M/s. R.D. Industries, Jammu V. The Income Tax Officer, Jammu

ITA 445/ASR/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5729 (ITAT-AMRITSAR)
• Duration Of Justice: 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2005-2006
• Appeal Filed On: 22-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K R JAIN
• Keywords: Question of law; Capital receipt

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH: AMRITSAR. BEFORE SHRI H.L. KARWA, VICE PRESIDENT AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER. I.T.A. NO.445(ASR)/2010. (ASSESSMENT YEAR: 2005-06) M/S.R.D. INDUSTRIES, THE ASSESSING OFFICER, SWANKHA MORH, RANGE I(2), JAMMU. VIJAYPUR, JAMMU. (APPELLANT) VS. (RESPONDENT) APPELLANT BY: SHRI K.R. JAIN, ADV. RESPONDENT BY: SHRI TARSEM LAL, D.R. ORDER PER H.L. KARWA, VICE PRESIDENT. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE CIT(A), JAMMU, DATED 27-9-2010, RELATING TO THE ASS ESSMENT YEAR 2005-06. 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN LAW AND FACTS BY REFUSING TO ACCEPT TH AT EXCISE REFUND IS INCOME DERIVED FROM THE MANUFACTURING ACT IVITY OF THE ASSESSEE FIRM. 2. THAT THE CIT(A) IS NOT JUSTIFIED IN NOT ACCEPTIN G IN NOT ACCEPTING THE CONTENTION OF ASSESSEE THAT ASSESSEE BEING ENTITLED TO EXEMPTION OF EXCISE DUTY PAID FROM THE CURRENT A CCOUNT AND REFUNDED NEXT MONTH WOULD NOT MAKE IT ANY THE LESS INCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING. 3. THAT THE ORDER OF THE LD. CIT(A) IS NOT SPEAKING ORDER, AS HE HAS NOT BROUGHT ON RECORD AS TO HOW THE REFUND OF EXCIS E DUTY 2 RECEIVED BY THE ASSESSEE IS NOT INCOME DERIVED FROM THE BUSINESS ACTIVITY. 4. THAT THE NUMBER OF JUDGMENTS OF SC, AS MENTIONED BY THE LD. CIT ARE QUITE DISTINGUISHABLE FROM THE CASE OF ASSE SSEE AS THESE JUDGMENTS ARE BASED ON SALE OF EXPORT ENTITLEMENT, WHEREAS CASE OF THE ASSESSEE IS REFUND OF EXCISE DUTY WHICH IS A N INTEGRAL PART OF MANUFACTURING ACTIVITY AND IS CLEARLY AN INCOME DERIVED FROM THE BUSINESS. 2. THE ASSESSEE VIDE ITS LETTER DATED 18-6-2011 HAS ALSO RAISED THE ADDITIONAL GROUND OF APPEAL, WHICH READS AS UNDER- THAT THE AMOUNT OF RS.1,89,646/- RECEIVED AS EXCIS E REFUND DUTY IS CAPITAL RECEIPT AND NOT THE REVENUE RECEIPT. ACCORDINGLY, IT IS PRAYED THAT THE ADDITION MADE MA Y KINDLY BE DELETED. 3. AS REGARDS THE ADMISSION OF ADDITIONAL GROUND, W E FIND THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY TH E JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF NATIONAL THERMAL POWER CO. LTD. VS. C.I.T. (1998) 229 ITR 383 (SC), WHEREIN THE HONBLE SUPREM E COURT HELD (HEAD NOTE) AS UNDER:- UNDOUBTEDLY, THE TRIBUNAL HAS THE DISCRETION TO AL LOW OR NOT TO ALLOW A NEW GROUND TO BE RAISED. BUT WHERE THE TRIBUNAL IS ONLY REQUIRED TO CONSIDER THE QUESTION OF LAW ARISING FROM FACTS WHI CH ARE ON RECORD IN THE ASSESSMENT PROCEEDINGS, THERE IS NO REASON WHY SUCH A QUESTION SHOULD NOT BE ALLOWED TO BE RAISED WHEN IT IS NECES SARY TO CONSIDER THAT QUESTION IN ORDER TO CORRECTLY ASSESS THE TAX LIABILITY OF AN ASSESSEE. 3.1 IN OUR VIEW, THE ADDITIONAL GROUND RAISED BY THE AS SESSEE IS A QUESTION OF LAW ARISING FROM THE FACTS, WHICH ARE ON RECORD IN THE ASSESSMENT PROCEEDINGS, AND, THEREFORE, RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE 3 HONBLE SUPREME COURT IN THE CASE OF NATIONAL THER MAL POWER CO. LTD. (SUPRA), WE ADMIT THE ADDITIONAL GROUND OF APPEAL. 4. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E RECEIVED A SUM OF RS.1,89,646/- AS EXCISE DUTY REFUND. ON THIS AMOUN T, THE ASSESSEE CLAIMED DEDUCTION UNDER SECTION 80-IB OF THE INCOME TAX AC T, 1961 (IN SHORT, THE ACT). HOWEVER, THE A.O. REJECTED THE CLAIM OF THE ASSESSEE AND TAXED THE ENTIRE AMOUNT. 5. ON APPEAL, THE CIT(A) UPHELD THE ORDER OF THE A. O. FOLLOWING THE ORDER OF THE AMRITSAR BENCH OF THE TRIBUNAL PASSED IN THE CASE OF M/S.SHREE BALAJI ALLOYS, KATHUA. THE ASSESSEE (M/S. SHREE BA LAJI ALLOYS) CHALLENGED THE ORDER OF THE TRIBUNAL BEFORE THE HONBLE JURISD ICTIONAL HIGH COURT OF J & K. THE ISSUE RAISED BEFORE THE HONBLE J & K H IGH COURT WAS AS UNDER:- WHETHER THE AMOUNT OF EXCISE REFUND AND INTEREST SUBSIDY RECEIVED BY THE APPELLANTS-ASSESSES, IN PURSUANCE O F THE INCENTIVES ANNOUNCED AND SANCTIONED VIDE GOVERNMENT OF INDIA, MINISTRY OF COMMERCE AND INDUSTRY (DEPARTMENT OF IN DUSTRIAL POLICY AND PROMOTION)S OFFICE MEMORANDUM NO.1(13)2 000- NER DATED JUNE 4, 2002 AND CENTRAL EXCISE NOTIFICAT ION NOS.56 AND 57, DATED NOVEMBER 14,2002 AND OTHER NOT IFICATIONS ISSUED ON THE SUBJECT, PERTAINING TO THE INDUSTRIAL POLICY INTRODUCED IN THE STATE OF JAMMU & KASHMIR, IS A CA PITAL RECEIPT AND, THUS, NOT LIABLE TO TAX UNDER THE PROV ISIONS OF THE ACT, OR REVENUE RECEIPT, AS OPINED BY THE AUTHORITI ES UNDER THE ACT? 6. THE HONBLE HIGH COURT VIDE ITS JUDGMENT DATED 3 1-1-2011 IN THE CASE OF M/S.SHREE BALAJI ALLOYS, KATHUA, REPORTED I N (2011) 333 ITR 335 (J&K) DECIDED THE ISSUE, OBSERVING AS UNDER:- . IN THIS VIEW OF THE MATTER, THE INCENTIVES PROV IDED TO THE INDUSTRIAL UNITS, IN TERMS OF THE NEW INDUSTRIAL PO LICY, FOR 4 ACCELERATED INDUSTRIAL DEVELOPMENT IN THE STATE, FO R CREATION OF SUCH INDUSTRIAL ATMOSPHERE AND ENVIRONMENT, WHICH W OULD PROVIDE ADDITIONAL PERMANENT SOURCE OF EMPLOYMENT T O THE UNEMPLOYED IN THE STATE OF JAMMU AND KASHMIR, WERE IN FACT, IN THE NATURE OF CREATION OF NEW ASSETS OF INDUSTRI AL ATMOSPHERE AND ENVIRONMENT, HAVING THE POTENTIAL OF EMPLOYMENT GENERATION TO ACHIEVE A SOCIAL OBJECT. SUCH INCENT IVES, DESIGNED TO ACHIEVE PUBLIC PURPOSE, CANNOT, BY ANY STRETCH O F REASONING, BE CONSTRUED AS PRODUCTION OR OPERATIONAL INCENTIVE S FOR THE BENEFIT OF ASSESSEES ALONE. THUS, LOOKING TO THE PURPOSE, OF ERADICATION OF THE SOCIAL PROBLEM OF UNEMPLOYMENT IN THE STATE BY ACCELERATIO N OF THE INDUSTRIAL DEVELOPMENT AND REMOVING BACKWARDNESS OF THE AREA THAT LAGGED BEHIND IN INDUSTRIAL DEVELOPMENT, WHICH IS CERTAINLY A PURPOSE IN THE PUBLIC INTEREST, THE INCENTIVES PR OVIDED BY THE OFFICE MEMORANDUM AND STATUTORY NOTIFICATIONS ISSUE D IN THIS BEHALF, TO THE APPELLANTS-ASSESSEES, CANNOT BE CONS TRUE AS MERE PRODUCTION AND TRADE INCENTIVES, AS HELD BY THE TRI BUNAL. MAKING OF ADDITIONAL PROVISION IN THE SCHEME THAT INCENTIVES WOULD BECOME AVAILABLE TO THE INDUSTRIAL UNITS, ENTITLED THERETO, FROM THE DATE OF COMMENCEMENT OF THE COMMERCIAL PRODUCTION, AND THAT THESE WERE NOT REQU IRED FOR CREATION OF NEW ASSETS CANNOT BE VIEWED IN ISOLATIO N, TO TREAT THE INCENTIVES AS PRODUCTION INCENTIVES, AS HELD BY THE TRIBUNAL, FOR THE MEASURE SO TAKEN, APPEARS TO HAVE BEEN INTENDED TO ENSURE THAT THE INCENTIVES WERE MADE AVAILABLE ONLY TO THE BONA FIDE INDUSTRIAL UNITS SO THAT LARGER PUBLIC INTEREST OF DEALING WITH UNEMPLOYMENT IN THE STATE, AS INTENDED, IN TERMS OF THE OFFICE MEMORANDUM, WAS ACHIEVED. THE OTHER FACTORS, WHICH HAD WEIGHED WITH THE TRIBU NAL IN DETERMINING THE INCENTIVES AS PRODUCTION INCENTI VES MAY NOT BE DECISIVE TO DETERMINE THE CHARACTER OF THE INCEN TIVE SUBSIDIES, WHEN IT IS FOUND, AS DEMONSTRATE IN THE OFFICE MEMORANDUM, AMENDMENT INTRODUCED THERETO AND THE ST ATUTORY NOTIFICATION TOO THAT THE INCENTIVES WERE PROVIDED WITH THE OBJECT OF CREATING AVENUES FOR PERPETUAL EMPLOYMENT , TO 5 ERADICATE THE SOCIAL PROBLEM OF UNEMPLOYMENT IN THE STATE BY ACCELERATED INDUSTRIAL DEVELOPMENT. FOR ALL WHAT HA BEEN SAID ABOVE, THE FINDING OF THE TRIBUNAL ON THE FIRST ISSUE THAT THE EXCISE DUTY RE FUND, INTEREST SUBSIDY AND INSURANCE SUBSIDY WERE PRODUCTION INCEN TIVES, HENCE REVENUE RECEIPT, CANNOT BE SUSTAINED, BEING A GAINST THE LAW LAID DOWN BY THE HONBLE SUPREME COURT OF INDIA IN SAHNEY STEEL CASE [1997] 228 ITR 253 AND PONNI SUGARS CASE [2008] 306 ITR 391. THE FINDING OF THE TRIBUNAL THAT THE INCENTIVES WER E REVENUE RECEIPT IS, ACCORDINGLY, SET-ASIDE HOLDING THE INCENTIVES TO BE CAPITAL RECEIPTS IN THE HANDS OF THE ASSESSE E. IN VIEW OF OUR ABOVE FINDING ON THE FIRST ISSUE, TH ERE IS NO NEED TO OPINE ON THE SECOND ISSUE, WHICH WAS RAISED IN THE ALTERNATIVE. 7. RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HONB LE JURISDICTIONAL J & K HIGH COURT IN THE CASE OF M/S.SHREE BALAJI ALLOYS AND OTHERS (SUPRA), WE HOLD THAT THE AMOUNT OF RS.1,89,646/- RECEIVED BY T HE ASSSSEE ON ACCOUNT OF EXCISE DUTY REFUND IS A CAPITAL RECEIPT AND NOT LIA BLE TO TAX UNDER THE PROVISIONS O THE INCOME TAX ACT, 1961. 8. SINCE WE HAVE DECIDED THE ADDITIONAL GROUND OF A PPEAL IN FAVOUR OF THE ASSESSEE AND, THEREFORE, WE DO NOT THINK IT NEC ESSARY TO DECIDE THE ORIGINAL GROUNDS OF APPEAL, I.E. GROUND NOS.1 TO 4. 6 9. IN THE ABOVE TERMS, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20TH JUNE, 2 011. SD/- SD/- (MEHAR SINGH) (H.L. KARWA ACCOUNTANT MEMBER. VICE PRESIDENT. DATED: 20 TH JUNE, 2011. KC/- COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE : M/S.R.D. INDS., SWANKHA MORH, VIJAYP UR, JAMMU. (2) THE AO, RANGE I(2), JAMMU. (3) THE CIT, JAMMU. (4) THE CIT(A), JAMMU (5) THE SR.D.R., ITAT, ASR. TRUE COPY BY ORDER ASSTT. REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, AMRITSAR.