ITO, Ward- 34(1), New Delhi V. Modern Papers , Delhi

ITA 4426/DEL/2018

AI Insights

The case involves the Income Tax Department (Revenue) appealing against the decision of the CIT(A) which had allowed the assessee, M/s. Modern Papers, to treat an excise duty subsidy of Rs. 26,68,89,345 as a capital receipt. The Revenue contended that the subsidy should be treated as a revenue receipt, citing the assessee's previous treatment of similar receipts and the intention to reduce tax liability. The Tribunal referenced previous decisions, including the assessee's own case for A.Y. 2015-16 and other relevant judgments, to conclude that the subsidy is a capital receipt, thus allowing the appeal of the Revenue.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 113798 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 08-05-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 07-06-2018
• Other Referred Cases: DCIT vs. M/s. Munnjal Auto Industries, M/s. Crystal Crop Protection Pvt. Ltd. vs. DCIT, CIT vs. Shree Balaji Alloys
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASSESSEE HEAVILY RELIED
• Assessee Lawyers: S.S.NAGER

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH ‘E’ : NEW DELHI) BEFORE SH. ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SH.ANUBHAV SHARMA, JUDICIAL MEMBER ITA No. 4426/Del/2018, A.Y. 2013-14 ITO, Ward-34(1), New Delhi Vs. M/s. Modern Papers A-88, Ashok Vihar, Phase-1, New Delhi PAN : AAQFM2930H Assesseeby Sh. S.S.Nager, CA Revenue by Ms. Sarita Kumari, CIT-DR Date of hearing: 09.05.2023 Date of Pronouncement: 15.05.2023 ORDER Per Anubhav Sharma, JM : The appeal is preferred by the Revenue against the order dated 19.03.2018 of CIT(A)-12, New Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in appeal No. 490/16-17 arising out of an appeal before it against the assessment order dated 30.12.2016 passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) by the ACIT, Circle—34(1), New Delhi (hereinafter referred as the Ld. AO). 2. The facts in brief are the assessee filed return declaring income of Rs. 55,70,20,510/- which was taken up for complete scrutiny for the reason high interest expenditure against new capital added in work in progress or addition made to fixed assets, Mismatch in sales turnover reported in audit report and 4426.Del.2018 M/s Modern Paper 2 ITR & Mismatch in amount paid to related persons u/s 40A(2)(b) reported in audit report and ITR. Assessee is engaged in the business of manufacturing, formulating producing, refining, processing, buying, selling, export and import of all types of agrochemicals. The firm started its manufacturing operation in the year 2008-09 at Jammu. The Firm manufactures pesticides, insecticides, fungicides, weedicides etc. During the financial year 2013-14, the assessee has shown total turnover of Rs. 336,61,83,231/- thereby having a Gross Profit of 23.8% as compared to the total turnover of Rs. 171,66,04,388/- thereby having a Gross Profit Rate of 27.45% in the immediately preceding year. In addition to this, the assessee is also deriving other income of Rs. 11,02,862/-. The assessee firm filed its original return of income on 29/11/2014 showing total income of Rs. 55,70,20,510/-. However, the assessee filed revised return of income on 20.02.2016 showing total income of Rs. 35,68,53,500/- thereby leading to a decrease of total income by Rs. 20,01,67,010/-. 2.1 The main issue in this case is that a subsidy of Rs. 26,68,89,345/- on account of excise duty refund is received by the assessee, in pursuance of the incentives announced and sanctioned vide Government of India, Ministry of Commerce and Industry (Department of Industrial Policy and Promotion’s ) Office Memorandum No. 1(13)2000-NER dated June 14,2002 and Central Excise Notification Nos. 56 and 57, dated November 14, 2002 and other notifications issued on the subject, pertaining to the industrial policy introduced in the State of Jammu and Kashmir. The dispute under consideration is the determination as to whether the said subsidy is capital or revenue in nature. 3. Ld. AO has observed in para 2.3.7 as follows :- “2.3.7 More so, so long as the assessee was enjoying the benefit of weighted deduction @ 100% of the profits derived from the undertaking, this element of subsidy, received in earlier years, was continuously being treated by it as revenue in nature as this was not resulting into any statutory tax 4426.Del.2018 M/s Modern Paper 3 liability. The moment the assessee steps into the sixth year of its production from the date of its inception, it tries to take a contrary stand altogether. The action of the assessee, thus, clearly shows the intention of reducing its tax liability by treating the receipt of subsidy as capital in nature. 3.1 And made addition which was sustained by ld. CIT(A) and the assessee is in appeal raising following grounds :- “1. The Ld. CIT(A) has erred in deleting the addition made by the AO on the basis of judgments of various courts submitted by the assessee without considering the fact that these judgments were also provided during the assessment proceedings and the AO considered the same and gave a detailed explanation in para 2.3 and 2.4. 2. The Ld. CIT(A) has erred in deleting the addition without appreciating the fact that the assessee in the earlier years considered the same receipt as revenue in nature and took the benefit of weighted deduction @100%. 3. The Ld. CIT(A) has erred in allowing the claim of the assessee of excise duty refund of Rs. 26,68,89,345/- as capital receipt instead of revenue receipt. 4. The appellant craves leave for permission to modify any of the grounds of appeal/raise additional grounds of appeal at the time of hearing. The appellant reserves the right to add, amend or alter the grounds of appeal on or before the date of appeal is finally heard for disposal.” 5. Heard and perused the record. 6. In regard to the assessee’s own case for A.Y. 2015-16 the Co-ordinate Bench of this Tribunal on which one of us was quorum, considered the matter and observed as follows :- “6. On the other hand, Ld. Counsel for assessee heavily relied the judgment of ITAT Ahmedabad Bench in ITA No. 1619/AHD/2008 in DCIT vs. M/s. Munnjal Auto Industries and in assessee’s own case for assessment year 2013-14 of Delhi Bench to contend that as with regard to the assessee’s case, there is no error in findings of Ld. CIT(A). 4426.Del.2018 M/s Modern Paper 4 7. Giving thoughtful consideration to the matter on record it can be observed that in assessee’s own case for assessment year 2013-14 a Co-ordinate bench decision in M/s. Crystal Crop Protection Pvt. Ltd. vs. DCIT dated 19.12.2019 in ITA no. 1539/Del/2016 was relied which in turn had further relied the judgment of Hon’ble Jammu and Kashmir High Court in CIT vs. Shree Balaji Alloys CIT 333 ITR 335 which has been further sustained with Hon’ble Apex Court. The cumulative effect of same is that excise duty subsidy and interest subsidies given in pursuant of new industrial policy were held to be capital receipts. No distinction, as attempted by Ld. AO, can be drawn on the basis that as earlier income was subject to benefit of weighed deduction @ 100% of the profits derived from undertaking which no more was available, that would change the nature of receipt to revenue instead of Capital. 8. Consequently respectfully following the findings in regard to the assessee’s own case for assessment year 2013-14, the grounds cannot be sustained. The Appeal of revenue is dismissed.” 7. In the light of aforesaid the grounds are sustained. Consequently, the appeal of revenue is allowed Order pronounced in the open court on 15 th May, 2023. Sd/- Sd/- (ANIL CHATURVEDI) (ANUBHAV SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Date:-15.05.2023 *Binita, SR.P.S* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI