ADDL CIT 3(1), MUMBAI V. BAJAJ HINDUSTAN LTD, MUMBAI

ITA 5208/MUM/2012

AI Insights

The case involves two cross appeals by the revenue and the assessee, M/s Bajaj Hindustan Sugar Ltd., concerning the assessment year 2007-08. The appeals were based on similar facts and issues, primarily revolving around the valuation of closing stock of sugarcane, alcohol, and molasses, and the treatment of certain subsidies and incentives received under the New Sugar Industry Promotion Policy 2004. The revenue challenged the CIT(A)'s decision to delete additions made by the Assessing Officer regarding the undervaluation of these stocks and the treatment of subsidies as capital receipts. The Tribunal examined the consistency of the assessee's valuation method with previous assessments and the nature of the subsidies received, ultimately upholding the CIT(A)'s decisions on most grounds while adjusting the treatment of certain financial entries under section 115JB of the Income Tax Act.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 130085 (ITAT-MUMBAI)
• Duration Of Justice: 10 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-01-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 02-11-2022
• Assessment Year: 2007-2008
• Appeal Filed On: 16-08-2012
• Other Referred Cases: Gopal Purohit (336 ITR 287), Godrej & Boyce Manufacturing Company Ltd. Vs. DCIT 326 ITR 8 (Bom), CIT Vs. Godrej Agrovet Ltd. Vs. ACIT, Dy. Director of Income Tax (International Taxation), Mumbai, Vs. State Bank of Mauritius Ltd., CIT Vs. Ambar Cooperative Sugar Mills Ltd., CIT Vs. New Horizon Sugar Mills Pvt. Ltd., CIT Vs. Ponni Sugar & Chemical Ltd., Everest Industries Ltd. Vs. Joint CIT, CIT Vs. Shri Balaji Alloys & Other, CIT Kolhapur Vs. Chaphlekar Brothers Pvt. Ltd., ACIT Vs. Gems Electrotech Ltd., PCIT Vs. Capgemini India (P) Ltd., CIT Vs. Raymond Ltd., National Rayon Corpn. Ltd. Vs. CIT, Devkrupa Build Tech Ltd., Ackruti City Limited, JSW Energy Ltd., Genus Electrotech Ltd., Sutlaj Cotton Company Ltd. Vs. CIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Matter Remanded
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Earning of tax free income; Capital receipt; TDS; Rule 8D
• Section: 143(3); 14A; 115JB; 13; 22

Judgement Text

P a g e | 1 ACIT-3(1)(1) M/s Bajaj Hindustan Sugar Ltd. ITA Nos.5208 & 5058/Mum/2012 IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER & SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ITA No. 5208/Mum/2012 (A.Y.2007-08) ACIT-3(1)(1) Room No. 607, 6 th Floor, Aayakar Bhavan, M.K. Road, Mumbai – 400 020 Vs. M/s Bajaj Hindustan Sugar Ltd. ( E a r l i e r k n o w n a s M / s B a j a j H i n d u s t a n L t d ) Bajaj Bhavan, 2 nd Floor, Jamanalal Bajaj, Marg- 226, Nariman Point Mumbai 400021 स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AAACB4351J Appellant .. Respondent ITA No. 5058/Mum/2012 (A.Y.2007-08) M/s Bajaj Hindustan Sugar Ltd. ( E a r l i e r k n o w n a s M / s B a j a j H i n d u s t a n L t d ) Bajaj Bhavan, 2 nd Floor, Jamanalal Bajaj, Marg- 226, Nariman Point Mumbai 400021 Vs. ACIT-3(1)(1) Room No. 607, 6 th Floor, Aayakar Bhavan, M.K. Road, Mumbai – 400 020 स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AAACB4351J Appellant .. Respondent Appellant by : Percy Pardiwala & Vasanti B. Patel Respondent by : Mahesh Akhade Date of Hearing 03.11.2022 Date of Pronouncement 12.01.2023 P a g e | 2 ACIT-3(1)(1) M/s Bajaj Hindustan Sugar Ltd. ITA Nos.5208 & 5058/Mum/2012 आदेश / O R D E R Per Amarjit Singh (AM): These two cross appeals filed by the assesse and revenue pertaining to the same assessment year 2007-08 are based on similar facts and identical issue, therefore both these appeal are adjudicated together. The revenue vide ITA No.5208/Mum/2012 raised the following grounds before us: “1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting an amount of Rs.1,03,43,558/- being addition made on account of under valuation of closing stock of sugarcane without appreciating the fact that the assessee failed to furnish any evidence in respect of valuation of closing stock and also the basis of valuation. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting an amount of Rs.40,46,14,914/- being addition made on account of under valuation of closing stock of alchol & molasses without appreciating the fact that the assessee failed to furnish any evidence in respect of valuation of closing stock and also the basis of valuation. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing assessee's appeal by placing reliance on the decision of the Hon'ble Bombay High Court in the case of Gopal Purohit (336 ITR 287), without appreciating the fact that the facts of the case relied upon are distinguishable from the facts of the assessee's case In the case of Gopal Purohit, the assessee was engaged in the activity of sale and purchase of shares for a long period and has treated non delivery based transaction as business activity and delivery based transaction as investment activity However, in the present case, the assessee is involved in one business activity. 4. The appellant prays that the order of CIT(A) on the above ground be set aside and that of the Assessing Officer be restored. 5. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.” ITA No.5208/Mum/2012 2. Fact in brief is that return of income declaring total loss of Rs.1,28,46,54,246/- and book project u/s 115JB at Rs.105,51,85,422/- was filed on 31.10.2007. The case was subject to P a g e | 3 ACIT-3(1)(1) M/s Bajaj Hindustan Sugar Ltd. ITA Nos.5208 & 5058/Mum/2012 scrutiny assessment and assessment u/s 143(3) of the Act was completed on 02.12.2019 after making various addition and disallowance the book profit u/s 115JB was worked out at Rs.1,07,65,04,963/-. Further relevant facts of the case are discussed while adjudicating the grounds of appeal filed by the revenue and the assesse respectively as follows: Ground No. 1: Deleting addition of Rs.1,03,43,558/- on account of in valuation of closing stock of sugarcane: 3. During the course of assessment the Assessing Officer noticed that closing stock of sugarcane was shown at Rs.32531 Mitric tons however the average rate of purchases of sugarcane was Rs.1385 per metric ton. Therefore, the A.O was of the view that value of closing stock should have been at Rs.4,50,55,435/- after applying the average rate of purchase as against the value of closing stock shown by the assesse in the profit and loss account at Rs.3,47,11,877/-. Therefore, difference of Rs.1,03,43,558/- was added to the total income of the assesse. 4. The assesse filed the appeal before the ld. CIT(A). The ld. CIT(A) has deleted the addition holding that stock of sugarcane was valued at cost or net realizable value whichever was lower and such valuation had been accepted in the earlier years from assessment year 2005-06 to assessment year 2009-10 in the case of the assessee. 5. Heard both the sides and perused the material on record. After looking to the above facts that aforesaid basis of valuation has been adopted consistently in the past by the assesse as well as in the subsequent years which has been accepted by the department, and the A.O has not brought any material on record in contrary to the claim of the assesse therefore, we don’t find any error in the decision of ld. CIT(A). Accordingly, this ground of appeal of the revenue stand dismissed. P a g e | 4 ACIT-3(1)(1) M/s Bajaj Hindustan Sugar Ltd. ITA Nos.5208 & 5058/Mum/2012 Ground No. 2: Deleting an amount of Rs.40,46,14,914/- on account of under valuation of closing stock of Alcohol and Molasses: 6. During the course of assessment the A.O noticed that valuation of closing stock of by products were less than the value of opening stock. On query, the assesse explained that the valuation of closing stock of molasses and alcohol were valued at lower rate as against opening stock mainly due to the fact that the net realizable value of molasses has been come down over the year due to a drastic fall in the realizable value of molasses. Similarly, the prices of alcohol were also affected due to the fall in raw material/molasses prices. The AO has not agreed with the submission of the assesse and stated that assesse has offered general reasons. The A.O was of the view that assesse has completely failed to bring out the correct valuation of closing stock of these by-products and considered that valuation at opening stock was more reasonable therefore valued the such closing stock at the rate of opening stock. Therefore, difference in closing stock of alcohol & molasses to the amount of Rs.40,46,14,914/- was added to the total income of the assesse. 7. Assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) deleted the addition made by the Assessing Officer. 8. Heard both the sides and perused the material on record. The ld. CIT(A) held that following the policy of valuation of by product and finished product the assesse company has been valuing closing stock of molasses and alcohol every year and no addition has been made on this account in the earlier years and in the subsequent years. The ld. CIT(A) also held that A.O has deviated from the method of valuation without giving and specific and cogent reason. The assesse has also filed copies of the assessment orders from assessment year 2005-06 to 2009-10 before the CIT(A). It is observed that in the case of the assesse stock of P a g e | 5 ACIT-3(1)(1) M/s Bajaj Hindustan Sugar Ltd. ITA Nos.5208 & 5058/Mum/2012 molasses has been valued at estimated net realizable value/negotiable price, and stock of alcohol has been valued at lower of cost or net realizable value. The aforesaid policy has been adopted consistently by the assesse and accepted by the department in the past years as well as in the subsequent years. The A.O has not brought on record any contrary materials to disprove the claim of the assesse. Looking to the above facts and findings we don’t find any reason to interfere in the decision of ld. CIT(A), therefore, this ground of appeal of the revenue stand dismissed. 9. The appeal of the revenue stand dismissed. 10. Ground No. 3 of the revenue is of consequential nature since we have allowed the ground no. 1 & 2 of the assesse, therefore, this ground of appeal become infructuous and the same stand dismissed. ITA No. 5058/Mum/2012 (Assesse’s Appeal) Ground No.1: Disallowance u/s 14A in respect of expenditure attributable to earning exempt income: 11. During the course of assessment the Assessing Officer noticed that assesse has shown dividend income of Rs.26,91,477/-. The assesse submitted that it had not incurred any specific expenditure to earn dividend exempt income, however, suo moto it had estimated 1% of dividend as expenditure which worked out to Rs.25,000/-. The A.O has not agreed with the submission of the assesse and he computed the disallowance in accordance with Rule 8D to the amount of Rs.68,74,035/- and same was disallowed u/s 14A of the Act. 12. The assesse filed the appeal before the ld. CIT(A). The ld. CIT(A) after considering the decision of Hon’ble Bombay High Court in the case of Godrej & Boyce Manufacturing Company Ld. Vs. DCIT 326 ITR 8 (Bom) directed the A.O to work out the disallowance u/s 14A by P a g e | 6 ACIT-3(1)(1) M/s Bajaj Hindustan Sugar Ltd. ITA Nos.5208 & 5058/Mum/2012 applying a reasonable method of apportioning the expenditure. Since Rule 8D is not applicable to the assessment year 2006-07. The assesse explained that there was no expenditure which had a direct proximate nexus with the earning of exempt income and the assesse had earned the dividend income only from its investment made in Bajaj Auto Ltd., and Mukand Ltd. which were in the nature of long term group investment and did not require any day to day monitoring. We have also considered the decision of Hon’ble Bombay High Court in the case of CIT Vs. Godrej Agrovet Ltd. Vs. ACIT vide ITA No. 934 of 2011 wherein disallowance expenditure for A.Y. 2005-06 restricted to the extent of 2% of the exempt income. Similarly, ITAT, Mumbai in the case of Dy. Director of Income Tax (International Taxation), Mumbai, Vs. State Bank of Mauritius Ltd., ITA No. 2456/Mum/2006, dated 03.10.2012 also restricted such disallowance pertained to assessment year 2004- 05 at 2% of the exempt income. Looking to the above facts, finding and non application of Rule 8D to the year under consideration we direct the A.O to restrict the disallowance to the extent of 2% of the exempt income shown by the assesse pertaining to assessment year 2007-08, therefore, the ground of appeal of the assesse is partly allowed. Ground No. 2: Considering the incentive in the form of reimbursement/exemption amounting to Rs.56,07,79,698/- and exemption from collection and deposit amount to Rs.6,89,70,089/- as revenue receipts and further incentive received of Rs.54,95,51,175/- towards investment in plant and machinery being capital receipt ought not to be reduced from cost of asset: 13. During the course of assessment the A.O noticed that assesse company has claimed Rs.56,07,79,698/- as capital receipt under New Sugar Industry Promotion Policy 2004 announced by the state government of Uttar Pradesh not eligible to Income Tax. The assesse P a g e | 7 ACIT-3(1)(1) M/s Bajaj Hindustan Sugar Ltd. ITA Nos.5208 & 5058/Mum/2012 company has also received another incentive of Rs.54,95,51,175/- being capital receipt against investment in plant and machinery. During the course of assessment the assesse has furnished detail of various incentive given under the New Sugar Industry Promotion Policy, 2004. 14. However, the A.O has referred the decision of Hon’ble Supreme Court in the case of Sahney Steel & Press Works Ltd. and Others Vs. CIT (228 ITR 253) wherein held that the character of subsidy in the hands of the recipient whether revenue or the capital, is to be determined having regard to the purpose for which the subsidy is given. The assessing officer stated that subsidies were granted year after year after setting up of the new industry and commencement of production. Such a subsidy could only be treated as assistant given for the purpose of carrying on of the business of the assesse. The A.O further stated that the incentive were given for five years, year after year and only after commencement of commercial production. The A.O stated that the incentive was not for bringing into existence any new assets and it was not obligatory on the part of the assesse to utilize the amount of subsidy to repay the loans obtained for purchase of machinery or plant. The assessing officer also stated that the assesse was at free will to spend the money for the purpose of the business of the assesse and there was no condition that the subsidies received should be utilized for purchase of new machineries and plant or for the expansion of industrial undertaking. Therefore, the subsidy of Rs.56,07,79,608/- was treated as assistance given for the purpose of carrying on the business of the assesse and added to the total by treating it as revenue nature. 15. The assesse filed the appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assesse reiterating the facts reported by the assessing officer. P a g e | 8 ACIT-3(1)(1) M/s Bajaj Hindustan Sugar Ltd. ITA Nos.5208 & 5058/Mum/2012 16. During the course of appellate proceedings before us the ld. Counsel referred page no .125 to 127 of the paper book pertaining to policy of the Uttar Pradesh Government for promotion of sugar industries, 2004 which was launched in order to speed up industrial development and to attract private sector investment in Sugarcane Development and Sugar Industry by establishing of sugar mills in the state by private Sector. He also referred page no. 128 pertaining to the object of the New Sugar Industry Promotion Policy 2004. By referring the different pages of the policy the ld. Counsel referred that as per clause no.6 of the policy by establishing new sugar mills there will be increase in the capital also there will be increase in the revenue of the state in the next few years. For this purpose state will have to provide economic concessions special packages to industrialists for initial few years. Hence, a well planned sugar industry promotion policy is required which attract industrialists from private sector to set up new sugar industry in the state. The ld. Counsel also referred page no. 131 that in the new industrial policy 2004, for capital subsidy special incentive will be considered for the period of 10 years from the date of establishment over and above the facilities provided. The ld. Counsel also referred the various judicial pronouncement as placed in the paper book in support of its submission that incentive received for promotion of development of sugar industries were of the nature of capital receipt. 17. On the other hand, the ld. D.R has referred the case of Hon’ble Supreme Court in the case of Sahney Steel & Press Works Ltd., as referred supra in the findings of the A.O. The ld. D.R further submitted that the subsidy/incentive were received after commencement of the industry and therefore, the same were rightly treated as revenue receipt by the A.O and CIT(A). The ld. D.R has supported the order of the lower authorities. P a g e | 9 ACIT-3(1)(1) M/s Bajaj Hindustan Sugar Ltd. ITA Nos.5208 & 5058/Mum/2012 18. Heard both the sides and perused the material on record. Without reiterating the facts as elaborated above the assesse is a public limited company engaged in in the manufacturing of sale of sugar. It has set up new sugar plant under the new Sugar Industry Promotion Policy, 2004 announced by the State Government of Uttar Pradesh in the year 2004 for the development and growth of sugar industry in the State of Uttar Pradesh as per the copy of policy placed in the paper book from page no. 125 to 226. Under the object of the New Sugar Industry Policy, 2004 it is stated that from the sugar industry of Uttar Pradesh revenue of more than Rs.400 crores is earned by State and Central Government through purchase tax and excise duty. This industry lead to social and economic development of the area in which the industry is located by establishing new sugar mills. There will be increased in the capital and there will be also increased in the revenue for the state in few years. Capital of Rs.2000 crores is required for setting up mills in private sector with capacity of 1 lakh tcd. For this purpose state will have to provide economic concession special packages to industrialists for few years. Hence, the well planned Sugar Industry Promotion Policy is required which attract industrialists from private sector to set up sugar industry in the state. In the New Industries Policy 2004 for capital subsidy, following special incentives will be considered for a period of 10 years from the date of establishment over and above the facilities provide: 1. Entry Tax on sugar 2. VAT on Molasses 2. Administrative charge on Molasses 4. Stamp duty & Registration fees on land 5. Purchase tax on cane 6. Reimbursement of Transportation (Exemption/Reimbursement cost (Cane/Sugar) 7. Reimbursement of society Commission 7. Reimbursement of State Cess (Excise Share) The scheme and benefit received were given in the submission made by the assesse during the course of assessment are reproduced as under: P a g e | 10 ACIT-3(1)(1) M/s Bajaj Hindustan Sugar Ltd. ITA Nos.5208 & 5058/Mum/2012 “BHL made a capital investment in excess of Rs.500 crores for commissioning various new sugar plants, distilleries and co-generation plants at several location in the state of UP and commenced production before 31' March, 2008. In terms of the Policy and Notifications issued therein, BHL was granted Eligibility Certificate for five years vide letter dater dated 31' October 2005 on investing in excess of Rs.350 crores under first stage The eligibility was extended upto ten years on investing in excess of Rs.500 crores under second sage vide letter dated 31 January, 2001 Accordingly, BHL has been availing various benefits under the policy: The various benefits under the Policy can be classified into the following- A. Subsidy and exemptions of capital nature, which includes:- i. 10% subsidy on Hexed Capital Investment ii. Exemption from payment of registration charges on land. iii. Exemption from payment of stamp duo on land. B. Exemption from collection and deposit which includes: i. Exemption from payment of UPT7 (now vat) and CST on sale of molasses. ii. Zero rate of Administrative charges on molasses produced by such Units iv. Exemption from payment of entry tax on sale of non levy sugar produced by such units. C. Other reimbursements and exemptions, which includes:- i. Reimbursement of society commission on cane purchase. ii. Reimbursement of freight subsidy on sugar transportation. iii. Reimbursement of freight subsidy on transport of sugar cane. v. Exemption from payment of purchase tax on sugarcane. In the return of income, the aforesaid incentives granted under the polity were not excluded while computing the total income. In this regard, it is submitted by BHL that the various incentives envisaged under the Policy are in the nature of the capital receipts and accordingly. not liable to tax. It is further submitted that the following incentives ought to be allowed as a deduction while computing then total income. 1. The receipt of the 10% capital subsidy and exemption of registration charges and stamp duty as mentioned in A' above ought not to be reduced from the cost of assets under section 43(1) of the Act. 2. The following notional amount of incentives referred in 'B' above are in the nature of capital receipts and ought to be reduced while computing the total income. Incentives Rs. Exemption from payment of UP7T9nowvvat) and CST on sale of molasses 1,901,637 Zero rate of Administrative Charges on molasses produced by such units 30,215,867 Exemption from payment of entry tax on sale of non leg sugar produced by such 36,852,585 P a g e | 11 ACIT-3(1)(1) M/s Bajaj Hindustan Sugar Ltd. ITA Nos.5208 & 5058/Mum/2012 Total 68,970,08 4. The incentives in the form of exemptions and reimbursements referred to in 'C' above amounting to Rs.560,779,698 are in the nature of capital receipts not eligible to tax and accordingly, ought to be excluded from the total In this connection on behalf of BHL, we wish to make the following submissions:- The Government of UP introduced the now Sugar Industry Promotion Policy, 2004, inter alia, with the avowed objective of promotion of establishment of new sugar factories in the private sector to speed up industrialkation of the State. The preamble to the Policy states the proposed objectives as follows. "to attract private investment in the field of the Cane Development and sugar industry by establishing sugar mills in private sector to augment the industrial Development in the State. Under the Polig, now sugar factories are given incentives. The period/ quantum of various concessions/ incentives have been linked to the amount of fresh investment made for the establishment of the new sugar mill, although the incentives are to be disbursed after the establishment of the unit. The salient fatures of the background note to the polig are reproduced hereunder- "Why new Sugar Industa Promotion Polity needed? The total number of sugar factories working in the State is 101 having a total cane crushing capacity of 3 96 lacs TCD out of which 22 sugar mills are under State Sugar Corporation, 27 in Cooprative Sector and 52 sugarmills are established in private sector. It is clear from the basis of the average of the last 5 years that all these sugar factories are able to crush only 41.04% of the total cane produced in the state and the rest is consumed in Gur khandsari. Seed Juice, fodder and chewing. Percentage of Consumption of Cane in UP Sugar Mills Other consumption Average of 1999-00to 2003-04 58/96% Consumption of Cane % 48.85% 51.15% It is this clear that in UP there I savallabilio of sugarcane which can be used as raw material by the sugar mills, however, due to the sickness of the sugar mills belonging to the State Sugar Corporation mid stagnation in the expansion of the production capacity of the sugar mills belonging to the Co-operative sector and due to the lack of availability of the requisite capacity in the sugar mills belonging to the private sector, gradually the State's sugar industry is lagging behind. The sugarcane farmers have to sell their produce to the Handsari/Gur Industry at quite low prices, as a result of which, on the one hand farmers are not able to get adequate price for their produce, on the other hand, contribution to the programmes for the development of the rural areas and wolfare of the common people is mostly negligible. Demand and supply of sugar in the country by 2010-11 P a g e | 12 ACIT-3(1)(1) M/s Bajaj Hindustan Sugar Ltd. ITA Nos.5208 & 5058/Mum/2012 It is estimate that in the year 2010-11 the country's total population would be approximately 120.75 crores Due to the increase in the country's per capital average consumption of sugar, till 2010-11, 276.02 lakh tonnes of sugar would be needed for internal consumption. For the target of taking the State's contribution in the country's sugar production from 28.06% in the year 2002-03 to 30% in the year 2010-11, in the State approximately 75 lakh tonne sugar would have to be produced. It is estimated that there would be substantial increase in the country's average per capita consumption of sugar and in order to satisfy this increase demand the country's two big sugar producing States up and Maharashtra would have to come forward Since in Maharashtra the percentage utilization of sugarcane for producing sugar is at the maximum possible, therefore, UP is the only State when' by increasing the drawal percentage of sugarcane, the increased demand for sugar in the country can be met. Keeping in view the State's limited financial resources, the sick condition of the mills belonging to the Corporation, stagnation in the mills of the Co-operative sector and the inability of the mills in the private sector to completely utilize the sugarcane produced, the need is being felt for encouraging the private sector to invest funds for setting up sugar mills which are of global standards, having sugarcane crushing capacity of 5000 TCD or more. In order to meet the domestic consumption of sugar at 6% GDP growth rate, it would be required to set up mills having approximately one lakh tonne per day capacity and thus create additional capacity. The requirement of sugarcane for this increased capacity can be met by increasing the current drawal percentage of sugarcane from 5 to 7% It must also be clarified that at which ever place a new sugar mill is set up the sugarcane area of that place increases as a result of which there is no possibility of difficulty in sugarcane supply for the increased capacity. In view of the above, in order to establish new sugar mills in the State the only option is to attract industrialists in the private sector, since in view of the lack of lands the possibility of setting up mills in the Government or the Co-operative sector is negligible in order to set up new sugar mills in the private sector having capacity of one lakh tonnes per day, investment of approximately Rs 2000 crores would be needed. For creating that additional capacity, in the initial years the State Government would be required to provide special economic promotion to the industrialists in the form or special packages.” On the perusal of the aforesaid policy the purpose/ rational behind disbursement of subsidy/ incentive under the Polig and the primary considerations, intention and the objective sought to be achieved by the Polig are summarized as under- 1. Private investment in sugar industry for augmenting the industrial development in the State. 2. Give boost top Sugar Industry which was the only industry in the State dedicated 100% to rural economy, pproipen 0 and development P a g e | 13 ACIT-3(1)(1) M/s Bajaj Hindustan Sugar Ltd. ITA Nos.5208 & 5058/Mum/2012 3. Increase in sugar production to utilizes the vast cane area in the State. 4. Protection of financial interests of cane farmers. 5. Rapid rural development and increase in revenues of the Government. 6. Generation of employment opportunities.” 19. In terms of the New Promotion Policy of Sugar Industry of Uttar Pradesh Government the assesse company was granted eligibility certificate for 5 years vide letter dated 31.10.2005 on investing in excess of Rs.350 crores under first stage. The eligibility was extended up to 10 years of investing in excess of Rs. 500 crores under 2 nd stage. Therefore various benefit under the policy were availed by the assesse as discussed supra in this order. After referring the various clause of the new industry policy the assesse submitted that the various incentives given under the policy were in the nature of capital receipts. The assesse submitted that incentives granted under the policy were in the nature of the capital receipts. In this regard, we have perused the various judicial pronouncements referred by the counsel in the case of CIT Vs. Ponni Sugar & Chemical Ltd. (2008) 174 taxman 87 (SC) it is held that the test is that the character of receipt in the hands of the assesse has to be determined with respect to the purpose for which the subsidy is given. In other words in such cases one has to apply purpose test. The point of time at which the subsidy is paid is not relevant. The form of subsidy is immaterial. In the case of Everest Industries Ltd. Vs. Joint CIT (2018)19 taxman.com 330 (Mumbai Tribunal) held that sale tax incentive received by the assesse was considered as capital receipt by the A.O same was not required to be reduced from cost of assets for purpose of computing depreciation. In the case of CIT Vs. Shri Balaji Alloys & Other (2016) 181 CTR (SC) 459 held that excise refund and interest subsidy received by the P a g e | 14 ACIT-3(1)(1) M/s Bajaj Hindustan Sugar Ltd. ITA Nos.5208 & 5058/Mum/2012 assesse in pursuance of incentive announced and sanctioned by the Government of India is capital receipt. In the case of Shri Balaji Alloys Vs. CIT (2011) 198 taxman.com 122 (Jammu & Kashmir), it is held that amount of excise refund and interest subsidy received by industrial unit in pursuance of incentives announced in terms of new industrial policy for accelerated industrial development in the State of J & K would be capital receipt in the hands of such Industrial Unit. In the case of CIT Kolhapur Vs. Chaphlekar Brothers Pvt. Ltd. (2017) 88 taxman.com 178 (SC) held that where object of respective subsidy schemes of state of Maharashtra provided for exemption to multiplexes from entertainment duty for a period of 3 years remission for further period of 2 years was to encourage development of Multiple Theatre Complexes, incentive would be held to be capital in nature and not revenue receipts. In the case of ACIT Vs. Gems Electrotech Ltd. (2016) 71 taxman.com 101 (Ahd Tribunal) wherein held that sale tax and excise duty subsidy received by the assesse for purpose of industrialization was capital receipt. In the case of PCIT Vs. Capgemini India (P) Ltd. (2018) 90 taxmann.com 409 (Bombay) held that grant received by assesse from state govt. in shape of allotment of land for purpose of granting employment for over 3000 people, was to regarded as capital receipts. The ld. Counsel has also furnished similar judicial pronouncements of ITAT Benches. The assesse has also demonstrated that subsidy was granted for setting up sugar industry in general and not for acquisition of any asset, therefore, same also not to be reduced from the cost of asset. The assesse has demonstrated from the material as referred above and furnished before the lower authorities that various incentives were granted under the New Sugar Industry Promotion Policy 2004 for the purpose of development and growth of sugar industry in the state and same has to be considered as capital in nature. Therefore, after considering the facts and judicial findings on P a g e | 15 ACIT-3(1)(1) M/s Bajaj Hindustan Sugar Ltd. ITA Nos.5208 & 5058/Mum/2012 the issue as discussed supra, we find the decision of ld. CIT(A) is not justified therefore the ground of appeal of the assesse is allowed. Ground No. 3: Claim of deduction of expenditure u/s 115JB in respect of reserve for construction of molasses storage tanks: 20. The ld. CIT(A) has dismissed the claim of the assesse stating that decision of the Hon’ble Supreme Court in the case of CIT Vs. Ambar Cooperative Sugar Mills Ltd. (269 ITR 398) (SC) was on the issue of taxability of the same in normal computation of income and that was not u/s 115JB 21. During the course of appellate proceedings before us the ld. Counsel submitted that the aforesaid amount was diverted to the statutory reserves for construction of molasses storage tanks by overriding title and hence the same is not in the nature of income. The ld. Counsel further submitted that expenditure allowed under normal provision of the act ought to be allowed for the purpose of computation of book profit u/s 115JB of the Act. On the other hand, the ld. D.R supported the order of ld. CIT(A). 22. Heard both the sides and perused the material on record. The assesse has claimed deduction in respect of the reserves for construction of molasses storage tanks in the computation of book profit u/s 115JB of the Act. It is also submitted that expenditure allowed under normal provision of the Act also to be allowed for the purpose of computation of book profit u/s 115JB of the Act. In this regard, we have perused the judicial pronouncements relied upon by the ld. Counsel in the case of CIT Vs. New Horizon Sugar Mills Pvt. Ltd. (2000) 269 ITR 397 (SC) the Hon’ble Supreme Court held that amount set apart towards molasses storage reserve fund is to be excluded from P a g e | 16 ACIT-3(1)(1) M/s Bajaj Hindustan Sugar Ltd. ITA Nos.5208 & 5058/Mum/2012 assessee’s total income. The Hon’ble jurisdictional High Court of Bombay in the case of Somaiya Organo & Chemical Ltd. Vs. CIT (2017) 79 taxman.com 431 (Bom) held that amount transferred out of profit of loss account to storage fund for molasses and alcohol account to meet the statutory requirement was an admissible deduction in working out business income. The Hon’ble High Court of Madras in the case of CIT Vs. Madurantakam Cooperative Sugar Mills ltd. (2004) 138 taxman.com 150 held that provision made for molasses storage fund is allowable deduction. Further, the Hon’ble Madras High Court in the case of CIT Vs. Kothari Sugar & Chemical Ld. (2000) 242 ITR 456 (Mad) held that amount set apart by assesse for credit to molasses storage fund is allowable deduction. The Hon’ble High Court of Madras also in the case of CIT Vs. Salem Cooperative Sugar Mills Ltd. (1997) 95 taxman.com 325 (Mad) held that amount transferred to Molasses Storage Fund for providing adequate storage facility could not be included in assesse’s total income. We also find merit in the submission that expenditure allowable under normal provision of the Act ought to be allowed for the purpose computation of book profit u/s 115JB of the Act. The ld. Counsel has placed reliance on the following judicial pronouncements: “(a) Ankit Metal & Power Ltd (2019) 109 taxmann.com 93 (Calcutta High Court) (b) Shree Cement Limited (ITA No. 86 of 2014) (Rajasthan High Court) (c) Metal and Chromium Plater (P) Ltd. (2019) 415 ITR 123 (Madras High Court) (d) Batliboi Limited (ITA No. 5428/Mum/2015) (Mumbai Tribunal) (e) Deegee Orchards Pvt. Ltd. (ITA No. 4613/Mum/2016) (Mumbai Tribunal) In the light of the above facts and finding we find the decision of ld. CIT(A) in not allowing the claim of the assesse in respect of amount diverted to the statutory reserve for construction of molasses is not justified, therefore, we direct the Assessing Officer to exclude the aforesaid amount while computing book profit u/s 115JB of the Act. Therefore, this ground of appeal of the assesse is allowed. P a g e | 17 ACIT-3(1)(1) M/s Bajaj Hindustan Sugar Ltd. ITA Nos.5208 & 5058/Mum/2012 Ground No. 4: Deduction in respect of dividend income in the computation of book profit u/s 115JB Rs.26,91,477/-: 23. During the course of appellate proceedings before us the ld. Counsel submitted that dividend income received from domestic companies is exempt from tax in view of Sec.10(34) of the Act while computing book profit for the purpose of Sec. 115JB as per explanation (1)(ii) thereto. 24. Heard both the sides and perused the material on record. It is noticed that this matter was neither brought to the knowledge of the A.O nor before the ld. CIT(A) during the course of appellate proceedings, therefore, for deciding this issue on merit we restore this matter to the file of the A.O for deciding after verification of the claim of the assessee in accordance with provision of Sec. 115JB as referred supra. Therefore this ground of appeal of the assesse is allowed for statistical purposes. Additional Ground No.1: Claim of excluding notional gain on foreign exchange fluctuation on receipt of external commercial borrowings (ECB) & foreign currency convertible bonds (FCCB) Rs.7,64,80,000/-: 25. In this regard, the ld. Counsel submitted that during F.Y. relevant to the year under consideration gain on foreign exchange fluctuation amounting to Rs.7,64,80,000/- arose on account of restatement of ECB and FCCB which had been credited to the profit and loss account. He submitted that the borrowing in the nature of ECB & FCCB were utilized for the purpose of acquiring fixed assets, therefore, the notional gain on foreign exchange fluctuation on restatement of aforesaid loans ought to be excluded while computing the total income. The ld. D.R has contended that no such issue has been brought before the A.O and ld. CIT(A) during the course of assessment and appellate proceedings and the claim required verification. In the light of the above facts and P a g e | 18 ACIT-3(1)(1) M/s Bajaj Hindustan Sugar Ltd. ITA Nos.5208 & 5058/Mum/2012 circumstances we restore this issue to the file of the assessing officer for deciding the same after verification/examination of relevant material after considering the decision of Hon’ble Supreme Court in the case of Sutlaj Cotton Company Ltd. Vs. CIT (1979) 116 ITR 1 (SC). Therefore, this additional ground of appeal is allowed for statistical purposes. Additional Ground No. 2: claim of deduction in respect of amount transferred to Debenture Redemption Reserve in the computation of book profit u/s 115JB of Rs.118,75,00,000/-: 26. In this regard, the ld. Counsel submitted that the aforesaid amount was set apart for redemption of debenture is not a reserve but a provision for an ascertained liability and therefore, the same ought not to be added back while computing the book profit u/s 115JB of the Act. In this regard, the ld. Counsel has placed reliance on the various judicial pronouncements: “(a) CIT Vs. Raymond Ltd. [2012] 21 taxmann.com 60 (Bombay High Court) (b) National Rayon Corpn. Ltd. Vs. CIT [1997] 227 ITR 764 (Supreme Court) (c) Devkrupa Build Tech Ltd. (ITA No. 4323/Mum/2018) (Mumbai Tribunal) (d) Ackruti City Limited (ITA No. 7696/Mum/2014) (Mumbai Tribunal) (e) JSW Energy Ltd. [2014] 150 ITD 406 (Mumbai Trib) (f) Genus Electrotech Ltd. [2016] 161 ITD 644 (Ahmedabad Tribunal)” In this regard, the ld. D.R submitted that neither this issue has been raised before the A.O nor before the ld. CIT(A) and the same is required to be verified from the relevant material. In the light of the above facts we restore this issue to the file of the A.O for deciding after examination and verification of the material in accordance with provision of Sec. 115JB of the Act after taking into consideration the various judicial pronouncements referred by the ld. Counsel placed in the paper book. Therefore, this ground of appeal is also allowed for statistical purposes. Additional Ground No. 3: Regarding short grant of TDS credit of Rs.1,80,68,968/-: P a g e | 19 ACIT-3(1)(1) M/s Bajaj Hindustan Sugar Ltd. ITA Nos.5208 & 5058/Mum/2012 27. During the course of appellate proceedings before us the ld. Counsel submitted that this additional ground of appeal is not pressed, therefore, the same stand dismissed. Additional Ground No.4: Incentive received under the new sugar industry promotion policy and nature of capital receipt ought to be reduced while computing the book profit u/s 115JB: 28. The ld. Counsel submitted that in case ground no. 2 is decided in favour of the assesse then the incentive received is to be reduced while computing book profit u/s 115JB of the Act. The ld. Counsel placed reliance on the judicial pronouncements: “(a) New Horizon Sugar Mill (P) Ltd. [2004] 269 ITR 397 (Supreme Court) (b) Ambur Co-op. Sugar Mills Ltd. [2004] 269 ITR 298 (Supreme Court) (c) Somaiya Organo Chemicals Ltd. [2017] 79 taxman.com 431 (Bombay High Court) (d) Madurantakam Co-operating Sugar Mills Ltd. [2004] 138 taxman 150 (Madras High Court) (e) Kothari Sugars & Chemicals Ltd. [2000] 242 ITR 456 (Madras High Court) (f) Salem Co-operative Sugar Mills Ltd. [1997] 95 taxman 325 (Madras High Court) 29. Since we have adjudicated the ground no. 2 as supra in favour of the assesse holding that incentive received under the New Sugar Promotion Policy 2004 of Uttar Pradesh Government are of the nature of capital receipt, therefore, we direct the assessing officer to reduce the same while computing the book profit u/s 115JB of the Act. 30. In the result, the appeal of the revenue is dismissed and the appeal of the assesse is partly allowed. Order pronounced in the open court on 12.01.2023 Sd/- Sd/- (Vikas Awasthy) (Amarjit Singh) Judicial Member Accountant Member Place: Mumbai Date 12.01.2023 Rohit: PS P a g e | 20 ACIT-3(1)(1) M/s Bajaj Hindustan Sugar Ltd. ITA Nos.5208 & 5058/Mum/2012 आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. आयकर आयुक्त(अपील) / The CIT(A)- 4. आयकर आयुक्त / CIT 5. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. सत्यावपि प्रवि //True Copy// आदेशानुसार/ BY ORDER, उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीिीय अतिकरण/ ITAT, Bench, Mumbai.