentive or the term subsidy/incentive interchangeably and held the same to be capital in nature. Please See: - DCIT v. Reliance Industries Ltd. (88 ITD 273) (Mum SB) (PB 1 Pg. no. 217-232) - CIT v. Ponni Sugars & Chemicals Ltd. (supra) - Shree Balaji Alloys v. CIT (333 ITR 335) (J & K HC) (PB 1 Pg. no. 274-284) affirmed by SC in CIT v. Shree Balaji Alloys (80 taxmann.com 239) (PB 1 Pg. no. 239 - 240) - MAN Industries India Limited vs ACIT (ITA No. 6696, 6697 & 6698/Mum/2014) (PB 1 Pg. no. 322-350) - ACIT vs Economic Explosive Limited (ITA 202 to 206/Nag/2015) (PB 1 Pg. no. 351-354) - Grasim Industries Ltd. (Successor to Aditya Birla Nuvo Limited) v. ACIT (ITA No. 7062/M/2014) (Mum.) (PB 4 Pg.no. 841-863) - Mahindra & Mahindra Ltd. v. DCIT (7382/Mum/2017) (Mum.) (PB 4 Pg.no. 1021-1079) - Birla Corporation Ltd. v. DCIT (55 taxmann.com 33) (Kol.) (PB 4 Pg. no. 1128 - 1145) The Assessee submits that sales tax exemption received by it is a capital receipt without having regard to the terminology used i.e. Subsidy or incentive. II Subsidy should be reduced from cost of capital asset in view of explanation 10 to section 43(1) The sales tax exemption received by the Assessee has not been granted for any specific asset but to encourage industrial development. Reliance is placed on the following judicial pronouncements wherein after considering the provisions of explanation 10 to section 43(1) as well as the decision of Hon‟ble SC in the case of P.J. Chemicals (210 ITR 830), it was held that sales tax incentive cannot be reduced from the cost of capital investment as the percentage of capital investment is only a mode of quantification of subsidy and not a payment to meet any 77 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., Sr. No. DR’s Arguments Assessee’s Submissions portion of the „actual cost‟:  PCIT v. Welspun Steel Ltd. (103 taxmann.com 436) (Bom HC) (PB 4 pg. 1012-1017)  Nestle India Ltd v. DCIT (1954/Del/2014) (PB 4 pg. 1089-1115)  CIT v. Rasoi Ltd. (46 taxmann.com 214) (Kol T)  Sasisri Extractions Ltd. v. ACIT (122 ITD 428) (Vizac T) (PB 1 Pg. No. 364-367) Additional grounds Additional Grounds 1 to 8 filed by the Revenue are argumentative in nature and pure facets of Department‟s various arguments to support its original grounds. Assessee has already responded to those arguments above and in Annexure 1. 5.2. From the aforesaid table, it is very clear that the assessee had furnished all the requisite documents to justify its claim of exemption that the subsidy received by it are capital receipts not chargeable to tax, before the ld. AO as well as before the ld. CIT(A) and that both the lower authorities had examined the very same documents and had arrived at their respective conscious conclusions. Hence the argument advanced by the ld. Special Counsel for the Revenue that both the lower authorities had not followed the directions of this Tribunal in the first round of proceedings wherein this Tribunal had directed the ld. AO to make thorough examination of the various subsidy / incentive schemes and decide its taxability. is completely devoid of merits. Since the matter has been already examined by both the lower authorities and respective conclusions drawn thereon by them , though contrary to each other, we hold that there is no need for these appeals to be remitted back to the file of ld. AO for denovo adjudication, as prayed by the ld. Special Counsel for the Revenue. 78 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., 5.3. We deem it fit and appropriate to refer to the various subsidy / incentive schemes of various state governments to understand its objects and purpose, which would ultimately decide its taxability. Vikram Ispat, Division of Grasim Industries Limited - Sales Tax Exemption : Package Scheme of Incentive(“PSI”), 1988 dated 01.10.1988 by State of Maharashtra In order to achieve dispersal of industries outside the Bombay- Thane- Pune Belt and to attract them to the underdeveloped and developing areas of the State, Government has been giving a Package of Incentives to New Units / Expansion set-up in developing region of the State since 1964 under a Scheme popularly known as PSI. This is evident from page 369 of the Paper Book filed by the assessee, which are forming part of judicial records. We find that the ld. Special Counsel for the Revenue submitted that only existing units when relocated to backward area would be eligible for the subsidy / incentive. This in our considered opinion is incorrect. We find from Pages 369 and 370 of the Paper Book 2 filed , which are part of judicial records, it lists down Group A,B,C & D specifying developed, under developed areas of the State. Page 373 of the Paper Book 2 further states that an existing or a new unit would also be eligible for the benefit. New Unit has been defined at Page 376 of the Paper Book. Pioneer Unit has been defined at Pg. 378 as a large scale New unit set up after October 1, 1988. We find that all these facts are mentioned in the Subsidy Schemes itself. We find that the assessee before us falls in the category of „Pioneer Unit‟ which is also evident from the eligibility certificate issued by SICOM enclosed in Page 399 of the Paper Book 2, which recognises 79 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., Vikram Ispat unit as a Pioneer Unit. Thus, under the Maharashtra 1988 Scheme, even new units as well as existing units are entitled to notional sales tax subsidy. We find that the assessee furnished the Package Scheme of Incentive, 1988 dated 01/10/1988 by State of Maharashtra before the lower authorities. These documents are enclosed in pages 368 to 398 of the factual paper book which are part of judicial records. We find that the assessee furnished the eligibility certificate for Sales Tax Incentive issued by SICOM in favour of Vikram Ispat before the lower authorities. These documents are enclosed in pages 399 to 422 of the factual paper book which are part of judicial records. We find that the assessee furnished the Certificate of Entitlement No.N29M/136/LM/660 issued by Dy. Commissioner of Sales Tax (Incentive and Enforcement), Sales Tax department, Maharashtra in favour of Vikram Ispat before lower authorities. These documents are enclosed in pages 423 to 436 of the factual paper book which are part of judicial records. Chloro Sulphuric Acid Division and Caustic Soda Membrance Cell Division of Grasim Industries Limited - Entry Tax exemption Entry Tax Notification No.422-6596 dated 09.02.1977 under Madhya Pradesh Sthaniya Kshetra Me Mal ke Pravesh Par Kar Adhiniyam, 1976 Exemption granted to new industry including any such substantial expansion of an existing industry as may be approved by the Government with the object of promoting industrial development in the State by setting up of new industrial units within the State of Madhya Pradesh. This fact is evident from Page 460 of the Paper Book. 80 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., New Industry Notification No.A-3-24-94-ST-V(112) dated 06.10.1994 under Madhya Pradesh Sthaniya Khstra Me Mal ke Pravesh Pare Kar Adhiniya, 1976 Exemption granted to new industry including any such substantial expansion of an existing industry as may be approved by the Government with the object of promoting industrial development in the State by setting up of new industrial units within the State of Madhya Pradesh. This fact is evident from Page 472 of the Paper Book. We find that assessee furnished the Entry Tax Notification No.422-6596 dated 09/2/1977 under Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 before the lower authorities. These documents are enclosed in pages 460 to 466 of the factual paper book which are part of judicial records. We find that assessee furnished the provisions of Section 10 of Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 before lower authorities as referred to in above notification vide page 467 of the paper book which is part of judicial record. We find that assessee furnished the Certificate of Eligibility for exemption of Entry Tax in favour of Chloro Sulphuric Acid Division before lower authorities. These documents are enclosed in pages 470 to 471 of the factual paper book which are part of judicial records. We find that assessee furnished the New Industry Notification No.A-3-24-94-ST-V(112) dated 06/10/1994 under Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 before the lower authorities. These documents are enclosed in pages 472 to 478 of the factual paper book which are part of judicial records. We find that assessee furnished the Certificate of Eligibility for exemption of Entry Tax in favour of Caustic Soda Membrance Cell 81 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., Division before the lower authorities. These documents are enclosed in pages 479 to 480 of the factual paper book which are part of judicial records. We find that assessee furnished the Eligibility Certificate of Entry Tax in favour of Poly Aluminium Chloride Division before the lower authorities. These documents are enclosed in pages 468 to 469 of the factual paper book which are part of judicial records. We find that assessee furnished the New Industries Notification No. A-3-11-86(74)-ST-V dated 16/10/1986 under Madhya Pradesh General Sales Tax Act, 1958 before the lower authorities in respect of Poly Aluminium Chloride Division. These documents are enclosed in pages 437 to 455 of the factual paper book which are part of judicial records. We find that assessee furnished the provisions of Section 12 of the Madhya Pradesh General Sales Tax, 1958 as referred in the above notification before the lower authorities. These documents are enclosed in pages 456 to 457 of the factual paper book which are part of judicial records. We find that assessee furnished the Certificate of Eligibility for Exemption from payment of Sales Tax under the Madhya Pradesh General Sales Tax Act, 1958 