Dy. Commr. Of Income Tax, Morbi Circle, Morbi. V. M/s Ajanta Mfg. Ltd., Morbi

ITA 308/RJT/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 3041 (ITAT-RAJKOT)
• Duration Of Justice: 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2014-2015
• Appeal Filed On: 29-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RANJIT SINGH
• Assessee Lawyers: VIMAL DESAI A R
• Keywords: Capital receipt; Benefit of exemption
• Section: 115JB

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT , ! '# $ , % ! & ' BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER #./ I.T.A. NOS.173, 174 & 308/RJT/2017 ( / ASSESSMENT YEARS : 2012-13, 2013-14 & 2014-15) ACIT/DCIT, MORBI CIRCLE, MORBI. / VS. M/S. AJANTA MANUFACTURING LTD., ORPAT MANUFACTURING LTD., MORBI RAJKOT HIGHWAY, 8-A, NATIONAL HIGHWAY, VIRPAR, MORBI !* # ./ + # ./ PAN/GIR NO. : AAECA 6115 B ( *, / APPELLANT ) .. ( -*, / RESPONDENT ) *, . / APPELLANT BY : SHRI RANJIT SINGH, D.R. -*, / . / RESPONDENT BY : SHRI VIMAL DESAI, A.R. 0 1 / 2 / DATE OF HEARING 1 3 /03/2018 34 / 2 / DATE OF PRONOUNCEMENT 31 / 0 5 /201 8 5 / O R D E R PER MAHAVIR PRASAD JUDICIAL MEMBER: THESE THREE CAPTIONED APPEALS HAVE BEEN FILED AT THE INSTANCE OF THE REVENUE AGAINST THE SEPARATE APPELLATE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-3, RAJKOT [CIT( A) IN SHORT] DATED 14/03/2017, 14/03/2017 & 28/07/2017 ARISING IN THE ASSESSMENT ORDER PASSED UNDER S.143(3) OF THE INCOM E TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT') DATED 27/03 /2015, 18/03/2016 & 30/12/2016 RELEVANT TO ASSESSMENT YEAR S (AYS) 2012-13, 2013-14 & 2014-15. ITA NOS.173, 174 & 308/RJT/2017 ACIT/DCIT VS. AJANTA MANUFACTURING LTD. ASSESSMENT YEAR 2012-13, 2013-14 & 2014-15 - 2 - 2. SINCE IN ALL THREE APPEALS ISSUES ARE COMMON ONL Y FIGURES AND ASSESSMENT YEARS ARE DIFFERENT. THEREFORE, FOR THE SAKE OF CONVENIENCE, WE WOULD LIKE TO DISPOSE OF ALL THREE APPEALS TOGETHER. 3. THE GROUND OF APPEALS RAISED BY THE DEPARTMENT IN ALL THREE APPEALS READ AS UNDER:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 11 ,91,08,010/- MADE ON ACCOUNT OF SALES TAX (VAT) EXEMPTION BENEFI T TREATED AS CAPITAL IN NATURE; WHEREAS THE SAME IS REVENUE R ECEIPT AS THE SAME IS PROMOTIONAL SCHEME PRONOUNCED BY THE GOVT. OF GUJARAT AND THE SAME IS NOT CAPITAL IN NATURE. IN T HIS CASE, SUBSIDIES HAVE NOT BEEN GRANTED FOR PRODUCTION OF O R BRINGING INTO EXISTENCE ANY NEW ASSET. THE SUBSIDIES WERE GR ANTED YEAR AFTER YEAR ONLY AFTER SETTING UP OF THE NEW INDUSTR Y AND COMMENCEMENT OF PRODUCTION. SUCH A SUBSIDY COULD ON LY BE TREATED AS ASSISTANCE GIVEN FOR THE PURPOSE OF CARR YING ON OF THE BUSINESS OF THE ASSESSEE. APPLYING LEST OF VISC OUNT SIMON IN THE CASE OF OSTIME. IT MUST BE HELD THAT THESE SUBS IDIES ARE OF REVENUE CHARACTER AND WILL HAVE TO BE TAXED ACCORDI NGLY. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION RS. 12,58 ,398/- MADE ON ACCOUNT OF EXCISE DUTY INCENTIVE/REFUND; WHEREAS THE SAME IS REVENUE RECEIPT AS THE SAME IS PROMOTIONAL SCHEM E PRONOUNCED BY THE GOVT. OF INDIA TO AND THE SAME IS NOT CAPITAL IN NATURE. IN THIS CASE, SUBSIDIES HAVE NOT BEEN GR ANTED FOR PRODUCTION OF OR BRINGING INTO EXISTENCE ANY NEW AS SET. THE SUBSIDIES WERE GRANTED YEAR AFTER YEAR ONLY AFTER S ETTING UP OF THE NEW INDUSTRY AND COMMENCEMENT OF PRODUCTION. SU CH A SUBSIDY COULD ONLY BE TREATED AS ASSISTANCE GIVEN F OR THE PURPOSE OF CARRYING ON OF THE BUSINESS OF THE ASSES SEE. APPLYING TEST OF VISCOUNT SIMON IN THE CASE OF OSTIME. IT MU ST BE HELD THAT THESE SUBSIDIES ARE OF REVENUE CHARACTER AND W ILL HAVE TO BE TAXED ACCORDINGLY. 3. ON THE FACTS OF THE CASE AND IN LAW, THE LD. C.I .T.(A) OUGHT TO HAVE UPHELD THE ASSESSMENT ORDER OF THE A.O. ITA NOS.173, 174 & 308/RJT/2017 ACIT/DCIT VS. AJANTA MANUFACTURING LTD. ASSESSMENT YEAR 2012-13, 2013-14 & 2014-15 - 3 - 4. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE C .I.T.(A) MAY BE SET ASIDE AND THAT OF THE A.O. BE RESTORED TO THE ABOVE EXTENT. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A LIMITED COMPANY. ITS SOURCE OF INCOME IS INCOME FROM PROFIT AND GAINS OF BUSINESS ON PROFESSION. DURING THE YEAR, ASSESSEE D ERIVED INCOME FROM THE BUSINESS OF MANUFACTURING OF ELECTRICAL PR ODUCTS, CEL LAMPS, DIGITAL CLOCKS, TELEPHONE, VITRIFIED TILES, DIGITAL DISPLAY BOARDS, HOME APPLIANCES AND ELECTROMOTIVE BIKES ETC . 5. ON VERIFICATION OF AUDIT ACCOUNTS AND DETAILS SU BMITTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICE D THAT ASSESSEE HAS RECEIVED INCENTIVES OF RS.12,03,66,408/-, WHICH IS CREDITED TO PROFIT AND LOSS ACCOUNTS UNDER THE HEAD OTHER INCOM E AS CAPITAL RECEIPTS (KUTCHHA INCENTIVE SCHEME). THE PROFIT BEF ORE TAXATION FOR THE YEAR IS SHOWN AT 15,96,86,401/-. HOWEVER, WHILE COMPUTING THE TAXABLE INCOME PROFIT/LOSS AS PER PROFIT AND LOSS A CCOUNT IS SHOWN AS LOSS OF RS.3,93,19,993/- AFTER EXCLUDING INCENTIVES OF RS.12,03,66,408/-. SINCE INCENTIVES OF RS.12,03,66, 408/- RECEIVED BY ASSESSEE ARE IN THE NATURE OF REVENUE RECEIPTS. SO AS PER AO SAME OUGHT TO HAVE BEEN OFFERED TO TAX WHICH WAS NOT DON E. 6. IT IS NOTICED THAT PROFIT AND LOSS ACCOUNT IS PR EPARED IN ACCORDANCE WITH THE PROVISIONS OF PART II AND PART III OF THE SCHEDULE 6 OF THE COMPANIES ACT. HOWEVER, WHILE COMPUTING TH E BOOK PROFIT FOR THE PURPOSE OF SECTION 115JB OF THE ACT COLUMN 9 OF ANNEXURE A TO AUDITORS REPORT IN FORM NO.29B NET PROFIT ACCOR DING TO PROFIT AND LOSS ACCOUNT IS SHOWN AT RS.17,12,97,410/- AFTER EX CLUDING INCENTIVES RECEIVED OF RS.12,03,66,408/- INSTEAD OF PROFIT AS PER PROFIT AND LOSS ACCOUNT OF RS.29,16,63,818/-, WHICH WAS NOT IN ACCO RDANCE WITH PROVISION OF SECTION 115JB OF THE ACT. ITA NOS.173, 174 & 308/RJT/2017 ACIT/DCIT VS. AJANTA MANUFACTURING LTD. ASSESSMENT YEAR 2012-13, 2013-14 & 2014-15 - 4 - 7. THEREAFTER, ASSESSEE WAS ISSUED A NOTICE REGARDI NG ADDITION OF INCENTIVE AMOUNT OF RS.12,03,66,408/- VIZ. EXCISE D UTY REFUND OF RS.12,58,398/- AND SALE TAX (VAT) BENEFIT OF RS.11, 91,08,010/- UNDER NORMAL PROVISION OF THE ACT. 8. THEREAFTER, ASSESSEE FILED DETAILED REPLY TO THE ASSESSING OFFICER BUT ASSESSING OFFICER WAS NOT SATISFIED WIT H THE CONTENTION OF THE ASSESSEE. HENCE, HE MADE AN ADDITION ON ACCOUNT OF SALE TAX INCENTIVE OF RS.8,68,59,780/- AND SALE TAX (VAT) IN CENTIVE DUTY REFUND WRONGLY REDUCED FROM PROFIT U/S.115JB AND SA ME WAS OF RS.15,96,86,401/-. 9. AGAINST THE SAID ORDER ASSESSEE PREFERRED FIRST STATUTORY APPEAL BEFORE THE LD. CIT(A) WHICH WAS ALLOWED BY THE LD. CIT(A). 10. NOW DEPARTMENTS APPEAL IS BEFORE US. 11. WE HAVE GONE THROUGH THE RELEVANT RECORD AND IM PUGNED ORDER. DURING THE YEAR UNDER CONSIDERATION, THE ASS ESSEE COMPANY HAD RECEIVED INCENTIVE VIZ. EXCISE DUTY REFUND OF R S.12,58,398/- AND SALES TAX (VAT) EXEMPTION BENEFIT OF RS.11,91,08,01 0/- AGGREGATING TO RS.12,03,66,408/- WHICH WERE CREDITED TO THE PRO FIT AND LOSS ACCOUNT UNDER THE HEAD INCOME AS CAPITAL RECEIPTS ( KUTCH INCENTIVE SCHEMES). 12. ASSESSEE COMPANY HAS RECEIVED AFORESAID INCENTI VES IN THE NATURE OF CAPITAL RECEIPT FROM THE CENTRAL AND STAT E GOVERNMENTS IN THE FORM OF SALES TAX EXEMPTION UNDER THE KUTCH DIS TRICT ECONOMIC DEVELOPMENT ENCOURAGEMENT POLICY, 2001 FORMED BY TH E GUJARAT GOVERNMENT AND REFUND OF EXCISE DUTY VIDE NOTIFICAT ION NO.39/2001- C.E DATED 31/07/2001 FOR PUTTING UP INDUSTRIES IN T HE DISTRICT OF KUTCH WHICH WAS BADLY DEVASTATED BY A HIGH INTENSIT Y EARTHQUAKE. ITA NOS.173, 174 & 308/RJT/2017 ACIT/DCIT VS. AJANTA MANUFACTURING LTD. ASSESSMENT YEAR 2012-13, 2013-14 & 2014-15 - 5 - THE INCENTIVES HAVE BEEN GRANTED FOR THE REHABILITA TION OF THE SAID DISTRICT AND TO GENERATE EMPLOYMENT THERE SO AS TO BRING LIFE BACK TO THE NORMALCY AND FOR ATTRACTING CAPITAL INVESTMENTS . THE BASIS OF COMPUTATION OF INCENTIVES ARE DISBURSED IN THE FORM REFUND A EXCISE DUTY/EXEMPTION OF SALE TAX/VAT PAYABLE BY THE COMPA NIES SETTING UP INDUSTRIES IN THE SAID DISTRICT (NOTIFIED AREA). 13. IN SUPPORT OF THE CONTENTION, ASSESSEE FILED FO LLOWING DOCUMENTS: (A) NOTIFICATION NO.39/2001-C.E DATED 31/07/2001 OF CENTRAL EXCISE ALONGWITH GENERAL EXEMPTION NO.38 ISSUED BY THE CENTRAL EXCISE DEPARTMENT. (B) CERTIFICATE ISSUED BY THE OFFICE OF THE COMMIS SIONER OF CENTRAL EXCISE STATING THAT THE COMPANY HAS MADE INVESTMENT OF RS.116,20,91,124/- IN KUTCH DISTRICT OF GUJARAT ALONG WITH TWO CERTIFICATES ISSUED BY THE O FFICE OF THE CHIEF COMMISSIONER OF CUSTOM AND CENTRAL EXCISE , AHMEDABAD ZONE AND INDUSTRIES & MINES DEPARTMENT OF GOVERNMENT OF GUJARAT. (C) NOTIFICATION OF SALES TAX DATED 09/11/2001. 14. THE ASSESSEE COMPANY HAS SET UP AN INDUSTRIAL U NIT IN THE KUTCH DISTRICT AND HAS RECEIVED INCENTIVE FOR SETTI NG UP AN INDUSTRIAL UNIT IN KUTCH DISTRICT IN ACCORDANCE WITH THE SCHEM E FORMULATED BY THE GOVERNMENT. 15. SIMILAR RECEIPTS IN THE FORM OF INCENTIVES HAVE BEEN HELD TO BE IN THE NATURE OF CAPITAL RECEIPT BY THE APPELLATE A UTHORITY VIZ. CIT(A) AND ITAT IN THE ASSESSEES OWN CASE IN ITA NO.793/R JT/2010 FOR ASST. YEAR 2006-07. RELEVANT PARA OF THE SAID ORDER IS REPRODUCED AS UNDER: ITA NOS.173, 174 & 308/RJT/2017 ACIT/DCIT VS. AJANTA MANUFACTURING LTD. ASSESSMENT YEAR 2012-13, 2013-14 & 2014-15 - 6 - THUS IT CAN CLEARLY BE SEEN THAT A FINDING HAS BEE N RECORDED THAT THE OBJECT OF THE SUBSIDY WAS TO ENCOURAGE THE SETTING UP OF INDUSTRIES IN THE BACKWARD AREA BY GENERATING EM PLOYMENT THEREIN. IN OUR OPINION, IN ANSWERING THE ISSUE, TH E TEST AS LAID DOWN BY THE SUPREME COURT IN COMMISSIONER OF INCOME -TAX V. PONNI SUGAN AND CHEMICALS LTD. (2008) 306 ITR (SC) = (2008 TIOL 174 SC - IT) WILL HAVE TO BE CONSIDERED. T HE SUPREME COURT HAS HELD THAT THE TEST OF THE CHARACTER OF TH E RECEIPT OF A SUBSIDY IN THE HANDS OF THE ASSESSEE UNDER A SCHEME HAS TO BE DETERMINED WITH RESPECT TO THE PURPOSE FOR WHICH TH E SUBSIDY IS GRANTED. THE COURT FURTHER OBSERVED THAT IN SUCH CA SES, WHAT TO BE APPLIED IS THE PURPOSE TEST. THE POINT OF TIME A T WHICH THE SUBSIDY IS PAID IS NOT RELEVANT. THE SOURCE IS IMMA TERIAL. FORM OF SUBSIDY IS MATERIAL. COURT THEN PROCEEDED TO OBS ERVE AS UNDER: THE MAIN ELIGIBILITY CONDITION IN THE SCHEME WITH WHICH WE ARE CONCERNED IN THIS CASE IS THAT THE INCENTIVE MUST B E UTILIZED FOR REPAYMENT OF LOANS TAKEN BY THE ASSESSEE TO SET UP NEW UNITS OR FOR SUBSTANTIAL EXPANSION OF EXISTING UNITS. ON THI S ASPECT THERE IS NO DISPUTE. IF THE OBJECT OF THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO RUN THE BUSINESS MORE PROFITABLY TH EN THE RECEIPT IS ON REVENUE ACCOUNT. ON THE OTHER HAND, I F THE OBJECT OF THE ASSISTANCE UNDER THE SUBSIDY SCHEME WAS TO E NABLE THE ASSESSEE TO SET UNIT OR TO EXPAND THE EXISTING UNIT THEN THE RECEIPT OF THE SUBSIDY WAS IN CAPITAL ACCOUNT. THEREFORE, LET US APPLY THE PURPOSE TEST BASED ON T HE FINDINGS RECORDED BY THE SPECIAL BENCH. THE OBJECT OF THE SU BSIDY WAS TO SET UP A NEW UNIT IN A BACKWARD AREA TO GENERATE EM PLOYMENT. IN OUR OPINION, THE SUBSIDY IS CLEARLY ON CAPITAL A CCOUNT. IN THAT VIEW OF THE MATTER, QUESTION (D) AS FRAMED WOULD AL SO NOT ARISE. 22. ON CAREFUL CONSIDERATION OF THE FACT OF THE CAS E AND IN VIEW OF THE CASE LAWS CITED BEFORE US, WE UPHOLD THE ORDER OF THE CIT(A) BY WHICH THE RECEIPTS HAVE BEEN HELD TO BE CAPITAL IN NATURE. ITA NOS.173, 174 & 308/RJT/2017 ACIT/DCIT VS. AJANTA MANUFACTURING LTD. ASSESSMENT YEAR 2012-13, 2013-14 & 2014-15 - 7 - 16. CO-ORDINATE BENCH HAS HELD IN THE MATTER OF GEN US ELECTROTECH LTD. (SUPRA), THAT SUBSIDIES DO NOT HAVE ANY INCOME ELEMENT AND THEREFORE, THEY SHOULD BE EXCLUDED FOR THE COMPUTAT ION OF INCOME U/S.115JB OF THE ACT. 17. ITAT, JAIPUR HAS HELD IN THE CASE OF SHREE CEME NT LTD. (ITA NO.614/615/635/JP/2010) AND HELD THAT SALES TAX INC ENTIVE AND EXCISE INCENTIVE ARE CAPITAL RECEIPTS AND HENCE, TH EY ARE NOT LIABLE FOR INCLUSION UNDER THE COMPUTATION OF BOOK PROFIT U/S. 115JB OF THE ACT. 18. AS ITAT, RAJKOT IN APPELLANTS OWN CASE, IT IS HELD THAT INCENTIVES RECEIVED BY THE APPELLANT ARE CAPITAL RE CEIPTS. CAPITAL RECEIPT ARE NOT CHARGEABLE TO TAX EVEN IN THE COMPU TATION OF BOOK PROFIT U/S.115JB OF THE ACT. 19. IN OUR CONSIDERED OPINION, THE INCENTIVE OF SAL E TAX/VAT AND EXCISE DUTY, WHICH WAS GIVEN AS PER THE GOVERNMENT POLICY AS ENUMERATED ABOVE AND LD.CIT(A) HAS PASSED REASONED AND DETAILED ORDER. THEREFORE, WE ARE NOT INCLINE TO INTERFERE I N THE ORDER PASSED BY THE LD.CIT(A)-3, RAJKOT. THEREFORE, APPEAL OF TH E DEPARTMENT IS DISMISSED. 20. NOW WE COME TO ITA NO.174/RJT/2017 AND ITA NO.308/RJT/2017. SINCE IN ITA NO.173/RJT/2017, WE H AVE DISMISSED THE APPEAL OF THE DEPARTMENT AND IN THESE TWO APPEA LS ONLY ASSESSMENT YEARS AND FIGURES ARE DIFFERENT OTHERWIS E ISSUES ARE COMMON. THEREFORE, THESE TWO ABOVE APPEALS ARE ALSO DISMISSED. ITA NOS.173, 174 & 308/RJT/2017 ACIT/DCIT VS. AJANTA MANUFACTURING LTD. ASSESSMENT YEAR 2012-13, 2013-14 & 2014-15 - 8 - 21. IN THE RESULT, ALL THREE APPEALS FILED BY THE D EPARTMENT ARE DISMISSED. THIS ORDER PRONOUNCED IN OPEN COUR T ON 31 / 0 5 /201 8 SD/- SD/- ( ) ($ ) ! % ! ( PRADIP KUMAR KEDIA ) ( MAHAVIR PRASAD ACCOUNTANT MEMBER JUDICIAL MEMBER DATED 31/ 05 /2018 PRITI YADAV, SR. PS / COPY OF THE ORDER FORWARDED TO : 1. *, / THE APPELLANT 2. -*, / THE RESPONDENT. 3. #8# 2 92 / CONCERNED CIT 4. 92 () / THE CIT(A)-3, AHMEDABAD. 5. :; < %2%0 , , /DR,ITAT, RAJKOT 6. < = 1 / GUARD FILE. / BY ORDER, - :2 %2 //TRUE COPY// / ! '#$ ( DY./ASSTT.REGISTRAR) ! $%! &, / ITAT, RAJKOT 1. DATE OF DICTATION 26/03/2018(DICTATION-PAD 5 P AGES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER .. 28/03/2018 3. OTHER MEMBER...28/03/2018 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S 17/05/2018 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT17/05/2018 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S. 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER