PERMANENT I.P. SYSTEM, MUMBAI V. ITO 15(1)(4), MUMBAI

ITA 2706/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 5003 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 05-09-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 07-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital receipt

Judgement Text

PERMANENT I.P. SYSTEM - 1 - VK;DJ VIHYH; VF/KDJ.K LH U;K;IHB EQACBZ ESAA IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUM BAI JH VKJ- DS- XQIRK] U;KF;D LNL; ,OA JH JKTSUNZ FLAG YS[KK LNL; DS LE{K BEFORE SHRI R.K. GUPTA JUDICIAL MEMBER AND SHRI RAJ ENDRA SINGH ACCOUNTANT MEMBER VK;DJ VIHY LA[;K /ITA NO. 2706/MUM/2011 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR: - 2007-08 PERMANENT I.P. SYSTEM 801-802, SHIVTAPI APTS, GOREGAONKAR ROAD, GANDEVI, MUMBAI 400 007. CUKE@ VS. INCOME TAX OFFICER 15(1)(4), MUMBAI, MATRU MANDIR OPP BHATIA HOSPITAL, TARDEO, MUMBAI-400 007. PAN:- AAIFP3095N VIHYKFKHZ @ APPELLANT IZR;FKHZ @ RESPONDENT VIHYKFKHZ DH VKSJ LS @ APPELLANT BY SHRI RAJKISHORE MANIYAR IZR;FKHZ DH VKSJ LS @ RESPONDENT BY MS. C. TRIPURA SUNDARI VKNS'K@ VKNS'K@ VKNS'K@ VKNS'K@ ORDER PER RAJENDRA SINGH, AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 13.1.2011 OF CIT(A) FOR THE ASSESSMENT YEARS 2007-0 8. THE ONLY DISPUTE RAISED BY THE ASSESSEE IN THIS APPEAL IS REGARDING NATURE OF INCOME ON ACCOUNT OF CENTRAL EXCISE REFUND AND ALLOWABILITY O F EXEMPTION U/S 80IC OF THE INCOME TAX ACT. 2. THE FACTS IN BRIEF ARE THAT A SEARCH U/S132 OF T HE INCOME TAX ACT HAD BEEN CONDUCTED IN CASE OF THE ASSESSEE ON 5.3.2009. DURING THE COURSE OF LQUOKBZ DH RKJH[K @ DATE OF HEARING 5-09-2013 ?KKS'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT 13-09-2013 PERMANENT I.P. SYSTEM - 2 - SEARCH JEWELLERY WORTH RS. 12,79,470/- AS PER THE R EPORT OF THE GOVERNMENT APPROVED VALUER WAS FOUND. AO DURING THE ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAD CREDITED THE P&L ACCOUNT BY A SUM OF RS. 1,96,91,912/- ON ACCOUNT OF EXCISE DUTY CREDIT REPR ESENTING THE REFUND OF EXCISE DUTY. THE ASSESSEE SUBMITTED THAT IT WAS ENG AGED IN MANUFACTURING OF INTERNET PROTOCOL BASED PUBLIC ADDRESS SYSTEM WI TH REMOTE SURVEILLANCE AND HOME AUTOMATION SYSTEM IN THE STATE OF SIKKIM I N THE NOTIFIED AREA WHICH WAS ELIGIBLE FOR EXEMPTION U/S 80IC. IT WAS P OINTED OUT THAT GOVERNMENT HAD FORMALIZED METHODOLOGY THAT THE UNIT S IN J&K/ NORTH EASTERN REGION/ KUTCH WILL HAVE TO TAKE CENVAT CRE DIT ON THE IN-PUTS AND TO DEPOSIT THE EXCISE DUTY IN CASH PAYABLE AFTER GI VING CREDIT OF CENVAT AMOUNT UPON DISPATCH OF FINISHED GOODS AND THEREAFT ER, BEFORE 7 TH OF SUBSEQUENT MONTH, THE UNIT HAS TO FILE REFUND CLAI M WITH THE CENTRAL EXCISE DEPARTMENT OF THE SAME AMOUNT WHICH HAD BEE N DEPOSITED IN CASH. THE ASSESSEE SUBMITTED THAT REFUND OF EXCISE DUTY H AD DIRECT NEXUS WITH THE INDUSTRIAL UNDERTAKING AND, THEREFORE, IT WAS P ART OF THE PROFIT DERIVED FROM THE UNDERTAKING WHICH WAS EXEMPT U/S 80IC. AO HOWEVER DID NOT ACCEPT THE CONTENTIONS RAISED. IT WAS OBSERVED BY H IM THAT REFUND OF EXCISE DUTY WAS IN TERMS OF THE INCENTIVE SCHEME OF THE GO VERNMENT AND IT DID NOT HAVE DIRECT NEXUS WITH OPERATION OR INCOME OF THE U NDERTAKINGS. AO, THEREFORE, FOLLOWING THE JUDGMENT OF HONBLE SUPREM E COURT IN CASE OF THE LIBERTY INDIA VS. CIT ( 317 ITR 218) HELD THAT THE ASSESSEE WAS NOT ENTITLED FOR EXEMPTION U/S 80IC OF THE INCOME TAX ACT. 3. THE ASSESSEE DISPUTED THE DECISION OF AO AND SUB MITTED BEFORE CIT(A) THAT REFUND OF EXCISE DUTY WAS AN INCENTIVE FOR RUNNING THE INDUSTRIAL UNDERTAKING IN A NOTIFIED BACKWARD AREA AS PER WHICH THE MANUFACTURER GETS AN ADDITIONAL FINANCIAL ADVANTAGE EQUIVALENT TO THE REFUND OF EXCISE DUTY COMPARED TO THE OTHER UNDERTA KINGS LOCATED IN NON NOTIFIED AREAS. THE ASSESSEE ALSO MADE AN ALTERNATE SUBMISSION BEFORE CIT(A) THAT REFUND OF EXCISE DUTY WAS A CAPITAL REC EIPT NOT LIABLE TO TAX. CIT(A) AFTER EXAMINATION OF RECORDS AND THE RELEVAN T RULES AND REGULATIONS NOTED THAT THE INCENTIVE HAD BEEN PROVIDED IN CERTA IN BACKWARD AREAS IN PERMANENT I.P. SYSTEM - 3 - TERMS OF OFFICE MEMORANDUM DATED 14.6.2002 ISSUED B Y THE GOVERNMENT OF INDIA. CIT(A) OBSERVED THAT AS PER THE SAID MEMORAN DUM, SOME OF THE INCENTIVES WERE IN RESPECT OF CAPITAL EXPENSES WHIL E OTHERS WERE IN THE FORM OF FINANCIAL INCENTIVE OR CONCESSION. SUBSEQUENT TO THE SAID ORDER OF CENTRAL GOVERNMENT, CENTRAL EXCISE DEPARTMENT HAD A MENDED THE RULES 2002 VIDE NOTIFICATION NUMBER 39/2002 CE (NT) DATED 14.11.2002. CIT(A) FURTHER OBSERVED THAT EXCISE DUTY ADDED TO THE COST OF PRODUCTION AND, THEREFORE, REFUND OF EXCISE DUTY REDUCE THE COST AN D WAS OPERATIONAL IN NATURE. HE ALSO REFERRED TO THE JUDGMENT OF HONBLE SUPREME COURT IN CASE SAHNEY STEEL AND PRESS WORKS LTD. V. COMMISSIONER O F INCOME-TAX (228 ITR 253) IN WHICH IT WAS HELD THAT SUBSIDY/ASS ISTANCE GIVEN BY GOVERNMENT TO CARRY ON THE BUSINESS AFTER COMMENCEM ENT OF BUSINESS WAS OPERATIONAL AID AND, THEREFORE, REVENUE RECEIPT. TH E SAME VIEW HAS BEEN TAKEN BY THE HONBLE SUPREME COURT IN CASE OF PONNI SUGARS AND CHEMICALS VS. CIT (306 ITR 392). HE ALSO REFERRED T O THE DECISION OF SPECIAL BENCH OF TRIBUNAL IN CASE OF CIT VS. RELIANCE INDUS TRIES LTD VS. CIT 88 ITD 273) IN WHICH IT WAS HELD THAT SUBSIDY GIVEN FOR SE TTING UP OR EXPANSION OF INDUSTRY IN BACKWARD AREA WILL BE CAPITAL RECEIPT I RRESPECTIVE OF MODALITY OF SOURCES OF FUNDS. CIT(A) ALSO REFERRED TO THE SEVER AL DECISIONS OF TRIBUNAL IN WHICH IT WAS HELD THAT EXCISE DUTY REFUND AND INTER EST SUBSIDY WERE REVENUE RECEIPT. CIT(A), THEREFORE, REJECTED THE CL AIM OF THE ASSESSEE TO TREAT THE EXCISE REFUND AS CAPITAL RECEIPT AND HELD THAT THE SAME WAS REVENUE RECEIPT. CIT(A) FUTHER HELD THAT THE SOURCE OF THE EXCISE REFUND WAS INCENTIVE SCHEME OF THE GOVERNMENT AND IT HAD NO DI RECT NEXUS WITH OPERATIONAL ACTIVITIES OF THE UNDERTAKING AND, THER EFORE, IT COULD ONLY BE CONSIDERED AS INCIDENTAL INCOME. ACCORDINGLY HE HEL D THAT REFUND OF EXCISE DUTY WAS NOT INCOME DERIVED FROM THE BUSINESS OF IN DUSTRIAL UNDERTAKING AND, THEREFORE, FOLLOWING THE JUDGMENT OF HONBLE S UPREME COURT IN CASE OF LIBERTY INDIA (SUPRA) IT WAS HELD BY HIM THAT THE A SSESSEE WAS NOT ENTITLED FOR EXEMPTION U/S 80IC OF THE INCOME TAX ACT. AGGRI EVED BY THE DECISION OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE TRIBUNAL. PERMANENT I.P. SYSTEM - 4 - 4. BEFORE US THE LEARNED AR FOR THE ASSESSEE SUBMIT TED THAT THE SAME ISSUE REGARDING REFUND OF EXCISE DUTY UNDER THE SAM E SCHEME HAD BEEN CONSIDERED BY HONBLE JAMMU & KASHMIR HIGH COURT IN THE CASE OF BALAJI ALLOYS VS. JCIT AND OTHERS IN ITA NO. 2/2010 IN THE JUDGMENT DATED 31.1.2011 IN WHICH IT WAS HELD THAT NATURE OF THE E XCISE DUTY REFUND WAS CAPITAL RECEIPT. FOLLOWING THE SAID JUDGMENT OF HIG H COURT, THE MUMBAI BENCH OF TRIBUNAL IN CASE OF MR. BRIJKISHORE RAMVIL AS MANIYAR VS. DCIT IN ITA NO. 8851/M/2010 HAVE DECIDED THE ISSUE IN FAVOU R OF THE ASSESSEE. IT WAS ACCORDINGLY SUBMITTED THAT THE ISSUE WAS COVERE D IN FAVOUR OF THE ASSESSEE. LEARNED DR ON THE OTHER HAND PLACED RELIA NCE ON THE ORDERS OF AUTHORITIES BELOW. 5. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE M ATTER CAREFULLY. THE DISPUTE IS REGARDING NATURE OF INCOME RECEIVED BY THE ASSESSEE ON ACCOUNT OF EXCISE DUTY REFUND RECEIVED UNDER THE GO VERNMENT OF INDIA, MINISTRY OF COMMERCE AND INDUSTRY (DEPTT. OF INDUST RIAL POLICY AND PROMOTION) OFFICE MEMO. NO. 1/(13) 2000-NER DATED 1 4.6.2002 AND CENTRAL EXCISE NOTIFICATION NOS. 56 AND 57 DATED 14 .11.2002. WE FIND THAT THE SAME ISSUE UNDER THE SAME SCHEME FOR EXCISE REF UND AND INTEREST SUBSIDY HAD BEEN CONSIDERED BY HONBLE HIGH COURT O F JAMMU & KASHMIR IN CASE OF BALAJI ALLOYS VS. JCIT AND OTHERS (SUPR A). THE HIGH COURT NOTED THAT THE CONCESSIONS WERE GIVEN TO ACHIEVE TWIN OBJ ECTS VIZ. ACCELERATION OF INDUSTRIAL DEVELOPMENT AND GENERATION OF EMPLOYMENT . THE HIGH COURT, THEREFORE, HELD THAT THE INCENTIVE COULD NOT BE CON SIDERED AS PRODUCTION INCENTIVE ONLY BECAUSE THE INCENTIVE BECAME AVAILAB LE FROM THE DATE OF COMMENCEMENT OF COMMERCIAL PRODUCTION. THE HIGH COU RT DID NOT UPHOLD THE ORDER OF TRIBUNAL TREATING THE INCENTIVE AS REV ENUE RECEIPT AND HELD THAT IT WAS A CAPITAL RECEIPT NOT LIABLE FOR TAX. THE SA ID JUDGMENT OF HONBLE HIGH COURT OF JAMMU & KASHMIR HAS BEEN FOLLOWED BY THE MUMBAI BENCH OF TRIBUNAL IN CASE OF MR. BRIJKISHORE RAMVILAS MAN IYAR VS. DCIT (SUPRA). FACTS IN THE PRESENT CASE ARE IDENTICAL AND NO DIST INCTIVE FEATURES HAVE BEEN BROUGHT TO OUR NOTICE BY LEARNED DR. WE, THERE FORE, RESPECTFULLY FOLLOWING THE ABOVE JUDGMENTS SET ASIDE THE ORDER O F CIT(A) AND HOLD THAT PERMANENT I.P. SYSTEM - 5 - EXCISE DUTY REFUND BEING A CAPITAL RECEIPT CANNOT B E CHARGED TO TAX. HAVING HELD THAT IT IS A CAPITAL RECEIPT IT IS NOT NECESSA RY TO GO INTO THE ISSUE WHETHER EXEMPTION IS AVAILABLE U/S 80IC OF THE ACT. 7. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 13 -9-2013 SD/- SD/- (R.K. GUPTA) (RAJENDRA SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER SKS SR. P.S, MUMBAI DATED 13.9.2013 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI