DCIT, Madurai V. Ramco Cements Limited, Rajapalayam

ITA 2275/CHNY/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4062 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 03-05-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 14-12-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S BALASUBRAMANIAN
• Assessee Lawyers: JAGADESAN
• Keywords: Capital asset; Depreciation; Capital receipt; Revenue expenditure; Capital expenditure
• Section: 115JB

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . . . , . , BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.2275/MDS/2015 ( / ASSESSMENT YEAR: 2011-12) THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 2, MADURAI. V. M/S. RAMCO CEMENTS LTD., RAMAMANTHIRAM, RAJAPALAYAM. PAN: AABCM8375L ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI S. BALASUBRAMANIAN, CIT /RESPONDENT BY : SHRI JAGADESAN, CA /DATE OF HEARING : 03.05.2017 /DATE OF PRONOUNCEMENT : 27.07.2017 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEA LS)-1, MADURAI DATED 30.09.2015 IN ITA NO.0194/2014-15 FOR THE ASSESSMENT YEAR 2011-12 PASSED U/S.250(6) R.W.S.143 (3) OF THE ACT. 2 ITA NO.2275/MDS/2016 2. THE REVENUE HAS RAISED THE FOLLOWING FOUR GROU NDS IN ITS APPEAL:- (I) THE LD.CIT(A) HAS ERRED IN DIRECTING THE LD.AO TO TREAT FLY ASH COLLECTION SYSTEM AS CAPITAL EXPENDITURE. (II) THE LD.CIT(A) HAS ERRED IN DIRECTING THE LD.AO TO TREAT THE COST OF RAILWAY SIDINGS AS CAPITAL EXPENDITURE. (III) THE LD.CIT(A) HAS ERRED IN TREATING THE INCEN TIVES UNDER WEST BENGAL ASSISTANCE SCHEME AS REVENUE RECEIPT. (IV) THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITI ON MADE BY THE LD.AO TOWARDS EXCESS EXPENDITURE CLAIMED FOR PURCHASE OF ELECTRICITY FROM APGPCL AMOUNTING TO RS.3,41,54,519/-. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACT URE AND SALE OF CEMENT HAVING CEMENT FACTORIES AT VARIOUS P LACES IN INDIA, FILED ITS RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEAR ON 27.09.2011 ADMITTING TOTAL INCOME OF RS.211,89,9 1,960/-. INITIALLY THE RETURN WAS PROCESSED U/S.143(1) OF TH E ACT AND SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY AND ASSESSMENT WAS COMPLETED U/S.143(3) OF THE ACT, WHEREIN THE L D.AO MADE SEVERAL ADDITIONS WHICH WAS PARTLY DELETED BY THE L D.CIT(A). 3 ITA NO.2275/MDS/2016 AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE REVENU E IS IN APPEAL BEFORE US. 4. GROUND NO. 2(I): FLY ASH COLLECTION SYSTEM. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT W AS NOTICED BY THE LD.AO THAT THE ASSESSEE HAD INSTALLE D FLY ASH HANDLING EQUIPMENT AT THERMAL POWER STATIONS AND C LAIMED THE ENTIRE COST AS REVENUE EXPENDITURE. BEFORE THE LD.A O THE ASSESSEE HAD MADE THE FOLLOWING SUBMISSION:- 1) FLY ASH HANDLING EQUIPMENT INSTALLED IN THE PREM ISES OF TNEB BECOMES THE PROPERTY OF TNEB AND NOT THE ASSESSEE. 2) INSTALLATION OF FLY ASH HANDLING SYSTEM IN THE P REMISES OF TNEB IS ESSENTIAL FOR PROCURING RAW MATERIALS FOR ASSESSEES BUSINESS. 3) THE ISSUE IS DECIDED BY THE EARLIER ORDER FOR TH E ASSESSMENT YEAR 2004-05 IN ITA 2363/MDS/2007. 4.1 HOWEVER THE LD.AO REJECTED THE CLAIM OF THE ASS ESSEE BECAUSE OF THE FOLLOWING REASONS:- 1) THE FLY ASH EQUIPMENT INSTALLED BY THE ASSESSEE IN THE PREMISES OF TNEB IS FOR LONG TERM USE BY WHICH 4 ITA NO.2275/MDS/2016 ASSESSEE WILL GET ENDURING BENEFIT FOR A LONG PERIO D OF TIME. 2) THE FLY ASH EQUIPMENT THOUGH INSTALLED IN THE PREMISES OF THE TNEB BELONGS TO THE ASSESSEE AND FOR THE OPERATIONAL USE AND BENEFIT OF THE ASSESSEE . 