The Income Tax Officer, Amritsar. V. Smt. Indu Mahajan, Amritsar.

ITA 283/ASR/2014

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1460 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-12-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 06-10-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 02-05-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: SUDHIR MEHRA
• Keywords: Tax effect

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH; AMRITSAR (SMC) BEFORE SH. A.D. JAIN, JUDICIAL MEMBER ITA NO.283(ASR)/2014 ASSESSMENT YEAR:2009-10 PAN: AASPM827Q INCOME TAX OFFICER, VS. SMT. INDU MAHAJAN, WARD V(2), AMRITSAR. AMRITSAR. (APPELLANT) (RESPONDENT) APPELLANT BY:SH.TARSEM LAL, DR RESPONDENT BY:SH. SUDHIR MEHRA, ADV. DATE OF HEARING: 06/10/2015 DATE OF PRONOUNCEMENT: 18/12/2015 ORDER THIS IS THE DEPARTMENTS APPEAL FOR THE ASSESSMENT YEAR 2009-10, AGAINST THE ORDER DATED 20.02.104, PASSED BY THE LD . CIT(A), AMRITSAR, DELETING THE ADDITION OF RS.10,67,613/- MADE BY THE AO DISALLOWING THE ASSESSEES CLAIM OF EXEMPTION U/S 80IC OF THE I.T. ACT, 1961. THE LD. CIT(A) TREATED THE INTEREST SUBSIDY RECEIVED BY THE ASSESSEE AS A REIMBURSEMENT OF EXPENSES AND THUS NOT INCOME CHARG EABLE TO TAX. 2. AS PER THE RECORD, THE ASSESSEE, DURING THE YEAR , DERIVED INCOME FROM MANUFACTURE AND SALE OF EMBROIDERED FABRIC/LA CES. BEFORE THE AO, ON QUERY, THE ASSESSEE STATED, INTER-ALIA, THAT A S UM OF RS.10,67,613/- HAD BEEN CREDITED BY THE STATE BANK OF INDIA MEHAT PUR BRANCH, UNDER THE TUF SCHEME OF THE CENTRAL GOVT. AND THAT THE SA ID AMOUNT STOOD CREDITED IN THE ASSESSEES INTEREST ACCOUNT. FROM T HE ASSESSEES PROFIT & LOSS ACCOUNT, THE AO NOTICED THAT THE ASSESSEE HAD DEBITED INTEREST AT RS.11,65,947/-. THE AO CALLED FOR THE ASSESSEES IN TEREST ACCOUNT. A PERUSAL THEREOF SHOWED THAT THE ASSESSEE HAD REDUCE D THE INTEREST ITA NO.283(ASR)/2014 ASSTT. YEAR 2009-10 2 SUBSIDY RECEIVED UNDER THE TUF SCHEME, AT RS.10,67, 613/- FROM THE TOTAL INTEREST PAYABLE AT RS.22,33,560/-, AND THAT THUS, BY NETTING THE INTEREST PAYABLE, THE ASSESSEE HAD ENHANCED HER PRO FITS TO THE EXTENT OF RS.10,67,613/-. AS SUCH, PROPOSING TO DISALLOW THE DEDUCTION CLAIMED U/S 80IC OF THE ACT, THE AO SHOW CAUSED THE ASSESS EE, STATING THAT WHILE DRAWING UP HER PROFIT & LOSS ACCOUNT, THE ASS ESSEE HAD SUBTRACTED THE INTEREST SUBSIDY RECEIVED FROM THE H.P. GOVT. A MOUNTING TO RS.10,67,613/- FROM THE TOTAL AMOUNT OF INTEREST ON LOANS & ADVANCES AT RS.22,33,560/-, INSTEAD OF CREDIT THE SAME TO THE P ROFIT & LOSS ACCOUNT AS A REVENUE RECEIPT, AND HAD THUS DEBITED EXPENSES ON ACCOUNT OF INTEREST AMOUNTING TO RS.11,65,417/- AFTER NETTING THE SAME, HAT AS SUCH, THE ASSESSEE HAD ENHANCED HER PROFITS TO THE EXTENT OF THE INTEREST SUBSIDY RECEIVED, WHICH COULD NOT BE SAID TO BE PRO FITS DERIVED FROM THE INDUSTRIAL UNDERTAKING; AND THAT SO, NO DEDUCTION U/S 80IC OF THE ACT WAS ADMISSIBLE IN RESPECT OF THE PROFITS AND GAINS AS INCURRED BY WAY OF ADJUSTMENT/NETTING OF THE INTEREST SUBSIDY RECEIVED , TO THE EXTENT OF RS.10,67,613/-. THE AO PLACED RELIANCE ON LIBERTY INDIA VS. CIT, 183 TAXMAN 349 (SC) AND CIT VS. GHERIA OIL GRAMUDYOG W ORKERS WELFARE ASSOCIATION 228 CTR (HP) 94 IN THIS REGARD. 3. IN RESPONSE, THE ASSESSEE STATED THAT SHE HAD RE CEIVED THE INTEREST SUBSIDY NOT FROM THE H.P. GOVT., BUT FROM THE TEXTI LE UPGRADATION FUND SCHEME OR TUFS; THAT THE TUFS PROVIDES A REIMBURSE MENT OF FIVE PERCENTAGE POINTS TO LENDING AGENCIES, WHERE THE LE NDING AGENCIES HAVE FINANCED TECHNOLOGY UPGRADATION TO ELIGIBLE UNITS; THAT AS PER THE SCHEME, THE BANKS WHICH HAVE ADVANCED LOANS TO TEXT ILE UNITS ELIGIBLE FOR THE FIVE PERCENT REIMBURSEMENT, ARE REQUIRED TO ACC EPT THE REPAYMENT OF THE LOAN WITHOUT THE FIVE PERCENT REIMBURSEMENT, WH ICH THEY WILL GET DIRECTLY FROM THE NODAL AGENCY; THAT HAVER, FOR TH EIR SECURITY AND CONVENIENCE, THE BANKS CHARGE INTEREST AT THEIR LE NDING RATES AND REIMBURSE THE FIVE PERCENT INTEREST AMOUNT TO THE E LIGIBLE BORROWER UNIT ITA NO.283(ASR)/2014 ASSTT. YEAR 2009-10 3 AS AND WHEN IT IS RECEIVED BY THE BANKS FROM THE NO DAL AGENCY; THAT HAD THE ASSESSEES BANK FOLLOWED THE PROCEDURE LAID DOW N IN THE SCHEME, THERE WOULD NOT HAVE BEEN ANY INSTANCE OF INTEREST REIMBURSEMENT APPEARING IN THE BOOKS OF THE ASSESSEE; AND THAT AS SUCH, THE TREATMENT IN THE ASSESSEES BOOKS OF ADJUSTING THE CREDITS AG AINST THE EXPENSES INCURRED, WAS IN ACCORDANCE WITH THE GENERAL PRINCI PLES OF ACCOUNTANCY AND THEREFORE, THE DEDUCTION CLAIMED U/S 80IC OF TH E ACT HAD BEEN CORRECTLY COMPUTED, CALLING FOR IT TO BE ALLOWED. 4. THE AO, HOWEVER, OBSERVED THAT BY REDUCING THE I NTEREST SUBSIDY FROM THE TOTAL INTEREST PAYABLE AND NETTING THE INT EREST CHARGED BY THE BANK AND DEBITING IT TO HER PROFIT & LOSS, THE ASSE SSEE HAD TREATED THE INTEREST SUBSIDY AS A REVENUE RECEIPT. THE AO WAS O F THE VIEW THAT HAD THE BANK OR THE ASSESSEE ADJUSTED THE INTEREST SUBS IDY IN THE LOAN ACCOUNT; THE AMOUNT OF INTEREST CHARGED BY THE BANK WOULD BE LESS THAN THE INTEREST OF RS.22,33,560/-, AS CHARGED. THE AO OBSERVED THAT TREATING THE SUBSIDY AS A REVENUE RECEIPT WAS AGAINST CIT V S. PONNI SUGARS & CHEMICALS LTD. & OTHERS, 219 CTR (SC) 105, AS PER WHICH, THE CHARACTER OF THE RECEIPT OF THE SUBSIDY IN THE HANDS OF THE A SSESSEE HAS TO BE DETERMINED WITH RESPECT TO THE PURPOSE FOR WHICH IT IS GIVEN, I.E., IF THE PURPOSE WAS TO ENABLE THE BUSINESS TO BE RUN MORE P ROFITABLY, THE RECEIPT IS ON THE REVENUE ACCOUNT, WHEREAS IN CASE IT WAS TO ENABLE EITHER A NEW BUSINESS TO BE SET UP, OR THE EXISTIN G UNIT TO BE EXPANDED, IT IS OF CAPITAL NATURE; THAT IN THE LINE WITH PO NNI SUGARS (SUPRA), THE INTEREST SUBSIDY OUGHT TO HAVE BEEN CAPITALIZED AN D REDUCED FROM THE TERM LOAN, WHICH WOULD ALSO HAVE REDUCED THE INTERE ST BURDEN ON THE ASSESSEE THAT THE ASSESSEE, ON THE OTHER HAND, HAD TREATED THE SUBSIDY AS A REVENUE RECEIPT, DUE TO WHICH, NO DEDUCTION U/ S 80IC OF THE ACT WAS ADMISSIBLE IN RESPECT OF PROFITS ATTRIBUTED TO THE INTEREST SUBSIDY. ITA NO.283(ASR)/2014 ASSTT. YEAR 2009-10 4 5. THE LD. CIT(A), BY VIRTUE OF IMPUGNED ORDER, DEL ETED THE DISALLOWANCE. 6. AGGRIEVED, THE DEPARTMENT HAS FILED THE PRESENT APPEAL. 7. LD. DR CONTENDED THAT THE LD. CIT(A) HAS ERRED I N DELETING THE ADDITION BY WRONGLY TREATING THE INTEREST SUBSIDY A S REIMBURSEMENT OF EXPENSES NOT CHARGEABLE TO TAX. 8. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER H AND, STRONGLY PLACED RELIANCE ON THE IMPUGNED ORDER. 9. HAVING HEARD THE PARTIES IN THE LIGHT OF THE MAT ERIAL ON RECORD, I FIND THAT THE LD. CIT(A) HAS DELETED THE DISALLOWAN CE BY OBSERVING THAT INITIALLY, THE BANK HAD CHARGED INTEREST AT THE PR IME LENDING RATE ON THE LOAN TAKEN BY THE ASSESSEE ON TUFS; THAT IT WAS ONL Y ON RECEIPT OF THE INTEREST SUBSIDY FROM THE NODAL AGENCY, THAT IT WAS PASSED ON TO THE ASSESSEE; THAT AS SUCH, THE INTEREST RATE GOT REDUC ED ON ACCOUNT OF SUCH SUBSIDY; THAT THE SUBSIDY ONLY GOES TO REDUCE THE I NTEREST RATE ON THE LOAN TAKEN BY THE ASSESSEE FOR HER BUSINESS PURPOSE AND THEREFORE, IT DIRECTLY REDUCES THE COST OF OPERATION OF THE UNIT ; THAT AS SUCH , IT CANNOT BE TREATED EITHER AS A SEPARATE RECEIPT, OR AS ANY SORT OF INCOME; AND THAT THE INTEREST SUBSIDY IN QUESTION HAD BEEN PROVIDED TO THE ASSESSEE UNDER THE TUF SCHEME, TO REDUCE THE OPERAT IONAL COST OF THE ASSESSEE. 10. THE DEPARTMENT HAS NOT BEEN ABLE TO DISLODGE TH E WELL-BASED FINDINGS RECORDED BY THE LD. CIT(A). IT REMAINS UND ISPUTED THAT THE SUBSIDY IN QUESTION WAS GRANTED TO THE ASSESSEE UND ER THE TEXTILE UPGRADATIOON FUND SCHEME. AS PER THIS SCHEME, THE G OVT. OF INDIA PROVIDES A REIMBURSEMENT OF FIVE PERCENTAGE POINTS INTEREST ON TERM LOAN TO THE LENDING AGENCIES/BANKS WHICH HAVE FINANCED LOANS TO TEXTILE UNITS ELIGIBLE FOR TECHNOLOGY UPGRADATION. THE BANKS ARE REQUIRED TO ACCEPT THE REPAYMENT OF THE LOAN WITHOUT THE FIVE PERCENT REIM BURSEMENT WHICH THEY WILL GET FROM THE NODAL AGENCY DIRECTLY. HOWEV ER, FOR THEIR SECURITY ITA NO.283(ASR)/2014 ASSTT. YEAR 2009-10 5 AND CONVENIENCE, THE BANKS CHARGE INTEREST AT THEIR PRIME LENDING RATES AND REIMBURSE THE FIVE PERCENT INTEREST AMOUNT TO T HE BORROWER UNITS ONLY WHEN ITS IS RECEIVED FROM THE NODAL AGENCY. IT SO HAPPENED IN THE PRESENT CASE AS WELL, WHICH FACT WAS NOWHERE CALLED INTO QUESTION BY THE AO. ACTUALLY, IF THE ASSESSEES BANK HAD FOLLOWED T HE PROCEDURE PRESCRIBED UNDER THE SCHEME AND THE REPAYMENT OF TH E LOAN HAD BEEN ACCEPTED SHORT OF THE FIVE PERCENT INTEREST REPRESE NTING THE SUBSIDY GRANTED TO THE ASSESSEE UNDER THE TUFS, WHICH INTER EST WOULD HAVE ANYWAY REACHED THE BANK, THOUGH THROUGH THE