and Central Sales Tax Act, 1956 before the lower authorities in respect of Poly Aluminium Chloride Division. These documents are enclosed in pages 458 to 459 of the factual paper book which are part of judicial records. Aditya Cement, Unit of Grasim Industries Limited, Sales Tax Exemption Sales Tax New Incentive Scheme for Industries 1989, Rajasthan (S.No.764 : F-4(35)FD Gr.IV/87-39 dated 6.7.1989) 82 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., To boost up industrial development in the State, the Government have enacted provisions for giving relief to the industries in some form or the other so as to assist them in their development, particularly during the initial period required by the industries to come to full maturity. (para 1.1 refers to industrial policy 1990, whereas, above scheme is of 1989) This Scheme exempts the industrial unit from payment of tax on the sales made in the course of inter-state trade or commerce of the goods including bye-products and waste items manufactured by them within the State and in case of packing material used therewith, the benefit is available only if it is linked with fixed capital investment with the object of promoting industrial development in the State of Rajasthan. This fact is evident from Page 481 of the Paper Book. We find that the assessee furnished Sales Tax New Incentive Scheme for Industries, 1989, Rajasthan (S.No.764:F-4(35)FD Gr.IV/87-39 dated 06/07/1989) before lower authorities. These documents are enclosed in pages 481 to 489 of the factual paper book which are part of judicial records. We find that assessee furnished the Eligibility Certificate in favour of Aditya Cement before lower authorities. These documents are enclosed in pages 490 to 491 of the factual paper book which are part of judicial records. Vikram Woollens, Unit of Grasim Industries Limited, Sales Tax Exemption Notification no. A-3-24-94-ST-V(108) dated 6.10.1994 (Madhya Pradesh) Exemption granted to new industrial unit with a capital investment in fixed assets above specified limit with the object of promoting industrial development in the State by setting up of new industrial units within the State 83 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., of Madhya Pradesh. This fact is evident from Pages 492 to 494 of the Paper Book filed which are part of judicial records. We find that assessee furnished Sales Tax Exemption Scheme (M.P.Vanijyikar Adhiniyam, 1994) before lower authorities. These documents are enclosed in pages 492 to 501 of the factual paper book which are part of judicial records. We find that the assessee furnished Exemption Certificate in favour of Vikram Woollens before lower authorities vide page no. 502 of the paper book which is part of judicial record. Grasim Cement, Unit of Grasim Industries Limited, Sales Tax Exemption 1991 Scheme for units with Capital Investment in fixed assets of Rs. 100 crore or more [Notification no. A-3-27-89-ST-V-(15) dated 19.02.1991 (Madhya Pradesh)] Exemption granted to eligible industrial unit established in any district in Madhya Pradesh with a capital investment in fixed assets of Rs. 100 crore or more (Pg. 517 to 518 of PB) with the object of accelerating pace of industrialisation in the State of Madhya Pradesh. This fact is evident from Pages 517 to 518 of the Paper Book filed which are part of judicial records. We find that assessee furnished Sales Tax Exemption Scheme (Madhya Pradesh Industrial Policy & Action Plan, 1994) before lower authorities. These documents are enclosed in pages 503 to 516 of the factual paper book which are part of judicial records. We find that assessee furnished the 1991 scheme for units with capital investment in fixed assets of Rs.100 Crores or more before the lower authorities. These documents are enclosed in pages 517 to 522 of the factual paper book which are part of judicial records. We find that 84 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., assessee furnished Certificate of Eligibility for exemption of tax in favour of Grasim Cement before the lower authorities. These documents are enclosed in pages 523 to 528 of the factual paper book which are part of judicial records. Elegant Spinners, Unit of Grasim Industries Limited, Sales Tax Exemption (AY 1997-98) Sales Tax Exemption Scheme (Haryana General Sales Tax Rules 1975) Exemption granted to eligible industrial unit being a new industrial unit or a unit undertaking expansion or diversification with the object of promoting investment in backward area. This fact is evident from Page 536 of the Paper Book filed which are part of judicial records. We find that assessee furnished Sales Tax Exemption Scheme (Haryana General Sales Tax Rules, 1975) before the lower authorities. These documents are enclosed in pages 529 to 543 of the factual paper book which are part of judicial records. We find that assessee furnished Exemption Certificate in Form VAT G1 in favour of Grasim Industries Ltd., (Unit Elegant Spinners) before the lower authorities. These documents are enclosed in pages 544 to 545 of the factual paper book which are part of judicial records. 5.3.1. We further find that the assessee had furnished all the Sales Tax assessment orders and the /Entry Tax assessment orders together with respective Sales Tax returns, as the case may be, of various States for various assessment years for quantification of Notional Sales Tax / Entry Tax subsidy figure, before the lower authorities, which are tabulated hereunder:- Sales tax Orders / Entry Tax Orders – AY 1996-97 AY 1996-97 I Sales Tax Assessment Order for 546 - 559 85 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., F.Y. 1995-96 of Vikram Ispat. ii Sales Tax Assessment Order for FY 1995 -96 of Poly Aluminium Chloride - State Sales Tax 560 - 562 iii Central Sales Tax Assessment Order for FY 1995 -96 of Poly Aluminium Chloride - Central Sales Tax 563-564 iv Entry Tax Assessment Order for FY 1995 -96 of Poly Aluminium Chloride 565-567 v Entry Tax Assessment Order for FY 1995 -96 of Chloro Sulphuric Acid Division 568-571 Vi Entry Tax Assessment Order for FY 1995 -96 of Caustic Soda Memrance Cell 572-573 Vii RST Return Form for FY 1995-96 of Aditya Cement 574 - 592 viii Sales Tax Assessment Order for FY 1995-96 of Vikram Woollens 593 - 595 ix Sales Tax Assessment Order for FY 1995 -96 of Grasim Cement 596 - 597 Sales tax Orders / Entry Tax Orders – AY 1997-98 AY 1997-98 I Sales Tax Assessment Order for F.Y. 1996-97 of Vikram Ispat. 598 - 604 ii Entry Tax Assessment Order for FY 1996 -97 of Chloro Sulphuric Acid Division 605 - 607 iii Entry Tax Assessment Order for FY 1996 -97 of Caustic Soda Memrance Cell 608 - 610 iv Sales Tax Assessment Order for FY 1996-97 of Aditya Cement 611 - 614 V Sales Tax Assessment Order for FY 1996-97 of Vikram Woollens 615 - 620 vi Sales Tax Assessment Order for FY 1996 -97 of Grasim Cement 621 - 625 Sales tax Orders / Entry Tax Orders – AY 1998-99 AY 1998-99 I Sales Tax Return for FY 1997 -98 of Vikram Ispat 626 - 634 ii Entry Tax Assessment Order for 635 - 637 86 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., FY 1997 -98 of Chloro Sulphuric Acid Division iii Entry Tax Assessment Order for FY 1997 -98 of Caustic Soda Memrance Cell 638 - 642 iv Sales Tax Assessment Order for A.Y. 1997-98 of Aditya Cement 643 - 649 v Sales Tax Assessment Order for FY 1997-98 of Vikram Woollens 650 - 651 vi Sales Tax Assessment Order for FY 1997 -98 of Grasim Cement 652 - 659 vii Sales Tax Assessment Order for FY 1997-98 of Elegant Spinners, Bhiwani 660 - 662 Sales tax Orders / Entry Tax Orders – AY 1999-00 AY-1999-00 i Sales Tax Assessment Order for F.Y. 1998-99 of Vikram Ispat. 663 - 680 ii Entry Tax Assessment Order for FY 1998 -99 of Caustic Soda Memrance Cell 681 - 687 iii Sales Tax Assessment Order for FY 1998-99 of Aditya Cement 688 - 697 iv Sales Tax Assessment Order for FY 1998-99 of Vikram Woollens 698 - 703 v Sales Tax Assessment Order for FY 1998 -99 of Grasim Cement 704 - 710 vi Sales Tax Assessment Order for FY 1998-99 of Elegant Spinners, Bhiwani 711 - 713 Sales tax Orders / Entry Tax Orders – AY 2000-01 AY 2000-01 i Sales Tax Return for FY 1999 -00 of Vikram Ispat 714 - 720 ii Entry Tax Assessment Order for FY 1999 -00 of Caustic Soda Memrance Cell 721 - 727 iii Sales Tax Assessment Order for FY 1999-00 of Aditya Cement 728 - 730 iv Sales Tax Assessment Order for FY 1999-00 of Vikram Woollens 731 - 736 v Sales Tax Assessment Order for FY 1999 -00 of Grasim Cement 737 - 744 vi Sales Tax Assessment Order for FY 1999-00 of Elegant Spinners, 745 - 748 87 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., Bhiwani 5.3.2. We find from the perusal of the Maharashtra Scheme as detailed hereinabove, the said scheme itself defines and explains what is “Notional Sales Tax Liability”. The said scheme also contemplates that the “Notional Sales Tax Liability” is required to be quantified by the Sales Tax Officer while framing the Sales Tax assessment for each of the years. Hence, the concept of “Notional Sales Tax Liability” is part and parcel of the Subsidy / Incentive Scheme brought out by the Maharashtra State Government. While this is so, we are unable to comprehend ourselves to accede to the arguments of Ld. Special Counsel for the Revenue that there cannot be any concept of “Notional Sales Tax Liability” and the quantification thereon becomes unworkable. We further strongly condemn the expressions used by the Ld. Special Counsel for the Revenue with regard to the said “Notional Sales Tax Liability” as a “Monster”. The aforesaid entire scheme papers were indeed fully furnished by the assessee before the lower authorities, which were categorised by the ld. Special Counsel for the Revenue as “Junk”, “Trash” and “Rubbish”. We strongly condemn this expression made by ld. Special Counsel for the Revenue for giving scant respect for the extensive documentation furnished by the assessee, which in any case, were not even disputed / doubted by the lower authorities. Even the Special Bench decision rendered by this Tribunal in the case of Reliance Industries Ltd., reported in 88 ITD 273 was erratically criticised by the ld. Special Counsel for the Revenue which have already been detailed hereinabove. In fact, the ld. Special Counsel for the Revenue proceeded on the premise that the Special Bench decision of this Tribunal has been reversed by the Hon‟ble Supreme Court and sent back to the Hon‟ble Bombay High Court. This aspect as to whether at all the decision of Special Bench in the case of Reliance Industries Ltd., referred to supra 88 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., would still hold the field or not, is dealt separately hereinbelow. In these circumstances, we deem it fit and appropriate to direct the ld. Special Counsel for the Revenue to kindly be careful while arguing the cases in future before any judicial forum by not using such crude expressions. 5.3.3. We find that the ld. Special Counsel for the Revenue vehemently submitted that since the subsidy / incentive would be determined subsequently based on Sales Tax assessment order, which happens after the date of filing of return, the quantification of subsidy becomes unworkable and that the Income Tax department is not required to follow-up with the Sales Tax authorities regarding the final determination of Sales Tax liability. In our considered opinion, this objection is of no relevance at all in view of the fact that the respective schemes had indeed clearly specified the manner in which quantification of subsidies based on sales tax assessment orders which has to be done in future. Moreover, the competent authority which is incharge of actually granting the subsidy to the assessee had not objected to these points. In respect of Maharashtra Scheme, SICOM, being the implementing agency, had listed various conditions to be complied with including accounting, utilisation etc., and SICOM had duly examined the requisite conditions to be complied with. No adverse observations were indeed made by the competent authority. The competent authority had indeed granted subsidy to the assessee as finally determined by the respective sales tax officers which is in consonance with the subsidy schemes of various State Governments. The role of Income Tax department is only to examine whether the said receipt of subsidy would constitute capital or revenue receipt in the hands of assessee – nothing more nothing less. In any case, the lower authorities below had not even disputed this fact, which is vehemently argued by the ld. Special Counsel for the Revenue. This tantamounts to ld. Special 89 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., Counsel for the Revenue making out a new case before the Tribunal and trying to travel beyond the brief, which is not permissible as per Law. Hence, we have no hesitation in summarily dismissing these arguments of ld. Special Counsel for the Revenue, as devoid of merits. 5.3.4. We further find that all the aforesaid schemes were subject matter of adjudication and consideration by various Tribunals across the country wherein, it was held that the subsidy / incentive received pursuant to the aforesaid schemes were capital receipts. The details of the various cases are tabulated hereunder:- Sr. No. Judgement Paper Book Pg. No. Objective of Subsidy Scheme in the case law relied upon A Maharashtra Scheme 1 DCIT v. Reliance Industries Ltd. (88 ITD 273) (Mum T SB) Reliance Industries Ltd v. ACIT (I.T.A. No. 7299/Mum/2017) 217-232 (PB 1) 879-991 (PB 4) Sales Tax exemption Scheme of Government of Maharashtra, 1979 for disperse the industries outside the Bombay-Thane-Pune belt and to hasten the pace of industrialization in the developing regions of the State. 2 ACIT v. Economic Explosive Limited (ITA 202 to 206/Nag/2015) 351-354 (PB 1) Package scheme of Incentive 1993 of Government of Maharashtra which is an extension of Schemes introduced in 1964, 1979 and 1988 with the object being industrial development of backward district as well as generation of employment 90 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., Sr. No. Judgement Paper Book Pg. No. Objective of Subsidy Scheme in the case law relied upon 3 DCIT v. Indo Rama Textiles Ltd. (25 taxmann.com 161) (Del. T) 1116-1120 (PB 4) Sales Tax exemption Scheme of Government of Maharashtra, 1993 for promotion of industrialization in backward areas of the State of Maharashtra through Scheme of incentives. 4 ACIT v. Sanvijay Rolling and Engineering Ltd. (224/Nag/2015) (Nag. T) 1121-1127 (PB 4) Package Scheme of Incentive, 2001 of the Government of Maharashtra granting subsidy for setting up project in view for employment generation and for dispersal of industry 5 LG Electronics India (P.) Ltd. v. ACIT (83 taxmann.com 179) (Del. T) 992-996 (PB 4) Package Scheme of Incentive, 2001 of Government of Maharashtra providing refund of VAT with the objective of promotion of industry and balanced regional growth, diversion of industry to less developed areas of the State and increase in employment. 6 Mahindra & Mahindra Ltd. v. DCIT (7382/Mum/2017) 1021-1079(PB 4) Package Scheme of Incentive, 2001 of Government of Maharashtra (an extension of 1993 scheme) granting to intensify and accelerate the process of dispersal of industries to the less developed regions and promoting high tech industry in developed areas of the State of Maharashtra 7 Bombay Dyeing &Mfg Co Ltd v. DCIT (87 taxmann.com 213) (Mum. T) 290-321 (PB 1) Package scheme of Incentive 2007 of Government of Maharashtra granting subsidy with a view to encourage the dispersal of industries to the less developed areas of the State of Maharashtra 8 Innoventive Industries Ltd v. DCIT (ITA No. 601/PN/2013)(Pune Trib.) 1222-1246 (PB 6) Package Scheme ofIncentive, 2007 ofGovernment of Maharashtragranting subsidy with a view to encourage the dispersal of industries to the less developed areas of the State of Maharashtra 91 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., Sr. No. Judgement Paper Book Pg. No. Objective of Subsidy Scheme in the case law relied upon B Rajasthan Scheme 9 CIT v. Shri Cement (ITA No. 204 / 2010) (Raj HC) 248-275 (PB 1) Rajasthan Sales Tax/Central Sales Tax Exemption Scheme for Industries, 1998 for promoting industrial development of the State and encourage new capital investment in industry and thereby promote employment 10 Birla Corporation Ltd. v. DCIT (55 taxmann.com 33) (Kol.) 1128-1145 (PB 4) Sales Tax Incentive under Rajasthan Sales Tax Exemption Scheme of 1998 for encouragement of setting up of industrial project or expansion of existing industrial projects C Haryana Scheme 11 DCIT v. Munjal Auto Industries Ltd and others, SLP dismissed in Civil Appeal No. 6226/2013 against Gujarat HC order in Tax Appeal No. 450 with 451 to 453 of 2012 (Munjal Auto) &Nirma Ltd in Appeal No. 226 of 2010 which is also covered by this SC order 822-824 (PB 4) Scheme framed by the Government of Haryana Haryana General Sales Tax Rules, 1975 for capital outlay expended by the Assessee for setting up of the unit in case of a new industrial unit and diversification of existing unit. 92 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., Sr. No. Judgement Paper Book Pg. No. Objective of Subsidy Scheme in the case law relied upon D Madhya Pradesh Scheme 12 Universal Cables Ltd Vs. DCIT [2015] 57 taxmann.com 95 (Kolkata - Trib.) 1146-1163 (PB 4) Subsidy received under Madhya Pradesh Industrial Investment Promotion Assistance Scheme, 2004with an objective to increase employment and establishing new industrial unit by enhancing new capital investment in the state of Madhya Pradesh. 13 ITO vs. M/s. Agya Auto Ltd (ITA No. 540/Ind/2018) (Indore T) 1191-1200 (PB 6) Subsidy received under Madhya Pradesh Industrial Policy, 2004 with an objective to increase capital investment in backward areas in the state of Madhya Pradesh. 14 Udai Plastic (P.) Ltd. v. ITO (98 ITD 231) 1247-1249 (PB 7) State Investment Subsidy and Sanction Rules, 1989 of MP state with an objective of setting up industries in backward area 15 ParleAgro P Ltd. v. ACIT (ITA No. 6209/Mum/2013) 1250-1263 (PB 7) Industrial Promotion Policy, named as “Madhya Pradesh Udyog NiveshSamvardhanYogna 2004" with an objective to accelerate the pace of industrialization, maximize employment prospects and develop the infrastructure in the backward areas 16 Prism Cement Ltd. v. DCIT(I.T.A. No. 804 & 805/Mum/2018) 1264-1341 (PB 7) Sales tax exemption under Madhya Pradesh Industrial Investment Promotion Assistance Scheme-2004 with an objective to accelerate the pace of industrialization, to maximize the employment prospects and balanced regional development 17 M/s Vardhman Textiles Limited (ITA No. 787/Chd/2015) 1342-1366 (PB 7) 93 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., Sr. No. Judgement Paper Book Pg. No. Objective of Subsidy Scheme in the case law relied upon 18 M/s. Jinal Steel & Power Ltd. v. ACIT (ITA 167/Del/2009) - Notification No. 40 for exemption from sales tax dated 24.04.2000 issued u/s 8(5) of the Central Sales Tax Act, 1956 to encourage new industrial units, development of backward areas and create employment opportunities in public interest E Entry Tax Scheme-Madhya Pradesh 19 M/s. Jindal Steel & Power Ltd. v. ACIT (ITA 167/Del/2009) - Notification No. 41 and 42 for exemption from entry tax 24.04.2000 issued u/s 8(5) of the Central Sales Tax Act, 1956 to encourage new industrial units, development of backward areas and create employment opportunities in public interest 5.3.5. From the perusal of the aforesaid schemes together with its objects and preamble, we find that the dominant purpose for which the incentive scheme per se introduced by the respective State Governments was only for the purpose of setting up of industries in the respective areas for industrial development