3) THE FLY ASH EQUIPMENT INSTALLED IN THE PREMISES OF TNEB HELPS IN THE REVENUE EARNING OF THE ASSESSEE. FOR THE ABOVE SAID REASONS, THE LD.AO WAS OF THE VI EW THAT THE FLY ASH EQUIPMENT INSTALLED IN THE PREMISES OF TNEB FOR RS.2,54,48,456/- HAS TO BE TREATED AS CAPITAL EXPEN DITURE AND ACCORDINGLY THE ASSESSEE IS ENTITLED ONLY FOR THE C LAIM OF DEPRECIATION AT THE RATE OF 15%. 4.2 ON APPEAL, THE LD.CIT(A) HELD THE ISSUE IN FAVO UR OF THE ASSESSEE BY FOLLOWING THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004-05 IN ITA NO. 2363 DATED 05.12.2008 AND FOR THE ASSESSMENT YEAR 1996-9 7. 4.3 BEFORE US THE LD.DR VEHEMENTLY ARGUED IN SUPPOR T OF THE ORDER OF THE LD.AO, WHEREAS THE LD.AR RELIED IN THE ORDERS OF THE LD.CIT(A). 5 ITA NO.2275/MDS/2016 4.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE MATERIALS ON RECORD. FROM THE FACTS OF THE CAS E, IT APPEARS THAT THE ASSESSEE IS PURCHASING FLY ASH COLLECTION SYSTEM FROM 1996-97 ONWARDS AND CLAIMING IT AS REVENUE EXPENDIT URE. HOWEVER IT IS OBVIOUS THAT WITH RESPECT TO EACH AND EVERY INSTALLATION OF SUCH MACHINERY IN THE PREMISES OF T NEB THERE WOULD BE AN AGREEMENT. THE AGREEMENT WITH RESPECT TO THE PURCHASE OF FLY ASH COLLECTING SYSTEM FOR THE RELEV ANT ASSESSMENT YEAR IS NOT BEFORE US. MOREOVER, IT IS APPARENT TH AT THE INSTALLATION OF SUCH MACHINERY IN THE PREMISES OF T NEB BRINGS ENDURING BENEFIT TO THE ASSESSEE OVER A PERIOD OF Y EARS. FURTHER THE RIGHT TO USE THE MACHINERY UNTIL IT IS OPERATIO NAL IS AN INTANGIBLE ASSET FOR WHICH THE ASSESSEE IS ELIGIBLE TO CLAIM DEPRECIATION AS PER THE PROVISIONS OF THE ACT. FURTHERMORE, SINCE THE MACHINERY INSTALLED BY THE ASSESSEE BRING S IN REVENUE TO THE ASSESSEE YEAR AFTER YEAR, THE MATCHING CONCEPT IS ALSO DISTURBED, IF THE ENTIRE EXPENDITURE INCURRED DURIN G THE RELEVANT ASSESSMENT YEAR FOR THE PURCHASE OF THE MACHINERY I S WRITTEN OFF IN THE SAME RELEVANT ASSESSMENT YEAR. NEEDLESS TO M ENTION THAT MATCHING CONCEPT IS NOTHING BUT CORRELATION OF THE RELEVANT EXPENDITURE WITH RESPECT TO THE RELEVANT REVENUE IN ORDER TO 6 ITA NO.2275/MDS/2016 ARRIVE AT THE CORRECT PROFIT EARNED BY THE ASSESSEE DURING THE RELEVANT ASSESSMENT YEAR. IT IS PERTINENT TO MENTIO N THAT THE ASSESSEE IS A LIMITED COMPANY AND THEREFORE IT MAND ATES THE ASSESSEE TO FOLLOW THE RELEVANT ACCOUNTING STANDARDS BY VIRTUE OF SECTION 115JB OF THE ACT AND SECTION 211(3A) OF THE COMPANIES ACT, 1956. THEREFORE IN ORDER TO EXAMINE ALL THESE ASPECTS WHICH WAS NOT CONSIDERED IN ANY OF THE EARL IER DECISIONS AND IN THE LIGHT OF THE AGREEMENT BETWEEN THE ASSES SEE AND TNEB, WE FIND IT APPROPRIATE TO REMIT THE MATTER BA CK TO THE FILE OF LD.AO FOR FRESH CONSIDERATION. IT IS ORDERED ACCORD INGLY 5. GROUND NO.2(II) : RAILWAY SIDINGS IT WAS OBSERVED BY THE LD.AO THAT THE ASSESSEE HA S WRITTEN OFF RS.24,57,02,256/- AS REVENUE EXPENDITUR E BEING THE COST OF THE RAILWAY SIDING INCURRED BY THE ASSESSEE . THE LD.AO OPINED THAT THE AFORESAID EXPENDITURE INCURRED BY T HE ASSESSEE IS CAPITAL EXPENDITURE. ACCORDINGLY, HE DISALLOWED THE SAME TO BE WRITTEN OFF AS REVENUE EXPENDITURE, HOWEVER GRAN TED DEPRECIATION AT THE RATE OF 10%. THE REASONS ADDUC ED BY THE LD.AO FOR THE ABOVE SAID ADDITION IS SUMMARIZED AS FOLLOWS FOR REFERENCE: 1) THE ASSESSEE HAD LAID RAILWAY SIDINGS BOTH ON TH E LAND OWNED BY THE COMPANY OF 9.07 KMS., FOR WHICH THE 7 ITA NO.2275/MDS/2016 ASSESSEE HAD PAID LEASE RENT AND 1.4 KMS. IN THE ASSESSEES OWN LAND. 2) THE ASSESSEE HAS DISCLOSED THE RAILWAY SIDINGS I N ITS STATEMENT OF AFFAIRS AS ITS ASSET AS ON 31.03.2011 AND ALSO CHARGED DEPRECIATION ON THE SAME. 3) THE ASSESSEE HAD ALSO DISCLOSED THE LEASE HOLD R IGHT IN THE LAND OWNED BY TNEB AS ITS ASSET IN THE BALANCE SHEET. 4) FROM THE ABOVE, IT WAS OBVIOUS THAT THE RAILWAY SIDING VEST WITH THE ASSESSEE. 5) THE AGREEMENT BETWEEN THE ASSESSEE AND THE RAILW AYS ALSO REVEALS THE ABOVE FACTS. 6) AS PER THE AGREEMENT WITH THE RAILWAYS, THOUGH T HE ASSESSEE DOES NOT HAVE RIGHT TO ASSIGN, TRANSFER OR SUBLET OR PERMIT ANY OTHER PERSON TO USE THE RAILWAY SIDIN G, THE ASSESSEE HAS EXCLUSIVE RIGHT TO USE THE SAME. 7) AS PER THE AGREEMENT WITH THE RAILWAYS, THERE IS NO BAR ON THE ASSESSEE FROM CANCELLING THE AGREEMENT AND REPOSSESS ITS ASSETS SUCH ITS LAND AND TRACKS. 8) THE EARLIER DECISION OF THE TRIBUNAL WAS NOT ON IDENTICAL FACTS. 8 ITA NO.2275/MDS/2016 5.1 ON APPEAL, THE LD.CIT(A) HELD THE ISSUE IN FAVO UR OF THE ASSESSEE BECAUSE OF THE FOLLOWING REASONS: 1) MERELY BECAUSE THE APPELLANT HAS ADMITTED THE RA ILWAY SIDING AS CAPITAL ASSET IN ITS BOOKS OF ACCOUNT AND CHARGED DEPRECIATION, IT DOES NOT MEAN THAT THE EXPENDITURE INVOLVED IS CAPITAL IN NATURE. 2) ONLY BASED ON THE AGREEMENT BETWEEN THE ASSESSEE AND THE RAILWAY AUTHORITIES, THE OWNERSHIP OF THE R AILWAY SIDINGS CANNOT BE DETERMINED. 3) JUST BECAUSE THE ASSESSEE HAD BORNE THE COST OF LAYING THE RAILWAY SIDING, IT DOES NOT MEAN THAT THE ASSES SEE HAS INCURRED CAPITAL EXPENDITURE. 4) AS PER THE AGREEMENT, THE ASSESSEE CANNOT ASSIGN , TRANSFER OR SUBLET OR PERMIT ANY OTHER PERSON TO US E THE RAILWAY SIDING, THOUGH THE ASSESSEE HAS AN EXCLUSIV E RIGHT TO USE THE SAME FOR ITS BUSINESS PURPOSES. 5) RELIANCE WAS PLACED BY THE LD.CIT(A) ON CLAUSE 6 (C), 6(D), 22, 23, 24, 25 & 27 OF THE AGREEMENT BETWEEN THE ASSESSEE AND THE RAILWAY AUTHORITIES. FURTHER IN CL AUSE 27(I) OF THE AGREEMENT, IT WAS STIPULATED THAT IF T HE APPELLANT DISCONTINUES THE USE OF SIDINGS THERE WIL L BE NO LIABILITY FOR PAYMENT OF MAINTENANCE AND OTHER CHAR GES 9 ITA NO.2275/MDS/2016 BEYOND THE DATE OF EXPIRY OF THE NOTICE PERIOD OF S IX MONTHS. HOWEVER, ALL OTHER OBLIGATIONS SHALL BE BI NDING. WHICH MEANT THAT THE ASSESSEE CANNOT CANCEL THE AGREEMENT ON ITS OWN AND REMOVE THE ASSET AS HELD B Y THE LD.AO. 6) RELIANCE WAS ALSO PLACED ON THE DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2003-04 IN ITA NO.2185/MDS/2007 DATED 13.01.2009, WHEREIN THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSE SSEE. 5.2 BEFORE US, THE LD. DR VEHEMENTLY ARGUED IN SUPP ORT OF THE ORDER OF THE LD.AO BY REITERATING THE FINDINGS MADE BY HIM, WHEREAS THE LD.AR RELIED ON THE ORDER OF THE LD.CIT (A). 5.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE MATERIALS ON RECORD. AT THE OUTSET, WE MUST SA Y THAT THE AGREEMENT BETWEEN THE ASSESSEE AND THE RAILWAY AUTH ORITIES IS NOT PRODUCED BEFORE US BY EITHER OF THE PARTIES IN ORDER TO APPRECIATE THE FACTS BROUGHT OUT BY THE LD.CIT(A) O R THE LD.AO IN THEIR RESPECTIVE ORDERS. HOWEVER, FROM THE ORDER O F BOTH THE REVENUE AUTHORITIES, THE FOLLOWING FACTS ARE APPARE NT AND ARE NOT IN DISPUTE:- 10 ITA NO.2275/MDS/2016 (I) THE ASSESSEE HAS DISCLOSED IN THE BALANCE SHEET THE RAILWAY SIDINGS / RAILWAY TRACK AS ITS ASSET. (II) THE ASSESSEE HAS ALSO DISCLOSED THE LEASE HOLD RIGHT IN THE LAND OWNED BY THE RAILWAY AUTHORITIES ON WHICH THE RAILWAY TRACK IS LAID, AS ITS ASSET. (III) THE ASSESSEE ENJOYS EXCLUSIVE RIGHT TO USE TH E RAILWAY SIDING FOR ITS BENEFIT. FROM THE ABOVE FACTS, AS WE HAVE DISCUSSED IN PARA 4.4 HEREIN ABOVE, IT IS APPARENT THAT THE ASSESSEE IS E NJOYING THE INTANGIBLE ASSET, I.E., RIGHT TO USE THE RAILWAY SI DING EXCLUSIVELY . FURTHER, WRITING OFF OF SUCH CAPITAL EXPENDITURE WILL ALSO DISTURB THE MATCHING CONCEPT WHICH THE ASSESSEE IS BOUND TO ADHERE TO. MOREOVER, IT MANDATES THE ASSESSEE T O FOLLOW THE RELEVANT ACCOUNTING STANDARDS BY VIRTUE OF THE PROV ISIONS OF THE ACT AND THE COMPANIES ACT CITED SUPRA. NEEDLESS TO MENTION THAT, IT IS VERY MUCH ESSENTIAL TO COMPLY WITH THE MATCHING CONCEPT, IN ORDER TO ARRIVE AT THE CORRECT PROFIT EARNED BY THE ASSESSEE, DURING THE RELEVANT ASSESSMENT YEAR. THE REFORE WE ARE OF THE CONSIDERED VIEW THAT ON THESE ASPECTS AL SO THE MATTER NEEDS TO BE EXAMINED WHICH WAS NOT CONSIDERED IN AN Y OF THE EARLIER DECISIONS AND IN THE LIGHT OF THE AGREEMENT BETWEEN THE ASSESSEE AND RAILWAY AUTHORITIES. HENCE WE FIND IT APPROPRIATE TO 11 ITA NO.2275/MDS/2016 REMIT THE MATTER BACK TO THE FILE OF LD.AO FOR FRES H CONSIDERATION. IT IS ORDERED ACCORDINGLY. 6. GROUND NO. 2(III): INCENTIVE RECEIVABLE UNDER THE W EST BENGAL INCENTIVE SCHEME. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT W AS OBSERVED BY THE LD.AO THAT THE ASSESSEE HAD CREDITE D IN ITS BOOKS OF ACCOUNT, AN AMOUNT OF RS.11,33,14,261/- RE CEIVABLE FROM THE WEST BENGAL GOVERNMENT BEING THE ELIGIBLE INCENTIVE UNDER THE WEST BENGAL INCENTIVE SCHEME 2004. HOWEV ER, THE SAME WAS CLAIMED AS INCOME THAT IS NOT TAXABLE. IT WAS EXPLAINED BY THE ASSESSEE THAT THE AMOUNT OF RS.11, 33,14,261/- HAD ACCRUED TO THE ASSESSEE FROM THE WEST BENGAL GO VERNMENT AS INDUSTRIAL PROMOTION ASSISTANCE BEING 90% OF VAT / CST AND ELECTRICITY DUTY PAID. THE ASSESSEE HAD RELIED ON THE DECISION OF THE VARIOUS HIGHER JUDICIARY, WHEREIN IT WAS HELD T HAT GOVERNMENT SUBSIDIARY RECEIVED / RECEIVABLE FOR SET TING UP OF INDUSTRY IS NOT A TAXABLE INCOME. HOWEVER, THE LD.A O REJECTED THE CONTENTION OF THE ASSESSEE AND ITS LD.AR AND BR OUGHT THE AMOUNT OF RS.11,33,14,261/- UNDER THE AMBIT OF TAX BECAUSE OF THE FOLLOWING REASONS: 12 ITA NO.2275/MDS/2016 (I) EXPLANATION 10 TO SECTION 43 IS NOT RELEVANT IN THE CASE OF THE ASSESSEE BECAUSE THE SUBSIDY RECEIVED IS NOT ATTRIBUTABLE TOWARDS ANY CAPITAL ASSET OF THE ASSES SEE. (II) FROM THE ELIGIBILITY CERTIFICATE FURNISHED BY THE ASSESSEE VIZ., INC-2004/EC-324(B), IT IS CLEAR THAT THE INCE NTIVE RECEVABLE FROM THE WEST BENGAL GOVERNEMENT IS NOTHI NG BUT INDUSTRIAL PROMOTION ASSISTANCE WORKED OUT AT 90% OF THE CST AND VAT PAID EACH YEAR OVER A PERIOD OF 15 YEARS OR UPTO 125% OF THE FIXED CAPITAL INVESTMENT, WHICH EVER IS EARLIER. FROM THE ABOVE IT IS CLEAR THAT THE SUBSI DY RECEIVED CANNOT ATTRIBUTE TO THE COST OF THE CAPITAL ASSET, WHEREIN THE ASSESSEE WILL BE DISENTITLED TO CLAIM THE BENEFIT O F DEPRECIATION TO THAT EXTEND. THEREFORE, THE SUBSIDY RECEIVED WILL NOT FALL IN THE CAPITAL FEE. (III) THE SUBSIDY RECEIVED BY THE ASSESSEE IS ADJUS TED AGAINST THE ELECTRICITY DUTY PAYABLE BY THE ASSESSEE. FOR THE ABOVE SAID REASONS, THE LD.AO HELD THAT THE SUBSIDY RECEIVED BY THE ASSESSEE WILL FALL UNDER THE REVENU E FIELD AND THEREFORE ADDED TO THE INCOME OF THE ASSESSEE AND T HEREBY BROUGHT THE AMOUNT OF RS.11,33,14,261/- UNDER THE A MBIT OF TAX. 13 ITA NO.2275/MDS/2016 6.1 ON APPEAL, THE LD.CIT(A) HELD THE ISSUE IN FAVO UR OF THE ASSESSEE, BY OBSERVING AS UNDER:- 7.3.1 I FIND THAT THE HON'BLE KOLKATTA HIGH COUR T IN THE CASE OF M/S.RASOI LTD (335 ITR 438) CONSIDERED AN IDENTICAL ISSUE AND HELD THAT INDUSTRIAL PROMOTION ASSISTANCE OF RS. 5,34,18 ,8501- GIVEN IN THE FORM OF SUBSIDY BY WEST BENGAL GOVERNMENT WAS N OT A REVENUE RECEIPT BUT ONLY A CAPITAL RECEIPT AND THE FORM OF MECHANISM IN WHICH SUBSIDY GIVEN WAS IRRELEVANT. IN THE ABOVE CA SE, AS PER THE SCHEME FRAMED BY THE WEST BENGAL GOVERNMENT, THE AS SESSEE WAS ENTITLED TO PAYMENT OF A SUM EQUAL TO 90% OF THE SA LES TAX PAID AS INDUSTRIAL PROMOTION ASSISTANCE AND THE SAME WAS HE LD TO BE CAPITAL RECEIPT EVEN THOUGH IT WAS QUANTIFIED WITH REFERENCE TO THE SALES TAX PAID BY THE ASSESSEE. SIMILARLY, IN THE C ASE OF THE ASSESSEE AS PER SCHEME FRAMED BY THE WEST BENGAL GOVERNMENT, THE ASSESSEE WAS ENTITLED TO INDUSTRIAL PROMOTION ASSISTANCE WHI CH WAS QUANTIFIED WITH REFERENCE TO THE SALES TAX PAID BY THE APPELLANT. ACCORDINGLY, I FIND THAT THE ABOVE DECISION IS SQUA RELY APPLICABLE TO THE FACTS OF THE CASE. SIMILARLY, THE HON'BLE MUMBA I HIGH COURT IN THE CASE OF M/S. RELIANCE INDUSTRIES LTD (339 ITR 6 32) HELD THAT THE OBJECT OF SALES TAX SUBSIDY WAS TO ENCOURAGE THE SE TTING UP OF INDUSTRIES IN BACKWARD AREAS BY GENERATING EMPLOYME NT AND, THEREFORE, THE SALES TAX SUBSIDY WAS ON CAPITAL ACC OUNT REPRESENTING CAPITAL RECEIPTS. BY APPLYING THE ABOVE DECISIONS, I FIND THAT THE INDUSTRIAL PROMOTION ASSISTANCE AND SUBSIDY RECEIVA BLE BY THE ASSESSEE FROM THE WEST BENGAL GOVERNMENT REPRESENTS THE INCENTIVES GIVEN TO PROMOTE OVERALL INDUSTRIAL GROW TH IN THE SPECIFIED AREA / DISTRICT EVEN THOUGH THE SAME WAS QUANTIFIED WITH REFERENCE TO THE SALES TAX PAID BY THE APPELLANT AN D IT WOULD NOT CONSTITUTE REVENUE RECEIPT. SINCE THE INDUSTRIAL PR OMOTION ASSISTANCE AND SUBSIDY WAS GIVEN FOR THE OVERALL DE VELOPMENT OF THE INDUSTRIES IN THE SPECIFIED AREAS, THE SAME REPRESE NTS CAPITAL RECEIPT AND NOT TAXABLE. FURTHER, THE RELIANCE PLACED BY TH E ASSESSING OFFICER ON EXPLANATION 10 TO SEC.43(1) IS NOT CORRE CT AS THE SUBSIDY WAS NOT GIVEN TO MEET THE COST OF ANY ASSET DIRECTL Y OR INDIRECTLY. THIS IS THE REASON WHY THE ASSESSING OFFICER HIMSEL F COULD NOT LINK THE SUBSIDY WITH ANY ASSET AND DID NOT REDUCE THE D EPRECIATION BUT ON THE OTHER HAND TAXED THE ENTIRE INCENTIVES AS RE VENUE RECEIPTS. FURTHER, CLAUSE (XVIII) WAS INTRODUCED IN THE DEFIN ITION OF INCOME IN SEC.2(24) OF THE ACT ONLY WITH EFFECT FROM 01.04.20 15 PROVIDING FOR 14 ITA NO.2275/MDS/2016 TAXATION OF SUBSIDY AND GRANT. FOR THIS ASSESSMENT YEAR AS THE SUBSIDY I INCENTIVE ACCRUED TO THE ASSESSEE COULD N OT BE TREATED AS A PORTION OF THE COST WHICH WAS MET DIRECTLY OR INDIR ECTLY BY THE ABOVE SUBSIDY. I, THEREFORE, ACCEPT THE PLEA OF THE REPRESENTATIVE THAT THE ABOVE INCENTIVE REPRESENTS CAPITAL RECEIPT S AND THE SAME IS NOT TAXABLE. IN VIEW OF THE ABOVE, I DIRECT THE ASS ESSING OFFICER TO DELETE THE ADDITION. BEFORE US THE LD.DR VEHEMENTLY ARGUED IN SUPPORT O F THE ORDER OF THE LD.AO AND FURTHER RELIED ON THE DECISI ON OF THE HONBLE A.P HIGH COURT AND THE HONBLE APEX COURT I N THE CASE OF CIT VS. SAHNEY STEEL & PRESS WORKS LTD REPORTED IN 152 ITR 39 AND 228 ITR 253 RESPECTIVELY. THE LD.DR FURTHER PLEADED THAT THE SUBSIDIARY RECEIVED BY THE ASSESSEE IS NOT ATTRIBUTABLE TOWARDS THE CAPITAL ASSET OF THE ASSESSEE, THOUGH I T IS CONSIDERED AS A BENCH MARK FOR FIXING THE QUANTUM O F INCENTIVE. THE LD.DR FURTHER SUBMITTED THAT THE SUBSIDY RECEIV ED BY THE ASSESSEE IS PURELY INDUSTRIAL PROMOTION ASSISTANCE EXTENDED BY THE STATE GOVERNEMENT. HE THEREFORE PLEADED THAT T HE ORDER OF THE LD.AO MAY BE REINSTATED. THE LD.AR ON THE OTHE R HAND RELIED AND ARGUED IN SUPPORT OF THE ORDER OF THE LD .CIT(A). 6.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFU LLY PERUSED THE MATERIALS ON RECORD. THE LD.DR HAS RELIED IN T HE DECISION OF THE HONBLE ANDHRA PRADESH HIGH COURT AND THE HONB LE APEX 15 ITA NO.2275/MDS/2016 COURT IN THE CASE CIT VS. SAHNEY STEEL & PRESS WORK S LTD., WHEREIN IT APPEARS THAT THE ISSUE IS DECIDED IN FAV OUR OF THE REVENUE. HOWEVER, ON THE IDENTICAL ISSUE, IN THE C ASE OF THE ASSESSEES GROUP COMPANY RAMCO INDUSTRIES LIMITED I N ITA 1875 TO 1877/MDS/2016, ITA 2143 TO 2145/MDS/2016 VI DE ORDER DATED 14.07.2017, WE HAVE REMITTED BACK THE MATTER TO THE FILE OF LD.CIT(A), BECAUSE THE AFORE STATED DECISIONS WAS L OST SIGHT OFF BY THE REVENUE AS WELL AS THE ASSESSEE / LD.AR. TH E GIST OF THE ORDER OF THE TRIBUNAL IS REPRODUCED HEREIN BELOW FO R REFERENCE:- A) GROUND NO. 4(I) - REFUND OF SALES TAX AMOUNTING TO RS.5,79,39,673/- HELD AS CAPITAL RECEIPT :- DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, IT WAS OBSERVED BY THE LD.AO THAT THE ASSESSEE COMPANY HAD REDUCED A SUM OF RS.5 ,79,39,673/- FROM ITS INCOME AS CAPITAL RECEIPT BEING CAPITAL SU BSIDY RECEIVED. THE BREAK-UP OF THE SAME WAS SHOWN AS FOLLOWS: A. KUTCH DEVELOPMENT SCHEME 2001 IN RESPECT OF FIBRE CEMENT PLANT AT ANJAR, BHUJ, GUJARAT RS.2,91,81,0 43/- B. WEST BENGAL INCENTIVE SCHEME 2000 IN RESPECT OF FIB RE CEMENT PLANT AND CLINKER GRINDING UNIT AT KHARAGPUR , WEST BENGAL RS.2,87,58,630/- THE LD. AO OPINED THAT THE CLAIM OF THE ASSESSEE, T O TREAT THE INCENTIVE GIVEN BY THE STATE GOVERNMENT TO PROMOTE BUSINESS AND REDUCE THE BURDEN IN UNDER-DEVELOPED AREAS AS CAPIT AL RECEIPT, IS INCORRECT BECAUSE THE SUBSIDY RECEIVED FALLS IN THE REVENUE FIELD. HE FURTHER OPINED THAT SUCH SUBSIDY WAS ONLY A CONCESS ION WHICH INCREASES THE INCOME OF THE ASSESSEE. THE LD.AO FU RTHER HELD THAT THERE IS NO PROVISION IN THE INCOME TAX ACT TO TREA T THE SUBSIDY RECEIVED FROM GOVERNMENT AS NON-TAXABLE INCOME AND SINCE THE INCENTIVE RECEIVED IS IN THE NATURE OF REVENUE RECE IPT ADDED TO THE INCOME OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF THE LD.AO, THE ASSESSEE CARRIED THE MATTER ON APPEAL. THE LD.CIT( A) RELYING IN HIS EARLIER ORDERS FOR THE ASSESSMENT YEARS 2007-08 & 2 008-09 IN ITA 16 ITA NO.2275/MDS/2016 169/2009-10 AND 34/2010-11 DIRECTED THE LD.AO TO DE LETE THE ABOVE SAID ADDITION. AT THE OUTSET THE LD.DR SUBMITTED BEFORE US THAT TH E ISSUE IS COVERED IN FAVOUR OF THE REVENUE BY THE DECISION OF THE HONBLE APEX COURT IN THE CASE CIT VS. SAHNEY STEEL & PRESS WORKS LTD REPORTED IN 228 ITR 253 (SC) AND 152 ITR 39 (AP HIG H COURT). HE THEREFORE PLEADED THAT THE ORDER OF THE LD.AO MAY B E REINSTATED. THE LD.AR ON THE OTHER HAND RELIED ON THE ORDERS OF THE LD.CIT(A). WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE MATERIALS ON RECORD. THE GIST OF THE D ECISION RENDERED IN THE CASE CIT VS. SAHNEY STEEL AND PRESS WORKS LT D., BY THE HONBLE ANDHRA PRADESH HIGH COURT REPORTED IN 152 I TR 39, IS REPRODUCED HEREIN BELOW FOR REFERENCE:- FACTS OF THE CASE : THE ASSESSEE RECEIVED REFUNDS OF SALES TAX ON PURCHASE OF MACHINERY AND RAW MATERIALS AND ON T HE SALE OF FINISHED GOODS UNDER A G.O. ISSUED BY THE STATE GOVERNMENT OF ANDHRA PRADESH. THE G.O. HAD BEEN IS SUED WITH A VIEW TO SPEED UP THE INDUSTRIAL DEVELOPMENT OF THE INDUSTRY AND COULD NOT BE DISTRIBUTED AS PROFITS. THE ITO ASSESSED THE RECEIPTS BUT THE TRIBUNAL HELD THAT TH E DEVELOPMENT SUBSIDY WAS IN THE NATURE OF A CAPITAL RECEIPT AND IT WAS NOT ALSO ASSESSABLE UNDER S.41(1). ON A REF ERENCE, IT WAS CONTENDED ON BEHALF OF THE ASSESSEE THAT THE AM OUNTS WERE NOT OF THE NATURE OF INCOME AT ALL AND IN AN Y CASE IT WAS A VOLUNTARY CONTRIBUTION. DECISION : IT WAS NOT NECESSARY FOR A RECEIPT TO CO NSTITUTE INCOME THAT IT MUST NECESSARILY BE IN THE NATURE OF RETURN. IT MAY BE THAT THERE IS NO CONSIDERATION FOR THE BENEF ITS EXTENDED TO THE ASSESSEE IN TERMS OF THE G.O. IN THE COMMON LAW SENSE. BUT IT CANNOT BE SAID THAT IT IS AN ACT OF GENEROSI TY ON THE PART OF THE STATE. THE STATE IS INTERESTED IN ITS INDUS TRIAL DEVELOPMENT; IT WANTS TO ATTRACT INDUSTRIES TO ENHA NCE THE EMPLOYMENT POTENTIAL, ECONOMIC PROSPERITY AND THE I NCOME OF THE STATE. IT IS TO ATTRACT NEW ENTREPRENEURS THAT THE GOVERNMENT HAD COME FORWARD WITH THE SAID INCENTIVE S. THE PAYMENTS COULD NOT BE CONSIDERED TO BE VOLUNTARY CONTRIBUTIONS. THE ASSESSEE AND FOR THAT MATTER AN Y OTHER PERSON SETTING UP AN INDUSTRY IN THE STATE OF ANDHR A PRADESH 17 ITA NO.2275/MDS/2016 WAS ENTITLED TO THE FACILITIES AND INCENTIVES PROVI DED BY THE SAID G.O. AS A MATTER OF RIGHT, WHICH, IF DENIED, H E COULD ENFORCE IN A COURT OF LAW. THE FACT THAT THE GOVER NMENT RESERVED TO ITSELF THE POWER TO WITHDRAW THE G.O. O R TO AMEND IT, DID NOT MEAN THAT SO LONG AS THE G.O. WAS IN OP ERATION, THE PERSONS CONCERNED DID NOT HAVE A RIGHT TO ENFORCE T HE SAME. THE SOURCE AS WELL AS THE PAYMENTS WERE BOTH CERTAI N AND DEFINITE. THE PAYMENTS WERE INSEPARABLY CONNECTED WITH THE BUSINESS CARRIED ON BY THE ASSESSEE. THE BENEFITS WERE AVAILABLE ONLY FROM THE DATE THE NEW INDUSTRIAL UND ERTAKING COMMENCED PRODUCTION AND FOR A PERIOD OF FIVE YEARS THEREFROM. THE REFUND OR THE SUBSIDY, AS IT MAY BE CALLED, WAS DEPENDANT UPON THE INDUSTRY CONTINUING IN PRODUCTIO N. THERE WAS NO ROOM OR BASIS FOR DISASSOCIATING THE SUBSIDY FROM THE BUSINESS OF THE ASSESSEE, IN AS MUCH AS THE SUBSIDY WAS GIVEN FOR DEVELOPMENT OF THE BUSINESS AND NOT FOR ANY OTH ER UNRELATED PURPOSES. THE PAYMENT WAS NOT A SUBSIDY FOR SETTING UP THE PLANT BUT A SUBSIDY GIVEN FOR THE EF FICIENT AND PROFITABLE RUNNING OF THE INDUSTRY AND ITS GROWTH. THE RECEIPT WAS, THEREFORE, OF A REVENUE NATURE. ALL THREE ITE MS COMPRISED IN THE PAYMENT CONSTITUTED INCOME OF THE ASSESSEE. FURTHER ON APPEAL, THE HONBLE APEX COURT IN THE AB OVE SAID CASE ALSO HELD THE ISSUE IN FAVOUR OF THE REVENUE. THE GIST OF THE SAME IS REPRODUCED HEREIN BELOW FOR REFERENCE: DISMISSING THE APPEAL, THAT, UNDER THE NOTIFICATIO N IN QUESTION THE PAYMENTS WERE MADE TO ASSIST THE NEW I NDUSTRIES AT THE COMMENCEMENT OF BUSINESS TO CARRY ON THEIR B USINESS. THE PAYMENTS WERE NOTHING BUT SUPPLEMENTARY TRADE R ECEIPTS. IT WAS TRUE THAT THE ASSESSEE COULD NOT USE THIS MO NEY 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 PARTIC ULAR PURPOSE. THE SUBSIDIES HAD NOT BEEN GRANTED FOR PR ODUCTION OF, OR BRINGING INTO EXISTENCE ANY NEW ASSET. THE SUBSIDIES WERE GRANTED YEAR AFTER YEAR, ONLY AFTER THE SETTIN G UP OF THE NEW INDUSTRY AND COMMENCEMENT OF PRODUCTION. SUCH A SUBSIDY COULD ONLY BE TREATED AS ASSISTANCE GIVEN F OR THE PURPOSE OF CARRYING ON OF THE BUSINESS OF THE ASSES SEE. THE 18 ITA NO.2275/MDS/2016 SUBSIDIES WERE OF REVENUE NATURE AND WOULD HAVE TO BE TAXED ACCORDINGLY. FROM THE FACTS OF THE CASE, IT APPEARS THAT THE ABO VE SAID DECISIONS OF THE HONBLE APEX COURT AND THE HONBLE AP HIGH COURT WERE NOT BROUGHT TO THE KNOWLEDGE OF THE LD.CIT(A). THEREFORE, IN THE INTEREST OF JUSTICE WE REMIT THE MATTER BACK TO THE FILE OF THE LD.CIT(A) IN ORDER TO EXAMINE THE FACTS OF THE CASE AND THE RATIO LAID DOWN BY THE HONBLE APEX COURT AND THE HONBLE AP HIGH COURT (SUPRA) AND THEREAFTER DECIDE THE MATTER AFRESH IN ACCORDANCE WITH LAW AND MERIT. IT IS ORDERED ACCORDINGLY. IN PARITY WITH THE AFORESAID DECISION OF THIS BENCH OF THE TRIBUNAL SUPRA , WE HEREBY REMIT BACK THE MATTER TO THE FILE OF LD.AO FOR FRESH CONSIDERATION IN ORDER TO DECIDE TH E ISSUE IN ACCORDANCE WITH THE RATIO LAID DOWN BY THE HONBLE ANDHRA PRADESH HIGH COURT DATED 3 RD NOVEMBER 1983 AND HONBLE APEX COURT ORDER DATED 19 TH SEPTEMBER 1997 CITED HEREIN ABOVE AFTER CONSIDERING THE FACTS OF THE CASE, WHICH WILL BE BI NDING PRECEDENT. 7. GROUND NO. 2(IV) : EXCESS EXPENDITURE INCURRED TOWA RDS ELECTRICITY CHARGES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED BY THE LD.AO THAT THE ASSESSEE HAD INCURRE D ADDITIONAL EXPENDITURE TO THE TUNE OF RS.3,41,54,519/- TOWARDS ELECTRICITY CHARGES DUE TO TRANSFERRING OF RIGHTS FOR PROCURING ELECTRICITY FROM 19 ITA NO.2275/MDS/2016 APGPCL AT A CONCESSIONAL RATE TO THE ASSESSEES SIS TER CONCERNS. 7.1 ON APPEAL, THE LD.CIT(A) DELETED THE ADDITION B Y OBSERVING AS UNDER: 8.2.2. I HAVE CONSIDERED THE SUBMISSIONS OF THE REPRESENTATIVE. ADMITTEDLY, THE APPELLANT OWNED 16 ,08,000 EQUITY SHARES OF APGPCL BY VIRTUE OF WHICH IT WAS ENTITLED TO DRAW 6 MW POWER AT CONCESSIONAL RATES. HOWEVER, THE APPELLAN T TRANSFERRED 11,12,200 SHARES EQUIVALENT TO 4.15 MW POWER TO ITS GROUP CONCERNS IN JOINT NAMES WITH THE GROUP CONCERN BEING THE FIR ST NAME HOLDER OF THE SHARES. AFTER THE ABOVE EXERCISE, M/S. APGPCL SUPPLIED POWER TO THE FIRST NAME HOLDER AND THEREBY THE GROUP COMPANI ES AVAILED POWER FROM M/S. APGPCL AND MADE DIRECT PAYMENT TO THEM. FURTHER, THE ASSESSEE RECEIVED THE SECURITY DEPOSIT AND 10 PAISE PER UNIT FROM THE GROUP CONCERNS. THE ASSESSING OFFICER HELD THAT THE AVERAGE PURCHASE PRICE OF POWER FROM APGPCL WAS ONLY 2.65 PER UNIT W HEREAS THE AVERAGE PURCHASE PRICE PER UNIT WAS 4.56 FROM APSEB . BECAUSE OF THIS, HE WORKED OUT THE EXCESS EXPENDITURE INCURRED BY THE ASSESSEE AT RS.3,41,54,549/-. THE QUESTION IS WHETHER THE ASSE SSING OFFICER CAN DISALLOW THE ACTUAL EXPENDITURE INCURRED BY THE ASS ESSEE ON THE GROUND THAT THE COMPANY SHOULD HAVE RUN THE BUSINES S IN A PROFITABLE MANNER WITHOUT TRANSFERRING THE RIGHT TO DRAW POWER FROM APGPCL TO ITS GROUP COMPANIES. AS CONTENDED BY THE ASSESSEE, THE DUTY OF THE ASSESSING OFFICER IS TO TAX THE INCOME EARNED BY TH E ASSESSEE AS PER THE PROVISIONS OF THE INCOME TAX ACT. THE ASSESSIN G OFFICER COULD NOT SIT IN THE ARM CHAIR OF THE BUSINESS MAN AND DIRECT THE ASSESSEE TO EARN MORE PROFIT BY NOT TRANSFERRING THE POWER TO ITS GR OUP COMPANIES. IF THERE IS ANY SPECIFIC PROVISIONS IN THE IT ACT TO D ISALLOW THIS TYPE OF EXCESS EXPENDITURE, THE ASSESSING OFFICER IS WELL W ITHIN HIS LIMITS. HOWEVER, AS SEEN FROM THE ASSESSMENT ORDER, THE ASS ESSING OFFICER HAS NOT QUOTED ANY SECTION OF THE INCOME TAX ACT. IT IS TRUE THAT THE SEC.40A(2) PROVIDES FOR THE RESTRICTING THE AMOUNTS PAID TO THE SISTER CONCERNS BUT IN THIS CASE THE ELECTRICITY CHARGES W AS NOT PAID TO GROUP COMPANIES BUT PAID DIRECTLY TO APSEB. IN THE CIRCU MSTANCES, I ACCEPT THE PLEA OF THE REPRESENTATIVE THAT THE DISALLOWANC E MADE BY THE ASSESSING OFFICER IS NOT VALID IN LAW 20 ITA NO.2275/MDS/2016 7.2 FROM THE ABOVE, IT IS APPARENT THAT THE LD.CIT( A) HAS EXAMINED THE ISSUE THREADBARE AND ARRIVED AT THE CO NCLUSION THAT THE ASSESSEE HAS NOT CLAIMED ANY EXCESS EXPENDITURE AS HELD BY THE LD.AO. THE COMPUTATION MADE BY THE LD.CIT(A) O N THIS REGARD ALSO COULD NOT BE SUCCESSFULLY CONFRONTED BY THE LD.DR. FURTHER, THE COMMERCIAL DECISIONS MADE BY THE ASSES SEE TO TRANSFER CERTAIN INVESTMENTS TO ITS SISTER CONCERNS CANNOT BE CHALLENGED BY THE REVENUE AND ADDITION MADE ON THE BASIS OF LOSS OF OPPORTUNITY PROFIT BECAUSE OF SUCH DECISION IS NOT TENABLE IN LAW. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE ISSUE, WE DO NOT FIND IT NECESSARY TO INTERFERE WITH THE ORDE R OF THE LD.CIT(A) ON THIS ISSUE WHICH IS QUITE REASONABLE. ACCORDINGLY THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. 8. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 27 TH JULY, 2017 AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( . ) (A. MOHAN ALANKAMONY) /ACCOUNTANT MEMBER !' /CHENNAI, #$ /DATED 27 TH JULY, 2017 JR 21 ITA NO.2275/MDS/2016 $ &' (' /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. , ( )/CIT(A) 4. , /CIT 5. '-. / /DR 6. .0 /GF