NODAL A GENCY UNDER THE SCHEME, NO OCCASION OF ENTERING OF ANY INTEREST REI MBURSEMENT BY THE ASSESSEE IN HER BOOKS OF ACCOUNT, BY ADJUSTING TH E CREDITS AGAINST THE EXPENSES INCURRED, WOULD HAVE ARISEN AT ALL. 11. THERE IS ALSO NO EFFECTIVE REBUTTAL TO THE OBSE RVATION THAT THE SUBSIDY ONLY REDUCES THE INTEREST RATE, THOUGH THE LD. DR WOULD, WITHOUT ELABORATING AS TO HOW, HAVE ONE BELIEVE THAT THE CO ST OF OPERATION OF THE UNIT WILL GET REDUCED ONLY IF IT PERTAINS TO THE PR E-OPERATIVE PERIOD. UNDENIABLY, THE SUBSIDY IS MEANT FOR FACILITATING T HE UPGRADATION OF TECHNOLOGY IN THE TEXTILE SECTOR AND THE CHARACTER OF A SUBSIDY, AS PER THE MANDATE OF PONNI SUGARS AND CHEMICALS LTD. (SUPRA ), IS TO BE DETERMINED WITH RESPECT TO THE PURPOSE FOR WHICH IT IS GIVEN. MOREOVER, THE PRIME RATE OF INTEREST GETS REDUCED BY FIVE PER CENTAGE POINTS ONLY BY VIRTUE OF THE SUBSIDY GRANTED UNDER THE TUFS. SANS THE SUBSIDY, THERE WOULD HAVE BEEN NO FACILITATION OF THE MUCH REQUIRE D UPGRADATION OF TECHNOLOGY IN TEXTILE PRODUCTION. NOW, ONCE THE INT EREST RATE ON THE LOAN TAKEN BY THE ASSESSEE FOR THE PURPOSES OF HER BUSIN ESS GETS REDUCED BY THE SUBSIDY, THE SUBSIDY OBVIOUSLY REDUCES THE COST OF OPERATION OF THE INDUSTRIAL UNIT IRRESPECTIVE OF ITS PERIOD OF EXI STENCE, WHETHER PRE- OPERATIVE, OR POST-COMMENCEMENT OF PRODUCTION. IN F ACT, AS IRREFUTABLY OBSERVED BY THE LD. CIT(A), THE VERY OBJECT OF GRAN T OF THE SUBSIDY TO THE ASSESSEE UNDER THE TUFS WAS TO REDUCE THE OPERATION AL COST OF THE UNIT. ITA NO.283(ASR)/2014 ASSTT. YEAR 2009-10 6 12. FOR THE ABOVE, THE ORDER PASSED BY THE LD. CIT( A) IS FOUND TO BE WELL VERSED, REQUIRING NO INTERFERENCE WHATSOEVER. IT IS HEREBY CONFIRMED. THE GRIEVANCE OF THE DEPARTMENT, ON THE CONTRARY, IS EN TIRELY SHORN OF MERIT AND IT IS REJECTED AS SUCH. 13. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED AN APPLICATION DATED 17 TH DEC., 2015 BEFORE THE DISPOSAL OF THE APPEAL, CON TENDING THEREIN THAT THE TAX EFFECT INVOLVED IN THE PRESEN T APPEAL OF THE DEPARTMENT IS LESS THAN RS. 10 LACS AND HAS THEREFO RE, REQUESTED THAT THE APPEAL OF THE DEPARTMENT MAY BE DISMISSED IN VIEW O F CBDT CIRCULAR NO.21 OF 2005 DATED 14.12.2015, WHERE THE CBDT HAS DIRECTED THE DEPARTMENT FOR WITHDRAWAL OF THE APPEALS INVOLVING TAX EFFECT LESS THAN RS.10 LACS FILED BEFORE THE TRIBUNAL. WHILE DECIDI NG THE APPEAL, THE APPLICATION DATED 17.12.2015 OF THE LD. COUNSEL HAS ALSO BEEN FAVOURABLY TAKEN INTO CONSIDERATION. 14. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18TH D ECEMBER, 2015. SD/- (A.D. JAIN) JUDICIAL MEMBER DATED: 18/12/2015 /SKR/ COPY OF ORDER FORWARDED TO: 1. THE ASSESSEE: SMT. INDU MAHAJAN, AMRITSAR 2. THE ITO, V(2), ASR. 3. THE CIT(A), ASR. 4. THE CIT, ASR. 5. THE SR. DR, ITAT, ASR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH: AMRITSAR. ITA NO.283(ASR)/2014 ASSTT. YEAR 2009-10 7