LG Electronics India Pvt. Ltd., Uttar Pradesh V. ACIT, Noida

ITA 2163/DEL/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3473 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 18-04-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 13-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Capital receipt
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : D : NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO.2163/DEL/2015 ASSESSMENT YEAR : 2008-09 LG ELECTRONICS INDIA PVT. LTD., PLOT NO.51, UDYOG VIHAR, SURAJPUR KASNA ROAD, GREATER NOIDA, GAUTAM BUDH NAGAR, UTTAR PRADESH. PAN: AAACL1745Q VS. ACIT, CIRCLE-2, A-2D, SECTOR-24, NOIDA. ASSESSEE BY : SHRI AJAY VOHRA, SR. ADVOCATE, AND SHRI GAURAV JAIN & MS BHAVITA KUMAR, ADVOCATES DEPTT. BY : SHRI NAVEEN CHANDRA, CIT, DR DATE OF HEARING : 18.04.2017 DATE OF PRONOUNCEMENT : 19.04.2017 ORDER PER R.S. SYAL, VP: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 30.03.2015 PASSED BY THE CIT U/S 263 OF THE I NCOME-TAX ITA NO.2163/DEL/2015 2 ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT) IN RE LATION TO THE ASSESSMENT YEAR 2008-09. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT A RETURN DECLARING TOTAL INCOME OF RS.337.00 CRORE AND ODD WAS FILED BY THE ASSESSEE ON 25.9.2008. ASSESSMENT IN THIS CASE WAS COMPLETED U/ S 143(3) READ WITH SECTION 144C OF THE ACT ON 27.11.2012 AT A TOTAL IN COME OF RS.654.97 CRORE. DURING THE YEAR UNDER CONSIDERATION, THE AS SESSEE RECEIVED, INTER ALIA , SUBSIDY AMOUNTING TO RS.49,38,00,503/- FROM THE GOVERNMENT OF MAHARASHTRA WHICH WAS TREATED AS A CAPITAL RECEIPT NOT CHARGEABLE TO TAX. THE ASSESSING OFFICER, WHILE FRAMING THE ASSESSMENT , ACCEPTED THE TREATMENT GIVEN TO IT BY THE ASSESSEE. HOWEVER, TH E LD. CIT, INVOKING JURISDICTION U/S 263 OF THE ACT, CAME TO HOLD THAT SUCH SUBSIDY RECEIVED FROM THE GOVERNMENT OF MAHARASHTRA WAS A REVENUE RE CEIPT AND HENCE CHARGEABLE TO TAX. CHARACTERIZING THE ASSESSMENT O RDER AS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE, HE REV ISED THE ASSESSMENT ORDER AND DIRECTED THE ASSESSING OFFICER TO INCLUDE THE AMOUNT OF SUCH SUBSIDY IN THE TOTAL INCOME. THE ASSESSEE IS AGGRI EVED AGAINST THIS ORDER. ITA NO.2163/DEL/2015 3 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE SHORT QUESTION BEFORE US I S AS TO WHETHER THE ASSESSMENT ORDER TREATING THE SUBSIDY FROM THE GOVE RNMENT OF MAHARASHTRA AS CAPITAL RECEIPT IS ERRONEOUS AND PRE JUDICIAL TO THE INTEREST OF THE REVENUE IN TERMS OF SECTION 263 OF THE ACT. WE STRAIGHTAWAY PROCEED TO DECIDE THE MERITS OF THE TAXABILITY OR O THERWISE OF SUCH SUBSIDY RECEIVED FROM THE GOVERNMENT OF MAHARASHTRA . 4. THE MAHARASHTRA GOVERNMENT ANNOUNCED INDUSTRI AL POLICY OF MAHARASHTRA, 2001 WITH THE OBJECTIVE OF PROMOTION O F INDUSTRY AND BALANCED REGIONAL GROWTH, DIVERSION OF INDUSTRY TO LESS DEVELOPED AREAS OF THE STATE AND INCREASE IN EMPLOYMENT. THE GOVER NMENT FORMULATED A SCHEME FOR PROVIDING REFUND OF VAT TO NEW UNITS/UNI TS UNDERTAKING EXPANSION WITHIN THE STATE OF MAHARASHTRA. THE REL EVANT TEXT OF INDUSTRIAL POLICY OF MAHARASHTRA, 2001 IS AVAILABLE ON PAGE 138 OF THE PAPER BOOK. THE OBJECTIVE OF THE SCHEME AS GIVEN I N ITS PARA 2.0, READS AS UNDER:- IN THE PHASE OF SECOND GENERATION ECONOMIC REFORMS , THE OBJECTIVE OF MAHARASHTRA INDUSTRIAL POLICY 2001 IS TO FURTHER ACCELERATE THE FLOW OF ITA NO.2163/DEL/2015 4 INVESTMENT IN INDUSTRY AND INFRASTRUCTURE, PROMOTING IT, HIGH-TECH, KNOWLEDGE BASED AND BIOTECH INDUSTRIES, AUGMENTING EXPORTS FROM THE INDUSTRIAL UNITS IN THE STATE AND CREATING LARGE SCALE EMPLOYMENT OPPORTUNITIES DULY ENSURING ENVIRONMENTAL PLANNING. 5. IT IS CLEAR FROM THE OBJECTIVE OF THE SCHEME THA T THE SAME IS AIMED AT ACCELERATING THE FLOW OF INVESTMENT IN INDUSTRY AND ALSO CREATING A LARGE-SCALE EMPLOYMENT OPPORTUNITIES. THE SCHEME W AS NOTIFIED BY THE GOVERNMENT RESOLUTION DATED 31.03.2001 AS MAHARASH TRA PSI SCHEME 2001. A COPY OF SUCH NOTIFICATION IS AVAILABLE FRO M PAGE 153 ONWARDS OF THE PAPER BOOK. THE SAID PACKAGE SCHEME OF INCE NTIVES, 2001 WAS AMENDED VIDE GOVERNMENT RESOLUTION DATED 02.06.2005 , WHOSE COPY IS AVAILABLE FROM PAGE 187 ONWARDS OF THE PAPER BOOK. THE INTRODUCTION PART OF THIS RESOLUTION DATED 2 ND JUNE, 2005 ELABORATES THAT INCENTIVE SCHEME 2001 IS IN EXISTENCE AND SPECIAL INCENTIVES TO THE MEDIUM AND LARGE-SCALE INDUSTRIAL UNITS WERE TO BE GIVEN WITH THE OBJECTIVE OF INCREASING THE FLOW OF INDUSTRIAL INVESTMENT IN THE STATE AND CREATING SUBSTANTIAL EMPLOYMENT OPPORTUNITIES, TO BE CONSIDE RED AS MEGA PROJECTS. CERTAIN CATEGORIES HAVE BEEN GIVEN UNDER THE MEGA PROJECTS. THE ASSESSEE FALLS IN B CATEGORY. PURSUANT TO SU CH SCHEME, THE ITA NO.2163/DEL/2015 5 ASSESSEE ENTERED INTO A MEMORANDUM OF UNDERSTANDING (MOU) WITH THE GOVERNMENT OF MAHARASHTRA, THROUGH SECRETARY (INDUS TRIES) TO THE GOVERNMENT. A COPY OF SUCH AGREEMENT IS AVAILABLE FROM PAGE 194 OF THE PAPER BOOK. UNDER THIS MOU, THE ASSESSEE UNDER TOOK TO MAKE ADDITIONAL INVESTMENT OF AROUND RS.535 CRORE OVER A ND ABOVE THE INVESTMENT MADE AS ON 11 TH AUGUST, 2005, TOWARDS FURTHER EXPANSION OF THE EXISTING PROJECT AT RANJANGAON, PUNE AND ALSO T O GENERATE ADDITIONAL EMPLOYMENT OF 2000 PERSONS BY 2010. THE STATE GOVE RNMENT, IN TURN, OFFERED THE FOLLOWING INCENTIVES TO THE ASSESSEE:- 2.2.1. EXEMPTION FROM PAYMENT OF ELECTRICITY DUT Y FOR 15 YEARS. 2.2.2. INDUSTRIAL PROMOTION SUBSIDY TO THE EXTEN T OF 75% OF GROSS FIXED CAPITAL INVESTMENT (AS DEFINED IN PS 1993 & 2 001) MADE AFTER 11 TH AUGUST 2005 AND NOT LESS THAN RS.250 CRS. WITHIN A PERIOD OF 3 YEARS FROM THE DATE OF COMPLETION OF FINAL EFFECTIV E STEPS AS DEFINED IN PSI 2001 FOR THE EXPANSION PROJECT OR TO THE EXTENT OF TAXES PAID TO THE STATE GOVERNMENT ON THE INCREASED TURNOVER AS A RES ULT OF PROPOSED ADDITIONAL FCI WITHIN A PERIOD OF 7 YEARS, WHICHEVE R IS LOWER. WHILE GIVING THIS SUBSIDY, THE GOVERNMENT WOULD DEDUCT TH E AMOUNT OF BENEFITS AVAILED AT 2.2.1 ABOVE OVER A PERIOD OF 7 YEARS. THE MODALITIES OF PAYING THE SUBSIDY AMOUNT WILL BE DET ERMINED SHORTLY. 6. ON GOING THROUGH THE RELEVANT CLAUSES OF THE INC ENTIVE SCHEME AND MOU, IT EMERGES THAT THE ASSESSEE AGREED TO MAKE AD DITIONAL INVESTMENT ITA NO.2163/DEL/2015 6 IN THE MAHARASHTRA STATE AND ALSO UNDERTOOK TO GIVE ADDITIONAL EMPLOYMENT AND, AS A QUID PRO QUO , THE GOVERNMENT AGREED TO ALLOW EXEMPTION FROM PAYMENT OF ELECTRICITY DUTY AND SUBS IDY TO THE EXTENT OF 75% OF THE FIXED CAPITAL OF INVESTMENT, IN THE FOR M OF RELIEF FROM TAXES ON THE INCREASED TURNOVER AS A RESULT OF THE PROPOS ED ADDITIONAL INVESTMENT. IT, THUS, BECOMES ABUNDANTLY VIVID THA T THE OBJECTIVE OF THE SCHEME IS TO ACCELERATE THE FLOW OF INVESTMENT IN I NDUSTRY AND ALSO TO CREATE LARGE-SCALE EMPLOYMENT OPPORTUNITIES AND THE RESULTANT SUBSIDY IS IN THE SHAPE OF EXEMPTION FROM PAYMENT OF TAXES ON THE INCREASED TURNOVER. THE QUESTION AS TO WHETHER A SUBSIDY IS A CAPITAL OR REVENUE RECEIPT LARGELY DEPENDS ON THE `PURPOSE OF THE GRA NT AND NOT THE MODE OF ITS DISCHARGE. THE RELEVANT CONSIDERATION IN THIS R EGARD IS, THEREFORE, THE PURPOSE TEST. IF THE PURPOSE OR OBJECT OF A SCHEM E IS THE SETTING UP NEW INDUSTRY OR ITS EXPANSION, THEN, THE SUBSIDY SO REC EIVED ASSUMES THE CHARACTER OF A CAPITAL RECEIPT IRRESPECTIVE OF THE FORM IN WHICH IT IS DISBURSED. THE HON'BLE SUPREME COURT IN THE CASE O F CIT VS. PONNI SUGARS AND CHEMICALS LTD. (2008) 306 ITR 392 (SC), HAS LAID DOWN TO THIS EXTENT. ON THE OTHER HAND, AN OPERATIONAL SUB SIDY GIVEN AFTER THE ITA NO.2163/DEL/2015 7 COMMENCEMENT OF PRODUCTION, FOR ENABLING THE ASSESS EE TO RUN THE BUSINESS MORE PROFITABLY AND NOT FOR SETTING UP OF THE INDUSTRY IS A REVENUE RECEIPT AS HAS BEEN LAID DOWN BY THE HON'BL E SUPREME COURT IN THE CASE OF SAHNEY STEEL & PRESS WORKS LTD., ETC. VS. CIT (199 7) 228 ITR 253 (SC). ON A CONJOINT READING OF THE TWO JUDGMENTS COMING FROM THE HON'BLE SUMMIT COURT ON THIS ISSUE, IT IS MANIF EST THAT ANY SUBSIDY RECEIVED FOR SETTING UP OF OR EXPANSION OF INDUSTRY FALLS IN THE REALM OF CAPITAL RECEIPT WHICH IS NOT CHARGEABLE TO TAX. 7. ADVERTING TO THE FACTS OF THE INSTANT CASE, W E FIND THAT THE ASSESSEE RECEIVED THE EXTANT SUBSIDY FOR ACCELERATING FLOW O F INVESTMENT IN INDUSTRY IN THE STATE OF MAHARASHTRA I.E., FOR EXPA NSION OF THE INDUSTRY. THE SUBSIDY RESULTING FROM SUCH INDUSTRIAL EXPANSIO N IS EX CONSEQUENTI GOVERNED BY THE JUDGMENT OF THE HON'BLE SUPREME COU RT IN THE CASE OF PONNI SUGARS AND CHEMICALS LTD. (SUPRA) AND, HENCE, A CAPITAL RECEIPT. 8. IT IS OBSERVED THAT THE PACKAGE SCHEME OF INCENT IVE 2001, UNDER WHICH THE ASSESSEE RECEIVED THE ABOVE SUBSIDY, IS A SUCCESSOR OF THE 1993 SCHEME OF MAHARASHTRA GOVERNMENT AND 1979 SCHE ME OF ITA NO.2163/DEL/2015 8 MAHARASHTRA GOVERNMENT. ALL THESE SCHEMES WERE/ARE AIMED AT INCREASING THE PACE OF INDUSTRIALIZATION AND THE IN CENTIVE IS BASED ON THE AMOUNT OF INVESTMENT IN FIXED ASSETS. WHILE CONSID ERING 1993 SCHEME OF MAHARASHTRA GOVERNMENT, THE MUMBAI BENCH OF THE TRIBUNAL IN EVEREST INDUSTRIES LTD. VS. ACIT (ITA NO.814/MUM/20 07) , VIDE ITS ORDER DATED 04.12.2009, HAS HELD SUCH SUBSIDY TO BE CAPIT AL IN NATURE. A COPY OF SUCH ORDER HAS BEEN PLACED FROM PAGE 570 ONWARDS OF THE PAPER BOOK. SIMILAR VIEW HAS BEEN TAKEN BY THE PUNE BENCH OF TH E TRIBUNAL IN THE CASE OF ROHIT EXHAUST PVT. LTD. VS. ACIT IN ITA NO.1880/PN/ 2013. A COPY OF SUCH ORDER DATED 31.03.2015 IS ALSO AVAILAB LE FROM PAGE 608 OF THE PAPER BOOK. THE DELHI BENCH OF THE TRIBUNAL IN INDO RAMA SYNTHETICS (I) LTD. VS. ACIT (ITA NO.2002/DEL/2008) HAS ALSO TAKEN A SIMILAR VIEW VIDE ITS ORDER DATED 22.06.2012,WHOSE COPY IS AVAILABLE AT PAGE 270 ONWARDS OF THE PAPER BOOK. THE LD. DR HAS NOT BROUGHT TO OUR NOTICE ANY DECISION DIRECTLY SUPPORTING THE VIEW PO INT OF THE DEPARTMENT. ITA NO.2163/DEL/2015 9 9. IT IS AN ADMITTED POSITION THAT THE ASSESSEE TREATED THE AMOUNT OF SUBSIDY AS A CAPITAL RECEIPT, BUT, DID NOT REDUCE I T FROM THE VALUE OF FIXED ASSETS AND EVENTUALLY CLAIMED DEPRECIATION ON THE HIGHER VALUE OF ASSETS WITHOUT REDUCTION OF SUCH SUBSIDY. TO DEA L WITH SUCH A SITUATION, THE FINANCE ACT, 2015, W.E.F. 1-4-2016, HAS ENLARGED THE DEFINITION OF INCOME GIVEN U/S 2(24) BY INSERTING S UB-CLAUSE (XVIII), WHICH READS AS UNDER:- `(XVIII) ASSISTANCE IN THE FORM OF A SUBSIDY OR GRA NT OR CASH INCENTIVE OR DUTY DRAWBACK OR WAIVER OR CONCESSION OR REIMBURSEMENT (BY WHATEVER NAME CALLED) BY THE CENT RAL GOVERNMENT OR A STATE GOVERNMENT OR ANY AUTHORITY O R BODY OR AGENCY IN CASH OR KIND TO THE ASSESSEE OTHE R THAN THE SUBSIDY OR GRANT OR REIMBURSEMENT WHICH IS TAKE N INTO ACCOUNT FOR DETERMINATION OF THE ACTUAL COST OF THE ASSET IN ACCORDANCE WITH THE PROVISIONS OF EXPLANATION 10 TO CLAUSE (1) OF SECTION 43; 10. A BARE READING OF THE ABOVE PROVISION MAKES IT EXPLICIT THAT NOW SUBSIDY GIVEN BY THE CENTRAL GOVERNMENT OR A ST ATE GOVERNMENT OR ANY AUTHORITY ETC. FOR ANY PURPOSE, EXCEPT WHERE IT IS TAKEN INTO ACCOUNT FOR DETERMINATION OF THE ACTU AL COST OF THE ASSET UNDER EXPLANATION 10 SECTION 43(1), HAS BECOME CHAR GEABLE TO TAX. ITA NO.2163/DEL/2015 10 EVEN IF A SUBSIDY IS GIVEN TO ATTRACT INDUSTRIAL IN VESTMENT OR EXPANSION, WHICH IS A OTHERWISE A CAPITAL RECEIPT UNDER THE PRE- AMENDMENT ERA, SHALL BE TREATED AS INCOME CHARGEABL E TO TAX, EXCEPT WHERE IT HAS BEEN TAKEN INTO ACCOUNT FOR DETERMININ G THE ACTUAL COST OF ASSETS IN TERMS OF EXPLANATION 10 TO SECTION 43( 1). THIS AMENDMENT IS PATENTLY PROSPECTIVE. AS THE ASSESSMEN T YEAR UNDER CONSIDERATION IS 2008-09, SECTION 2(24) (XVIII) SHA LL HAVE NO OPERATION. IN VIEW OF THE FOREGOING DISCUSSION, WE ARE SATISFIED THAT THE SUBSIDY RECEIVED BY THE ASSESSEE FROM THE GOVER NMENT OF MAHARASHTRA IS A CAPITAL RECEIPT AND ACCORDINGLY NO T CHARGEABLE TO TAX. 11. AT THIS STAGE, IT IS RELEVANT TO MENTION THAT W E ARE DEALING WITH REVISIONARY PROCEEDINGS U/S 263 OF THE ACT. IT IS A SETTLED LEGAL POSITION THAT IF TWO VIEWS ARE POSSIBLE ON A PARTICULAR POIN T AND THE ASSESSING OFFICER HAS TAKEN ONE OF SUCH POSSIBLE VIEWS, IT IS NOT OPEN TO THE CIT TO TREAT THE ASSESSMENT ORDER ERRONEOUS AND PREJUDICIA L TO THE INTEREST OF THE REVENUE AND IMPOSE THE OTHER POSSIBLE VIEW AS AGAIN ST THE ONE ITA NO.2163/DEL/2015 11 CANVASSED BY THE ASSESSING OFFICER. THE DISCUSSION MADE IN THE PRECEDING PARAS AMPLY SHOWS THAT THE VIEW TAKEN BY THE AO IN TREATING SUBSIDY RECEIVED FROM THE MAHARASHTRA GOVERNMENT AS A CAPITAL RECEIPT, IN ANY CASE, BEING A POSSIBLE VIEW, CANNOT BE INTER FERED WITH IN THE PROCEEDINGS U/S 263 OF THE ACT. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER. 12. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19.04.2017. SD/- SD/- [SUCHITRA KAMBLE] [R.S. SYAL] JUDICIAL MEMBER VICE PRESIDENT DATED, 19 TH APRIL, 2017. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR/NEW DELHI.