M/s. Genus Electrotech Ltd., Ahmedabad V. The Income tax Officer,Ward-4(1), Ahmedabad

ITA 2840/AHD/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1651 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 02-11-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 18-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIMLENDU VERMA
• Keywords: Capital asset; Depreciation; Opportunity of being heard; Capital receipt
• Section: 143(3); 115JB

Judgement Text

I.T.A. NO 2826 AND 2840/AHD/12 ASSESSMENT YEAR: 2006 - 07 PAGE 1 OF 12 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR AM AND S S GODARA JM ] I.T.A. NO 2826/AHD/12 ASSESSMENT YEAR: 2006 - 07 ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 4, AHMEDABAD ............. .APPELLANT VS. GENUS ELECTROTECH LIMITED .. . . RESPONDENT 308, DEVARC COMPLEX, S G HIGHWAY AHM EDABAD 380 015 [PAN: AABCG9645H} I.T.A. NO 2840/AHD/12 ASSESSMENT YEAR: 2006 - 07 GENUS ELECTROTECH LIMITED ............. .APPELLANT 308, DEVARC COMPLEX, S G HIGHW AY AHMEDABAD 380 015 [PAN: AABCG9645H] VS. INCOME TAX OFFICER WARD 4(1), AHMEDABAD .. . . RESPONDENT APPEARANCES BY: SANJAY AGARWAL AND VIMLENDU VERMA , FOR THE REVENUE NARESH JAIN, ALONG - WITH SUNIL AGARWAL , FOR THE ASSESSEE DATE OF C ONCLUDING THE HEARING : FEBRUARY 12 , 2016 DATE OF PRONOUNC ING THE ORDER : MAY 11 TH , 2016 O R D E R PER PRAMOD KUMAR , AM : 1. THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 26 TH SEPTEMBER 2012 PASSED BY THE LEARNED CIT(A) IN THE MATTER OF ASSESSMENT UNDER S ECTION 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2006 - 07. 2. WE WILL FIRST TAKE UP THE APPEAL FILED BY THE ASSESSING OFFICER. I.T.A. NO 2826 AND 2840/AHD/12 ASSESSMENT YEAR: 2006 - 07 PAGE 2 OF 12 3. GRIEVANCES RAISED BY THE ASSESSING OFFICER ARE AS FOLLOWS: 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.4,36,57,867/ - TREATING SALES TAX INCENTIVE AS REVENUE RECEIPT BY THE ASSESSING OFFICER WITHOUT APPRECIATING FACTS THAT INCENTIVE GRANTED AFTER COMMENCEMENT OF PRODUCTION BY THE INDUSTRY IS A REVENUE RECEIPT. 2. THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.3,21,35,417/ - TREATING EXCISE INCENTIVE AS REVENUE RECEIPT BY THE ASSESSING OFFICER WITHOUT APPRECIATING FACTS THAT THE ASSESSEE IS FREE TO UTILISE THE MONEY AS IT FEELS TO DO SO AND THERE IS NO STIPULATION OF IT BEING USED. 4. THE RELEVANT MATERIAL FACTS , AS CULLED OUT FROM MATERIAL ON RECORD, ARE LIKE THIS. THE ASSESSEE BEFORE US IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF CTVS, PCBS, WASHING MACHINES ETC. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED AN AMOUNT OF RS 4,36,57,867 AS CAPITAL SUBSIDY RECEIVED BY WAY OF SALES TAX BENEFIT UNDER THE SCHEME OF THE GUJARAT GOVERNMENT, AND RS 3,21,35,417 AS EXCISE DU TY BENEFIT UNDER THE SCHEME OF THE GOVERNMENT OF INDIA . AS THE ASSESSING OFFICER NOTED, THESE AMOUNTS BEING NOTIONAL, ASSESSEE HAD CLAIMED THE SAME IN COMPUTATION OF INCOME . IN RESPONSE T O THE QUESTIONS PUT BY THE ASSESSING OFFICER, DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, IT WAS EXPLAINED BY THE ASSESSEE THAT THE ASSESSEE WAS GRANTED SALES TAX BENEFIT FOR SETTING UP THE UNIT IN THE DISTRICT OF KUTCH, AND THIS BENEFIT WAS IN THE SENSE THAT NETHER THE ASSESSEE HAS PAID ANY SALES TAX ON PURCHASES N OR CHARGED ANY SALES TAX TO ITS CUSTOMERS. THE CLAIM OF THE ASSESSEE WAS THAT THERE IS A NOTIONAL SUBSIDY ELEMENT INBUILT IN THE REVENUE RECEIVED AND THAT IS REALLY THE SUBSIDY RECEIVED BY IT IN RESPECT OF SALES TAX . AS FOR THE CENTRAL EXCISE SUBSIDY GRANT ED BY THE GOVERNMENT OF INDIA, THE ASSESSEE WAS TO CHARGE FULL EXCISE DUTY ON SALES INVOICES, ADJUSTED THE CENVAT CREDIT AVAILABLE TO IT ON PURCHASE, AND WAS REQUIRED TO PAY THE BALANCE THROUGH THE PLA. SUBSEQUENTLY, THE AMOUNT ACTUALLY PAID, THROUGH PLA, WAS REFUNDED TO THE SUBSIDY. THE ASSESSEE DISCLOSED THESE REFUNDS IN THE PROFIT AND LOSS ACCOUNT AS CAPITAL RECEIPTS. THE ASSESSING OFFICER NOTED THE FACTS, AS SET OUT ABOVE, AS ALSO THE ASSESSEE S RELIANCE ON SEVERAL JUDICIAL PRECEDENTS, INCLUDING SPECIAL BENCH DECISION OF THIS TRIBUNAL IN THE CASE OF DCIT VS RELIANCE INDUSTRIES LTD [(2004) 88 ITD 273 (SB)], DECISION DATED 29 TH AUGUST 2008 IN THE CASE OF SISTER CONCERN BY THE NAME OF GENUS OVERSEAS LIMITED, JAIPUR, RATNA SUGAR MILLS CO LTD VS CIT (33 ITR 6 44), CIT VS I.T.A. NO 2826 AND 2840/AHD/12 ASSESSMENT YEAR: 2006 - 07 PAGE 3 OF 12 CHITRA KALP (277 ITR 540) AND CIT VS PONNI SUGAR & CHEMICALS LTD (306 ITR 392). HE THEN NOTED THAT WHETHER A SUBSIDY IS CAPITAL RECEIPT OR REVENUE RECEIPT IS A VEXED QUESTION AND IT HAS NO EASY ANSWER. HE FURTHER EXPRESSED THE VIEW THAT WHETHE R A SUBSIDY IS TO BE TREATED AS CAPITAL RECEIPT OR REVENUE RECEIPT WILL DEPEND UPON THE PURPOSE, INTENT AND NATURE OF SCHEME AND BENEFIT RECEIVED UNDER IT BY THE RECIPIENT . HE THEN REFERRED TO THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF SAHNEY S TEEL AND PRESS WORKS LTD VS CIT (228 ITR 253) . HE THEN CONCLUDED THAT THERE IS NO DOUBT THAT IF AN INCENTIVE IS GRANTED AFTER THE COMMENCEMENT OF PRODUCTION BY THE INDUSTRY, THEN IT WILL BE OF REVENUE NATURE . REFERRING TO PONNI SUGAR & CHEMICALS DECISIO N (SUPRA) BY HON BLE SUPREME COURT, THE ASSESSING OFFICER OPINED THAT SUBSIDY CAM BE CAPITAL IF IT HAS OBLIGATION ON THE PART OF THE RECIPIENT TO UTILIZE IT WITHER TO EXPAND ITS CAPITAL STRUCTURE OR TOWARDS ACQUISITION OF THE SAME OR REPAYMENT OF ITS CAPI TAL LIABILITY ONLY . HE INFERRED THAT IF THERE IS NO SUCH STIPULATION AND THE ASSESSEE IS FREE TO USE THE MONEY IN ITS BUSINESS ENTIRELY AS HE LIKES IT, IT WILL BE OF REVENUE NATURE . THE ASSESSING OFFCER NOTED THAT THE SALES TAX BENEFIT IS GIVEN TO THE ASSESSEE ONLY AFTER COMMENCEMENT OF PRODUCTION, THAT THE ASSESSEE IS UNDER NO STIPULATION TO APPLY THE INCENTIVE AMOUNT TOWARDS REPAYMENT OF CAPITAL ASSET - UNLIKE IN THE CASE OF PONNI SUGAR, THAT THE NATURE OF ASSISTANCE WAS FOR TRADE AND THAT IN EFFECT SA LES TAX SUBSIDY REDUCED THE COST AND INCREASED THE PROFITS OF THE ASSESSEE, AND THAT, FOR ALL THESE REASONS, THE SALES TAX SUBSIDY IS REQUIRED TO BE TREATED AS REVENUE IN NATURE. AS REGARDS CENTRAL EXCISE DUTY REFUND, THE ASSESSING OFFICER NOTED THAT THE R EBATE/ REFUND IS AVAILABLE ONLY FOR THE PERIOD WHICH IS RECKONED FROM THE DATE OF COMMENCEMENT OF COMMERCIAL PRODUCTION, THAT THERE IS NO STIPULATION ON HOW TO USE THE REFUNDS SO RECEIVED, AND THAT, IN VIEW OF THIS FACTUAL POSITION AND EARLIER DISCUSSIONS ON LEGAL POSITION, THIS SUBSIDY IS ALSO REQUIRED TO BE TREATED AS A REVENUE RECEIPT. IT WAS IN THIS BACKDROP THAT THE ADDITIONS OF RS 4,36,57,867 IN RESPECT OF SALES TAX SUBSIDY AND RS 3,21,35,417 FOR EXCISE DUTY SUBSIDY WERE MADE TO THE INCOME RETURNED B Y THE ASSESSEE. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) . LEARNED CIT(A) S LINE OF REASONING WAS AS FOLLOWS: 3.7. ON MERITS OF THE ISSUE, I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE LEARNED COUNSEL AND ALSO CONSIDERED THE FINDINGS OF THE ASSESSING OFFICER. THE SUBSIDY/SALES TAX INCENTIVE WAS AVAILABLE TO THE APPELLANT FOR I.T.A. NO 2826 AND 2840/AHD/12 ASSESSMENT YEAR: 2006 - 07 PAGE 4 OF 12 ESTABLISHING THE INDUSTRIAL UNIT IN THE KUTCH DISTRICT OF GUJARAT. THE INCENTIVE SCHEME WAS FORMULATED VIDE RESOLUTION NI INC - 10200 - 903 - 1 DATED 09/11/2001 OF INDUSTRIES OF MINES DEPARTMENT, GOVERNMENT OF GUJARAT. IN THE PREAMBLE ITSELF, IT WAS STATED THAT THE ECONOMIC ACTIVITIES IN THE DISTRICT OF KUTCH CAME TO A STANDSTILL ON ACCOUNT OF THE DEVASTATING EARTHQUAKE IN THE STATE O N 26 TH JANUARY 2001, NEW EMPLOYMENT OPPORTUNITIES COULD BE CREATED. IF NEW INVESTMENT TAKES PLACE, THE GOVERNMENT IS COMMITTED TO ATTRACTING INDUSTRIES IN THE DISTRICT TO MAKE THE INDUSTRIAL AND ECONOMIC ENVIRONMENT LIVE. GOVERNMENT OF INDIA HAS ANN OUNCED EXCISE DUTY EXEMPTION FOR NEW INDUSTRIES TO PROMOTE LARGE SCALE INVESTMENT IN THE DISTRICT ALONG WITH WHICH THE STATE GOVERNMENT HAS ALSO DECIDED TO ANNOUNCE THE SCHEME OF SALES TAX INCENTIVES. SINCE THE SCHEME IS AIMED AT MAKING THE ECONOMIC ENVIR ONMENT OF KUTCH DISTRICT LIVE, IT HAS BEEN DECIDED TO CONFINE THE SAME ONLY TO KUTCH DISTRICT. THE APPELLANT COMPANY IS AVAILING THE BENEFIT OF SCHEME BY NOT PAYING SALES TAX ON PURCHASES, WHILE ON SALES, COMPANY IS COLLECTING SALES TAX ON SALES MADE AND THE SAME IS CARRIED UNDER THE HEAD DIRECT INCOME UNDER THE PROFIT AND LOSS ACCOUNT OF THE COMPANY. IT IS EVIDENT FROM THE PREAMBLE OF THE SCHEME THAT THE INCENTIVES WERE GIVEN TO ENTREPRENEURS TO ATTRACT THE LARGE SCALE INVESTMENT TO GENERATE NEW EMPLOYME NT AND FOR MAKING THE ECONOMIC ENVIRONMENT OF KUTCH DISTRICT LIVE. THUS, NEITHER THE INCENTIVES WERE GIVEN FOR MEETING THE COST OF THE INVESTMENT NOR WERE GIVEN FOR ASSISTING THE APPELLANT IN CARRYING OUT THE BUSINESS OPERATIONS. THUS, THE SUBSIDY IN THE FORM OF EXEMPTION FROM THE LIABILITY TO PAY SALES TAX IS ON CAPITAL ACCOUNT AND NOT ON REVENUE ACCOUNT. 3.8 THE FACTS OF THE APPELLANT S CASE ARE SIMILAR. IT IS EVIDENT FROM THE SCHEME ITSELF THAT THE SALES TAX SUBSIDY/INCENTIVES WERE NOT GIVEN TO THE A PPELLANT FOR ASSISTING IT IN CARRYING OUT THE BUSINESS OPERATIONS. THE OBJECT OF THE SUBSIDY WAS TO ENCOURAGE LARGE SCALE INVESTMENT BY ATTRACTING ENTREPRENEURS FOR SETTING UP OF INDUSTRIES IN THE NOTIFIED AREA OF KUTCH DISTRICT WHERE THE ECONOMIC ACTIVIT IES CAME TO A STANDSTILL ON ACCOUNT OF THE DEVASTATING EARTHQUAKE IN THE STATE ON 26 TH JANUARY, 2001. THE SCHEME WAS FORMULATED AND THE INCENTIVES WERE GIVEN TO ENTREPRENEURS TO ATTRACT THE LARGE SCALE INVESTMENT TO GENERATE NEW EMPLOYMENT AND FOR MAKING THE ECONOMIC ENVIRONMENT OF KUTCH DISTRICT OF GUJARAT BEFORE THE SPECIFIED DATE AS PER THE SCHEME OF INCENTIVE. THE LIMIT OF THE INCENTIVE WAS FIXED. THE APPELLANT S CASE IS COVERED BY THE DECISION OF HON BLE SPECIAL BENCH OF MUMBAI TRIBUNAL IN THE CASE OF DCIT VS. RELIANCE INDUSTRIES LTD. 88 ITD 273 (MUM. (SB) AS RELIED ON BY THE LEARNED COUNSEL. THE HON BLE SPECIAL BENCH OF MUMBAI TRIBUNAL HAD RELIED ON THE DECISION OF THE HON BLE MADRAS HIGH COURT IN THE CASE OF PONNI SUGARS & CHEMICALS LTD. 260 ITR 6 05 (MAD). THIS DECISION WAS LATER ON AFFIRMED BY THE HON BLE SUPREME COURT IN THE CASE OF CIT VS. PONNI SUGARS & CHEMICALS LTD. 306 ITR 392 (SC) BY HOLDING THAT THE CHARACTER OF THE RECEIPT IN THE HANDS OF THE APPELLANT HAS TO BE DETERMINED WITH RESPECT T O THE PURPOSE FOR WHICH THE SUBSIDY IS GIVEN. IN OTHER WORDS, IN SUCH CASES ONE HAS TO APPLY PURPOSE TEST . THE POINT OF TIME WHEN THE SUBSIDY IS PAID IS NOT RELEVANT. THE SOURCE IS IMMATERIAL AND THE FORM OF SUBSIDY IS ALSO IMMATERIAL. IT IS EVIDENT F ROM THE INCENTIVE SCHEME ITSELF THAT THE PURPOSE OF THE SCHEME WAS TO ATTRACT THE LARGE SCALE INVESTMENT TO GENERATE NEW EMPLOYMENT AND FOR TAKING THE ECONOMIC ENVIRONMENT OF KUTCH DISTRICT LIVE. IN VIEW OF THE ABOVE JUDICIAL DECISIONS AND CONSIDERING THE FACTS OF THE CASE AND ALSO RELYING ON THE DECISION OF THE JURISDICTIONAL BENCH OF ITAT IN THE CASE OF ACIT VS. BIRLA VXL LTD. (ITA/247 - 249/RAJKOT/2011), I AM OF THE CONSIDERED OPINION THAT THE SALES TAX INCENTIVE OF I.T.A. NO 2826 AND 2840/AHD/12 ASSESSMENT YEAR: 2006 - 07 PAGE 5 OF 12 RS.43657867/ - AND EXCISE DUTY INCENTIVE OF RS.32135417/ - RECEIVED BY THE APPELLANT WERE IN THE NATURE OF CAPITAL RECEIPTS AND THUS WERE NOT CHARGEABLE TO TAX. THE AO IS DIRECTED TO DELETE THE ABOVE ADDITIONS. THE GROUNDS OF APPEAL ARE ACCORDINGLY ALLOWED. 5. REVENUE IS AGGRIEVED AND IS IN AP PEAL BEFORE US. 6 . WHEN THIS CASE WAS CALLED OUT FOR HEARING, SHRI SANJAY AGARWAL, LEARNED COMMISSIONER (DR), MOVED A PETITION SEEKING REFERENCE TO A LARGER BENCH. THIS PETITION, INTER ALIA, STATED AS FOLLOWS: ONE OF THE ISSUES INVOLVED IN THIS APPEAL IS RECEIPT OF SALES TAX AND EXCISE DUTY SUBSIDY RECEIVED BY THE ASSESSEE FROM THE STATE FOR THE PURPOSE OF INDUSTRIALIZATION. ITAT RAJKOT, IN ITA NO. 793/RJT/2012 RELYING UPON THE DECISION OF DCIT VS RELIANCE INDUSTRIES LTD IN 88 ITD 273, HELD THAT NATURE OF SUBSIDY WAS CAPITAL. 2. HON BLE DELHI TRIBUNAL, IN THE CASE OFF ACIT VS JINDAL STEEL AND POWER LTD (145 ITD 277), NOTED AT PARA 21 THAT SUBSIDY WAS FOR THE PURPOSE OF INDUSTRIALIZATION. THE DECISION OF DCIT VS RELIANCE INDUSTRIES LTD (SUPRA) WAS ALSO CITE D BY THE ASSESSEE, BUT THE DECISION WAS NOT FOLLOWED IN VIEW OF GETTING IT SET ASIDE BY HON BLE SUPREME COURT - AS ARGUED BY LEARNED DR. 3. HON BLE DELHI BENCH ANALYSED THE DECISION OF SUPREME COURT IN THE CASE OF PONNI SUGAR AND CHEMICALS LTD 306 ITR 392 AD SAHNI STEEL & PRESS WORKS LTD 228 ITR 253, AND HELD THEM TO BE COMPLIMENTARY TO EACH OTHER. THE AMOUNT OF SUBSIDY WAS HELD TO BE REVENUE IN NATURE. 4. IN THE PRESENT CASE ALSO, THE SUBSIDY HAS BEEN GRANTED FOR THE CONDUCT OF BUSINESS MORE EFFICIENTLY AFTER THE INDUSTRY COMMENCED THE PRODUCTION. 5. IT IS FURTHER SEEN THAT THE DECISION OF THE ITAT DELHI IS LATER IN POINT OF TIME AND IT ANALYSED THE ISSUE AFTER CONSIDERING DIFFERENT DECISIONS OF SUPREME COURT AND TRIBUNALS, AND SO THE SAME IS REQUIRED TO BE FOLLOWED. 6. IN THE ALTERNATIVE, IT IS PRAYED THAT CONSIDERING THE CONFLICTING DECISIONS OF ITAT RAJKOT, ON THE ISSUE OF NATURE OF SUBSIDY, THE MATTER MAY KINDLY BE REFERRED TO SPECIAL BENCH AND ACCORDINGLY BE ADJOURNED. 7 . LEARNED COUNSEL, ON THE OT HER HAND, SUBMITTED THAT THE ISSUE IN APPEAL IS SQUARELY COVERED BY THE COO RDINATE BENCH DECISION IN THE C ASE OF DCIT VS AJANTA MANUFACTURING LTD (ITA NO. 793/RJT/2010; ORDER DATED 23TH SEPTEMBER 2010 , AS RIGHTLY POINTED BY THE L EARNED COMMISSIONER, IN RES PECT OF THE SAME SUBSIDY SCHEME, AND WE MUST, THEREFORE, FOLLOW THE SAID DECISION. AS FOR THE DECISION OF ANOTHER COORDINATE BENCH, IN THE CASE OF ACIT VS JINDAL STEEL & POWER LTD [(2013) I.T.A. NO 2826 AND 2840/AHD/12 ASSESSMENT YEAR: 2006 - 07 PAGE 6 OF 12 38 TAXMANN.COM 132 (DELHI)], LEARNED COUNSEL POINTS OUT THAT THIS DE CISION IS CLEARLY PER INCURIUM AS THE BENCH HAS IGNORED A BINDING SPECIAL BENCH DECISION IN THE CASE OF RELIANCE INDUSTRIES LTD (SUPRA). A DEVIANT AND PER - INCURIUM DECISION, ACCORDING TO THE LEARNED COUNSEL, SHOULD NOT BE ALLOWED TO DILUTE THE BINDING DECI SIONS FROM THE HIGHER FORUMS. LEARNED COUNSEL ALSO SUBMITTED THAT THERE IS NO OCCASION TO SEND THE MATTER TO THE SPECIAL BENCH, AS RELIANCE INDUSTRIES DECISION (SUPRA) IS A SPECIAL BENCH DECISION WHICH STILL HOLDS THE FIELD. 8 . A FEW WEEKS AFTER THE HEAR ING WAS CONCLUDED AND THE ORDER WAS PENDING DICTATION, LEARNED COMMISSIONER (DR) FILED ONE MORE PETITION. HE ONCE AGAIN REFERRED TO HIS PRAYER FOR CONSTITUTION OF SPECIAL BENCH, AND HIS COMMUNICATION TO HON BLE PRESIDENT OF THIS TRIBUNAL, FOR THAT PURPOSE . HE ALSO INVITED OUR ATTENTION TO A RATHER RECENT DECISION OF HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF JCIT VS COLOUMAN DYECHEM LIMITED [(2015) 127 DTR 74 (GUJ)] WHICH, ACCORDING TO HIM, HOLDS THAT IF THE PURPOSE OF SUBSIDY IS FOR NOT BUYING THE CAPITAL ASSETS, OR FOR ESTABLISHMENT OF PROJECT, THE SAME WILL BE REVENUE IN NATURE . HE SUBMITS THAT AS THIS IS A JUDICIAL PRECEDENT FROM HON BLE JURISDICTIONAL HIGH COURT, WE ARE REQUIRED TO FOLLOW THE SAME. 9. THE MATTER WAS AGAIN REFIXED SO AS TO AFF ORD THE ASSESSEE AN OPPORTUNITY TO BE HEARD IN RESPECT OF THIS PETITION. LEARNED COUNSEL FOR THE ASSESSEE POINTS OUT THAT, AS EVIDENT FROM A PLAIN READING OF PARAGRAPH 8 OF THE DECISION CITED BY THE LEARNED COMMISSIONER (DR), THAT WAS A CASE IN WHICH THE S UBSIDY WAS PAYABLE IF AND ONLY IF THE UNIT WAS TO SHOW AN INCREASE OF PRODUCTION CAPACITY BY A LEAST 25% WITHIN ONE YEAR AT ANY POINT OF TIME AFTER IMPLEMENTING THE EXPANSION SCHEME. IT WAS ON THIS BASIS THAT THEIR LORDSHIPS CAME TO A FACTUAL FINDING THAT SUBSIDY BE TREATED AS ASSISTANCE FOR CARRYING ON OF BUSINESS OF THE ASSESSEE. LEARNED COUNSEL THEN TOOK US THROUGH CERTAIN OBSERVATION WHICH, QUITE TO THE CONTRARY OF WHAT IS SUBMITTED BY THE LEARNED COMMISSIONER (DR), FOLLOW THE PRINCIPLE THAT IF THE PURP OSE OF THE SUBSIDY SCHEME WAS TO HELP THE INDUSTRIALIZATION OF SETTING UP OF BUSINESSES, THE SUBSIDY WILL BE ON CAPITAL ACCOUNT. LEARNED COUNSEL THEN INVITES OUR ATTENTION TO THE JUDGMENT DATED 12 TH FEBRUARY 2013 PASSED BY HON BLE JURISDICTIONAL HIGH COURT , IN THE CASE OF CIT VS BIRLA VXL LTD (TAX APPEAL NOS 316,317 AND 318 OF 2012), WHEREIN THEIR I.T.A. NO 2826 AND 2840/AHD/12 ASSESSMENT YEAR: 2006 - 07 PAGE 7 OF 12 LORDSHIPS DECLINED TO INTERFERE IN THE TRIBUNAL DECISION, WHICH HAD GRANTED SIMILAR RELIEF FOLLOWING THE RAJKOT BENCH DECISION RELIED UPON BY THE ASSESSEE, AND TH US UPHELD THE VIEW OF SALES TAX SUBSIDY BEING CAPITAL IN NATURE. WE WERE URGED TO HOLD, AS ACCORDING TO THE LEARNED COUNSEL WAS GLARING FROM THE FACTS OF THIS CASE, THAT THE DECISION IN THE CASE OF COLOURMAN DYECHEM (SUPRA), DOES NOT APPLY TO THE FACTS OF THIS CASE INASMUCH AS THAT WAS A CASE IN WHICH THE SUBSIDY WAS DEPENDENT ON INCREASE IN THE CAPACITY AS AGAINST THE PRESENT CASE IN WHICH THE SUBSIDY IS FOR SETTING UP THE BUSINESS. 10. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD A ND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 11. WE FIND THAT SO FAR AS THE SPECIAL BENCH DECISION OF THIS TRIBUNAL IN THE CASE OF RELIANCE INDUSTRIES (SUPRA) IS CONCERNED, IT STILL HOLDS THE FIELD. ALL THAT HAS HAPP ENED, AS A RESULT OF HON BLE SUPREME COURT S DECISION DATED 9 TH SEPTEMBER 2011, IS THAT HON BLE BOMBAY HIGH COURT HAS NOW ADMITTED THE QUESTION WHETHER, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HON BLE TRIBUNAL WAS RIGHT IN HOLDING THAT SALES TAX E XEMPTION WAS A CAPITAL RECEIPT AND WILL, IN DUE COURSE THOUGH, ADJUDICATE ON THIS LEGAL ISSUE. TO THAT EXTENT, HON BLE BOMBAY HIGH COURT S ORDER DATED 15 TH APRIL 2009, TO THE EXTENT OF DECLINING TO ADMIT THIS QUESTION, STANDS REVERSED. HOWEVER, THE DECISI ON OF THE SPECIAL BENCH STILL HOLDS GOOD AS THE SAME HAS NOT, AND AT LEAST NOT YET, EVEN BEEN EXAMINED BY HON BLE BOMBAY HIGH COURT. MERE ADMISSION OF APPEAL AGAINST A DECISION, AS IS ELEMENTARY, DOES NOT AFFECT THE BIDING NATURE OF A JUDICIAL PRECEDENT. T HE SPECIAL BENCH DECISION, IN THE CASE OF RELIANCE INDUSTRIES