Sh. Vaneet Sood, Panchkula V. ACIT, Panchkula

ITA 529/CHANDI/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5237 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 14-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHISH ABROL
• Keywords: Capital asset; Capital receipt
• Section: 234B; 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, B CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO. 529/CHD/2015 ASSESSMENT YEAR : 2005-06 SH. VANEET SOOD, VS. THE ACIT, SCO 85, SECTOR 5, PANCHKULA CIRCLE, PANCHKULA PANCHKULA PAN NO. APXPS2727N (APPELLANT) (RESPONDENT) APPELLANT BY : SH. VINEET KRISHAN, ADVO CATE RESPONDENT BY : SH. ASHISH ABROL, CIT DR DATE OF HEARING : 06.02.2018 DATE OF PRONOUNCEMENT: 06.02 .2018 ORDER PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSE SSEE AGAINST THE ORDER DATED 10.3.2015 OF COMMISSIONER OF INCOME TAX (APPEALS), PANCHKULA [HEREINAFTER REFERRED TO AS CIT(A). 2. IN THE APPEAL, THE ASSESSEE HAS TAKEN THE FOLLOW ING REVISED GROUNDS:- 1. THAT THE ORDER UNDER SECTION 250(6) OF THE INCOME TAX ACT, 1961 PASSED BY COMMISSIONER OF INCOME TAX, PANCHKULA (APPEALS). PANCHKULA DATED 10.03.2015 IS CONTRARY TO LAW AND FACTS OF THE CASE . 2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD COMMISSIONER OF INCOME TAX (APPEALS) GRAVELY ERRED IN NOT GIVING REASONABLE OPPORTUNITY OF BEING ITA NOS.529/CHD/2015 & 608/CHD/2103- SH. VANEET SOOD, PANCHKULA 2 HEARD TO THE APPELLANT WHICH IS AGAINST THE NATURAL PRINCIPLE OF JUSTICE. 3. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) GRAVELY ERRED IN UPHOLDING THE ADDITION OF RS. 86,19,918/- MADE BY THE ID. ASSESSING OFFICER BY DISALLOWING TH E DEDUCTION UNDER SECTION 80IB ON SUBSIDY AND EXCISE DUTY RECOVERABLE. 4. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) GRAVELY ERRED IN UPHOLDING THE ADDITION OF RS. 2,86,828/- MADE BY THE ID. ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SECTION 40(A)(3) OF THE INCOME TAX AC T, 1961 IN RESPECT OF PAYMENT MADE LESS THAN RS.20,000/-. 5. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) GRAVELY ERRED IN UPHOLDING THE ADDITION OF RS. 144554/- MAD E BY THE ID. ASSESSING OFFICER ON ACCOUNT OF ALLEGED UNDERSTATEMENT OF INTEREST INCOME. 6. THAT THE ID. COMMISSIONER OF INCOME TAX (APPEALS) GRAVELLY ERRED IN UPHOLDING CHARGING OF INTEREST UNDER SECTION 234B AND 234C OF THE INCOME TAX ACT WHICH IN ANY CASE IS EXCESSIVE. 7. THAT THE APPELLANT CRAVES TO ADD, AMEND OR ALTER AN Y GROUND OF APPEAL BEFORE OR AT THE TIME OF HEARING O F APPEAL WITH THE PERMISSION OF THE HON'BLE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH. 3. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE HAS MADE A STATEMENT IN WRITING THAT HE DOES NOT PRESS GROUND NOS. 4 AND 5 OF THE REVISED GROUNDS OF APPEAL, THESE GROUNDS ARE, T HEREFORE, ITA NOS.529/CHD/2015 & 608/CHD/2103- SH. VANEET SOOD, PANCHKULA 3 DISMISSED AS NOT PRESSED. 4. GROUND NOS. 1, 2 & 7 OF THE APPEAL ARE GENERAL I N NATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. 5. GROUND NO. 6 IS RELATING TO THE CHARGING OF I NTEREST U/S 234B AND 234C OF THE ACT, WHICH IS CONSEQUENTIAL IN NATU RE, AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION AT THIS STAGE . 6. NOW WE ARE LEFT WITH THE SOLE ISSUE RAISED VIDE GROUND NO.3 OF THE APPEAL REGARDING THE ACTION OF THE CIT(A) I N UPHOLDING THE ADDITIONS MADE ON ACCOUNT OF DISALLOWANCE OF DEDUCT ION U/S 80IB ON THE AMOUNT OF RS. 58,54,521/- ON ACCOUNT OF SUBS IDY, RS. 29,97,298/- FOR EXCISE DUTY REFUND AND RS. 68,099/ - ON ACCOUNT OF INTEREST TOTALLING TO RS. 86,19,918/- RECEIVED / RE CEIVABLE DURING THE YEAR BY THE ASSESSEE. 7. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE H AS SUBMITTED THAT THE AFORESAID AMOUNT OF SUBSIDY, EXCISE DUTY AND IN TEREST REFUND TOTALLING TO RS. 86,19,918/-, WAS RECEIVABLE BY THE ASSESSEE AS AN INCENTIVE AS PER THE INDUSTRIAL POLICY IN THE STATE OF JAMMU & KASHMIR (J&K). THE ASSESSEE HAS SET UP A UNIT IN TH E STATE OF J&K IN APRIL, 2004 AND THAT AS PER THE SCHEME J&K GOVER NMENT OFFERED VARIOUS SUBSIDIES FOR NEW INDUSTRIES. THOUG H TILL DATE, THE ASSESSEE HAD NOT RECEIVED SUBSIDY IN QUESTION, HOW EVER, THE ASSESSEE HAS BEEN FOLLOWING MERCANTILE SYSTEM OF AC COUNTING, HENCE, THE SAID SUBSIDY HAS BEEN TAKEN INTO ACCOUNT AS RECEIVABLE. THE LD. COUNSEL HAS FURTHER SUBMITTED THAT SINCE THE ITA NOS.529/CHD/2015 & 608/CHD/2103- SH. VANEET SOOD, PANCHKULA 4 AFORESAID SUBSIDY AND INCENTIVE ON ACCOUNT OF REFUN D, EXCISE DUTY AND INTEREST WERE FOR PROMOTION / SETTING UP OF NE W INDUSTRY IN THE STATE OF J&K AND, HENCE, THIS SUBSIDY / REFUND WERE CAPITAL RECEIPTS IN NATURE. HE, IN THIS RESPECT HAS RELIED UPON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS . SHREE BALAJI ALLOYS & ORS (2016) 95 CCH 0249 (SC) / (2018) 1 38 DTR 0036 (SC). 8. THE LD. DR, ON THE OTHER HAND, HAS RELIED ON TH E FINDINGS OF THE LOWER AUTHORITIES. 9. BOTH THE LD. REPRESENTATIVES OF THE PARTIES HAVE BEEN FAIR ENOUGH TO ADMIT THAT THE ISSUE RAISED IN THIS APPEA L ON ACCOUNT OF SUBSIDY RECEIPT / RECEIVABLE, REFUND OF EXCISE DUTY AND INTEREST ETC., AS INCENTIVES GIVEN BY THE GOVERNMENT FOR SET TING UP OF NEW INDUSTRY ARE COVERED BY THE RECENT DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT-I VS. M/S CHAPHAL KAR BROTHERS, PUNE AND OTHERS IN CIVIL APPEAL NOS. 6513-6514 OF 2012 VIDE ORDER DATED 7.12.2017 . THE HON'BLE SUPREME COURT W HILE DELIBERATING ON THE OTHER DECISIONS OF THE SUPREME COURT IN THE CASES OF SAHNEY STEEL & PRESS WORKS LTD. HYDERABAD VS. CIT, A.P.-1, HYDERABAD : 1997 (7) SCC 765, CIT, MADRAS VS. POONI SUGARS AND CHEMICALS LIMITED 2009 (9) SCC 337 AND FURTHER OF THE HON'BLE J&K HIGH COURT IN THE CASE OF SHRI BAL AJI ALLOYS VS. CIT (2011) 333 ITR 335, HAS HELD THAT TO HOLD WHET HER ANY OF SUCH RECEIPTS ARE CAPITAL OR REVENUE IN NATURE, PU RPOSE TEST IS TO BE APPLIED. IF THE PURPOSE IS FOR THE SETTING UP O F NEW INDUSTRY, ITA NOS.529/CHD/2015 & 608/CHD/2103- SH. VANEET SOOD, PANCHKULA 5 THEN THE RECEIPTS ARE TO BE CONSIDERED AS CAPITAL I N NATURE. HOWEVER, IF THE RECEIPTS ARE IN THE NATURE OF FACIL ITATION / HELPING HAND TO THE TRADE, THE SAME ARE TO BE CONSTRUED AS REVENUE IN NATURE. WHAT IS IMPORTANT IS THE OBJECT FOR WHICH THE SUBSIDY / INCENTIVE IS GRANTED. THAT THE OBJECT IS CARRIED OU T IN A PARTICULAR MANNER IS IRRELEVANT. ONCE THE OBJECT OF THE SUBS IDY WAS TO INDUSTRIALIZE THE STATE AND TO GENERATE EMPLOYMENT IN THE STATE, THE FACT THAT A SUBSIDY TOOK A PARTICULAR FORM AND THAT IT WAS GRANTED ONLY AFTER COMMENCING OF PRODUCTION, WOULD NOT MAKE ANY DIFFERENCE. THE HON'BLE SUPREME COURT MADE REFERENC E TO THE DECISION OF THE HON'BLE J&K HIGH COURT IN THE CAS E OF SHRI BALAJI ALLOYS V CIT (SUPRA), WHEREIN, THE HON'BLE HIGH COURT WHILE CONSIDERING THE SCHEME OF REFUND OF EXCISE DU TY AND INTEREST SUBSIDY, HAS HELD THAT THE RECEIPTS WERE CAPITAL IN NATURE DESPITE THE FACT THAT THE INCENTIVES WERE NOT AVAILABLE UN TIL AND UNLESS THE COMMERCIAL PRODUCTION HAS STARTED AND DESPITE THE F ACT THAT THESE INCENTIVES WERE NOT GIVEN TO THE ASSESSEE EXPRESSL Y FOR THE PURPOSE OF CAPITAL ASSETS. THE RELEVANT PART OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. M/S C HAPHALKAR BAROATHERS, PUNE IS REPRODUCED AS UNDER:- FINALLY, IT WAS FOUND THAT, APPLYING THE TEST OF P URPOSE, THE COURT WAS SATISFIED THAT THE PAYMENT RECEIVED B Y THE ASSESSEE UNDER THE SCHEME WAS NOT IN THE NATURE OF A HELPING HAND TO THE TRADE BUT WAS CAPITAL IN NATURE . WHAT IS IMPORTANT FROM THE RATIO OF THIS JUDGMENT I S THE FACT THAT SAHNEY STEEL WAS FOLLOWED AND THE TEST LA ID DOWN WAS THE PURPOSE TEST. IT WAS SPECIFICALLY HELD TH AT THE ITA NOS.529/CHD/2015 & 608/CHD/2103- SH. VANEET SOOD, PANCHKULA 6 POINT OF TIME AT WHICH THE SUBSIDY IS PAID IS NOT R ELEVANT; THE SOURCE OF THE SUBSIDY IS IMMATERIAL; THE FORM O F SUBSIDY IS EQUALLY IMMATERIAL. APPLYING THE AFORESAID TEST CONTAINED IN BOTH SAHNE Y STEEL AS WELL AS PONNI SUGAR, WE ARE OF THE VIEW THAT THE OBJECT, AS STATED IN THE STATEMENT OF OBJECTS AND REASONS, OF THE AMENDMENT ORDINANCE WAS THAT SINCE THE AVERAGE OCCUPANCY IN CINEMA THEATRES HAS FALLEN CONSIDERABL Y AND HARDLY ANY NEW THEATRES HAVE BEEN STARTED IN THE RE CENT PAST, THE CONCEPT OF A COMPLETE FAMILY ENTERTAINMEN T CENTRE, MORE POPULARLY KNOWN AS MULTIPLEX THEATRE COMPLEX, HAS EMERGED. THESE COMPLEXES OFFER VARIOUS ENTERTAINMENT FACILITIES FOR THE ENTIRE FAMILY AS A WHOLE. IT WAS NOTICED THAT THESE COMPLEXES ARE HIGHLY CAPITAL INTENSIVE AND THEIR GESTATION PERIOD IS QUITE LONG AND THEREFORE, THEY NEED GOVERNMENT SUPPORT IN THE FORM OF INCENTIVES QUA ENTERTAINMENT DUTY. IT WAS ALSO ADDE D THAT GOVERNMENT WITH A VIEW TO COMMEMORATE THE BIRTH CENTENARY OF LATE SHRI V. SHANTARAM DECIDED TO GRAN T CONCESSION IN ENTERTAINMENT DUTY TO MULTIPLEX THEAT RE COMPLEXES TO PROMOTE CONSTRUCTION OF NEW CINEMA HOU SES IN THE STATE. THE AFORESAID OBJECT IS CLEAR AND UNEQUIVOCAL. THE OBJECT OF THE GRANT OF THE SUBSIDY WAS IN ORDER THAT PERSONS COME FORWARD TO CONSTRUCT MULTIP LEX THEATRE COMPLEXES, THE IDEA BEING THAT EXEMPTION FR OM ENTERTAINMENT DUTY FOR A PERIOD OF THREE YEARS AND PARTIAL REMISSION FOR A PERIOD OF TWO YEARS SHOULD GO TOWAR DS HELPING THE INDUSTRY TO SET UP SUCH HIGHLY CAPITAL INTENSIVE ENTERTAINMENT CENTERS. THIS BEING THE CASE, IT IS D IFFICULT TO ACCEPT MR. NARASIMHA'S ARGUMENT THAT IT IS ONLY THE IMMEDIATE OBJECT AND NOT THE LARGER OBJECT WHICH MU ST BE KEPT IN MIND IN THAT THE SUBSIDY SCHEME KICKS IN ON LY POST CONSTRUCTION, THAT IS WHEN CINEMA TICKETS ARE ACTUA LLY SOLD. WE HASTEN TO ADD THAT THE OBJECT OF THE SCHEM E IS ITA NOS.529/CHD/2015 & 608/CHD/2103- SH. VANEET SOOD, PANCHKULA 7 ONLY ONE -THERE IS NO LARGER OR IMMEDIATE OBJECT. T HAT THE OBJECT IS CARRIED OUT IN A PARTICULAR MANNER IS IRR ELEVANT, AS HAS BEEN HELD IN BOTH PONNI SUGAR AND SAHNEY STE EL. MR. GANESH, LEARNED SENIOR COUNSEL, ALSO SOUGHT TO RELY UPON A JUDGMENT OF THE JAMMU AND KASHMIR HIGH COURT IN SHRI BALAJI ALLOYS VS. C.I.T. (2011) 333 I.T.R. 335 . WHILE CONSIDERING THE SCHEME OF REFUND OF EXCISE DUTY AND INTEREST SUBSIDY IN THAT CASE, IT WAS HELD THAT THE SCHEME WAS CAPITAL IN NATURE, DESPITE THE FACT THAT THE IN CENTIVES WERE NOT AVAILABLE UNLESS AND UNTIL COMMERCIAL PROD UCTION HAS STARTED, AND THAT THE INCENTIVES IN THE FORM OF EXCISE DUTY OR INTEREST SUBSIDY WERE NOT GIVEN TO THE ASSE SSEE EXPRESSLY FOR THE PURPOSE OF PURCHASING CAPITAL ASS ETS OR FOR THE PURPOSE OF PURCHASING MACHINERY. AFTER SETTING OUT BOTH THE SUPREME COURT JUDGMENTS REFERRED TO HEREINABOVE, THE HIGH COURT FOUND THAT THE CONCESSIONS WERE ISSUED IN ORDER TO ACHIEVE THE TWI N OBJECTS OF ACCELERATION OF INDUSTRIAL DEVELOPMENT I N THE STATE OF JAMMU AND KASHMIR AND GENERATION OF EMPLOYMENT IN THE SAID STATE. THUS CONSIDERED, IT W AS OBVIOUS THAT THE INCENTIVES WOULD HAVE TO BE HELD C APITAL AND NOT REVENUE. MR. GANESH, LEARNED SENIOR COUNSEL , POINTED OUT THAT BY AN ORDER DATED 19.04.2016, THIS COURT STATED THAT THE ISSUE RAISED IN THOSE APPEALS WAS C OVERED, INTER ALIA, BY THE JUDGMENT IN PONNI SUGARS, AND TH E APPEALS WERE, THEREFORE, DISMISSED. WE HAVE NO HESITATION IN HOLDING THAT THE FINDING O F THE JAMMU AND KASHMIR HIGH COURT ON THE FACTS OF THE INCENTIVE SUBSIDY CONTAINED IN THAT CASE IS ABSOLUT ELY CORRECT. IN THAT ONCE THE OBJECT OF THE SUBSIDY WAS TO INDUSTRIALIZE THE STATE AND TO GENERATE EMPLOYMENT IN THE STATE, THE FACT THAT THE SUBSIDY TOOK A PARTICULAR FORM AND ITA NOS.529/CHD/2015 & 608/CHD/2103- SH. VANEET SOOD, PANCHKULA 8 THE FACT THAT IT WAS GRANTED ONLY AFTER COMMENCEMEN T OF PRODUCTION WOULD MAKE NO DIFFERENCE . 10. WE MAY FURTHER ADD HERE THAT THE DECISION OF TH E HON'BLE JAMMU & KASHMIR HIGH COURT IN THE CASE OF CIT VS. SHRI BALAJI ALLOYS & ORS (SUPRA) HAS BEEN UPHELD BY THE HON'B LE SUPREME COURT VIDE ITS DECISION DATED 19.12.2016 REPORTED I N (2016) 95 CCH 0249 SCC / (2016) 138 DTR 0036 (SC). 11. IN VIEW OF THIS PROPOSITION OF LAW LAID DOWN BY THE HON'BLE SUPREME COURT, THE AFORESAID RECEIPTS OF THE ASSESS EE ON ACCOUNT OF SUBSIDY, EXCISE DUTY REFUND AND INTEREST REFUND ARE HELD TO BE CAPITAL IN NATURE AND NOT TAXABLE. SINCE THE RECEIP TS HAVE BEEN HELD TO BE CAPITAL IN NATURE, HENCE, NO ADDITION IS ATTRACTED ON ACCOUNT OF THESE RECEIPTS INTO THE INCOME OF THE AS SESSEE. THE ADDITIONS MADE, IF ANY, BY THE LOWER AUTHORITIES IN RESPECT OF AFORESAID SUBSIDY, EXCISE DUTY REFUND, INTEREST REF UND ARE HEREBY ORDERED TO BE DELETED. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS HERE BY ALLOWED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 06.02.201 8 IN THE PRESENCE OF PARTIES AT THE CONCLUSION OF HEARIN G. SD/ (ANNAPURNA GUPTA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 04.05.2018 RKK COPY TO: THE APPELLANT THE RESPONDENT THE CIT THE CIT(A) THE DR