DCIT, Sangrur V. M/s Padmawati Steel Ltd., Sangrur

ITA 587/CHANDI/2014

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 4995 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 year(s) 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 03-06-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: N K GARG
• Keywords: Question of law; Capital receipt; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, B CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA NO. 587/CHD/2014 ASSESSMENT YEAR : 2010-11 THE DCIT, VS. M/S PADMAWATI STEELS LTD., CIRCLE , SANGRUR ROAD, DIBRA, SANGRUR DISTT.SANGRUR PAN NO. AACCP3844Q (APPELLANT) (RESPONDENT) APPELLANT BY : SH. MANJIT SINGH, SR.DR RESPONDENT BY : SH. N.K. GARG, ADVOCATE DATE OF HEARING : 01.03.2018 DATE OF PRONOUNCEMENT : 25.05 .2018 ORDER PER SANJAY GARG, JUDICIAL MEMBER: THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE ORDER DATED 31.3.2004 OF THE COMMISSIONER OF INCOME TAX(A), PA TIALA [HEREINAFTER REFERRED TO AS CIT(A)] 2. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS OF A PPEAL:- 1. THE LD. CIT(A) HAS ERRED IN LAW ON FACTS IN DELETIN G THE ADDITION MADE BY THE ASSESSING OFFICER ON THE ISSUE OF VAT DEFERMENT REBATE INCLUDED UNDER DEDUCTION UNDER SECTION 80IC OF INCOME-TAX ACT, 1961. 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN ALLOWING THE RELIEF ON ACCOUNT OF ITA NO.587/CHD/2014 - H.M. STEELS & PADMAWATI STEEL LTD., SANGRUR 2 DISALLOWANCE OF INTEREST ON FDR OF RS. 1,17,594/- UNDER SECTION 80IC OF THE INCOME-TAX ACT, 1961. 3. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN ALLOWING THE RELIEF ON ACCOUNT OF DISALLOWANCE OF INSURANCE CLAIM OF RS. 90,000/- UND ER SECTION 80IC, WITHOUT APPRECIATING THE FACT THAT TH E SAME IS NOT DERIVED FROM BUSINESS ACTIVITY OF THE ASSESSEE COMPANY BUT IS MERELY IDENTICAL TO COMPAN Y. 3. GROUND NOS. 1 & 2 : AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT SO FAR AS GROUND NOS. 1 & 2 ARE CONCERNED, THEY ARE SQUARELY COVERED BY THE DECISIO N OF THIS TRIBUNAL DATED 23.2.2018 PASSED IN THE OWN CASE OF THE ASSES SEE E FOR ASSESSMENT YEARS 2011-12 TO 2013-14 IN ITA NOS. 108 3, 4 & 5/CHD/2017. THE LD. DR HAS ALSO FAIRLY AGREED THAT THE ISSUES R AISED VIDE GROUND NOS. 1 & 2 ARE COVERED BY THE DECISION OF TH E TRIBUNAL (SUPRA). 