LTD (SUPRA), WAS NOT REVERSED BY HON BLE SUPREME COURT, BUT WAS DIRECTED TO BE EXAMINED, ON MERITS, BY HON BLE BOMBAY HIGH COURT. THAT IS QUITE DIFFERENT FROM DISAPPROVING THE SPECIAL BENCH DECI SION, BUT IT APPEARS THAT THE COORDINATE BENCH WAS LE D TO BELIEVE, AND THERE COULD NOT HAVE BEEN ANY OTHER REASON FOR IGNORING THE SPECIAL BENCH DECISION, THAT THIS SPECIAL BENCH DECISION IS REVERSED. THAT IS PATENTLY INCORRECT, AND WHEN WE POINTED IT OUT TO THE LEARNED COMMISSIONER (DR), HE DID NOT HAVE MUCH TO SAY EXCEPT TO RELY UPON THE COORDINATE BENCH DECISION WHICH SEEMS TO HAVE FOLLOWED THAT APPROACH. THE COORDINATE BENCH, I.T.A. NO 2826 AND 2840/AHD/12 ASSESSMENT YEAR: 2006 - 07 PAGE 8 OF 12 IN THE CASE OF JINDAL STEEL (SUPRA), DID INDEED TRAVEL MUCH BEYOND ITS LIMITED MANDATE IN IGNORING A BINDING JUDICIAL PRECEDENT SIMPLY BECAUSE APPEAL AGAINST THAT SPECIAL BENCH DECISION IS NOW PENDING BEFORE HON BLE BOMBAY HIGH COURT. WHEN POSED WITH A SPECIAL BENCH DECISION AND A DIVISION BENCH DIRECTLY ON THE ISSUE, THOUGH TOUCHIN G DIFFERENT CHORDS, WE HAVE NO DIFFICULTY IN RECOGNIZING OUR LIMITATIONS. THE WISDOM OF A DIVISION BENCH, EVEN IF SUPERIOR - AS STRENUOUSLY ARGUED BY THE LEARNED COMMISSIONER, HAS TO MAKE WAY FOR THE HIGHER WISDOM OF A LARGER BENCH. IT IS THIS FAITH OF JUD ICIAL HIERARCHICAL SYSTEM THAT IS THE STRENGTH OF OUR FUNCTIONING, AND WE MUST FOLLOW THE SAME. WE, THEREFORE, REGRET OUR INABILITY TO FOLLOW THE DIVISION BENCH IN THE CASE OF JINDAL POWER, NO MATTER HOW DEEPLY WE RESPECT AND ADMIRE THE WORK OF ALL OUR COL LEAGUES, AND WE WOULD RATHER BE GUIDED BY THE SPECIAL BENCH DECISION WHICH IS EXACTLY WHAT ANOTHER DIVISION BENCH, ON THE SAME SET OF FACTS AS BEFORE US, DID IN THE CASE OF AJANTA MANUFACTURING LTD (SUPRA). AS FOR LEARNED COMMISSIONER (DR) S SUGGESTION T HAT WE SHOULD FOLLOW THE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OFF COLOURMAN DYECHEM (SUPRA), WE FIND THAT THEIR LORDSHIPS, IN THIS CASE, WERE DEALING WITH AN ENTIRELY DIFFERENT TYPE OF SUBSIDY WHICH WAS CLEARLY DEALING WITH AN EXPANSION SITUATION . HOWEVER, WE WOULD RATHER REFRAIN FROM MAKING ANY FURTHER DETAILED OBSERVATIONS ON THIS ISSUE, AS WE ARE ALIVE TO THE FACT THAT HON BLE JURISDICTIONAL HIGH COURT, IN TAX APPEAL NO 358 OF 2012, HAS ADMITTED APPEAL AGAINST THE DECISION OF THIS TRIBUNAL IN A JANTA S CASE (SUPRA) AND ALL THESE ISSUES WILL NOW COME UP FOR CONSIDERATION OF THEIR LORDSHIPS. THE FACT THAT APPEAL IS ADMITTED DOES NOT, AS WE HAVE STATED EARLIER AS WELL, DOES NOT AFFECT THE BINDING NATURE OF THE JUDICIAL PRECEDENTS. THERE IS NO DISPUT E BEFORE US THAT THE SCHEME UNDER WHICH THE SALES TAX AND EXCISE DUTY SUBSIDY ARE GIVEN TO THIS ASSESSE ARE THE SAME AS IN THE CASE OF AJANTA MANUFACTURING LTD (SUPRA). ALL THE MATERIAL FACTS BEING THE SAME, THERE IS NO REASON TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE COORDINATE BENCH. WE MUST, THEREFORE, UPHOLD THE CONCLUSIONS ARRIVED AT BY THE COMMISSIONER (APPEALS), WHICH ARE IN CONSONANCE WITH THE SPECIAL BENCH DECISION IN THE CASE OF RELIANCE INDUSTRIES (SUPRA) AND COORDINATE B ENCH DECISION IN THE CASE OF AJANTA MANUFACTURING LTD (SUPRA), AND DECLINE TO INTERFERE IN THE MATTER. 12. THE APPEAL OF THE ASSESSING OFFI CER IS THUS DISMISSED. 13. THAT TAKES US TO THE APPEAL FILED BY THE ASSESSEE. I.T.A. NO 2826 AND 2840/AHD/12 ASSESSMENT YEAR: 2006 - 07 PAGE 9 OF 12 14. GROUND NO. 1 AND 2 ARE NOT PRESSE D AND ARE DISMISSED AS SUCH. 15 IN GROUND NO. 3, THE SHORT ISSUE IS THAT THE LEARNED CIT(A) ERRED IN CONFIRMING NON EXCLUSION OF DEBT REDEMPTION FUND OF RS 2.50 CRORES FROM THE BOOK PROFIT FOR THE PURPOSE OF COMPUTING BOOK PROFITS UNDER SECTION 115JB. 16 . DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS, THE ADJUSTMENT FOR DEBT REDEMPTION FUND, AT RS 2.50 CRORES, WAS DECLINED WITH A SHORT OBSERVATION THAT DEBT REDEMPTION FUND OF RS 2.50 CRORES IS AN APPROPRIATION FOR PURPOSE OF CREATING A RESERVE AND IS A BELOW THE LINE ADJUSTMENT, IT DOES NOT FALL IN ANY CATEGORY OF THE ADJUSTMENTS PROVIDED UNDER SECTION 115JB . LEARNED CIT(A) CONFIRMED THE SAME ON THE SAME BASIS AND REJECTED ASSESSEE S STAND THAT IT IS COVERED BY HON BLE BOMBAY HIGH COURT S JUDG MENT IN THE CASE OF CIT V S RAYMONDS LTD [21 TAXMANN.COM 80]. IT WAS HELD THAT THE PURPOSE OF DEBT REDEMPTION RESERVE IS CREATION OF A RESERVE AND IS NOT A PERMISSIBLE ADJUSTMENT. THE ASSESSEE IS AGGRIEVED AND IS IN APPEAL BEFORE US. 17. HAVING HEARD THE R IVAL CONTENTIONS AND HAVING PERUSED THE MATERIAL ON RECORD, WE FIND THAT THE ISSUE IS INDEED COVERED BY THE DECISION OF HON BLE BOMBAY HIGH C OURT, IN THE CASE OF CIT VS RAY MONDS LTD [(2012) 71 DTR 265 (BOM)] WHEREIN THEIR LORDSHIPS HAVE INTER ALIA OBSERVED AS FOLLOWS: 2. RE QUESTION (A): SECTION 115JA OF THE INCOME TAX ACT, 1961 PROVIDES IN SUBSECTION (2) THAT EVERY ASSESSEE, BEING A COMPANY SHALL FOR THE PURPOSE OF THE SECTION PREPARE ITS PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR IN ACCORDANC E WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI TO THE COMPANIES ACT, 1956. THE EXPLANATION TO THE SECTION PROVIDES THAT FOR THE PURPOSE OF THE SECTION, 'BOOK PROFIT' MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PR EVIOUS YEAR PREPARED UNDER SUB - SECTION (2) AS INCREASED INTER ALIA BY '(B) THE AMOUNTS CARRIED TO ANY RESERVES BY WHATEVER NAME CALLED'. PART III OF SCHEDULE VI TO THE COMPANIES ACT, 1956 PROVIDES INTER ALIA IN CLAUSE 7(1)(B) THAT, 'THE EXPRESSION 'RESERVE ' SHALL NOT INCLUDE ANY AMOUNT WRITTEN OFF OR RETAINED BY WAY OF PROVIDING FOR DEPRECIATION, RENEWALS OR DIMINUTION IN VALUE OF ASSETS OR RETAINED BY WAY OF PROVIDING FOR ANY KNOWN LIABILITY'. 3. THE NATURE OF A DEBENTURE REDEMPTION RESERVE (DRR) HAS BEEN CONSIDERED BY THE JUDGMENT OF THE SUPREM E COURT IN NATIONAL RAYON CORPORATION LTD. VS. COMMISSIONER OF INCOME TAX [(1997) 227 ITR 764]. THE SUPREME COURT AFTER I.T.A. NO 2826 AND 2840/AHD/12 ASSESSMENT YEAR: 2006 - 07 PAGE 10 OF 12 ADVERTING TO THE PROVISIONS OF CLAUSE 7 OF PART III TO SCHEDULE VI OF THE COMPANIES ACT, 1956 H ELD THAT 'THE BASIC PRINCIPLE IS THAT AN AMOUNT SET APART TO MEET A KNOWN LIABILITY CANNOT BE REGARDED AS RESERVE'. WHERE A COMPANY ISSUES DEBENTURES, THE LIABILITY TO REPAY ARISES THE MOMENT THE MONEY IS BORROWED. BY ISSUING DEBENTURES A COMPANY TAKES A L OAN AGAINST THE SECURITY OF ITS ASSETS. THOUGH THE LOAN MAY NOT BE REPAYABLE IN THE YEAR OF ACCOUNT, THE OBLIGATION TO REPAY IS A PRESENT OBLIGATION. HENCE ANY MONEY SET APART IN THE ACCOUNTS OF THE COMPANY TO REDEEM THE DEBENTURE HAS TO BE TREATED AS MONI ES SET APART TO MEET A KNOWN LIABILITY. CONSEQUENTLY, DEBENTURES HAVE TO BE SHOWN IN THE BALANCE SHEET OF A COMPANY AS A LIABILITY. BEING MONIES SET APART TO MEET A KNOWN LIABILITY, A DEBENTURE REDEMPTION RESERVE CANNOT BE REGARDED AS A RESERVE FOR THE PUR POSE OF SCHEDULE VI TO THE COMPANIES ACT, 1956. IN NATIONAL RAYON CORPORATION, THE SUPREME COURT FOLLOWED ITS EARLIER DECISION IN VAZIR SULTAN TOBACCO CO. LTD. VS. CIT [[1981] 132 ITR 559], IN HOLDING THAT SINCE THE CONCEPT OF RESERVE AND OF A PROVISION IS WELL KNOWN IN COMMERCIAL ACCOUNTANCY AND IS USED IN THE COMPANIES ACT, 1956, WHILE DEALING WITH THE PREPARATION OF BALANCE SHEETS AND PROFIT AND LOSS ACCOUNTS THE MEANING OF THAT CONCEPT WOULD HAVE TO BE GATHERED FROM THE MEANING ATTACHED IN THE COMPANIES ACT ITSELF. THE FOLLOWING OBSERVATIONS OF THE SUPREME COURT ARE OF SIGNIFICANCE: 'THE DEBENTURES WERE NOTHING BUT SECURED LOANS. MERELY BECAUSE THE DEBENTURES WERE NOT REDEEMABLE DURING THE ACCOUNTING PERIOD, THE LIABILITY TO REDEEM THE DEBENTURES DID NO T CEASE TO EXIST. IT WAS REDEEMABLE OR REPAYABLE AT A FUTURE DATE. BUT IT WAS A KNOWN LIABILITY. IN THE FORM OF BALANCE - SHEET PRESCRIBED BY THE ACT IN SCHEDULE VI, THE SECURED LOANS HAVE TO BE SHOWN UNDER THE HEADING 'LIABILITIES'. SECURED LOANS INCLUDE (1 ) DEBENTURES, (2) LOANS AND ADVANCES FROM BANKS, (3) LOANS AND ADVANCES FROM SUBSIDIARIES, AND (4) OTHER LOANS AND ADVANCES. THE SECURED LOANS MIGHT NOT BE IMMEDIATELY REPAYABLE, BUT THE LIABILITY TO REPAY THESE LOANS IS AN EXISTING LIABILITY AND HAS TO BE SHOWN IN THE COMPANY'S BALANCE - SHEET FOR THE RELEVANT YEAR OF ACCOUNT AS A LIABILITY. AMOUNTS SET APART TO PAY THESE LOANS CANNOT BE 'RESERVE'. THE INTERPRETATION CLAUSE OF THE BALANCE - SHEET IN SCHEDULE VI OF THE COMPANIES ACT SPECIFICALLY LAYS DOWN THAT RESERVES SHALL NOT INCLUDE ANY AMOUNT WRITTEN OFF OR RETAINED BY WAY OF PROVIDING FOR A KNOWN LIABILITY.' 4. THE MERE FACT THAT A DEBENTURE REDEMPTION RESERVE IS LABELED AS A RESERVE WILL NOT RENDER IT AS A RESERVE IN THE TRUE SENSE OR MEANING OF THAT CON CEPT. AN AMOUNT WHICH IS RETAINED BY WAY OF PROVIDING FOR A KNOWN LIABILITY IS NOT A RESERVE. CONSEQUENTLY , THE TRIBUNAL WAS CORRECT IN HOLDING THAT THE AMOUNT WHICH WAS SET APART AS A DEBENTURE REDEMPTION RESERVE IS NOT A RESERVE WITHIN THE MEANING OF EXP LANATION (B) TO SECTION 115JA OF THE INCOME TAX ACT, 1961 . 18. WE, THEREFORE, UPHOLD T HE PLEA OF THE ASSESSEE, AND DIRECT THE ASSESSING OFFICER TO GRANT THE RELIEF ACCORDINGLY. 19. GROUND NO. 3 IS THUS ALLOWED. I.T.A. NO 2826 AND 2840/AHD/12 ASSESSMENT YEAR: 2006 - 07 PAGE 11 OF 12 20. GROUND NO. 4 IS GENERAL AND DOES NOT C ALL FOR ANY ADJUDICATION. 21. IN GROUND NO. 5 AND 6, THE ASSESSEE HAS RAISED A NEW ISSUE WITH RESPECT TO TREATING THE SALES TAX SUBSIDY AND EXCISE SUBSIDY BEING CAPITAL IN NATURE AND AS SUCH NOT LIABLE TO BE TAKEN INTO ACCOUNT FOR COMPUTING THE BOOK PROFI TS UNDER SECTION 115JB. 22. WE FIND THAT, IN THE LIGHT OF THE LAW LAID DOWN BY HON BLE SUPREME COURT IN THE CASE OF NATIONAL THERMAL POWER CORP LTD VS CIT [(1998) 229 ITR 383(SC)}, THERE CANNOT INDEED BE ANY OBJECTION TO AN ASSESSEE RAISING A NEW LEGAL PLEA AT THIS STAGE. WE, THEREFORE, ADMIT THIS NEW ISSUE FOR ADJUDICATION. 23. ON MERITS, WE FIND THAT THIS ISSUE IS SQUARELY COVERED, IN FAVOUR OF THE ASSESSEE, BY COORDINATE BENCH DECISION IN THE CASE OF ACIT VS SHREE CEMENTS LTD (ITA NO 614,615 AND 635/ JPR/2010; ORDER DATED 9 TH SEPTEMBER 2011), AND NO JUDICIAL PRECEDENT TO THE CONTRARY HAS BEEN BROUGHT TO OUR NOTICE. THERE WERE NO SPECIFIC ARGUMENTS OF THE REVENUE ON THIS ISSUE. WE, THEREFORE, UPHOLD THIS PLEA OF THE ASSESSEE AS WELL, AND DIRECT THE ASSE SSING OFFICER TO GRANT THE RELIEF ACCORDINGLY. 24. THE APPEAL OF THE ASSESSEE IS THUS ALLOWED PARTLY IN THE TERMS INDICATED ABOVE. 25. TO SUM UP, WHILE APPEAL OF THE ASSESSING OFFICER IS REJECTED, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON 11 TH DAY OF MAY, 2016. SD/ - SD/ - S S GODARA PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) DATED: 11 TH DAY OF MAY , 2016 I.T.A. NO 2826 AND 2840/AHD/12 ASSESSMENT YEAR: 2006 - 07 PAGE 12 OF 12 COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ETC ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD