Britannia Industries Limited , Kolkata V. DCIT, Circle - 7(1), Kolkata, Kolkata

ITA 2235/KOL/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 6296 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 25-10-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR P K SRIHARI
• Keywords: Transfer pricing; International transaction; Earning of tax free income; Retrospective amendment; Difference of opinion; Capital receipt; Capital expenditure; Rule 8D
• Section: 143(3); 92B; 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C, BENC H KOLKATA BEFORE SHRI S. S. GODARA, JM &DR. A.L.SAINI, AM ./ITA NO.2235/KOL/2017 ( / ASSESSMENT YEAR:2013-14) BRITANNIA INDUSTRIES LTD. C/O, PRAMOD KUMAR SARAF, ADVOCATE, 238B, A.J.C. BOSE ROAD, 1 ST FLOOR, KOLKATA-700020. VS. DCIT, CIRCLE-7(1), KOLKATA ./ ./PAN/GIR NO.: AABCB2066 P (ASSESSEE) .. (REVENUE) ASSESSEE BY :PRIYANKA SALARPURIA, FCA RESPONDENT BY : DR. P. K. SRIHARI, CIT DR / DATE OF HEARING : 07/02/2019 /DATE OF PRONOUNCEMENT :03/05/2019 / O R D E R PER DR. A. L. SAINI: THE CAPTIONED APPEAL FILED BY THE ASSESSEE, PERT AINING TO ASSESSMENT YEAR 2013-14, IS DIRECTED AGAINST THE FAIR ASSESSMENT O RDER PASSED BY THE ASSESSING OFFICER U/S 144C(13) READ WITH SECTION 143(3) OF T HE INCOME TAX ACT, 1961 (IN SHORT THE ACT), DATED 28.07.2017, WHICH INCORPORA TES THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL UNDER SECTION 144C(5) OF T HE INCOME TAX ACT, ORDER DATED 08.06.2017. 2. THE GRIEVANCE RAISED BY THE ASSESSEE ARE AS FOLL OWS: BRITANNIA INDUSTRIES LTD. ITA NO.2235/KOL/2017 ASSESSMENT YEAR:2013-14 P PP PA AA AG GG GE EE E | || | 2 22 2 1. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE TPO AS WELL AS THE HON'BLE ORP FAILED TO APPRECIATE THAT THE ISSUANCE OF CORPORATE GUARANTEES DID NOT HAVE ANY BEARING ON PR OFITS, INCOMES, LOSSES OR ASSETS OF THE APPELLANT AND THEREFORE IT WAS NOT COVERED WITHIN THE PURVIEW OF 'INTERNATIONAL TRANSACTIONS' UNDER SECTI ON 92B OF THE INCOME-TAX ACT, 1961 AND IN THAT VIEW OF THE MATTER THE TRANSF ER PRICING ADJUSTMENT OF RS.2,18,77,327/- WAS IMPERMISSIBLE AND BE CANCELLED . 2. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW AND WITHOUT PREJUDICE TO THE PRECEDING GROUNDS, THE TPO AS WELL THE HON'BLE DRP FAILED TO APPRECIATE THAT THE CORPORATE GUARANT EES WERE GIVEN BY THE APPELLANT TO AE FOR PURE BUSINESS CONSIDERATIONS AN D IT WAS IN THE NATURE OF AN OWNER-SHAREHOLDER ACTIVITY AND HENCE NO TRANSFER PRICING ADJUSTMENT WAS WARRANTED IN THIS REGARD. 3. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW AND WITHOUT PREJUDICE TO THE PRECEDING GROUNDS, THE MAN NER & METHODOLOGY ADOPTED BY THE HON'BLE DRP TO ASCERTAIN THE FEES FO R CORPORATE GUARANTEE AT 150 BPS WAS UNJUSTIFIED, FLAWED & INCORRECT AND THEREFORE THE UPWARD ADJUSTMENT OF RS.2,18,77,327/- IS LIABLE TO BE DELE TED AND/OR REDUCED. 4. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW AND WITHOUT PREJUDICE TO THE PRECEDING GROUNDS, THE CG COMMISSION QUOTE OF 0.15% OBTAINED BY THE APPELLANT FROM BANKING INSTIT UTION WAS A GOOD PARAMETER TO BENCHMARK THE CORPORATE GUARANTEE COMM ISSION OF 0.26% CHARGED FROM THE AE AND IN THAT VIEW OF THE MATTER THE UPWARD ADJUSTMENT OF RS.2,18,77,327/ - MADE ON ACCOUNT OF CORPORATE G UARANTEE COMMISSION MAY KINDLY BE DELETED IN FULL AND/OR REDUCED. 5. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE HON'BLE DRP FAILED TO APPRECIATE THAT THE AO HAD IN VOKED AND APPLIED RULE 8D WITHOUT RECORDING IS SATISFACTION IN TERMS OF SE CTION 14A(2) AND RULE BRITANNIA INDUSTRIES LTD. ITA NO.2235/KOL/2017 ASSESSMENT YEAR:2013-14 P PP PA AA AG GG GE EE E | || | 3 33 3 8D(1) WITH REGARD TO THE CORRECTNESS OF THE CLAIM M ADE BY THE APPELLANT WITH REFERENCE TO THE BOOKS OF ACCOUNTS AND IN THAT VIEW OF THE MATTER THE DISALLOWANCE OF RS.58,27,584/- MADE BY THE AO U/S 1 4A WAS BAD IN LAW AND DESERVES TO BE DELETED. 6. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE HON'BLE DRP AS WELL THE AO ERRED IN COMPUTING DISAL LOWANCE OF RS.58,27,584/- TOWARDS ADMINISTRATIVE EXPENDITURE U NDER RULE 8D(2)(III) WITHOUT ESTABLISHING ANY PROXIMATE CAUSE BETWEEN SU CH EXPENDITURE INCURRED AND EARNING OF TAX FREE INCOME. 7. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE DISALLOWANCE OF RS.58,27,584/- MADE UNDER RULE 8D(2 )(III) WAS HIGHLY EXCESSIVE, UNREASONABLE AND THEREFORE DESERVES TO B E DELETED AND/OR REDUCED. 8. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE PROVISIONS OF SECTION 115JB DO NOT CONTAIN ENABLING PROVISION FOR MAKING ADJUSTMENT IN RESPECT OF EXPENDITURE DISALLOWED AS PER RULE 8D AND IN THAT VIEW OF THE MATTER THE HON'BLE DRP AS WELL AS THE A O ERRED ON FACTS & IN LAW IN INCREASING THE BOOK PROFIT BY THE SUM OF RS. 59,27,584/- COMPUTED BY WAY OF DISALLOWANCE UNDER SECTION 14A READ WITH RUL E 8D. 9. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE HON'BLE DRP AS WELL THE AO FAILED TO APPRECIATE THA T THE SUBSIDY RECEIVED FROM THE GOVERNMENT OF BIHAR & ORISSA WAS IN THE CA PITAL FIELD AND NOT REVENUE IN NATURE AND THEREFORE NOT ELIGIBLE TO INC OME-TAX. 10. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE APPELLANT HAD RECEIVED INCENTIVE AGGREGATING TO RS.17,48,00,000/- FROM THE GOVERNMENT OF BIHAR AND ORISSA FOR SETTING-UP U P NEW INDUSTRIES IN THE RESPECTIVE STATES IN THE FORM OF REIMBURSEMENT OF V AT AND IN THAT VIEW OF BRITANNIA INDUSTRIES LTD. ITA NO.2235/KOL/2017 ASSESSMENT YEAR:2013-14 P PP PA AA AG GG GE EE E | || | 4 44 4 THE MATTER THE SUBSIDY SO GRANTED BY THE STATE GOVE RNMENTS WAS ON CAPITAL ACCOUNT AND THEREFORE THE ADDITION OF RS.17,48,00,0 00/- MADE BY THE AO DESERVES TO BE DELETED IN FULL. 11. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE DRP AS WELL AS THE A.O. FAILED TO APPRE CIATE THAT MERE APPEARANCE OF INFORMATION IN ITS DATA OF AIR CANNOT BE THE REASON FOR TREATING RS. 6,14,238/- AS UNDISCLOSED RECEIPT. 12. FOR THAT THE APPELLANT RESERVES THE RIGHT TO AD D, TO ALTER OR AMPLIFY THE ABOVE GROUNDS OF APPEAL. 3.GROUND NOS. 1,2,3, AND 4 RAISED BY THE ASSESSEE R ELATE TO TRANSFER PRICING ADJUSTMENT IN RELATION TO CORPORATEGUARANTEE FEES T O THE TUNE OF RS. 2,18,77,327/-. 4. AFTER GIVING OUR THOUGHTFUL CONSIDERATION TO TH E SUBMISSION OF THE PARTIES AND PERUSING THE JUDICIAL DECISIONS RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE, WE FIND THAT THE ISSUE INVOLVED, IN RESPECT TO CORPORA TE GUARANTEE, IN THE PRESENT APPEAL IS NO LONGER RES INTEGRA.WE NOTE THAT FINANCIAL GUA RANTEE IS A PROMISE MADE BY A PERSON (THE GUARANTOR) TO A LENDER(GUARANTEED PARTY ) PROMISING TO PAY THE LENDER THE MONEY OWED TO IT BY THE BORROWER (OBLIGOR) ON W HOSE BEHALF THE GUARANTEE IS GIVEN, IF THE BORROWER FAILS TO PAY BACK THE DEBT D UE TO THE LENDER.A GUARANTEE TO A LENDER THAT A LOAN WILL BE REPAID, GUARANTEED BY A COMPANY OTHER THAN THE ONE WHO TOOK THE LOAN, IS CALLED A CORPORATE GUARANTEE. THE LD COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT EXTENDING CORPORATE GUARANTEE FOR BORROWINGS BY SUBSIDIARIES WAS A SHAR EHOLDER ACTIVITY, THAT IT WAS NOT AN INTERNATIONAL TRANSACTION, THAT NO FEE WAS WARRA NTED SINCE NO COST WAS INCURRED, AND THAT BANK GUARANTEES WERE NOT COMPARABLE TO COR PORATE GUARANTEES SINCE THE BUSINESS OF THE BANK WAS DIFFERENT FROM THAT OF A C ORPORATE. BEFORE US, LD DR FOR THE REVENUE SUBMITTED THAT THE RE ARE PLETHORA OF JUDICIAL PRONOUNCEMENTS WHEREIN IT HAS BEEN HELD THAT THE CO RPORATE GUARANTEE IS IN THE NATURE OF SERVICE PROVIDED BY THE TAXPAYER TO ITS A SSOCIATE ENTERPRISES(AES) AND BRITANNIA INDUSTRIES LTD. ITA NO.2235/KOL/2017 ASSESSMENT YEAR:2013-14 P PP PA AA AG GG GE EE E | || | 5 55 5 HENCE SHOULD BEAR A CHARGE. THE JUDGMENTS HAVE EXPL ICITLY HELD THAT AFTER THE INCOME TAX ACT,1961 WAS AMENDED BY THE FINANCE ACT, 2012 TO INCLUDE 'GUARANTEE' WITHIN THE DEFINITION OF 'INTERNATIONAL TRANSACTION' WITH RETROSPECTIVE EFFECT FROM 01.04.2002, THE CORPORATE GUARANTEE SHO ULD BE BENCHMARKED FROM ARMS LENGTH PERSPECTIVE. 5. HOWEVER, AFTER HEARING BOTH THE PARTIES, WE NOTE THAT THEREAREPLETHORA OF JUDICIAL PRONOUNCEMENTS WHEREIN IT HAS BEEN HELD THAT CORPOR ATE GUARANTEE DOES NOT CONSTITUTE AN INTERNATIONAL TRANSACTION AND ACCORDI NGLY THERE SHOULD NOT BE A CHARGE. WE NOTE THAT IN ASSESSEES CASE UNDER CONSIDERATION , THE CORPORATE GUARANTEES WERE GIVEN BY THE APPELLANT TO AE FOR PURE BUSINESS CONS IDERATIONS AND IT WAS IN THE NATURE OF AN OWNER-SHAREHOLDER ACTIVITY AND HENCE N O TRANSFER PRICING ADJUSTMENT IS WARRANTED IN THIS REGARD. WE NOTE THAT THE ASSESSEE HAS EXTENDED THIS CORPORA TE GUARANTEE AS A SHAREHOLDER ACTIVITY HENCE THE ADJUSTMENT SHOULD NOT BE MADE. T HE PRIMARY OBJECT OF THE ASSESSEE IS TO HELP THE SUBSIDIARY COMPANY AND PROT ECT ITS INTEREST AND THERE IS NO OBJECT OF THE ASSESSEE COMPANY TO EARN THE INTEREST INCOME BY FURNISHING THE CORPORATE GUARANTEE TO THE ASSOCIATED ENTERPRISES. WE NOTE THAT IN THE JUDGMENT OF THE CO-ORDINATE BENCH OF ITAT AHMADABAD, IN THE CAS E OF MICRO INK LIMITED VS. ACIT [TS-568-ITAT-2015] (AHD) WHEREIN THE CO-ORDINA TE BENCH HAS HELD THAT CORPORATE GUARANTEE DOES NOT CONSTITUTE INTERNATION AL TRANSACTION AS PER SECTION 92B OF THE ACT AS AMENDED BY THE FINANCE ACT, 2012. THE RELEVANT EXTRACTS OF THE JUDGMENT IS REPRODUCED AS UNDER: ON A CONCEPTUAL NOTE, THUS, THERE IS A VALID SCHO OL OF THOUGHT THAT THE CORPORATE GUARANTEES CAN INDEED BE A MODE OF OWNERSHIP CONTRI BUTION, PARTICULARLY WHEN AS IS OFTEN THE CASE, WHERE SUCH A GUARANTEE IS GIVEN , IT COMPENSATES FOR THE INADEQUACY IN THE FINANCIAL POSITION OF THE BORROWE R; SPECIFICALLY THE FACT THAT THE SUBSIDIARY DOES NOT HAVE ENOUGH SHAREHOLDERS FUNDS. THERE CAN BE NUMBER OF REASONS, INCLUDING REGULATORY ISSUES AND MARKET CON DITIONS IN THE RELATED JURISDICTIONS, IN WHICH SUCH A CONTRIBUTION, BY WAY OF A GUARANTEE, WOULD JUSTIFY TO BE A MORE APPROPRIATE AND PREFERRED MODE OF CONTRIB UTION VIS-A-VIS EQUITY CONTRIBUTION ... ' ' ... IN OTHER WORDS, THESE GUARANTEES WERE SPECIFI CALLY STATED TO BE IN THE NATURE OF SHAREHOLDER ACTIVITIES. THE ASSESSEE'S CLAIM OF THE GUARANTEES BEING IN THE NATURE OF QUASI CAPITAL, AND THUS BEING IN THE NATU RE OF A SHAREHOLDER'S ACTIVITY, IS BRITANNIA INDUSTRIES LTD. ITA NO.2235/KOL/2017 ASSESSMENT YEAR:2013-14 P PP PA AA AG GG GE EE E | || | 6 66 6 NOT REJECTED EITHER. THE CONCEPT OF ISSUANCE OF COR PORATE GUARANTEES AS A SHAREHOLDER ACTIVITY IS NOT ALIEN TO THE TRANSFER P RICING LITERATURE IN GENERAL.. '.... WE HAVE NOTICED THAT THE 'OECD TRANSFER PRIC ING GUIDELINES FOR MULTINATIONAL ENTERPRISES AND TAX ADMINISTRATIONS S PECIFICALLY RECOGNIZES THAT AN ACTIVITY IN THE NATURE OF SHAREHOLDER ACTIVITY, WHI CH IS SOLELY BECAUSE OF OWNERSHIP INTEREST IN ONE OR MORE OF THE GROUP MEMBERS, I.E. IN THE CAPACITY AS SHAREHOLDER 'WOULD NOT JUSTIFY A CHARGE TO THE RECIPIENT COMPAN IES'. IT IS THUS CLEAR THAT A SHAREHOLDER ACTIVITY, IN ISSUANCE OF CORPORATE GUAR ANTEES, IS TAKEN OUT OF AMBIT OF THE GROUP SERVICES. CLEARLY, THEREFORE, AS LONG AS A GUARANTEE IS ON ACCOUNT OF, WHAT CAN BE TERMED AS 'SHAREHOLDER'S ACTIVITIES', E VEN ON THE FIRST PRINCIPLES, IT IS OUTSIDE THE AMBIT OF TRANSFER PRICING ADJUSTMENT IN RESPECT OF ARM'S LENGTH PRICE. ' ' .... WE ARE IN AGREEMENT WITH THESE VIEWS. THERE CAN THUS BE ACTIVITIES WHICH BENEFIT THE GROUP ENTITIES BUT THESE ACTIVITIES NEE D NOT NECESSARILY BE 'PROVISION FOR SERVICES'. THE FACT THAT THE OECD CONSIDERS SUCH AC TIVITIES IN THE SERVICES SEGMENT DOES NOT ALTER THE CHARACTER OF THE ACTIVITIES. WHI LE THE GROUP ENTITY IS THUS INDEED BENEFITED BY THE SHAREHOLDER ACTIVITIES, THESE ACTI VITIES DO NOT NECESSARILY CONSTITUTE SERVICES ... ' ' .... THE ISSUANCE OF FINANCIAL GUARANTEE IN FAVOU R OF AN ENTITY, WHICH DOES NOT HAVE ADEQUATE STRENGTH OF ITS OWN TO MEET SUCH OBLI GATIONS, WILL RARELY BE DONE. THE VERY COMPARISON, BETWEEN THE CONSIDERATION FOR WHICH BANKS ISSUE FINANCIAL GUARANTEES ON BEHALF OF ITS CLIENTS WITH THE CONSID ERATION FOR WHICH THE CORPORATE ISSUE GUARANTEES FOR THEIR SUBSIDIARIES, IS ILL CON CEIVED. ... THESE GUARANTEES DO NOT HAVE ANY IMPACT ON IN COME, PROFITS, LOSSES OR ASSETS OF THE ASSESSEE. THERE CAN BE A HYPOTHETICAL SITUAT ION IN WHICH A GUARANTEE DEFAULT TAKES PLACE AND, THEREFORE, THE ENTERPRISE MAY HAVE TO PAY THE GUARANTEE AMOUNTS BUT SUCH A SITUATION, EVEN IF THAT BE SO, I S ONLY A HYPOTHETICAL SITUATION, WHICH ARE, AS DISCUSSED ABOVE, EXCLUDED. WHEN AN AS SESSEE EXTENDS AN ASSISTANCE TO THE ASSOCIATED ENTERPRISE, WHICH DOES NOT COST A NYTHING TO THE ASSESSEE AND PARTICULARLY FOR WHICH THE ASSESSEE COULD NOT HAVE REALIZED MONEY BY GIVING IT TO SOMEONE ELSE DURING THE COURSE OF ITS NORMAL BUSINE SS, SUCH AN ASSISTANCE OR ACCOMMODATION DOES NOT HAVE ANY BEARING ON ITS PROF ITS, INCOME, LOSSES OR ASSETS, AND, THEREFORE, IT IS OUTSIDE THE AMBIT OF INTERNAT IONAL TRANSACTION UNDER SECTION 92B (1) OF THE ACT .... ' 6. WE RELY ON THE JUDGMENT OF THE CO-ORDINATE BENCH OF ITAT, DELHI IN THE CASE OF BHARTI AIRTEL LTD. VS. ACIT IN I.T.A. NO. 5816/KOL/ 2012, WHEREIN THE DEFINITION OF INTERNATIONAL TRANSACTION IN VIEW OF THE AMENDMENTS , VIDE FINANCE ACT, 2012, HAD BEEN DISCUSSED AND IT WAS HELD THAT THE PROVISION O F CORPORATE GUARANTEE IS NOT AN INTERNATIONAL TRANSACTION. THE RELEVANT EXTRACT OF THE JUDGMENT IS REPRODUCED AS UNDER: PARA 23 .... THE ISSUE WHETHER GIVING A CORPORATE GUARANTEE AMOUNTS TO AN INTERNATIONAL TRANSACTION' HAS NOT BEEN RAISED OR DISCUSSED IN THE CASES WHERE ALP ADJUSTMENTS HAVE BEEN UPHELD AND THEREFORE THOS E DECISIONS CANNOT BE PUT AGAINST THE TAXPAYER ..... ' BRITANNIA INDUSTRIES LTD. ITA NO.2235/KOL/2017 ASSESSMENT YEAR:2013-14 P PP PA AA AG GG GE EE E | || | 7 77 7 'PARA 27.... THE EXPLANATION INSERTED VIDE FINANCE ACT 2012 IS TO BE READ IN CONJUNCTION WITH THE MAIN PROVISION AND IN HARMONY WITH THE SCHEME OF PROVISION UNDER SECTION 92B OF THE ACT. IT IS ESSENTIAL THAT IN ORDER TO BE AN 'INTERNATIONAL TRANSACTION' PROVIDING CORPORATE GUARANTEE SHOULD H AVE A BEARING ON THE PROFITS, INCOME LOSSES OR ASSETS OF THE ENTERPRISE ...:' 'PARA 31. THE CONTENTS OF THE EXPLANATION FORTIFIE S, RATHER THAN MITIGATES, THE SIGNIFICANCE OF EXPRESSION 'HAVING A BEARING ON PRO FITS, INCOME, LOSSES OR ASSETS' APPEARING IN SECTION 92B( 1) OF THE ACT ... ' 'PARA 33 .... THE ONUS IS ON THE TAX AUTHORITIES TO DEMONSTRATE THAT THE TRANSACTION IS OF SUCH NATURE AS TO HAVE 'BEARING ON PROFITS, I NCOME, LOSSES OR ASSETS OF THE ENTERPRISE' AND HAS TO BE ON REAL BASIS EVEN IF IN PRESENT OR IN FUTURE, AND NOT ON CONTINGENT OR HYPOTHETICAL BASIS ....' PARA 32.... THERE CAN BE A SITUATION IN WHICH A GU ARANTEE DEFAULT TAKES PLACE AND THEREFORE, THE ENTERPRISE MAY HAVE TO PAY THE GUARA NTEE AMOUNT BUT SUCH A SITUATION EVEN IF THAT BE SO IS ONLY A HYPOTHETICAL SITUATION .....' 'PARA 32 ..... WHEN AN ASSESSEE EXTENDS AN ASSISTAN CE TO THE ASSOCIATED ENTERPRISE WHICH DOES NOT COST ANYTHING TO THE ASSESSEE AND PA RTICULARLY FOR WHICH THE ASSESSEE COULD NOT HAVE REALIZED MONEY BY GIVING IT TO SOMEONE ELSE DURING THE COURSE OF ITS NORMAL BUSINESS, SUCH AN ASSISTANCE O R ACCOMMODATION DOES NOT HAVE ANY BEARING ON ITS PROFITS, INCOME, LOSSES OR ASSETS AND THEREFORE IT IS OUTSIDE THE AMBIT OF INTERNATIONAL TRANSACTION UNDER SECTIO N 92B(1) OF THE ACT. ...' 'PARA 35 .... IN THE CASE OF GE CAPITAL CANADA -VS- THE QUEEN, THE TAX COURT OF CANADA HAS INDEED DEALT WITH ALP DETERMINATION OF T HE GUARANTEE FEES, BUT THEN IT WAS DONE IN THE LIGHT OF THEIR DOMESTIC LAW PROVISI ONS WHICH ARE QUITE AT VARIANCE WITH THE INDIAN TRANSFER PRICING LEGISLATION .....' SIMILAR VIEWS HAVE BEEN HELD BY VARIOUS COORDINATE BENCHES, INCLUDING JURISDICTIONAL AS UNDER: I) TEGA INDUSTRIES LTD. VS. DCIT [I.T.A. NO. 912/2012 DATED. 03.08.2016, [KOL TRIB.] II) MARICO LTD. VS. ACIT [TS-411-ITAT-2016 (MUM)-TP] III) TVS LOGISTICS SERVICES LTD. [TS-324-ITAT-2016 (CHNY )-TP] IV) MANUGRAPH INDIA LTD. [TS 324-ITAT 2016 (MUM)-TP] V) SIRO CLINPHARM PVT. LTD. VS. DCIT [ITS-185- ITAT 20 16 (MUM)-TP] VI) APOLLO HEALTH STREET LTD. VS. DCIT [TS-184- ITAT 20 14 (HYD)-TP] THEREFORE, BASED ON THE ABOVE MENTIONED PRECEDENTS, WE NOTE THAT THE PROVISION OF CORPORATE GUARANTEE IS NOT AN INTERNATIONAL TRANSAC TION. HENCE, RESPECTFULLY BRITANNIA INDUSTRIES LTD. ITA NO.2235/KOL/2017 ASSESSMENT YEAR:2013-14 P PP PA AA AG GG GE EE E | || | 8 88 8 FOLLOWING THE JUDGMENT OF THE CO-ORDINATE BENCHES C ITED ABOVE, WE DELETE THE UPWARD ADJUSTMENT OF RS.2,18,77,327/-.12. 7. GROUND NOS. 5 TO 7 RELATES TO ADDITION MADE BY T HE ASSESSING OFFICER AND CONFIRMED BY THE LD. DRP U/S 14A READ WITH RULE 8D OF THE RULES. 8.AFTER GIVING OUR THOUGHTFUL CONSIDERATION TO THE SUBMISSION OF THE PARTIES AND PERUSING THE JUDICIAL DECISIONS RELIED UPON BY THE LD. COUNSEL, WE FIND THAT THE ISSUE INVOLVED IN GROUND NOS. 5 TO 7 IS NO LONGER R ES INTEGRA. WE NOTE THAT THE ASSESSING OFFICER WAS ERRED IN MAK ING DISALLOWANCE OF RS. 58,27,584/- BY INVOKING RULE 8D(2)(III), WITHOUT ES TABLISHING ANY PROXIMATE CAUSE BETWEEN SUCH EXPENDITURE INCURRED AND EARNING OF T AX FREE INCOME. THE ASSESSEE CLAIMED THAT DURING THE RELEVANT F.Y. 2012-13, IT H AD EARNED DIVIDEND INCOME OF RS. 10,41,579/- WHICH WAS CLAIMED AS EXEMPT U/S 10( 34) OF THE ACT. THE SAID DIVIDEND INCOME WAS DERIVED FROM 22 INVESTMENTS. IN THE RETURN OF INCOME THE COMPANY HAD DISALLOWED SUM OF RS.5,73,416/- BEING E XPENDITURE INCURRED TOWARDS EARNING OF DIVIDEND INCOME. THE LD DRP NOTED THAT DISALLOWANCE MADE BY THE ASSESSEE WAS NOT IN ACCORDANCE WITH THAT UNDER RULE 8D, AND THE ASSESSEE HAS NOT TAKEN INTO ACCOUNT MANY INDIRECT COST WHILE CALCULA TING THE DISALLOWANCE. THE LD DRP FURTHER NOTICED THAT IN VIEW OF JUDGMENT OF HO NBLE DELHI HIGH COURT OF CHEMINVEST LTD. & CIT VS. HOLCIM INDIA P LTD. 272 C TR 282 (DEL), THE A.O. WAS RIGHT IN COMPUTING THE DISALLOWANCE U/S 14A AS PER RULE 8D. 9. COMING TO THE COMPUTATION ASPECT OF ASSESSEE`S A DMINISTRATIVE EXPENSES, WE NOTE THAT DISALLOWANCE OF ADMINISTRATIVE EXPENSES I S GOVERNED BY RULE 8D (2) (III) OF THE INCOME TAX RULES. THE COORDINATE BENCH OF I TAT KOLKATA IN THE CASE OF REI AGRO LTD. VS. DCIT 144 ITD 141 (KOL-TRIB) HAS H ELD THAT IT IS ONLY THE INVESTMENTS WHICH YIELDS DIVIDEND DURING THE PREVIO US YEAR THAT HAS TO BE CONSIDERED WHILE ADOPTING THE AVERAGE VALUE OF INVE STMENTS FOR THE PURPOSE OF RULE 8D(2) (III) OF THE I T RULES. THE AFORESAID V IEW OF THE TRIBUNAL HAS SINCE BEEN AFFIRMED AS CORRECT BY THE HONBLE CALCUTTA HI GH COURT IN G.A.NO.3581 OF BRITANNIA INDUSTRIES LTD. ITA NO.2235/KOL/2017 ASSESSMENT YEAR:2013-14 P PP PA AA AG GG GE EE E | || | 9 99 9 2013 IN THE APPEAL AGAINST THE ORDER OF THE TRIBUNA L IN THE CASE OF REI AGRO LTD. (SUPRA). RESPECTFULLY FOLLOWING THE JUDGMENT OF HONBLE CALC UTTA HIGH COURT, VIDE G.A.NO.3581 OF 2013 IN CASE OF REI AGRO(SUPRA), WE DIRECT THE ASSESSING OFFICER TO COMPUTE THE DISALLOWANCE UNDER RULE 8D (2) (III) OF THE INCOME TAX RULES, BY TAKING INTO ACCOUNT DIVIDEND BEARING SECURITIES. GR OUND NOS. 5 TO 7 RAISED BY THE ASSESSEE, ARE TREATED TO BE ALLOWED FOR STATISTICAL PURPOSES. 10. GROUNDS NO. 8 RAISED BY THE ASSESSEE RELATES TO INCREASING THE BOOK PROFIT U/S 115JB OF THE ACT TO THE TUNE OF RS. 58,27,554/- COM PUTED BY WAY OF DISALLOWANCE U/S 14A READ WITH RULE 8D OF THE IT RULES. 11. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RIVAL SUBMISS IONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD, WE NOTE THAT T HE PROVISIONS RELATING TO ADJUSTMENTS BY WAY OF INCREASE AND DECREASE TO THE NET PROFIT SHOW N BY THE ASSESSEE IN PROFIT & LOSS ACCOUNT, ARE VERY EXPLICIT IN SECTION 115JB OF THE ACT. THE ITEMS WHICH ARE TO BE ADDED TO THE NET PROFIT HAVE BEEN LISTED OUT IN EXPLANATI ON 1 TO THAT SECTION. THE LEARNED AO SHOULD ADHERE TO THAT LIST AND CANNOT TRAVEL BEYOND THESE ITEMS. SINCE THERE IS NO MENTION OF SECTION 14A IN THE SAID EXPLANATION 1 TO SECTION 115JB, THE SAME CANNOT BE ADDED TO RE-DETERMINE THE QUANTUM OF 'BOOK PROFIT'. THE PRO VISIONS OF SECTION 115JB RELATING TO COMPUTATION OF BOOK PROFIT ARE AMPLY CLEAR AND UNAM BIGUOUS. THESE PROVISIONS DO NOT LEAVE ANY ROOM FOR ADJUSTMENT BY THE ASSESSING OFFI CER OTHER THAN THOSE MENTIONED IN EXPLANATION 1 TO SECTION 115JB TO THE NET PROFIT RE FLECTED IN THE ACCOUNTS OF ANY ASSESSEE AND ADJUSTMENT BY WAY OF DISALLOWANCE U/S 14A IS NO T INCLUDED IN THE SAID EXPLANATION. THIS TRIBUNALS DISCUSSION IN ACIT VS. VINEET INVES TMENT LTD. 82 TAXMANN.COM 415 (DELHI-SB) HAS ALREADY SETTLED THIS ISSUE IN ASSESS EES FAVOUR. THEREFORE, SUCH UPWARD REVISION IN THE SUM OF RS.58,27,584/- TO THE BOOK-P ROFIT BY MAKING DISALLOWANCE SECTION 14A READ WITH RULE 8D IS NOT PERMITTED, THEREFORE W E DELETE THE ADDITION OF RS.58,27,584. 12. GROUNDS NO. 9 AND 10 RAISED BY THE ASSESSEE REL ATE TO INCENTIVE/SUBSIDY RECEIVED OF RS. 17,48,00,000/- FROM THE GOVERNMENT OF BIHAR AND ORISSA FOR SETTING UP NEW INDUSTRY IN THE RESPECTIVE STATES IN THE FORM OF REIMBURSEMENT OF VAT AND IN THAT VIEW OF THE MATTER, THE SUBSIDY GRA NTED BY THE STATE GOVERNMENT WAS ON CAPITAL ACCOUNT. BRITANNIA INDUSTRIES LTD. ITA NO.2235/KOL/2017 ASSESSMENT YEAR:2013-14 P PP PA AA AG GG GE EE E | || | 1 11 10 00 0 13. BRIEF FACTS QUA THE ISSUE ARE THAT DURING THE A SSESSMENT PROCEEDINGS, THE AO NOTICED THAT ASSESSEE COMPANY IN NOTE NO. 20 OF PRO FIT & LOSS ACCOUNT FOR THE A.Y. 2013-14, SHOWN RS. 22.21 CRORE AS OTHER RECEIPTS WH ICH INCLUDED AN AMOUNT OF RS. 17.48 TOWARDS VAT INCENTIVE FOR THE HAJIPUR FACTORY , BIHAR AND KHURDA FACTORY, ORISSA RECEIVED IN ACCORDANCE WITH THE STATE INDUST RIAL POLICY OF BIHAR AND ORISSA. HOWEVER. IN COMPUTATION OF INCOME, ASSESSEE COMPANY DEDUCTED THE SAID AMOUNT OF SUBSIDY OF RS. 17.48 CRORES MENTIONING IT AS CAP ITAL RECEIPT, FROM TAXABLE INCOME. THE ASSESSING OFFICER MADE ADDITION AND LD DRP ALSO CONFIRMED THE ACTION OF AO, THEREFORE, THE ADDITION OF RS 17,48,00,000/- WAS MADE TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED, BY THE ORDER OF THE LD DRP/AO, THE ASSESSEE IS IN APPEAL BEFORE US. 14.WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. WE NOTE THAT THE ASSESSEE RECEIVED THE SUBSIDY FROM THE GOVERNMENT OF BIHAR AND ORISSA IN THE FORM OF REIMBURSEMENT OF VAT. THE GOV ERNMENT OF BIHAR HAS EXTENDED THIS INCENTIVE TO SET UP THE NEW INDUSTRY AND TO HELP THE ASSESSEE TO PURCHASE FIXED ASSET. WE NOTE THAT ASSESSEE RECEIVED INCENTIVE/SUBSIDY AG GREGATING TO RS. 17,48,00,000/- FROM THE GOVERNMENT OF BIHAR AND ORISSA FOR SETTING UP NEW INDUSTRIAL PROJECTS IN THE RESPECTIVE STATES IN THE FORM OF REIMBURSEMENT OF VAT DURING THE RELEVANT YEAR. IN THE RETURN OF INCOME, THE ASSESSEE CLAIMED THE AFORESAID SUBSIDY RECEIVED TO BE IN THE CAPITAL FIELD, NOT ELIGIBLE TO TAX, AN D THEREFORE REDUCED THE SAME WHILE COMPUTING THE PROFITS OF THE BUSINESS. IT FURTHER M ENTIONED THAT SUBSIDY GRANTED BY THE GOVERNMENTS OF BIHAR & ORISSA UNDER THEIR RESPE CTIVE STATE INDUSTRIAL SCHEMES WERE FOR THE PURPOSE OF SETTING UP NEW INDU STRIAL UNDERTAKING & GENERATING EMPLOYMENT IN LOCAL AREAS. IT IS THE ASS ESSEE'S CONTENTION THAT SUBSIDY WAS GRANTED TO MOTIVATE THE COMPANY, TO SET-UP NEW UNDERTAKING IN THE INDUSTRIALLY LESS DEVELOPED STATES AND HENCE THE SUBSIDY WAS IN THE CAPITAL FIELD. THE INCENTIVE IN THE FORM OF REIMBURSEMENT OF VAT WAS GIVEN WITH THE CLEAR INTENTION OF PROMOTING INDUSTRIALIZATION IN THE STATES OF BIHAR AND ORISSA. THE ASSESSEE SUBMITS BRITANNIA INDUSTRIES LTD. ITA NO.2235/KOL/2017 ASSESSMENT YEAR:2013-14 P PP PA AA AG GG GE EE E | || | 1 11 11 11 1 THAT THE PURPOSE FOR GRANTING SUBSIDY WAS NOT TO RE DUCE OPERATIONAL COSTS OF THE COMPANY OR FACILITATE WORKING OF THE EXISTING UNDER TAKING BUT TO SET-UP NEW INDUSTRIES IN THE RESPECTIVE STATES; ACCORDINGLY IT COULD NOT BE SAID TO REVENUE IN NATURE. WE NOTE THAT THE HON`BLE JURISDICTIONAL HIGH COURT OF CALCUTTA IN CASE OF THE RASOI LTD (2011) (335 ITR 438) (CAL HC) HELD THAT SUBSIDY RECEIVED ON ACCOUNT OF SALES TAX DEFERMENT /REMISSION AND INDUSTRIAL PROMOTIONAL ASSISTANCE ARE CAPITAL RECEIPTS NOT CHARGEABLE TO TAX. 15. WE NOTE THAT SUBSIDY HAS BEEN PROVIDED BY THE G OVERNMENT OF BIHAR AND ORISSA TO SET UP NEW PROJECT IN SPECIFIED AREA, TO PURCHASE THE PLANT AND MACHINERY THEREFORE THE PURPOSE AND NATURE OF SUBSIDY SHOULD BE CONSIDERED.CONSIDERING THE NATURE OF THE SUBSIDY, WE ARE OF THE VIEW THAT IT I S ON ACCOUNT OF CAPITAL THEREFORE, IT SHOULD NOT BE TREATED AS REVENUE INCOME OF THE ASSE SSEE. FOR THAT WE RELY ON THE JUDGMENT OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF PR. CIT VS. SHYAM STEEL INDUSTRIES LTD. WHEREIN IT WAS HELD AS FOLLOWS: AN INTERESTING QUESTION IS RAISED IN THIS APPEAL A S TO WHETHER A SUBSIDY ALLOWED BY THE STATE GOVERNMENT ON ACCOUNT OF POWER CONSUMP TION, BY ITS VERY NATURE, WILL MAKE THE SUBSIDY A REVENUE RECEIPT AND NOT A C APITAL RECEIPT, IRRESPECTIVE OF THE PURPOSE OF THE SCHEME UNDER WHICH SUCH INCENTIV E OR SUBSIDY IS MADE AVAILABLE TO A BUSINESS UNIT. THE APPEAL IS AT THE INSTANCE OF THE DEPARTMENT. THERE WAS A DIFFERENCE OF OPINION BETWEEN THE JUDIC IAL MEMBER AND THE ACCOUNTANT MEMBER ON THE APPELLATE TRIBUNAL. THE JU DICIAL MEMBER RELIED ON THE DICTUM IN THE SUPREME COURT JUDGMENT AT SAHNEY STEE L & PRESS WORKS V. CIT [1997] 228 ITR 253/94 TAXMAN 368 . THE ACCOUNTANT MEMBER, HOWEVER, RELIED ON A MORE RECENT DECISION OF THE SU PREME COURT IN CIT V. PONNI SUGARS & CHEMICALS LTD. [2008] 174 TAXMAN 87/306 ITR 392 TO HOLD THAT THE PURPOSE OF THE GRANT OF THE SUBSIDY WOULD BE THE OV ERWHELMING CONSIDERATION IN ASCERTAINING WHETHER THE SUBSIDY OR THE MONEY WAS T O BE TREATED AS A CAPITAL RECEIPT OR AS A REVENUE RECEIPT. UPON THE DIFFERENC E BEING REFERRED TO A REFEREE, THE ASSESSEE'S POINT OF VIEW WAS ACCEPTED AND THE P URPOSE OF THE SCHEME WAS REGARDED TO BE ONE FOR SETTING UP A NEW UNIT OR EXP ANDING AN EXISTING UNIT AND, AS SUCH, THE SUBSIDY HAD TO BE TREATED AS A CAPITAL RE CEIPT NOTWITHSTANDING THE MODE AND MANNER OF THE SUBSIDY. THE ISSUE HAD BEEN DECIDED IN SAHNEY STEEL WHERE TH E COURT WAS OF THE OPINION THAT WHEN A BENEFIT WAS RECEIVED BY AN ASSESSEE FOR THE PURPOSE OF CARRYING ON ITS BUSINESS, IT WAS A BENEFIT INCIDENTAL TO ITS BUSINE SS AND, AS SUCH, IT HAD TO BE REGARDED AS A REVENUE RECEIPT. THE MATTER WAS SEEN FROM A COMPLETELY DIFFERENT PERSPECTIVE IN PONNI SUGARS THOUGH, AT FIRST BLUSH, THE MANNER IN WHICH THE SUBSIDY OR THE INCENTIVE WAS TO BE UTILISED IN PONN I SUGARS APPEARED TO BE THE DISTINGUISHING FEATURE OF THAT CASE AND THE DICTUM THEREIN NOT RELATABLE TO THE BRITANNIA INDUSTRIES LTD. ITA NO.2235/KOL/2017 ASSESSMENT YEAR:2013-14 P PP PA AA AG GG GE EE E | || | 1 11 12 22 2 PRESENT FACTS. IN PONNI SUGARS, THE INCENTIVE WAS I N REDUCED DUTY AND IN LARGER ALLOCATION FOR SALE OF SUGAR. CLEARLY, THESE WOULD AMOUNT TO REVENUE RECEIPTS. HOWEVER, THE ADDITIONAL AMOUNT GENERATED BY A UNIT BY VIRTUE OF THE REDUCED DUTY AND LARGER ALLOTMENT FOR SALE OF SUGAR WAS REQUIRED BY THE APPLICABLE SCHEME TO BE EXCLUSIVELY UTILISED FOR THE PURPOSE OF REPAYING THE TERM LOANS OBTAINED IN SETTING UP THE UNIT OR EXPANDING THE SAME. THE NATU RE OF TREATMENT OF THE ADDITIONAL REVENUE IN THE HANDS OF THE ASSESSEE, TH US, MADE IT A CAPITAL RECEIPT SINCE THE ADDITIONAL MONEY WENT TO REPAY THE TERM L OANS OBTAINED FOR SETTING UP THE UNIT OR EXPANDING IT. INDEED, THE RELEVANT PASSAGE FROM PARAGRAPH 14 OF T HE JUDGMENT IN PONNI SUGARS WOULD TEMPT THE DICTUM RENDERED THEREIN TO B E CONFINED TO THE MANNER OF USE OF THE SUBSIDY AS THE LAW AS RECOGNISED BY THE SUPREME COURT IS COUCHED IN THE FOLLOWING WORDS: '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 WH ICH THE SUBSIDY IS GIVEN. IN OTHER WORDS, IN SUCH CASES, ONE HAS TO APPLY THE PU RPOSE TEST. THE POINT OF TIME AT WHICH THE SUBSIDY IS PAID IS NOT RELEVANT. THE S OURCE IS IMMATERIAL. THE FORM OF SUBSIDY IS IMMATERIAL. THE MAIN ELIGIBILITY COND ITION IN THE SCHEME WITH WHICH WE ARE CONCERNED IN THIS CASE IS THAT THE INC ENTIVE MUST BE UTILIZED FOR REPAYMENT OF LOANS TAKEN BY THE ASSESSEE TO SET UP NEW UNITS OR FOR SUBSTANTIAL EXPANSION OF EXISTING UNITS' IT IS EASY TO FALL FOR SUCH DISTINGUISHING FEATURE IN PONNI SUGARS AND CONFINE THE TEST RECOGNISED THEREIN TO CASES ONLY WHERE THE QUA NTUM OF INCENTIVE IS USED TO DISCHARGE A CAPITAL DEBT OR A TERM LOAN OR SOME CAP ITAL EXPENDITURE OR THE LIKE. HOWEVER, THE SWEEP OF THE 'PURPOSE TEST' HAS BEEN E XPANDED IN A RECENT JUDGMENT OF THE SUPREME COURT IN CIT V. CHAPHALKAR BROTHERS [2017] 400 ITR 279/252 TAXMAN 360/[2017] 88 TAXMANN.COM 178 WHERE THE SUBSIDY IN THE FORM OF EXEMPTION FROM PAYMENT OF ENTERTAINMENT DUTY BY NEW LY SET-UP MULTIPLEX THEATRES FOR A CERTAIN NUMBER OF YEARS WAS REGARDED AS A CAP ITAL RECEIPT BY VIRTUE OF THE VERY NATURE AND PURPOSE OF THE SUBSIDY. IN THE PRESENT CASE, THE TERMS OF THE SCHEME UNDER WHICH THE SUBSIDY WAS MADE AVAILABLE TO THE APPELLANT ARE OF SOME RELEVANCE. C LAUSE B.6.1 OF THE SCHEME MADE IT APPLICABLE 'TO ALL LARGE SCALE NEW UNITS AN D FOR EXPANSION OF EXISTING UNITS ON OR AFTER JULY 16, 2004' IN ADDITION, CLAUSES B. 8.4 AND B.8.5 CLEARLY INDICATED THAT CERTAIN SUBSIDIES ON ACCOUNT OF CAPITAL EXPEND ITURE COULD NOT BE AVAILED OF BY ENTITIES OPTING FOR THE INCENTIVE UNDER THE SUBJECT SCHEME. IT IS SUBMITTED ON BEHALF OF THE APPELLANT THAT SIN CE THE INCENTIVE UNDER THE PRESENT SCHEME, AS WOULD BE EVIDENT FROM THE TERMS THEREOF, WAS IN LIEU OF CERTAIN OTHER SUBSIDIES ON ACCOUNT OF CAPITAL EXPENDITURE W HICH MAY HAVE BEEN OBTAINED BY AN ASSESSEE, THE REAL PURPOSE OF THE SCHEME HAS TO BE SEEN AS AUGMENTING THE CAPITAL RESOURSES BY A NEW OR EXPANDED UNIT AND NOT TO ALLOW A LOWER COST OF THE DAILY FUNCTIONING OF AN EXISTING UNIT. THE DIFFERENCE MAY BE IN DEGREES BUT THE WORDS OF A SCHEME AND THE REAL PURPOSE THEREOF HAVE TO BE DISCERNED IN ASSESSING WHETHER T HE INCENTIVE OR THE SUBSIDY THEREUNDER HAS TO BE REGARDED AS A CAPITAL RECEIPT OR A REVENUE RECEIPT. THERE MAY BE A SCHEME, FOR INSTANCE, THAT PERMITS EVERY E NTITY OF A CERTAIN CLASS TO LOWER CHARGES FOR CONSUMPTION OF POWER, IRRESPECTIVE OF T HE UNIT BEING A NEW UNIT OR IT HAVING EXPANDED ITSELF. IN SUCH A SCENARIO, THE INC ENTIVE WOULD HAVE TO BE BRITANNIA INDUSTRIES LTD. ITA NO.2235/KOL/2017 ASSESSMENT YEAR:2013-14 P PP PA AA AG GG GE EE E | || | 1 11 13 33 3 INVARIABLY REGARDED AS A REVENUE RECEIPT. HOWEVER, WHEN THE SCHEME ITSELF MAKES THE INCENTIVE APPLICABLE ONLY TO NEW AND EXPANDING UNITS, THE FACT THAT THE INCENTIVE IS IN THE FORM OF A REBATE BY WAY OF SALE S TAX OR CONCESSIONAL CHARGES ON ACCOUNT OF USE OF POWER OR A LOWER RATE OF DUTY BEI NG MADE APPLICABLE WOULD BE OF LITTLE OR NO RELEVANCE. WHEN AN ENTREPRENEUR SETS UP A BUSINESS UNIT, PARTI CULARLY A MANUFACTURING UNIT, OR EMBARKS ON AN EXERCISE FOR EXPANDING AN EXISTING UNIT, THE ENTREPRENEUR FACTORS IN THE COST OF SETTING UP THE UNIT OR THE COST OF I TS EXPANSION AND THE COSTS TO BE INCURRED IN RUNNING THE UNIT OR THE EXPANDED UNIT. IT IS THE TOTALITY OF THE CAPITAL EXPENDITURE AND THE EXPENSES TO RUN IT THAT ARE TAK EN INTO ACCOUNT BY THE ENTREPRENEUR. THE INVESTMENT BY AN ENTREPRENEUR BY WAY OF CAPITAL EXPENDITURE IS RECOVERED OVER A PERIOD OF TIME AND HAS A GESTATION GAP. IF THE RUNNING EXPENSES ARE MADE CHEAPER BY WAY OF ANY SUBSIDY OR INCENTIVE AND MADE APPLICABLE ONLY TO NEW UNITS OR EXPANDED UNITS, THE REALISATION OF THE CAPITAL INVESTMENT IS QUICKER AND THE DECISION AS TO THE QUANTUM OF CAPITAL INVES TMENT IS INFLUENCED THEREBY. THAT IS THE EXACT SCENARIO IN THE PRESENT CASE WHER E THE LOWER OPERATIONAL COSTS BY WAY OF SUBSIDY ON CONSUMPTION OF POWER HELPS IN THE QUICKER REALISATION OF THE CAPITAL EXPENDITURE OR THE SERVICING THE DEBT INCUR RED FOR SUCH PURPOSE. IN VIEW OF THE ACCEPTANCE OF THE WIDER AMBIT OF TH E 'PURPOSE TEST' IN THE MOST RECENT JUDGMENT OF THE SUPREME COURT CITED BY THE P ARTIES AND THE SCHEME IN THIS CASE BEING AVAILABLE ONLY TO NEW UNITS AND UNITS WH ICH HAVE UNDERGONE AN EXPANSION, THE REAL PURPOSE OF THE INCENTIVE IN THI S CASE HAS TO BE SEEN AS A CAPITAL SUBSIDY AND HAS TO BE REGARDED, AS SUCH, AS A CAPIT AL RECEIPT AND NOT A REVENUE RECEIPT. ACCORDINGLY, ITA NO.37 OF 2018 AND GA NO.3747 OF 20 17 ARE DISMISSED BY ACCEPTING THE MAJORITY VIEW OF THE TRIBUNAL THAT TH E INCENTIVE OR SUBSIDY GRANTED TO THE ASSESSEE UNDER THE RELEVANT SCHEME HAS TO BE REGARDED AS A CAPITAL RECEIPT AND NOT A REVENUE RECEIPT. 16. HAVING GONE THROUGH THE JUDGMENT OF HONBLE CAL CUTTA HIGH COURT (SUPRA), WHEREIN THE 'PURPOSE TEST' HAS BEEN DEFINED IN THE MOST REC ENT JUDGMENT OF THE HON`BLE SUPREME COURTIN CIT V. CHAPHALKAR BROTHERS [2017] 400 ITR 279/252 TAXMAN 360/[2017] 88 TAXMANN.COM 178 WHERE THE SUBSIDY IN THE FORM OF EXEMPTION FROM PAYMENT OF ENTERTAINMENT DUTY BY NEW LY SET-UP MULTIPLEX THEATRES FOR A CERTAIN NUMBER OF YEARS WAS REGARDED AS A CAPITAL RECEIPT BY VIRTUE OF THE VERY NATURE AND PURPOSE OF THE SUBSID Y. IN THE ASSESSEE`SCASE BEING AVAILABLE ONLY TO NEW UNITS AND UNITS WHICH H AVE UNDERGONE AN EXPANSION, THE REAL PURPOSE OF THE INCENTIVE IN THI S CASE HAS TO BE SEEN AS A CAPITAL SUBSIDY AND HAS TO BE REGARDED, AS SUCH, AS A CAPITAL RECEIPT AND NOT A REVENUE RECEIPT. THEREFORE, WE DIRECT THE AO TO TRE AT THE SUBSIDY AS A CAPITAL RECEIPT. BRITANNIA INDUSTRIES LTD. ITA NO.2235/KOL/2017 ASSESSMENT YEAR:2013-14 P PP PA AA AG GG GE EE E | || | 1 11 14 44 4 17. GROUND NO. 11 RAISED BY THE ASSESSEE READS AS UNDER: 11. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE DRP AS WELL AS THE A.O. FAILED TO APPRECIAT E THAT MERE APPEARANCE OF INFORMATION IN ITS DATA OF AIR CANNOT BE THE REASON FOR TREATING RS. 6,14,238/- AS UNDISCLOSED RECEIPT. 18. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD, WE NOTE THAT ISSUE IN THIS GROUND IS RELATE D TO RECONCILIATION EXERCISE. WE DIRECT THE ASSESSEE TO FILE THE RECONCILIATION S TATEMENT OF AIR DATA VERSUS DATA IN THE BOOKS OF THE ASSESSEE. WE ALSO DIRECT T HE ASSESSING OFFICER TO EXAMINE THE RECONCILIATION STATEMENT OF AIR DATA VE RSUS DATA IN THE BOOKS OF THE ASSESSEE AND ADJUDICATE THE ISSUE IN ACCORDANCE WITH LAW. STATISTICAL PURPOSES, THIS GROUND OF THE ASSESSEE IS TREATED TO BE ALLOWED. 19. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 03.05.2019 SD/- ( S.S. GODARA ) SD/- (A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /KOLKATA; / DATE: 03/05/2019 ( SB, SR.PS ) COPY OF THE ORDER FORWARDED TO: 1. BRITANNIA INDUSTRIES LTD. 2. DCIT, CIRCLE-7(1), KOLKATA 3. C.I.T(A)- 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. 6. GUARD FILE. TRUE COPY BY ORDER ASSIST ANT REGISTRAR ITAT, KOLKA TA BENCHES BRITANNIA INDUSTRIES LTD. ITA NO.2235/KOL/2017 ASSESSMENT YEAR:2013-14 P PP PA AA AG GG GE EE E | || | 1 11 15 55 5