4. WE HAVE GONE THROUGH THE DECISION OF THE TRIBUNA L DATED 23.2.2018 (SUPRA) IN THE CASE OF THE ASSESSEE AND F OUND THAT THE GROUND NOS. 1 & 2 OF THIS APPEAL ARE SQUARELY COVER ED BY THE AFORESAID DECISION OF THE TRIBUNAL. THE RELEVANT PA RT OF THE ORDER OF THE TRIBUNAL DATED 23.2.2108 PASSED IN THE OWN CASE OF THE ASSESSEE IN ITA NOS.1083, 4 & 5/CHD/2017, IS REPRODUCED AS UNDER:- 9. GROUND NO. 2 AND 3 RAISED BY THE REVENUE PERTAI N TO THE ISSUE OF CLAIM OF DEDUCTION UNDER SECTION 80IC ON VAT DEFERMENT REBATE AND INTEREST ON FDRS. SINCE THE I SSUE IS COMMON AND THE ARGUMENTS ADVANCED WERE ALSO ITA NO.587/CHD/2014 - H.M. STEELS & PADMAWATI STEEL LTD., SANGRUR 3 COMMON, BOTH THE GROUNDS ARE BEING TAKEN UP TOGETHE R. GROUND NO. 2 AND 3 RAISED BY THE REVENUE READ AS UN DER: 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WHET HER THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS . 1,22,57,905/- MADE BY THE AO ON ACCOUNT OF DISALLOW ANCE OF DEDUCTION CLAIMED U/S 80IC OF THE INCOME TAX ACT , 1961 IN RESPECT OF VAT DEFERMENT REBATE WITHOUT APPRECIA TING THE JUDGMENT GIVEN BY HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF M/S H.M. STEELS LTD., SANGRUR IN ITA NO. 352 OF 2013 DT. 04/08/2015. 3. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WHET HER THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION O F RS. 1,27,575/- MADE BY THE AO ON ACCOUNT OF DISALLOWANC E OF DEDUCTION CLAIMED U/S 80IC OF THE INCOME TAX ACT, 1 961 IN RESPECT OF INTEREST ON FDRS WITHOUT APPRECIATING TH E JUDGMENT GIVEN BY THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF M/S H.M. STEELS LTD. , SANGRUR IN ITA NO. 352 OF 2013 DT. 04/08/2015. 10. BRIEFLY STATED THE ASSESSEE HAD CLAIMED DEDUCTI ON UNDER SECTION 80IC OF THE INCOME TAX ACT (HEREINAFT ER REFER TO AS THE ACT) ON INCOMES SHOWN UNDER THE HEAD OTH ER INCOMES WHICH INCLUDED VAT DEFERMENT REBATE AMOUNT ING TO RS. 1,22,57,905/- , AND INTEREST ON FDRS AMOUNTING TO RS. 1,27,575/- ,WHICH WAS DENIED BY THE AO FOR THE REAS ON THAT THERE WAS NO DIRECT NEXUS BETWEEN THE INDUSTRIAL UN DERTAKING OF THE ASSESSEE AND THE SAID INCOMES, IN THE ABSENC E OF WHICH THE SAID INCOMES COULD NOT BE SAID TO BE DERIVED FR OM THE INDUSTRIAL UNDERTAKING, WHICH WAS A PREREQUISITE FO R CLAIMING DEDUCTION UNDER THE SAID SECTION. THE AO REFERRED TO THE JUDGMENT OF THE APEX COURT IN THE CASE OF CIT VS. S TERLING FOODS 237 ITR 579 IN THIS REGARD. 11. BEFORE THE LD. CIT(A) THE ASSESSEE CONTENDED TH AT THERE WAS DIRECT NEXUS BETWEEN THE AFORESAID INCOME AND T HE INDUSTRIAL UNDERTAKING OF THE ASSESSEE. TO THIS EFF ECT THE ASSESSEE EXPLAINED THAT VIS A VIS THE VAT DEFERMENT REBATE THE FACTS WERE THAT IT WAS LIABLE FOR PAYMENT OF VAT ON THE SALES MADE WITHIN THE STATE OF HIMACHAL PRADESH AND AS PE R THE POLICY OF THE STATE GOVERNMENT THE LIABILITY OF VAT PAYMENTS WAS DEFERRED AND WAS REQUIRED TO BE PAID AFTER THE DEFERMENT PERIOD IN EQUAL INSTALLMENTS. FURTHER IN CONTINUATION TO THE ABOVE POLICY THE STATE GOVERNMENT HAD ISSUED A NOTIFICATION ON 28/08/2005 GIVING OPTION TO INDUSTR IAL UNITS AVAILING THE DEFERMENT OF TAX TO EITHER CONTINUE WI TH SUCH FACILITY FOR THE UNEXPIRED PERIOD OR OPT TO PAY 65% OF THE TAX LIABILITY AND UPON MAKING SUCH PAYMENTS THE UNIT WO ULD BE DEEMED TO HAVE PAID THE FULL TAX DUE FROM THEM ACCO RDINGLY. THE ASSESSEE HAVING EXERCISED THIS OPTION THE VAT D EFERMENT REBATE CREDITED IN ITS P&L ACCOUNT AMOUNTING TO RS. ITA NO.587/CHD/2014 - H.M. STEELS & PADMAWATI STEEL LTD., SANGRUR 4 1,22,57,905/- RELATED TO THE 35% OF VAT, WHICH WAS RETAINED BY IT AS PER THE SAID POLICY OF THE GOVERNMENT . THE A SSESSEE CONTENDED THAT VAT CHARGES ARE TRADING RECEIPTS WHI CH HAD BEEN SETTLED BY THE APEX COURT IN A NUMBER OF DECIS IONS AND THEREFORE THE VAT DEFERENT REBATE EARNED BY THE ASS ESSEE HAD A DIRECT NEXUS WITH THE INDUSTRIAL UNDERTAKING AND WAS THUS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC OF T HE ACT. VIS A VIS THE CLAIM OF DEDUCTION UNDER SECTION 80IC ON THE INTEREST RECEIVED ON FDRS TO THE TUNE OF RS. 1 ,27,575/- THE ASSESSEE SUBMITTED THAT THE FDRS WERE TAKEN AS SEC URITY FOR VAT DEFERMENT AND POWER CONNECTION AND THEREFORE TH E INTEREST EARNED THEREON WAS INTEGRAL PART OF THE AC TIVITY OF THE INDUSTRIAL UNDERTAKING ENTITLING IT TO CLAIM DEDUCT ION UNDER SECTION 80IC OF THE ACT. 12. THE LD. CIT(A) ALLOWED BOTH THE AFORESAID CLAIM S OF THE ASSESSEE FOLLOWING THE DECISION OF THE ITAT CHANDIG ARH BENCH IN CASE OF M/S H.M. STEEL LTD. VS. JCIT IN ITA NO. 643/CHD/2011 FOR AY 2007-08 DT. 17/06/2013. 13. BEFORE US, AT THE OUTSET, LD. COUNSEL FOR THE A SSESSEE CONTENDED THAT THE DECISION RELIED UPON BY THE LD. CIT(A) ALLOWING THE ASSESSEES CLAIM OF DEDUCTION UNDER SE CTION 80IC ON VAT DEFERMENT REBATE IN THE CASE OF H.M STEEL (S UPRA) HAD BEEN UPHELD BY THE APEX COURT. LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT THE APPEAL FILED BY THE ASSESSEE A GAINST THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT DENYING T HE CLAIM OF THE ASSESSEE TO DEDUCTION U/S 80IC ON VAT DEFERMENT REBATE IN THE SAID CASE HAD BEEN ALLOWED FOLLOWING THE JUD GMENT OF THE APEX COURT IN THE CASE OF CIT VS. PONNI SUGARS AND CHEMICALS LTD. AND CIT VS. MEGHALAYA STEELS LTD. C OPY OF THE ORDER WAS FILED BEFORE US. LD. COUNSEL FOR THE ASSE SSEE ALTERNATIVELY CONTENDED THAT THE SAID VAT SUBSIDY R ECEIVED BY THE ASSESSEE WAS A CAPITAL RECEIPT IN ITS HAND AND THUS NOT LIABLE TO TAX AT ALL. IN THIS REGARD LD. COUNSEL FO R THE ASSESSEE DREW OUR ATTENTION TO THE ORDER OF THE JURISDICTION AL HIGH COURT IN THE CASE OF PR. CIT VS. TALBROS ENGINEERING LTD. (2016) 386 ITR 154 (P&H) AND POINTED OUT THEREFROM THAT IDENTICAL SALES TAX DEFERMENT SUBSIDY RECEIVED IN THE SAID CASE WAS HEL D TO BE CAPITAL IN NATURE BY THE ITAT WHICH ORDER WAS UPHEL D BY THE HONBLE HIGH COURT. LD. COUNSEL FOR THE ASSESSEE AL SO RELIED UPON THE ORDER OF THE APEX COURT IN THE CASE OF CIT VS PONNI SUGARS AND CHEMICALS LTD. REPORTED IN (2008) 306 IT R 392 WHICH WAS FOLLOWED BY THE APEX COURT IN CIT VS. SHRI BALA JI ALLOYS (2016) 138 DTR 36 (SC). ITA NO.587/CHD/2014 - H.M. STEELS & PADMAWATI STEEL LTD., SANGRUR 5 14. LD. DR FAIRLY ADMITTED THAT THE APPEAL OF THE A SSESSEE AGAINST THE ORDER PASSED BY THE JURISDICTIONAL HIGH COURT HAD BEEN DISMISSED BY THE APEX COURT. 15. AS FOR THE DEDUCTION CLAIMED UNDER SECTION 80IC ON THE INTEREST EARNED ON FDRS ,WHILE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE CIT(A), THE LD. DR STATE D THAT THE CIT(A) HAD ERRED IN FOLLOWING THE DECISION OF THE I TAT IN THE CASE OF H.M. STEEL(SUPRA) SINCE THE FACTS OF THE SA ID CASE WERE DISTINGUISHABLE WITH THE PRESENT CASE. LD. DR POINT ED OUT THAT WHILE IN THE CASE OF H.M. STEEL THE FINDING OF FACT ON RECORD WAS THAT THE FDRS WERE MADE ON ACCOUNT OF MARGIN M ONEY FOR IN LAND LETTER OF CREDIT (ILC) FOREIGN LETTER O F CREDIT (FLC) FOR THE RAW MATERIALS WHICH WAS TREATED AS A COST T O ACQUIRE RAW MATERIAL AND HENCE HAVING DIRECT NEXUS WITH THE INDUSTRIAL UNDERTAKING, IN THE PRESENT CASE THE FDRS WERE TAK EN AS SECURITY FOR VAT DEFERMENT AND POWER CONNECTION WHI CH HAD NO DIRECT NEXUS WITH THE INDUSTRIAL UNDERTAKING AND THEREFORE LD. DR CONTENDED THAT THE ASSESSEE WAS NOT ENTITLED TO CLAIM DEDUCTION UN DER SECTION 80IC ON THE SAME. LD. COUNSEL FOR ASSESSE E CONTENDED THAT FOLLOWING THE DECISION IN THE CASE O F H.M. STEELS (SUPRA), BENEFIT OF NETTING BE ALLOWED. 16. WE HAVE HEARD THE CONTENTION OF BOTH THE PARTIE S AND HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHO RITIES BELOW AND THE DECISIONS RELIED UPON BEFORE US. 17. TAKING UP FIRST THE ISSUE OF CLAIM OF DEDUCTION UNDER SECTION 80IC ON VAT DEFERMENT REBATE WE ARE IN AGRE EMENT WITH THE LD. COUNSEL FOR THE ASSESSEE THAT THE ISSU E HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE APEX COURT . THE DECISION OF THE ITAT RELIED UPON BY THE LD. CIT(A) IN THE CASE OF H.M. STEEL (SUPRA) FOR AY 2007-08, WE FIND HAD BEEN REVERSED BY THE JURISDICTIONAL HIGH COURT VIDE ORDER DT. 04/ 08/2015 IN ITA NO. 352/2013 AND SUBSEQUENTLY THE APEX COURT AFTER GRANTING LEAVE IN THE ASSESSEES SLP FILED AGAINST THE SAID D ECISION IN SLP(C)NO.8110-8111/2016 ALLOWED THE ASSESSEES APP EAL VIDE THEIR ORDER IN GROUP OF CASES WITH THE LEAD CASE B EING COMMISSIONER OF INCOME TAX VS M/S VIJAY STEEL INDUS TRIES IN CIVIL APPEAL NO.5107/2015 DT.21-09-2017. THE ORDER OF THE APEX COURT IS AS UNDER: AFTER HEARING THE LEARNED COUNSEL FOR THE PARTIES WE FIND THAT THE ISSUE RAISED IN THESE APPEALS IS COVE RED AGAINST THE REVENUE BY THE DECISION OF THIS COURT IN ' COMM ISSIONER OF INCOME TAX, MADRAS VS. PONNI SUGARS AND CHEMICALS L TD.' REPORTED IN (2008) 9 SCC 337, OR IN THE ALTERNATE, IN ITA NO.587/CHD/2014 - H.M. STEELS & PADMAWATI STEEL LTD., SANGRUR 6 'COMMISSIONER OF INCOME TAX VS. M/S. MEGHALAYA STEE LS LTD. ', REPORTED IN (2016) 3 SCALE 192. THEREFORE, THE APPEALS OF THE REVENUE ARE DISMISSED AND THE APPEAL (S) OF THE ASSESSEE(S) IS ALLOWED. HOWEVER, IN A PARTICULAR CASE, IF IT IS FOUND THAT THE FACTS OR ISSUE IS DIFFERENT, LIBERTY IS GRANTED TO THE REVEN UE TO MAKE AN APPROPRIATE APPLICATION. 18. THUS THE ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE. EVEN OTHERWISE WE ARE IN AGREEMENT WITH THE LD. COU NSEL FOR THE ASSESSEE THAT THE SAID SUBSIDY OF VAT DEFERMENT RECEIVED BY THE ASSESSEE QUALIFIES AS CAPITAL RECEIPT AS HEL D BY THE APEX COURT IN PONNI SUGARS(SUPRA) AND BALAJI ALLOYS (SUPRA) AND BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF TELBROS ENGINEERING (SUPRA). THE JURISDICTIONAL HIGH COURT HELD AS UNDER, WHILE DEALING WITH THE NATURE OF SALES TAX DEFERMENT SUBSIDY RECEIVED IN THE CASE OF TALBROS ENGINEERING (SUPRA) AT PARA 6 OF ITS ORDER: 6. THE NEXT ISSUE WAS WITH REGARD TO ADDITION OF? 2 1,68,938 ON ACCOUNT OF CAPITAL SUBSIDY ON SALES TAX. THE ASSESS EE RECEIVED A SUBSIDY OF SALES TAX AMOUNTING TO ? 21,68,938/- W HICH WAS CLAIMED AS A CAPITAL RECEIPT NOT CHARGEABLE TO TAX. ON BEING ASKED AS TO WHY THE SUBSIDY BE NOT TREATED AS REVEN UE RECEIPT, THE ASSESSEE STATED THAT IT WAS GIVEN AS PER THE SC HEME OF THE STATE GOVERNMENT FOR ENCOURAGING THE INDUSTRIES TO SET UP THEIR UNITS IN RURAL AREAS AND FOR COMPENSATING FOR THE H ARDSHIP IN SETTING UP SUCH INDUSTRIES IN REMOTE RURAL AREAS. T HE ASSESSING OFFICER TREATED THIS AMOUNT AS REVENUE BY RELYING U PON JUDGMENT OF THE APEX COURT IN SAHNEY STEEL AND PASS WORKS LIMITED VS. CIT, 228 ITR 253. THE CIT(A) TREATED TH IS AMOUNT AS CAPITAL RECEIPT HOLDING THAT IF THE PURPOSE OF THE SUBSIDY WAS TO HELP THE ASSESSEE TO SET UP ITS BUSINESS OR COMPLET E A PROJECT, THE AMOUNTS MUST BE TREATED TO HAVE BEEN RECEIVED F OR CAPITAL PURPOSE. THE TRIBUNAL AFTER CONSIDERING THE MATTER UPHELD THE DELETION MADE BY THE CIT(A) OBSERVING TH AT IF SOME SUBSIDY IS GIVEN FOR ENCOURAGING THE INDUSTRIES FOR SETTING UP UNITS IN THE REMOTE OR RURAL AREAS ETC. THEN SUCH S UBSIDY ASSUMES THE CHARACTER OF A CAPITAL RECEIPT. IF SUBS IDY IS GIVEN FOR ENABLING AN ASSESSEE TO RUN ITS BUSINESS MORE P ROFITABLY, THEN IT WOULD AMOUNT TO AN OPERATIONAL SUBSIDY CHAR GEABLE TO TAX. THE RELEVANT FINDINGS RECORDED BY THE TRIBUNAL READ THUS: 16. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE RELEVANT MATERIAL ON RECORD. THE RELEVANT FACTOR FO R DECISION AS TO WHETHER SUBSIDY IS A CAPITAL OR A RE VENUE RECEIPT, IS ITS NATURE AND OBJECT. IF SOME SUBSIDY IS GIVEN FOR ENCOURAGING THE INDUSTRIES FOR SETTING UP UNITS IN THE REMOTE OR RURAL AREAS ETC THEN SUCH SUBSIDY ASSUMES THE CHARACTER OF A CAPITAL RECEIPT. ON THEN OTHER HAND, IF SUBSIDY IS GIVEN FOR ENABLING AN ASSESSEE TO RUN IT S BUSINESS MORE PROFITABLY, THEN IT WOULD AMOUNT TO AN OPERATI ONAL SUBSIDY CHARGEABLE TO TAX. IT IS CLEAR FROM THE ASS ESSEE'S SUBMISSIONS REPRODUCED IN THE ASSESSMENT ORDER THAT THE SUBSIDY WAS GIVEN TO THE ASSESSEE AS A COMPENSATION FOR SETTING UP ITS UNIT IN REMOTE RURAL AREAS. THE NATU RE OF SUCH SUBSIDY HAS NOT BEEN DISPUTED BY THE AO. AS THE NAT URE OF SUBSIDY IN THE PRESENT FACTS AND CIRCUMSTANCES IS UNDISPUTED, BEING TOWARDS THE SETTING UP OF UNIT IN REMOTE ITA NO.587/CHD/2014 - H.M. STEELS & PADMAWATI STEEL LTD., SANGRUR 7 AND RURAL AREAS, THE NATURAL CONCLUSION WHICH THERE FORE FOLLOWS IS THAT THIS SUBSIDY IS A CAPITAL RECEIPT A ND NOT CHARGEABLE TO TAX. THE LEARNED DR CONTENDED THAT TH E NATURE OF SUBSIDY HAS UNDERGONE CHANGE BECAUSE OF T HE ASSESSEE ITSELF STATING THAT IT OPTED FOR THE HALF OF THE AMOUNT OF THE DEFERRED SALES TAX BY MAKING PAYMENT FOR THE REMAINING HALF OF THE AMOUNT OF THE DEFERRED TA X UPFRONT. IN OUR CONSIDERED OPTION, THE EXERCISE OF OPTION BY THE ASSESSEE IN PAYING HALF OF THE AMOUNT OF DEFERR ED TAX UPFRONT THEREBY RETAINING THE REMAINING HALF AS SUB SIDY, CANNOT CONVERT THE OTHERWISE CAPITAL SUBSIDY INTO A N ITEM OF REVENUE. THE SPECIAL BENCH OF THE TRIBUNAL IN SU LZER INDIA LIMITED VS. DCIT, (2010) 134 TTJ(MUM.) (SD) 3 85 HAS HELD THAT THE PAYMENT OF NET PRESENT VALUE AGAINST A DEFERRED SALES TAX LIABILITY CANNOT BE CONSIDERED A S INCOME UNDER SECTION 41(1) OF THE ACT. THIS VIEW OF THE SPECIAL BENCH HAS BEEN RECENTLY UPHELD BY THE HON'B LE BOMBAY HIGH COURT VIDE ITS JUDGMENT DATED 5.12.2014 , A COPY OF WHICH HAS BEEN MADE AVAILABLE BY THE LEARNE D AR. IN VIEW OF THE ABOVE FORGOING DISCUSSIONS, WE A RE OF THE CONSIDERED OPINION THAT THE LEARNED CIT(A) WAS JUSTIFIED IN TREATING SALES TAX SUBSIDY AS A CAPITA L RECEIPT. IN THE ABSENCE OF ANY MATERIAL TO ASSAIL THE FINDIN GS RECORDED BY THE TRIBUNAL ON THIS ISSUE, THE SAME ARE ALSO UPHELD. 7. THE VIEW ADOPTED BY THE TRIBUNAL IS A PLAUSIBLE VIEW BASED ON APPRECIATION OF MATERIAL ON RECORD AND THE RELEVANT CASE LAW ON THE POINT. LEARNED COUNSEL FOR THE APPELLANT-ASSESSEE HAS NOT BEEN ABLE TO SHOW ANY ILLEGALITY OR PERVERSITY IN THE FINDINGS RECORDED. THUS, NO SUBSTANTIAL QUESTION OF LAW ARISES. THE APPEAL STANDS DISMISSED. IN VIEW OF THE ABOVE WE UPHOLD THE ORDER OF THE LD. CIT(A) DELETING THE ADDITION MADE ON ACCOUNT OF SUB SIDY OF VAT DEFERMENT RECEIVED BY THE ASSESSEE. GROUND OF A PPEAL NO. 2 RAISED BY THE REVENUE IS THEREFORE DISMISSED. 19. AS FOR THE CLAIM OF THE ASSESSEE OF DEDUCTION U NDER SECTION 80IC ON THE INTEREST RECEIVED ON FDRS WE H OLD THAT THE ASSESSEE IS NOT ENTITLED TO THE SAME. ADMITTEDL Y THE SAID INTEREST HAS BEEN RECEIVED ON FDRS WHICH WERE TAKE N AS SECURITY FOR VAT DEFERMENT AND POWER CONNECTION. TH IS IS A STEP REMOVED FROM THE INDUSTRIAL UNDERTAKING OF THE ASSESSEE AND IS NOT DIRECTLY RELATED TO THE ACTIVITY OF THE INDUSTRIAL UNDERTAKING. IT THEREFORE CANNOT BE SAID TO BE DERI VED FROM THE INDUSTRIAL UNDERTAKING. THE HONBLE APEX COURT WHILE DEALING WITH A CLAIM OF DEDUCTION UNDER SECTION 80H H OF THE ACT IN THE CASE OF PANDIAN CHEMICAL LTD. VS. CIT 26 2 ITR 278 HAD THE QUESTION RAISED BEFORE IT AS TO WHETHER INT EREST EARNED ON A DEPOSIT MADE WITH THE ELECTRICITY BOARD FOR TH E SUPPLY OF ELECTRICITY TO THE ASSESSEES INDUSTRIAL UNDERTAKING SHOULD BE TREATED AS INCOME DERIVED FROM INDUSTRIAL UNDERTAKI NG UNDER SECTION 80HH. THE HONBLE COURT HELD THAT ALTHOUGH ;ELECTRICITY MAY BE REQUIRED FOR THE PURPOSES OF THE INDUSTRIAL UNDERTAKING THE DEPOSIT REQUIRED FOR ITS SUPPLY IS A STEP REMOV ED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTAKING. IT WAS HELD THAT THE ITA NO.587/CHD/2014 - H.M. STEELS & PADMAWATI STEEL LTD., SANGRUR 8 DERIVATION OF PROFITS ON THE DEPOSIT MADE WITH THE ELECTRICITY BOARD COULD NOT BE SAID TO FLOW DIRECTLY FROM THE I NDUSTRIAL UNDERTAKING ITSELF. ON THIS BASIS THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 80HH ON INTEREST EARNED ON DEPOSIT MADE WITH ELECTRICITY BOARD WAS DENIED. THE ISSUE I N THE PRESENT CASE WE FIND IS IDENTICAL TO THAT IN PANDIA N CHEMICALS AND THE INTEREST ON FDRS TAKEN FOR VAT DEFERMENT A ND ELECTRICITY BOARD CANNOT THEREFORE BE HELD TO BE DE RIVED FROM THE INDUSTRIAL UNDERTAKING WHICH IS A PREREQUISITE FOR CLAIMING DEDUCTION UNDER SECTION 80IC OF THE ACT. BUT AT T HE SAME TIME WE AGREE THAT THE ASSESSEE SHOULD BE ALLOWED B ENEFIT OF NETTING OF INTEREST AS DONE IN THE CASE OF H.M. STE ELS (SUPRA) WHICH WAS FOLLOWED BY THE CIT(APPEALS). 20. THE GROUND NO. 3 RAISED BY THE REVENUE IS THERE FORE DISPOSED OFF IN ABOVE TERM. IN EFFECT THE APPEAL OF THE REVENUE IS DISMISSED. 5. GROUND NOS. 1 & 2 OF THE APPEAL OF THE ASSESSEE ARE, THEREFORE, DECIDED IN TERMS OF ORDER OF THE TRIBUNAL DATED 23. 2.2018 (SUPRA) THAT THE SUBSIDY OF VAT DEFERMENT RECEIVED BY THE A SSESSEE, THEREFORE, HELD TO BE A CAPITAL RECEIPT. SO FAR AS THE INTEREST ON FDR IS CONCERNED, THE LD. ASSESSING OFFICER IS DIRECTED TO ALLOW THE BENEFIT OF NETTING OF INTEREST TO THE ASSESSEE. THUS, THE GROUNDS NOS.1 & 2 RAISED BY THE REVENUE ARE DISMISSED. 6. GROUND NO.3 : SO FAR AS GROUND NO. 3 WHICH RELATES TO THE DISALLOWANCE OF INSURANCE CLAIM OF RS. 9,000/- U/S 80IC OF THE ACT IS CONCERNED, IT IS TO BE NOTED THAT THE INSURANCE CLAIM IS ALWAYS GIVEN AS COMPENSATION IN LIEU OF / AS REIMBURSEMENT OF LOSS SUFFERED BY THE INSURED. IF THE LOSS WAS A CAPITAL LOSS, TH E RECEIPT ON ACCOUNT OF INSURANCE CLAIM FOR THAT LOSS WILL BE CAPITAL RE CEIPT. IF THE LOSS WAS REVENUE EXPENDITURE, THEN THE RECEIPT WILL ALSO BE TREATED AS REVENUE RECEIPT. WE, THEREFORE, DIRECT THE ASSESSIN G OFFICER TO ITA NO.587/CHD/2014 - H.M. STEELS & PADMAWATI STEEL LTD., SANGRUR 9 EXAMINE THE NATURE OF LOSS IN LIEU OF WHICH INSURAN CE CLAIM WAS RECEIVED BY THE ASSESSEE. IF THE SAID LOSS / EXPEND ITURE HAVE ALREADY BEEN DEDUCTED BY THE ASSESSEE OUT OF INCOME WHICH W AS ELIGIBLE FOR DEDUCTION U/S 80IC OF THE ACT, THEN THE INSURANCE C LAIM RECEIVED IN RESPECT OF SUCH LOSS / EXPENDITURE WILL ALSO QUALIF Y FOR DEDUCTION U/S 80IC OF THE ACT. THE ASSESSING OFFICER IS DIRECTED TO EXAMINE THE MATTER IN THE LIGHT OF THE ABOVE OBSERVATIONS AND D ECIDE ACCORDINGLY. IN THE RESULT, THE APPEAL IS TREATED AS PARTLY ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 25.05.2018. SD/- SD/- (B.R.R.KUMAR) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 25.05.2018 RKK COPY TO: THE APPELLANT THE RESPONDENT THE CIT THE CIT(A) THE DR