in State and also to accelerate development and absolutely not for augmenting the profits of the assessee. Effectively, the schemes of various State Governments envisaged the rapid industrialisation, growth and new employment generation in the respective areas which would in turn promote the growth of the State. Hence, it could be safely concluded that subsidy / incentive granted is only for setting up of the units based on the fixed percentage of the capital cost and not for running the business of the assessee. Moreover, even this subsidy which is determined based on sales tax assessment orders for 9 years, 6 years etc., are subject to maximum outer limit already fixed under the respective schemes. Though the quantification of 94 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., the subsidy has been made post commencement of business, the measurement of subsidy is immaterial. In our considered opinion, none of the schemes contemplated to finance the assessee in the form of subsidy / incentive for meeting the working capital requirements of the assessee company post commencement of business. Hence, by applying the purpose test, apparently, the subsidy / incentive received in the instant case would only have to be construed as capital receipts not chargeable to income tax. In this regard, we find that ld. AR placed reliance on the decision of Hon‟ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd., reported in 306 ITR 392, wherein the incentive conferred under that scheme were two fold. First, in the nature of higher free sale sugar quota and second, in allowing the manufacturer to collect Excise duty on sale price on the free sale sugar in excess of the normal quota, but to pay to the Government only the Excise duty payable on the price of levy sugar. The Hon‟ble Supreme Court in para 14 of its decision had held that “character of receipt of subsidy has to be determined with respect to the purpose for which the subsidy is given. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial.” In fact, the Hon‟ble Supreme Court while rendering this decision had duly considered its earlier decision in the case of Sahney Steel and Press Works Ltd., reported in 228 ITR 253 and had absolutely no quarrel with that judgement. Rather, it concurred with the decision rendered in Sahney Steel and Press Works Ltd., case. In this regard, it would be relevant to reproduce the operative portion of the decision of Hon‟ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd., as under:- 14. The second case is Lincolnshire Sugar Co. Ltd. v. Smart 20 TC 643. In that case it was found that Lincolnshire Sugar Co. Ltd carried on the business of manufacturing sugar from home grown beet. The company 95 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., was paid various sums under British Sugar Industry (Assistance) Act, 1931, out of monies provided by the Parliament. The question was whether these monies were to be taken into account as trade receipts or not. The object of the grant was that in the year 1981, in view of heavy fall in prices of sugar, sugar industries were in difficulty. The Government decided to give financial assistance to certain industries in respect of sugar manufactured by them from home-grown beet during the relevant period. Lord Macmillan held that— "What to my mind is decisive is that these payments were made to the company in order that the money might be used in their business." He further observed that: "I think that they were supplementary trade receipts bestowed upon the company by the Government and proper to be taken into computation in arriving at the balance of the company's profits and gains for the year in which they were received." 15. In the case before us, the payments were made to assist the new industries at the commencement of business to carry on their business. The payments were nothing but supplementary trade receipts. It is 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 like extension of docks as in the Seaham Harbour Dock Co. 5 case (supra). 16. There is a Canadian case St. John Dry Dock & Ship Building Co. Ltd. v. Minister of National Revenue 4 DLR 1, which has close similarity to the case of Seaham Harbour Dock Co. 's case (supra). In that case it was held that where subsidies were given under statutory authority, the statutory purpose for which they are authorised is relevant and may even be decisive in determining whether it is taxable income in the hands of the recipient. In that case, it was pointed out after discussing the Seaham Harbour Dock Co. 's case (supra)as well as that of Lincolnshire Sugar Co. Ltd. 5 case (supra)that subsidy given by the Canadian Government to encourage construction of dry docks was 'an aid to the construction of dry dock and not an operational subsidy'. 17. This precisely is the question raised in this case. By no stretch of imagination can the subsidies whether by way of refund of sales tax or relief of electricity charges or water charges can be treated as an aid to setting up of the industry of the assessee. As we have seen earlier, the payments were to be made only if and when the assessee commenced its production. The said payments were trade for a period of five years calculated from the date of commencement of production in the 96 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., assessee's factory. The subsidies are operational subsidies and not capital subsidies. 5.3.6. Yet another decision was rendered by Hon‟ble Supreme Court in the case of CIT vs. Chapalkar Brothers reported in 400 ITR 279 which held that where the object of respective subsidy schemes of State Government was to encourage development of multiple theatre complexes, incentives would be held to be capital in nature and not revenue receipts. The relevant operative portion of the judgment is reproduced hereunder:- 18. After discussing the judgment in Sahney Steel & Press Works Ltd.'s case (supra) this Court then held: "The importance of the judgment of this Court in Sahney Steel case lies in the fact that it has discussed and analysed the entire case law and it has laid down the basic test to the applied in judging the character of a subsidy. The test is that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. The main eligibility condition in the Scheme with which we are concerned in this case is that the incentive must be utilised for repayment of loans taken by the assessee to set up new units or for substantial expansion of existing units. On this aspect there is no dispute. If the object of the Subsidy Scheme was to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the assistance under the Subsidy Scheme was to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account. Therefore, it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form of the mechanism through which the subsidy is given is irrelevant." 19. Sahney Steel was distinguished, in para 16 by then stating that this Court found that the assessee was free to use the money in its business entirely as it liked. 20. Finally, it was found that, applying the test of purpose, the Court was satisfied that the payment received by the assessee under the scheme was not in the nature of a helping hand to the trade but was capital in nature. 21. What is important from the ratio of this judgment is the fact that Sahney Steel was followed and the test laid down was the "purpose test". It was specifically held that the point of time at which the subsidy is paid is not 97 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., relevant; the source of the subsidy is immaterial; the form of subsidy is equally immaterial. 22. Applying the aforesaid test contained in both Sahney Steel as well as Ponni Sugar, we are of the view that the object, as stated in the statement of objects and reasons, of the amendment ordinance was that since the average occupancy in cinema theatres has fallen considerably and hardly any new theatres have been started in the recent past, the concept of a Complete Family Entertainment Centre, more popularly known as Multiplex Theatre Complex, has emerged. These complexes offer various entertainment facilities for the entire family as a whole. It was noticed that these complexes are highly capital intensive and their gestation period is quite long and therefore, they need Government support in the form of incentives qua entertainment duty. It was also added that government with a view to commemorate the birth centenary of late Shri V. Shantaram decided to grant concession in entertainment duty to Multiplex Theatre Complexes to promote construction of new cinema houses in the State. The aforesaid object is clear and unequivocal. The object of the grant of the subsidy was in order that persons come forward to construct Multiplex Theatre Complexes, the idea being that exemption from entertainment duty for a period of three years and partial remission for a period of two years should go towards helping the industry to set up such highly capital intensive entertainment centers. This being the case, it is difficult to accept Mr. Narasimha's argument that it is only the immediate object and not the larger object which must be kept in mind in that the subsidy scheme kicks in only post construction, that is when cinema tickets are actually sold. We hasten to add that the object of the scheme is only one -there is no larger or immediate object. That the object is carried out in a particular manner is irrelevant, as has been held in both Ponni Sugar and Sahney Steel. 23. Mr. Ganesh, learned Senior Counsel, also sought to rely upon a judgment of the Jammu and Kashmir High Court in Shree Balaji Alloys v. CIT [2011] 9 taxmann.com 255/198 Taxman 122/ 333 ITR 335. While considering the scheme of refund of excise duty and interest subsidy in that case, it was held that the scheme was capital in nature, despite the fact that the incentives were not available unless and until commercial production has started, and that the incentives in the form of excise duty or interest subsidy were not given to the assessee expressly for the purpose of purchasing capital assets or for the purpose of purchasing machinery. 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 98 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., 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. 5.3.7. We further find that the Hon‟ble Gujarat High Court in CIT vs. Munjal Auto Industries Ltd., in Tax Appeal No.450 with 451-453 of 2012 dated 28/01/2013 also had an occasion to consider the very same issue in dispute before us. In this case also, the Revenue had taken a specific argument that since subsidy would be received only once unit goes for production, subsidy would be revenue nature. The Hon‟ble Gujarat High Court referred to the relevant subsidy scheme noted that concession was capped @125% of fixed capital investment and could be availed within 9 years. The Hon‟ble Gujarat High Court after considering the decision of Hon‟ble Supreme Court both in the case of Sahney Steel and Press Works Ltd., and Ponni Sugars and Chemicals referred to supra had held as under:- ―7. From the provisions of the said scheme, it clearly emerges that the subsidy though computed in terms of sales tax deferment or waiver, in essence it was meant for capital outlay expended by the assessee for set up of the unit in case of a new industrial unit and for expansion and diversification of an existing unit. As noted, such subsidy was available only to a new industrial unit or a unit undertaking expansion or diversification. Fixed capital investment has been defined as to include various investments in land under use, new construction, plant and machinery etc. The entitlement was related to percentage of fixed capital investment. 8. It is undoubtedly true that such subsidy was computed in terms of sales tax deferment and necessarily therefore, would accrue to an industry only once the commercial production commences. However, this by itself would not be either a sole or concluding factor. In case of Sahney Steel and Press Works Ltd. and others v. Commissioner of Income-tax reported in 228 ITR 253, the Apex Court held and observed that 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 find is quite immaterial. If the purpose is to help the assessee to set up its 99 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., business or complete a project the monies must be treated as having been received for capital purposes. Such But if monies are given to the assessee for assisting him in carrying out the business operations and given after the satisfaction of the conditions of commencement of production, such subsidy must be treated as assistance for the purpose of the trade. 9. Such decision was considered in case of Ponni Sugars and Chemicals Ltd.(supra) and the Apex Court held and observed as under : ―13. The main controversy arises in these cases because of the reason that the incentives were given through the mechanism of price differential and the duty differential. According to the Department, price and costs are essential items that are basic to the profit making process and that any price related mechanism would normally be presumed to be revenue in nature. In other words, according to the Department, since incentives were given through price and duty differentials, the character of the impugned incentive in this case was revenue and not capital in nature. On the other hand, according to the assessee, what was relevant to decide the character of the incentive is the purpose test and not the mechanism of payment. 14. In our view, the controversy in hand can be resolved if we apply the test laid down in the judgment of this Court in the case of Sahney Steel and Press Works Ltd. (supra). In that case, on behalf of the assessee, it was contended that the subsidy given was up to 10% of the capital investment calculated on the basis of the quantum of investment in capital and, therefore, receipt of such subsidy was on capital account and not on revenue account. It was also urged in that case that subsidy granted on the basis of refund of sales tax on raw materials, machinery and finished goods were also of capital nature as the object of granting refund of sales tax was that the assessee could set up new business or expand his existing business. The contention of the assessee in that case was dismissed by the Tribunal and, therefore, the assessee had come to this Court by way of a special leave petition. It was held by this Court on the facts of that case and on the basis of the analyses of the Scheme therein that the subsidy given was on revenue account because it was given by way of assistancein carry ing on of trade or business. On the facts of that case, it was held that the subsidy given was to meet recurring expenses. It was not for acquiring the capital asset. It was not to meet part of the cost. It was not granted for production of or bringing into existence any new asset. The subsidies in that case were granted year after year only after setting up of the new industry and only after commencement of production and, therefore, such a subsidy could only be treated as assistance given for the purpose of carrying on the business of the assessee. Consequently, the contentions raised on behalf of the assessee on the facts of that case stood rejected and it was held that the subsidy received by Sahney Steel could not be regarded as anything but a revenue receipt. Accordingly the matter was decided against the assessee. The importance of the judgment of this Court in Sahney Steel case lies in the fact that it has discussed and analysed the entire case law and it has laid down the basic test to be applied in judging the character of a subsidy. That test is that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. The main eligibility condition in the scheme with which we are concerned in this case is that the incentive must be utilized for repayment of loans taken by the assessee to set up new units or for substantial expansion of existing 100 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., units. On this aspect there is no dispute. If the object of the subsidy scheme was to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account. Therefore, it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form of the mechanism through which the subsidy is given is irrelevant.‖ 10. In a recent judgement dated 8.1.2013 in case of DCIT-Circle1(2)-Baroda v. Inox Leisure Ltd.,we had an occasion to consider somewhat similar question in the backdrop of entertainment tax waiver scheme of State of Gujarat as well as State of Maharashtra. Even in such a case, the entertainment tax waiver which was granted in terms of sale of tickets was treated as capital in nature when it was found that same was relatable to the capital investment made by the assessee. It was held as under : ―10. From the above noted provisions of thescheme it can be clearly seen that the entire purpose of granting tax exemption was for giving the boost to the terrorism sector. This was to be achieved by attracting higher investment in areas with tourism potential. In order to achieve such purpose, exemption from various taxes as may be applicable was granted. It is true that the exemption was to be computed in terms of tax otherwise payable by the industry. However, the purpose of such exemption was to meet with the capital outlay already undertaken by the assessee. This clearly comes out from various provisions of the scheme. For example, the scheme was applicable only to the new project or to a existing project provided investment in fixed capital or capacity was increased atleast by 50%.Thus, the very eligibility for seeking exemption was linked with new investment being made in fixed capital. Further though the scheme envisaged a certain period spanning for 5 to 10 years during which such exemption could be availed depending on the category of the unit, such exemption would cease the moment the total incentives touched 100% of the eligible capital investments. In other words, the upper limit of total incentive which the unit could receive from the State Government in the form of tax waiver would not exist 100% of the eligible capital investment regardless of the residue of the period of its exemption eligibility as per the scheme. From the combined reading of salient features of the scheme, we have no doubt in our mind that the incentive was being offered for recouping or covering a capital investment or outlay already made by the assessee.‖ 11. In the result we find no error in view of the Tribunal. Tax Appeals are dismissed. 5.3.7.1. It is pertinent to note that against this judgement, civil appeals were dismissed by the Hon‟ble Supreme Court vide its order dated 08/05/2018 on the ground that the issue is already covered in the decision of Chapalkar Brothers referred to supra. 101 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., 5.3.8. Before us, the ld. Special Counsel for the Revenue referred to various decisions of Hon‟ble High Courts. But, all those decisions were rendered prior to the decision of Hon‟ble Supreme Court referred to above. Hence, the decisions relied upon by the ld. Special Counsel for the Revenue would not advance the case of the Revenue. 5.3.9. It is pertinent to note that in each of the aforesaid decisions of Hon‟ble Supreme Court, the Courts have been mindful of the fact that the subsidy has to be received after commencement of business and to be availed within 9,10 & 12 years, as the case may be, and yet by applying purpose test, it was held that subsidy was on capital account. 5.4. Applicability of Special Bench decision of Mumbai Tribunal in the case of Reliance Industries reported in 88 ITD 273. The ld. Special Counsel for the Revenue vehemently submitted that the decision of the Hon‟ble Special Bench has been reversed by the Hon‟ble Supreme Court by remitting the matter back to the Hon‟ble Bombay High Court. First of all, it would be relevant to bring on record the crux of the decision of the Special Bench in the case of Reliance Industries Ltd. In case of Special Bench decision of Reliance Industries Ltd, the scheme dealt with sales tax exemption under the scheme of Government of Maharashtra, 1979. Further the said scheme was implemented by SICOM. The following question was referred by the Hon‟ble President, Tribunal to the Special Bench: ―Whether, on the facts and in the circumstances of the case and in law the assessee company is justified in its claim that the sales-tax incentive allowed to it during the previous year in terms of the relevant Government order constitutes 102 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., capital receipt and is not to be taken into account in the computation of total income?‖ The Hon‟ble Tribunal for Asst Years 1984-85 and 1985-86 had held the sales tax exemption to be capital in nature as the same was given for industrial development of the backward districts as well as generation of employment. However, the matter was referred to the Special Bench as it was alleged that the decision for AY 1985-86 was virtually overruled by subsequent decision of the Mumbai Tribunal in the case of Bajaj Auto Ltd (ITA No. 49 and 1101 of 1991). The Special Bench held that the decision of Bajaj Auto has not overruled the decision of Hon‟ble Mumbai Tribunal for AY 1985-86 on the following basis: i) There cannot be any question of overruling the decision of one Bench by another bench of equal strength as it would be contrary to the established norms of judicial system in the country. ii) Even on merits it cannot be said that the Tribunal has laid out more stress on the form of the scheme and not their substance as held in Bajaj Auto as the Tribunal in the order for AY 1985-86 has explained the difference between exemption schemes of Maharashtra and Andhra Pradesh in detail. iii) Reliance placed by Tribunal in Asst Year 1985-86 on the decision of Hon‟ble Supreme Court in the case of Sahney Steel & Press Works Ltd. v. CIT (228 ITR 253) cannot be said to be erroneous. The Tribunal did recognise that the object with which subsidy is given is decisive as laid down by Hon‟ble Supreme Court. If the 103 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., scheme is for setting up or expansion of industry in a backward area, it will be capital, irrespective of the modality or source of fund. If the scheme is for assisting of carrying out of business operations, it is revenue. Hon‟ble Supreme Court demonstrated the principle that the object of the subsidy must be given primary importance over the source of fund. 5.4.1. Ultimately the Special Bench after placing reliance on the decision of Hon‟ble Supreme Court in Sahney Steel and Hon‟ble Madras High Court in the case of CIT v. Ponni Sugars & Chemicals Ltd. Reported in 260 ITR 605 held that the decision of the Tribunal in Asst Year 1985-86 is correct and observed the following: 37....The observations of the Madras High Court lend support to the view that the purpose and object of the Scheme under which the subsidy is given is of more fundamental importance than the fact that the subsidy was received after the commencement of production or conditional upon it. Therefore, in our view and with respect, the Tribunal in the case of Reliance Industries Ltd. ( supra) had correctly interpreted and understood the ratio of the judgment of the Supreme Court in Sahney Steel & Press Works Ltd.‘s case (supra). 38. In this view of the matter, we answer the question referred to us in the affirmative. 5.4.2. The ld. AR vehemently submitted that the department did not challenge the decision of the Special Bench before the Hon‟ble Bombay High Court. However, he fairly stated that there was a subsequent decision of the Division Bench of this Tribunal which followed the Special Bench and that Division Bench order was challenged by the Revenue before the Hon‟ble Bombay High Court. The Hon‟ble Bombay High Court while disposing of the said appeal did not reverse the decision of the Special Bench and accepted the same. When that appeal was further challenged by the Revenue before the Hon‟ble Supreme Court, the Hon‟ble Supreme Court remitted the matter 104 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., back to the Hon‟ble Bombay High Court. Accordingly, he argued that the decision of Special Bench was never reversed by the Hon‟ble Supreme Court as stated by the ld. Special Counsel for the Revenue and accordingly still is a good law and therefore a binding precedent on this Division Bench. In fact, in assessee‟s own case for A.Y.2001-02 in ITA No.778 of 2015 dated 18/12/2018 before the Hon‟ble Jurisdictional High Court, wherein the question Nos. c & d was exactly on this point. For the sake of convenience, the question Nos. c & d raised by the Revenue before the Hon‟ble Jurisdictional High Court is reproduced hereunder:- ―(c) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in restoring the issue of taxability of the sale tax exemption benefit of Rs.58 crores availed by the assessee to the file of the Assessing Officer for deciding afresh after considering the decision of the Special Bench of the ITAT in the case of DCIT V. Reliance Industries Ltd., 88 ITD 273, which has not been accepted by the Revenue? (d) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in entertaining the additional ground without appreciating that the assessee had treated the amount of sales tax exemption benefit of Rs.58 crores as revenue receipt and had included this amount in the returned income and it had been taxed accordingly and the assessee did not raise this issue before the CIT(A) and the issue had attained finality?‖ 5.4.3. While disposing of the questions Nos. c & d, the Hon‟ble Jurisdictional High Court categorically held that the decision of the Special Bench of Tribunal had not been reversed or stayed by any higher judicial forum and it holds good as on date. The relevant operative portion of the judgement of Hon‟ble Jurisdictional High Court in this regard is reproduced as under:- ―3. We will first address the questions no. (c) and (d), which are different elements of the same issue. The respondent assessee had received a subsidy. It is undisputed that up to the level of Income Tax 105 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., Appellate Tribunal, the assessee did not raise a contention that such subsidy was towards capital account and, therefore, not taxable. However, before the Tribunal such a contention was raised. The Tribunal by the impugned judgment relied upon its earlier judgment for the Assessment Year 1999-2000 in case of this very assessee and restored the issue back to the Assessing Officer. In the earlier order, the Tribunal had remanded the issue to the file of the Assessing Officer "to decide the issue afresh after considering the decision of Special Bench of the Tribunal in the case of Reliance Industries Ltd. (supra)". Thus, the Tribunal remanded the issue back to the Assessing Officer to be decided in the light of the Special Bench judgment in the case of Reliance Industries Ltd. The Revenue's grievance in this respect is two fold. It was contended that the issue was raised for the first time before the Tribunal and the same should not have been permitted. Secondly, the view of the Tribunal in case of Reliance Industries Ltd. was challenged before the High Court. The High Court in a judgment dated 15.04.2009 in Income Tax Appeal No. 1299 of 2008 had held that no question of law in this respect arises and thereby confirmed the judgment of the Tribunal. It was pointed out that against this judgment of the High Court, the Department had approached the Supreme Court and the Supreme Court had held that a question of law did arise. The Supreme Court framed a question and placed the matter back before the High Court. We are informed that this appeal is still pending. 4. On the other hand, learned Counsel for the assessee firstly contended that the Tribunal had merely remanded the issue back to the Assessing Officer. In earlier orders, the Revenue had approached the Court against the similar orders of the Tribunal. The High Court on two occasions, in the order dated 27.09.2016 and 22.11.2016 passed in Income Tax Appeal Nos. 475 of 2014 and 102 of 2014 respectively had not entertained the challenge of the Revenue. In any case, it was contended that the facts on record are available and the Tribunal has merely asked the Assessing Officer to take a decision on the assessee's contention. 5. As long as the material exists on record, a contention raised by the assessee for the first time before the Tribunal, cannot be barred. So much is clear from series of judgments of various Courts including of this Court in case of CIT Vs. Pruthvi Brokers and Shareholders P. Ltd. (2012) 349 ITR 336. It is not the case of the Revenue that the assessee in the context of its contention on the nature of the subsidy, desired to produce additional evidence. It is true that the judgment of this Court confirming the order of the Tribunal in case of Reliance Industries Ltd. has been partially reversed by the Supreme Court. A question of 106 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., law has been framed and placed for consideration of the 4 of High Court. However, this does not mean that the judgment of the Tribunal as on today stands reversed or stayed. In any case, quite apart from the judgment in the case of Reliance Industries Ltd. of the Special Bench of the Tribunal, it is always been for the assessee to contend before the Assessing Officer by pointing out the relevant clauses of the subsidy that in law the subsidy cannot be treated to be towards revenue account. It would be equally open for the Revenue to oppose such a contention if so advised. The Assessing Officer and the Revenue authorities would have to take a decision in accordance with law. These questions, therefore, are not considered.‖ (emphasis applied by us while placing reliance on the decision of Hon’ble Jurisdictional High Court) 5.4.4. Against this judgement on other issues, the Revenue preferred an SLP before the Hon‟ble Supreme Court and the same was dismissed vide order dated 23/08/2019 in SLP (Civil) Diary No.22929/2019. In other words, the Revenue while preferring SLP before the Hon‟ble Supreme Court did not even challenge this ground of subsidy and the decision of Special Bench of Tribunal in the case of Reliance Industries Ltd., Hence, the order of the Hon‟ble Jurisdictional High Court in assessee‟s own case for A.Y.2001-02 had become final on the very same issue. Though the said decision has been rendered for subsequent assessment year as compared to the years under consideration before us, in view of identical facts and the same legal issue, and more especially, in order to address the fact of binding precedent of Special Bench decision in the case of Reliance Industries Ltd., this Bench deems it fit to place reliance on the said decision also of the Hon‟ble Jurisdictional High Court. Accordingly, we categorically hold that the decision of the Special Bench still holds the field and is a good law. The entire contentions raised by the ld. Special Counsel for the Revenue in this regard are hereby dismissed. 107 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., 5.4.5. Further, we find that the Co-ordinate Bench of Ahmedabad Tribunal in the case of ACIT vs. Genus Electrotech Ltd., reported in 72 taxmann.com 101 had an occasion to consider the fact of Special Bench decision in a more elaborate manner. The relevant operative portion is reproduced hereunder:- “11. We find that so far as the Special Bench decision of this Tribunal in the case of Reliance Industries Ltd. (supra) is concerned, it still holds the field. All that has happened, as a result of Hon'ble Supreme Court's decision dated 9th September 2011, is that Hon'ble Bombay High Court has now admitted the question "whether, on the facts and circumstances of the case, the Hon'ble Tribunal was right in holding that sales tax exemption was a capital receipt" and will, in due course though, adjudicate on this legal issue. To that extent, Hon'ble Bombay High Court's order dated 15th April 2009, to the extent of declining to admit this question, stands reversed. However, the decision of the Special Bench still holds good as the same has not, and at least not yet, even been examined by Hon'ble Bombay High Court. Mere admission of appeal against a decision, as is elementary, does not affect the biding nature of a judicial precedent. The Special Bench decision, in the case of Reliance Industries Ltd. (supra), was not reversed by Hon'ble Supreme Court, but was directed to be examined, on merits, by Hon'ble Bombay High Court. That is quite different from disapproving the special bench decision, but it appears that the coordinate bench was led to believe, and there could not have been any other reason for ignoring the special bench decision, that this Special Bench decision is reversed. That is patently incorrect, and when we pointed it out to the learned Commissioner (DR), he did not have much to say except to rely upon the coordinate bench decision which seems to have followed that approach. The coordinate bench, in the case of Jindal Steel & Power Ltd. (supra), did indeed travel much beyond its limited mandate in ignoring a binding judicial precedent simply because appeal against that special bench decision is now pending before Hon'ble Bombay High Court. When posed with a special bench decision and a division bench directly on the issue, though touching different chords, we have no difficulty in recognizing our limitations. The wisdom of a division bench, even if superior- as strenuously argued by the learned Commissioner, has to make way for the higher wisdom of a larger bench. It is this faith of judicial hierarchical system that is the strength of our functioning, and we must follow the same. We, therefore, regret our inability to follow the division bench in the case of Jindal Power, no matter how deeply we respect and admire the work of all our colleagues, and we would rather be guided by the special bench decision - which is exactly what another division bench, on the same set of facts as before us, did in the case of Ajanta Manufacturing Ltd. (supra). As for learned Commissioner (DR)'s suggestion that we should follow the jurisdictional High Court decision in the case off Colourman Dyechem Ltd. (supra), we find that Their Lordships, in this case, were dealing with an entirely different type of subsidy which was clearly dealing with an expansion situation. However, we would rather refrain 108 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., from making any further detailed observations on this issue, as we are alive to the fact that Hon'ble jurisdictional High Court, in Tax Appeal No 358 of 2012, has admitted appeal against the decision of this Tribunal in Ajanta's Manufacturing Ltd. case (supra) and all these issues will now come up for consideration of Their Lordships. The fact that appeal is admitted does not, as we have stated earlier as well, does not affect the binding nature of the judicial precedents. There is no dispute before us that the scheme under which the sales tax and excise duty subsidy are given to this assessee are the same as in the case of Ajanta Manufacturing Ltd. (supra). All the material facts being the same, there is no reason to take any other view of the matter than the view so taken by the coordinate bench. We must, therefore, uphold the conclusions arrived at by the Commissioner (Appeals), which are in consonance with the Special Bench decision in the case of Reliance Industries Ltd. (supra) and coordinate bench decision in the case of Ajanta Manufacturing Ltd. (supra), and decline to interfere in the matter.‖ (emphasis supplied by us) 5.4.6. In view of the above, no fault could be attributed on the ld. CIT(A) placing reliance on the decision of the Special Bench of the Tribunal and granting relief to the assessee in the instant case. 5.4.7. We find that the ld. Special Counsel for the Revenue placed heavy reliance on the decision of the Co-ordinate Bench of this Tribunal in the case of Grasim Industries Ltd., (successor to the business of Aditya Birla Nuvo Ltd., formerly known as Indian Rayon and Industries Ltd.,) for A.Yrs. 1995-96 to 1998-99 in ITA Nos. 3938/Mum/2013, 2197/Mum/2014, 2198/Mum/2014 & 7062/Mum/2014 respectively dated 18/04/2018 wherein this Tribunal had held that the issue in dispute with regard to taxability of subsidy could be decided independently without depending upon the decision of the Special Bench in the case of Reliance Industries Ltd. We find that in the said decision, the Tribunal never said that Special Bench decision has been reversed by any higher forum or it is no longer good law. The Bench had simply stated that the issue in dispute would be adjudicated on merits with regard to taxability of subsidy and the Tribunal ultimately gave relief to the assessee on merits 109 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., independently by applying purpose test and the decision of the Hon‟ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd., referred to supra. Hence, the reliance placed on this observation of the Tribunal by the ld. Special Counsel for the Revenue is misplaced and does not come to the rescue of the revenue. 5.4.8. We further find that the ld. Special Counsel for the Revenue repeatedly reiterated that the decision of the Hon‟ble Supreme Court in the case of U.P. Rashtriya Chinni vs. State of Uttar Pradesh and Others dated 02/07/1995 reported in 1995 SCC(4) 738 was not cited before the Special Bench of Mumbai Tribunal while rendering the decision in the case of Reliance Industries Ltd., and therefore, the Special Bench decision is non-est and loses its binding precedent. At the outset, we would like to state that UP Rashtraiya Chinni decision was not rendered in the context of Income Tax Act and the taxability of subsidy was not an issue there before the Hon‟ble Supreme Court. We have already stated hereinabove that the decision of the Special Bench of Reliance Industries was never stayed or reversed by any higher judicial forum. Infact even the decision of Hon‟ble Supreme Court in the case of U.P.Rashtriya Chinni supra states that the judgement holds good till it is set aside or its correctness is doubted by the Higher Court. Once the correctness of a judgement is doubted by the Higher Court, the judgement no longer remains the law of the land and is treated as non-est. As stated earlier, nowhere the decision of Special Bench of Mumbai Tribunal in the case of Reliance Industries Ltd had been set aside or its correctness is doubted by the Higher Forum, though it is being reiterated so by the ld. Special Counsel for the Revenue before us. Hence we hold that the ratio laid down in UP Rashtriya Chinni would rather advance the case of the assessee before us. Hence, we categorically hold that the decision of Special Bench of the Tribunal 110 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., in the case of Reliance Industries Ltd., referred to supra still holds the field and still has binding precedent. 5.5. With regard to yet another argument advanced by the ld. Special Counsel for the Revenue, on without prejudice basis, that even if the subsidy is treated as capital receipt then the same would have to be reduced from the cost of assets in terms of Explanation 10 to Section 43(1) of the Act. We find that the provisions of Explanation 10 to Section 43(1) of the Act has been introduced in the statute only from A.Y.1999-2000 onwards. Eventhough we find that the subsidy in the instant case is given to meet the fixed capital investment but the said subsidy is not identifiable with any particular asset as such. When the subsidy or grant received is not identifiable to any particular asset, then the provisions of Explanation 10 to Section 43(1) of the Act would not be applicable. Reliance in this regard is placed on the decision of the Hon‟ble Jurisdictional High Court in the case of PCIT vs. Welspun Steel Ltd., reported in 264 Taxman 252. The relevant question raised before the Hon‟ble Jurisdictional High Court is as under:- ―(b) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that subsidy cannot be considered as payment directly or indirectly to meet any portion of the actual cost ignoring the fact that if the assessee claims the same as capital receipt, the same shall be reduced from the cost of asset and depreciation claim should be on the net value/cost of the asset after reducing the amount of incentives in terms of Explanation 10 to Section 43(1) of the Act?‖ 5.5.1. This question has been answered by the Hon‟ble Jursidictional High Court in the following manner:- 9. The second question raised by the Revenue is consequent of the first question, in which, the Revenue argues that, if the subsidy is treated as a capital in nature, the same must bring down assessee's costs of acquisition of plant and machinery. The assessee's claim of depreciation to that extent must shrink. Assessee argues that, the Tribunal 111 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., correctly held that, the subsidy had not been given in relation to acquisition of plant or machinery and that, therefore, same cannot be adjusted towards cost of acquisition. 10. It is undoubted that, the subsidy had no relation to the assessee's acquisition of plant or machinery. It was to be granted to an industry which had set up the new industrial unit in the District of Kutch. In such back-ground, question - arises whether such subsidy would be adjustable towards assessee's costs of acquisition of capital assets. We may notice that, a similar question was considered by Division Bench of Gujarat High Court in case of CIT v. Grace Paper Industries (P.) Ltd. [1990] 183 ITR 591/52 Taxman 18. The Court noted that, the subsidy was granted by the Government for development of industries in back-ward areas. It was not part of the actual cost of plant or machinery. The Court, therefore, held that it could not have been deducted towards costs of acquisition. The Court held as under:— "We have carefully considered the provisions relating to the grant of cash subsidy under the schemes framed by the Central Government and the State Government. The Central Government as well as the State Government noticed that areas specified as backward areas and tribal areas were undeveloped or under-developed. Entrepreneurs were not willing to set up industries in such undeveloped or under-developed areas. The industries were concentrating only in urban areas. In other words, rapid urbanization was taking place. So far as the State of Gujarat is concerned, there was rapid industrial growth in cities like Baroda, Ahmedabad and Surat resulting in strain on municipal services. Urbanization created several problems such as pollution, growth of slums etc . It was also necessary to have balanced growth of industry in different regions. However, as pointed out above, entrepreneurs were reluctant to set up industries in backward areas. These areas were identified as backward because there was un-development or underdevelopment of industries in these areas. It was, therefore, that the Government decided to give financial incentives to encourage and induce entrepreneurs to move to backward areas and establish industries there so that the region may develop and promote the welfare of the people living in that region. One of the incentives which the Government decided to grant was cash subsidy so that entrepreneurs could utilize such cash subsidy for any purpose connected with the establishment of industries in the backward areas. Once the decision to give cash subsidy was taken, the Government had to work out some method to determine the quantum of such subsidy. In other words, the question as to how the amount of cash subsidy should be determined had to be considered by the Government. The Government, in order to determine the amount of cash subsidy, decided to follow one of the recognized methods of working it out on the basis of the amount invested by an entrepreneurs in acquiring capital assets as cash subsidy. The scheme does not say as to in what manner the subsidy was granted is to be utilized. In other words, the entrepreneur to whom the subsidy was granted was free to utilize it in any manner he liked. It would, therefore, appear that quantification of subsidy on the basis of investment was a measure adopted by the Government for convenience to work out the subsidy. If subsidy could be utilized by the entrepreneur in any manner he liked, could it be said that it was granted for meeting the cost of the capital assets? In our opinion, taking an overall view of the various provisions of the scheme, it is difficult to hold that cash subsidy was 112 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., granted to entrepreneur to meet the cost of the fixed assets or part thereof The cost of the fixed assets was merely adopted as a measure for working out subsidy. In fact, a careful examination of the scheme reveals that it is the value of the fixed assets and not its cost which is adopted as the basis for computing the amount of the subsidy. Emphasis on value and not the cost is evident from the fact that land and building already owned by an industrial unit, cost of tools, jigs, dies and moulds, transport charges, insurance premium, erection cost, value of second-hand machinery purchased by an industrial unit etc. were to be taken into account while computing the value of fixed assets for the purposes of subsidy. In other words, it was the value of the fixed assets which formed the basis for computation of subsidy to be granted under the scheme. Subsidy, in our opinion, did not meet the cost of the fixed assets directly or indirectly. Under the scheme of the Central Government or the scheme of the State Government, cash subsidy was quantified by determining the same at a specified percentage of the value/ cost of the fixed assets. Therefore, as observed above, the basis adopted for determining the cash subsidy with reference to the cost or value of fixed assets was only a measure for quantifying the subsidy and it could not be said that the subsidy was given for the specific purpose of meeting any portion of the cost of the fixed assets. The subsidy was granted to compensate the entrepreneur for the hardship and inconvenience which he might encounter while setting up industries in backward areas." 11. Similar issue came up for consideration again before the Gujarat High Court in CIT v. Swastik Sanitary Works Ltd. [2006] 286 ITR 544. It was a case in which, the Government subsidy was intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries. In such a case, specified percentage of the fixed capital cost, which was the basis for determining the subsidy, would be granted. The Court held that, such basis for determining the subsidy was only a measure adopted under the scheme to quantify the financial aid and it was not a payment, directly or indirectly to meet any portion of the actual cost of acquisition of capital asset. It was held and observed as under:— 'In so far as question No.2 is concerned, this court finds that the same is squarely covered by the decision of the Supreme Court in CIT v. P. J. Chemicals Ltd., [1994] 210 ITR 830. In the said case, after review of the law on the point, the Supreme Court has held as under (head note): "Where Government subsidy is intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, the 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, is not a payment, directly or indirectly, to meet any portion of the 'actual cost The expression 'actual cost' in section 43(1) of the Income Tax Act,1961, needs to be interpreted liberally. Such a subsidy does not partake of the incidents which attract the conditions for its deductibility from 'actual cost'. The amount of subsidy is not to be deducted from the 'actual cost' under section 43(1) for the purpose of calculation of depreciation etc."' No question of law, therefore, arises in this respect. 113 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., 5.5.2. Respectfully following the same, we hold that the provisions of Explanation 10 to Section 43(1) of the Act would not be applicable in the facts and circumstances of the case and accordingly, the alternative ground raised by the Revenue is hereby dismissed. 5.6. In view of the aforesaid detailed observations, we hold that subsidy / incentive received in the instant case by the assessee for all the years under consideration would have to be construed only as a capital receipt not chargeable to tax and the ld. CIT(A) had rightly granted relief to the assessee in this regard by applying the purpose test. Hence, we do not find any infirmity in the order of the ld. CIT(A) for all the years under consideration. Accordingly, the original grounds as well as the additional grounds raised by the Revenue are dismissed. 6. In the result, all the appeals of the Revenue are dismissed. Order pronounced on 29/ 04 /2022 by way of proper mentioning in the notice board. Sd/- (AMARJIT SINGH) Sd/- (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 29/ 04 /2022 KARUNA, sr.ps 114 ITA No.2155/Mum/2016 and other appeals M/s. Grasim Industries Ltd., Copy of the Order forwarded to : BY ORDER, (Asstt. Registrar) ITAT, Mumbai 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy//