Innoventive Industries Limited (Erstwhile Arihant Domestic Applicances Ltd.), Pune V. Dy. CIT, Circle 1(1), Pune

ITA 601/PUN/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6924 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 28-12-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 05-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHASHI B PRASAD
• Keywords: Capital asset; Competent authority; Capital receipt
• Section: 145

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . . , ! , # $ BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.601/PN/2013 #& & / ASSESSMENT YEAR : 2009-10 INNOVENTIVE INDUSTRIES LIMITED (ERSTWHILE ARIHANT DOMESTIC APPLIANCES LTD.), GAT NO.1261, SANASWADI, NAGAR ROAD, TALUKA SHIRUR, DISTRICT PUNE 412 208 PAN :AABCA4586B . / APPELLANT V/S D CIT, CENTRAL CIRCLE - 1(1), PUNE . /RESPONDENT . / ITA NO.215/PN/2014 #& & / ASSESSMENT YEAR : 2010-11 INNOVENTIVE INDUSTRIES LIMITED (ERSTWHILE ARIHANT DOMESTIC APPLIANCES LTD.), GAT NO.1261, SANASWADI, NAGAR ROAD, TALUKA SHIRUR, DISTRICT PUNE 412 208 PAN :AABCA4586B . / APPELLANT V/S DCIT, CENTRAL CIRCLE - 1(2), PUNE . /RESPONDENT / APPELLANT BY : SHRI C.H. NANIWADEKAR / RESPONDENT BY : SHRI SHASHI B. PRASAD / ORDER PER VIKAS AWASTHY, JM : THESE TWO APPEALS HAVE BEEN FILED BY THE ASSESSEE AGAINS T THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-I, PUNE DATE D 29-12-2012 FOR A.Y. 2009-10 AND DATED 20-09-2013 FOR A.Y . 2010-11, RESPECTIVELY. SINCE COMMON ISSUES ARE INVOLVED IN BOTH TH E APPEALS, / DATE OF HEARING :06.03.2017 / DATE OF PRONOUNCEMENT: 24.03.2017 2 ITA NOS.601/PUN/2013 AND 215/PUN/2014 THESE APPEALS ARE TAKEN UP TOGETHER FOR ADJUDICATION AN D DISPOSED OFF VIDE THIS COMMON ORDER. 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM THE RECO RDS ARE : THE ASSESSEE COMPANY IS ENGAGED IN MANUFACTURING OF PRECISIO N STEEL TUBES. THE COMPANY IS HAVING ONE OF ITS MANUFACTURING UNIT AT VILLA GE PIMPLE JAGTAP, TALUKA SHIRUR, DISTRICT PUNE. THE ASSESSEE DURING T HE ASSESSMENT YEARS UNDER APPEAL HAD RECEIVED REFUND OF SA LES TAX. THE ASSESSEE CLAIMED THAT THE REFUND OF SALES TAX IS CAPITAL R ECEIPT, SINCE IT WAS RECEIVED AS INDUSTRIAL PROMOTION SUBSIDY UNDER PACKA GE SCHEME OF INCENTIVE, 2007 (HEREINAFTER REFERRED TO AS PSI, 2007). THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE AND HELD THE RE FUND OF SALES TAX AS REVENUE RECEIPT. ACCORDINGLY, THE ASSESSING OFFICE R MADE ADDITION OF RS.44,70,347/- IN A.Y. 2009-10 AND RS.18,89,12,990/- IN A.Y. 2 010- 11 ON ACCOUNT OF REFUND OF SALES TAX. 3. AGGRIEVED BY THE ASSESSMENT ORDER FOR THE RESPECTIV E ASSESSMENT YEARS THE ASSESSEE FILED APPEALS BEFORE THE CIT(A). THE CI T(A) VIDE IMPUGNED ORDERS REJECTED THE APPEALS OF THE ASSESSEE A ND UPHELD THE FINDINGS OF ASSESSING OFFICER. NOW THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL ASSAILING THE FINDINGS OF CIT(A) IN TREATING THE REFUND OF SALES TAX AS REVENUE RECEIPT INSTEAD OF CAPITAL SUBSIDY AS CLAIMED BY THE ASSESSEE. 4. THE ASSESSEE HAS IMPUGNED THE FINDINGS OF CIT(A) BY RA ISING FOLLOWING GROUNDS OF APPEAL : A. THE LEARNED CIT(A) ERRED ON FACTS IN TREATING SU BSIDY RECEIVED UNDER THE MEGA PROJECT UNDER PACKAGE SCHEME OF INCENTIVES, 2007 AS CHARGEABLE TO TAX AS AGAINST THE ASSESSEE CLAIM OF CAPITAL RECEIPT. TH E LEARNED CIT APPEAL FAILED TO APPRECIATE THE NATURE OF THE SCHEME AND SUB SIDY RECEIVED IN ITS PROPER PROSPECTIVE. 3 ITA NOS.601/PUN/2013 AND 215/PUN/2014 B. THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN H OLDING THAT THE SAID SUBSIDY IS IN THE NATURE OF PRODUCTION INCENTIVES AND N OT AN INDUSTRIAL PROMOTION SUBSIDY. THE LEARNED CIT(A) FURTHER ERRED IN HOLDING THAT THE SAID SUBSIDY WAS NOT FOR SETTING UP OF UNIT BUT FOR INCE NTIVIZING THE ASSESSEE IN RUNNING THE UNIT. THE LEARNED CIT(A) FAILED TO APPRECIATE THE REAL NATURE AND TRUE IMPORT OF THE SCHEME UNDER WHICH THE SUBSIDY WAS GRANTED. C. THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN H OLDING THAT THE SUBSIDY IS REVENUE IN NATURE MERELY BECAUSE THE INCENTI VES WERE PAID AFTER THE PRODUCTION COMMENCED. SHE FAILED TO APPRECIATE THE SETTLED LAW IN THIS REGARD IN ITS TRUE PERSPECTIVE. D. THE APPELLANT CRAVES LEAVE TO ADD, ALTER DELETE O R SUBSTITUTE ALL OR ANY OF THE GROUNDS OF APPEAL. IDENTICAL GROUNDS OF APPEAL HAVE BEEN TAKEN BY THE ASS ESSEE IN A.Y. 2010-11 CHALLENGING THE FINDINGS OF CIT(A) IN TREATING SUB SIDY RECEIVED UNDER THE PSI, 2007 AS REVENUE RECEIPT. IN AP PEAL FOR A.Y.2010- 11 THE ASSESSEE HAS ALSO CHALLENGED THE DISALLOWANCE OF PR IOR PERIOD EXPENDITURE RS.29,84,611/-. 5. SHRI C.H. NANIWADEKAR APPEARING ON BEHALF OF THE ASSESS EE SUBMITTED THAT THE MAHARASHTRA GOVERNMENT HAD INTRODU CED PSI, 2007 THROUGH ITS RESOLUTION NO.PSI-1707(CR-50)/IND-8 DATED 30- 03-2007. ACCORDING TO THE PREAMBLE OF THE PSI, 2007, THE STATE GO VERNMENT IN ORDER TO ACHIEVE HIGHER AND SUSTAINABLE ECONOMIC GROWTH WITH EMPHASIS ON BALANCED REGIONAL DEVELOPMENT AND EMPLOYMENT THROUGH GREATER PRIVATE AND PUBLIC INVESTMENT INTRODUCED THE PACKAGE OF IN CENTIVES. THE GOVERNMENT GAVE AREA-WISE SCHEMES/BENEFITS TO THE COMP ANIES. UNDER THE SAID SCHEME, THE GOVERNMENT INTRODUCED MEGA PROJECT SCHEME UNDER WHICH INDUSTRIAL UNIT OF THE ASSESSEE AT VILLAGE PIMPLE JAGTAP, TALUKA SHIRUR, DISTRICT PUNE IS COVERED. THE SAID MEGA PROJECT S CHEME IS APPLICABLE TO NEW INDUSTRIAL PROJECTS HAVING FIXED ASSETS IN VESTMENT OF MORE THAN RS.250 CRORES OR UNITS GENERATING EMPLOYMENT FOR MORE THAN 500 PERSONS FROM THE STATE OF MAHARASHTRA. THE LD. AUT HORISED REPRESENTATIVE REFERRING TO THE LETTER DATED 17-10-2007 (AT PAGE 117-118 4 ITA NOS.601/PUN/2013 AND 215/PUN/2014 OF THE PAPER BOOK) FROM THE DEPARTMENT OF INDUSTRIES SU BMITTED THAT THE STATE GOVERNMENT DECIDED TO OFFER THE STATUS OF MEGA PR OJECT TO THE ASSESSEE SUBJECT TO THE COMPLIANCE OF PSI, 2007 CONDITION S. THEREAFTER, ON 15-03-2008 A MEMORANDUM OF UNDERSTANDING WAS EXECU TED BETWEEN GOVERNMENT OF MAHARASHTRA AND THE ASSESSEE. AS PER T HE MEMORANDUM OF UNDERSTANDING, THE ASSESSEE WAS REQUIRED TO INVEST AP PROXIMATELY RS.117 CRORES IN THE NEW PROJECT AT VILLAGE SANASWADI, TA LUKA SHIRUR, DISTRICT PUNE AND OFFER EMPLOYMENT TO 510 PERSONS. ON C OMPLYING WITH THE AFORESAID CONDITIONS UNDER PSI, 2007, THE ASSESSEE WA S ELIGIBLE TO CLAIM FOLLOWING INCENTIVES : (1) ELECTRICITY DUTY EXEMPTION FOR THE PERIOD OF 7 YEARS FROM THE DATE OF COMMENCEMENT OF COMMERCIAL PRODUCTION. (2) 100% EXEMPTION FROM PAYMENT OF STAMP DUTY. (3) INDUSTRIAL PROMOTION SUBSIDY EQUIVALENT TO 75% OF ELIGIBLE INVESTMENTS (AS DEFINED IN PSI, 2007) MADE W.E.F. 28-0 3-2007, WITHIN SUCH PERIOD AS STIPULATED IN THE PSI, 2007. THE INDUSTRIAL PROMOTION SUBSIDY WAS LIMITED TO 75% OF ASSESSEES ELIGIBLE INVESTMENTS LESS THE AMOUNT OF BENEFIT AVAIL ED AT SL.NOS. [1] AND [2] AS PER THE PERIOD PRESCRIBED THEREIN OR TO THE EXTENT OF TAXES PAID TO THE STATE GOVERNMENT WITHIN A PERIOD OF 7 YEARS, WHICHEVER IS L OWER. 6. THE DEPARTMENT OF INDUSTRIES, GOVERNMENT OF MAHARASHT RA ISSUED ELIGIBILITY CERTIFICATE FOR MEGA PROJECT TO THE ASSESSEE ON 17-03-2009. THE SAID ELIGIBILITY CERTIFICATE IS AT PAGES 123 TO 131 OF TH E PAPER BOOK. THE LD. AUTHORISED REPRESENTATIVE POINTED THAT THE ASS ESSEE HAD MADE INVESTMENT OF RS.9453.69 LAKHS UPTO 05-12-2008. THE PERIO D OF INVESTMENT AVAILABLE WITH THE ASSESSEE FOR MAKING INVESTMEN T OF RS.11700.00 LAKHS WAS FROM 28-03-2007 TO 27-03-2012. THE ASSESSEE WAS ELIGIBLE TO CLAIM THE BENEFIT OF SUBSIDY UNDER THE SCHE ME FOR THE PERIOD OF 7 YEARS FROM THE DATE OF ISSUANCE OF ELIGIBILITY CERT IFICATE. THE ASSESSEE WAS ELIGIBLE TO CLAIM SUBSIDY AS PER PSI, 2007 FROM 01-12-2008 TO 30-11-2015. 5 ITA NOS.601/PUN/2013 AND 215/PUN/2014 7. THE LD. AUTHORISED REPRESENTATIVE CONTENDED THAT TH E SUBSIDY WAS GIVEN BY THE STATE GOVERNMENT FOR SETTING UP OF INDUSTRIA L UNIT IN LESSER DEVELOPED AREAS OF STATE OF MAHARASHTRA. THE PSI, 2007 WAS INTRODUCED IN 1964 AND WAS THEREAFTER AMENDED FROM TIME TO TIME. TH E SCHEME WAS LAST AMENDED IN 2001 AND WAS OPERATIVE FROM 01-04-2001 TO 31-03- 2007. THE LD. AUTHORISED REPRESENTATIVE REFERRING TO THE PREAMBLE OF PACKAGE SCHEME OF INCENTIVES AT PAGE 64 OF THE PAPER BOOK, SUBMITTED THAT THE SCHEME WAS DECLARED BY THE STATE GOVT. FOR SE TTING UP OF NEW INDUSTRIAL UNITS TO ENSURE SUSTAINED INDUSTRIAL GROWTH THROUGH INNOV ATIVE INITIATIVES FOR DEVELOPMENT OF KEY POTENTIAL SECTORS WITH SP ECIAL EMPHASIS ON BALANCED REGIONAL DEVELOPMENT AND EMPLOYMENT GENERATIO N THROUGH GREATER PRIVATE AND PUBLIC INVESTMENT. UNDER THE PSI, 20 07, THE AREAS OF THE STATE ARE CLASSIFIED INTO VARIOUS GROUPS, I.E. A, B, C, D AND D+. GROUP A COMPRISES OF THE MOST DEVELOPED AREAS, VIZ MUMB AI METROPOLITAN REGION & PUNE METROPOLITAN REGION AND GROUP D+ HAVING THE LEAST DEVELOPED AREAS NOT COVERED UNDER GROUP A, B , C OR D. THE MEGA PROJECT SET UP BY THE ASSESSEE IS IN GROUP C, I.E. THE AREA WHICH IS LESS DEVELOPED THAN THOSE AREAS COVERED UNDER GROUP B . THE LD. AUTHORISED REPRESENTATIVE POINTED THAT THE ASSESSEE HA S ALSO ENTERED INTO AN AGREEMENT DATED 14-07-2010 WITH STATE GOVT. FOR DISBURSEMENT OF INDUSTRIAL PROMOTION SUBSIDY. THE SAID AGREEMENT IS AT PAGES 133 TO 138 OF THE PAPER BOOK. 8. THE LD. AUTHORISED REPRESENTATIVE CONTENDED THAT TH E CIT(A) HAS ERRED IN MISINTERPRETING THE RATIOS LAID DOWN BY THE HONB LE SUPREME COURT OF INDIA IN THE CASE OF SAHNEY STEEL AND PRESS WOR KS LTD. VS. CIT 228 ITR 253 AND CIT VS. PONNI SUGARS AND CHEMICALS LTD . 306 ITR 392. THE CIT(A) HAS COMMITTED AN ERROR IN HOLDING THAT THE BEN EFIT RECEIVED BY THE ASSESSEE BY WAY OF REFUND OF SALES TAX IS IN THE NATU RE OF INCENTIVE 6 ITA NOS.601/PUN/2013 AND 215/PUN/2014 AND NOT SUBSIDY. THE CIT(A) HAS ERRED IN OBSERVING THA T THE SALES TAX REFUND RECEIVED BY THE ASSESSEE AS SUBSIDY IS REVENUE IN NATURE, WHEREAS, UNDER PSI, 2007 IT IS IN THE NATURE OF SUBSIDY FO R SETTING UP OF INDUSTRY IN LESSER DEVELOPED AREAS OF THE STATE. THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT THE HONBLE APEX COURT IN THE CASE OF PONNI SUGARS AND CHEMICALS LTD. (SUPRA) HAS HELD THAT THE NATURE AND PURPOSE OF SUBSIDY HAS TO BE EXAMINED IN THE CONTEXT O F PARTICULAR CLAIM, FORM OR MECHANISM THROUGH WHICH THE SUBSIDY IS GIVEN IS IRR ELEVANT. THE LD. AUTHORISED REPRESENTATIVE ASSERTED THAT THE CIT(A) HA S ERRED IN HOLDING THAT OUT OF THE TWO CRITERIAS SET OUT FOR CLAIMING SUBSIDY, I.E. INVESTMENT CRITERIA AND EMPLOYMENT CRITERIA, THE ASSESSEE HAS FULFILLED EMPLOYMENT CRITERIA ONLY. THE LD. AUTHORISED REPRESENTATIVE POIN TED THAT A PERUSAL OF ELIGIBILITY CERTIFICATE WOULD SHOW THAT THE ASSESS EE HAD MADE INVESTMENT OF RS.94 CRORES UPTO 05-12-2008 AND THE PER IOD FOR MAKING INVESTMENT TO THE EXTENT OF RS.117 CRORES WAS UPTO 27- 03-2012. THE LD. AUTHORISED REPRESENTATIVE REFERRED TO LETTER FROM THE DE PARTMENT OF INDUSTRIES, ENERGY & LABOUR, GOVERNMENT OF MAHARASHTRA AT PAGE 132 OF THE PAPER BOOK TO SHOW THAT THE ASSESSEE HAD REQUES TED TO INCREASE THE LEVEL OF INVESTMENT FROM RS.117 CRORES TO RS.562 CRORES. THE REQUEST OF THE ASSESSEE WAS ACCEPTED AND THE PERIOD FOR AVAILING IN DUSTRIAL PROMOTION SUBSIDY WAS ALSO INCREASED FROM 7 YEARS TO 9 YEARS. FURTHER, REFERRING TO PARA 3 OF MEMORANDUM OF UNDERSTANDING, THE L D. AUTHORISED REPRESENTATIVE POINTED THAT INDUSTRIAL PROMOTION SUBSIDY IS ADMISSIBLE TO ASSESSEE AFTER THE COMPANY EMPLOYS 500 NUMBER OF P ERSONS ON REGULAR BASIS WITHIN ONE YEAR FROM THE DATE OF COMMENCEME NT OF COMMERCIAL PRODUCTION. IN SO FAR AS THE PERIOD OF INVESTME NT IS CONCERNED, THE ASSESSEE HAD STILL TIME UPTO 27-03-2013 T O MAKE FURTHER INVESTMENTS. THE LD. AUTHORISED REPRESENTATIVE POINTED THAT AS PER PSI, 2007 THE ASSESSEE WAS ELIGIBLE TO CLAIM SUBSIDY ON ISSUANCE OF ELIGIBILITY 7 ITA NOS.601/PUN/2013 AND 215/PUN/2014 CERTIFICATE UNDER PSI, 2007 AND THE ELIGIBILITY CERTIFICATE IS IS SUED FROM THE DATE OF COMMENCEMENT OF COMMERCIAL PRODUCTION BY THE ELIGIBLE UNIT. THE ELIGIBILITY CERTIFICATE WAS ISSUED TO THE ASSESSEE BY GO VERNMENT OF MAHARASHTRA ON 17-03-2009. THE DATE OF START OF COMME RCIAL PRODUCTION WAS 01-12-2008, THEREFORE, THE ELIGIBILITY CERTIFICATE WAS MAD E EFFECTIVE FROM 01-12-2008, I.E. IN F.Y. 2008-09. THE ASSESSMENT YEAR S UNDER APPEAL (A.Y. 2009-10 AND 2010-11) ARE THE FIRST YEAR AND SECOND YEAR, RESPECTIVELY FOR CLAIMING SUBSIDY UNDER PSI, 2007 SCHEME. 9. THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE DECISION OF SPECIAL BENCH OF TRIBUNAL IN THE CASE OF DCIT VS. RELIANCE INDUSTRIES LTD. REPORTED AS 88 ITD 273. THE SPECIAL BENCH AFTER CONSIDERING THE DECISIONS RENDERED IN THE CASE OF SAHNEY STEEL AND PRESS WORKS LTD. AND OTHERS (SUPRA) A ND CIT VS. PONNI SUGARS AND CHEMICALS LTD. (SUPRA) HAS HELD THAT SALES TAX INCENTIVE GIVE N BY GOVERNMENT OF MAHARASHTRA TO ASSESSEE FOR SETTING U P INDUSTRY IN NOTIFIED AREA IN THE FORM OF EXEMPTION FROM LIABILITY TO PAYME NT OF SALES TAX FOR PERIOD OF 5 YEARS WITH A VIEW TO BRING ABOUT NEC ESSARY INFRASTRUCTURE IN BACKWARD AREAS, BASED ON THE AMOUNT O F INVESTMENT IN FIXED ASSETS IS CAPITAL RECEIPT, NOT CHARGEABLE TO TAX. TH E LD. AUTHORISED REPRESENTATIVE IN ORDER TO FURTHER STRENGTHEN HIS SUBMIS SIONS PLACED RELIANCE ON THE FOLLOWING DECISIONS : (1) CIT VS. RASOI LTD., 335 ITR 438 (CALCUTTA) (2) SHREE BALAJI ALLOYS AND OTHERS VS. CIT, 333 ITR 335 (J &K) (3) CIT VS. CHAPHALKAR BROTHERS, 351 ITR 309 10. THE LD. AUTHORISED REPRESENTATIVE REFERRING TO THE D ECISION OF CIT VS. CHAPHALKAR BROTHERS (SUPRA) SUBMITTED THAT THE HONB LE JURISDICTIONAL HIGH COURT REITERATING THE RATIO LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF PONNI SUGARS AND CHEMICALS LTD . (SUPRA) HAS 8 ITA NOS.601/PUN/2013 AND 215/PUN/2014 HELD THAT PURPOSE FOR WHICH THE SUBSIDY WAS GIVEN IS RELE VANT FACTOR TO DETERMINE WHETHER THE SAME IS CAPITAL OR REVENUE RECEIPT . IF THE OBJECT OF SUBSIDY WAS TO ENABLE THE ASSESSEE TO SET UP A NEW UNIT THEN THE RECEIPT OF SUBSIDY WOULD BE ON CAPITAL ACCOUNT. THE LD. A UTHORISED REPRESENTATIVE PRAYED FOR SETTING ASIDE THE FINDINGS OF CIT (A) AND ALLOWING THE APPEALS OF THE ASSESSEE. 11. ON THE OTHER HAND, SHRI SHASHI B. PRASAD REPRESENT ING THE DEPARTMENT VEHEMENTLY SUPPORTED THE FINDINGS OF CIT(A) IN HOLDING THE REFUND OF SALES TAX AS REVENUE RECEIPTS. THE LD. DEPARTM ENTAL REPRESENTATIVE SUBMITTED THAT THE ALLEGED SUBSIDY IS NEITH ER UTILIZED BY THE ASSESSEE TO ACQUIRE CAPITAL ASSET NOR TO SET UP AN Y INDUSTRIAL UNIT OR FOR PAYMENT OF ANY LOAN TAKEN FOR SETTING UP OF THE UNIT. THE INCENTIVE RECEIVED BY ASSESSEE IN THE FORM OF REFUND OF SALES TAX W AS AFTER COMMENCEMENT OF PRODUCTION, THUS, IT IS CLEARLY REVENUE IN NATURE. THE LD. DEPARTMENTAL REPRESENTATIVE FURTHER SUBMITTED THAT AS FAR AS UTILIZATION OF ALLEGED SUBSIDY IS CONCERNED, THERE IS NO RESTR ICTION ON THE ASSESSEE TO USE THE AMOUNT RECEIVED AS REFUND OF SALES TAX. THE ASSESSEE IS FREE TO USE SUBSIDY IN THE MANNER IT LIKES. THERE IS NO RESTRICTION THAT THE ASSESSEE HAS TO USE THE SUBSIDY FOR REPAYMENT OF A NY LOAN TAKEN FOR ESTABLISHING THE INDUSTRIAL UNIT OR PURCHASE OF ANY CAPITAL ASSET. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF SAHNEY STEEL AND PRESS WORKS LTD . VS. CIT (SUPRA) HAS HELD THAT IF PAYMENT IN THE NATURE OF SUBSIDY FROM PUB LIC FUNDS ARE MADE TO THE ASSESSEE TO ASSIST HIM IN CARRYING ON ITS TR ADE OR BUSINESS THEY ARE TRADE RECEIPTS. THE HONBLE SUPREME COURT O F INDIA HAS FURTHER OBSERVED THAT IF THE MONEY IS GIVEN ONLY AFTER AND CONDIT IONALLY UPON COMMENCEMENT OF PRODUCTION, SUCH SUBSIDIES MUST BE TREAT ED AS ASSISTANT FOR THE PURPOSE OF THE TRADE. THE LD. DEPARTME NTAL 9 ITA NOS.601/PUN/2013 AND 215/PUN/2014 REPRESENTATIVE TO FURTHER BUTTRESS HIS ARGUMENTS PLACED RELIANCE ON THE DECISION OF PUNE BENCH OF THE TRIBUNAL IN THE CASE OF RASIK LAL M. DHARIWAL (HUF) VS. DCIT IN ITA NO.575/PN/2007 FOR A.Y. 200 3-04 DECIDED ON 31-03-2011. THE DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE TRIBUNAL IN THE SAID CASE HAS HELD THAT SALES TAX BENEFIT GIVEN FOR MITIGATING THE PROBLEMS FACED BY THE PROMOTERS OF WIND ENE RGY GENERATION ARE REVENUE RECEIPTS. 12. THE LD. DEPARTMENTAL REPRESENTATIVE FURTHER POINTED THAT THE DECISION RENDERED IN THE CASE OF CIT VS. RELIANCE INDUSTRIE S LTD., BY THE SPECIAL BENCH OF THE TRIBUNAL WAS UPHELD BY THE HONBLE BO MBAY HIGH COURT, HOWEVER, ON FURTHER APPEAL BY THE DEPARTMENT BEFO RE THE HONBLE SUPREME COURT OF INDIA, THE HONBLE APEX COURT HAS SET ASIDE THE ORDER OF HONBLE BOMBAY HIGH COURT. THE LD. DEPARTMENTAL REPRE SENTATIVE PRAYED FOR UPHOLDING THE FINDINGS OF CIT(A) IN REJECTING THE APPEALS OF THE ASSESSEE. 13. CONTROVERTING THE SUBMISSIONS OF LD. DEPARTMENTAL REP RESENTATIVE, THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT THE DE CISION RENDERED BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF R ASIKLAL M. DHARIWAL (HUF) (SUPRA) WOULD NOT APPLY IN THE FACTS OF PRE SENT CASE. IN THE CASE OF RASIKLAL M. DHARIWAL (HUF), THE SUBSIDY RECEIVED BY THE PROMOTERS OF WINDMILL WAS HELD TO BE REVENUE RECEIPT, AS TH E INCENTIVE WAS GIVEN TO OVERCOME THE PROBLEMS FACED BY THE PROPER TIES DURING OPERATIONAL STAGE. IT WAS NOT A CASE WHERE SUBSIDY WAS GIVEN FOR SETTING UP OF WINDMILL UNIT. THE SUBSIDY WAS GIVEN FOR EFFICIENT RUNNING OF THE BUSINESS. THUS, THE FACTS ARE DISTINGUISHABLE, THEREFORE, THE RATIO LAID DOWN IN THE CASE OF RASIKLAL M. DHARIWAL (HUF) WOULD NOT APPL Y IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. 10 ITA NOS.601/PUN/2013 AND 215/PUN/2014 14. IN RESPECT OF SETTING ASIDE THE JUDGEMENT OF HONBLE BOMBAY HIGH COURT BY THE HONBLE APEX COURT IN THE CASE OF CIT VS. RELIANCE INDUSTRIES LTD., THE LD. AUTHORISED REPRESENTATIVE SUBMIT TED THAT THE HONBLE HIGH COURT HAD UPHELD THE FINDINGS OF SPECIAL BENCH OF THE TRIBUNAL. ONE OF THE QUESTIONS RAISED BEFORE HONBLE HIGH C OURT IN THE APPEAL FILED BY THE DEPARTMENT WAS : (D) WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE TRIBUNAL WAS RIGHT IN HOLDING THAT SALES TAX I NCENTIVE IS A CAPITAL RECEIPT. THE HONBLE HIGH COURT HELD THAT THE OBJECT OF SUBSIDY WAS TO SET UP A NEW UNIT IN BACKWARD AREA TO GENERATE EMPLOYMENT. THE HONBLE COURT FURTHER HELD THAT IN VIEW OF THE FACT THAT THE SUB SIDY IS CLEARLY ON CAPITAL ACCOUNT THE AFORESAID QUESTION (D) FRAMED WOULD NOT ARISE. IN FURTHER APPEAL TO THE HONBLE SUPREME COURT OF INDIA BY THE DEPARTMENT, THE HONBLE APEX COURT HELD THAT THE HIGH COURT OUGHT NOT TO HAVE DISMISSED THE APPEALS WITHOUT CONSIDERING THE QUESTIONS WH ICH INCLUDED THE AFORESAID QUESTION. THE HONBLE APEX COURT SET ASID E THE ORDER OF HONBLE HIGH COURT AND REMITTED THE SAME TO THE HONB LE HIGH COURT TO DECIDE THE QUESTIONS IN ACCORDANCE WITH LAW. THE HONBLE SUPREME COURT OF INDIA HAS NOT GIVEN ANY FINDING ON THE MERITS ON THE QUESTIONS FRAMED. THE HONBLE APEX COURT HAS SET ASIDE THE DECIS ION OF HONBLE BOMBAY HIGH COURT AND HAS REMITTED THE ISSUE BACK FOR A DJUDICATING THE ISSUES RAISED IN THE APPEAL BY THE DEPARTMENT. EVEN IF THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE INDUSTRIES LTD. HAS BEEN SET ASIDE, THE ORDER OF SPECIAL BENCH OF T HE TRIBUNAL IS STILL ALIVE. 11 ITA NOS.601/PUN/2013 AND 215/PUN/2014 15. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF THE RIVAL SIDES AND HAVE PERUSED THE ORDERS OF AUTHORITIES BE LOW. WE HAVE ALSO CONSIDERED VARIOUS DOCUMENTS PLACED ON RECORD IN TH E FORM OF PAPER BOOK AND THE JUDGMENTS/DECISIONS REFERRED TO BY THE RE PRESENTATIVE OF BOTH SIDES DURING THE COURSE OF MAKING SUBMISSIONS. BEFORE WE PROCEED TO DECIDE THE NATURE OF SUBSIDY AND THE PURPOSE FOR WHICH THE SUBSIDY WAS RECEIVED BY THE ASSESSEE, IT WO ULD BE RELEVANT TO FIRST REFER TO THE PREAMBLE OF PACKAGE SCHEME INCENTIV E, 2007 UNDER WHICH THE ASSESSEE HAS RECEIVED ASSISTANCE FROM THE STA TE GOVERNMENT. THE RELEVANT EXTRACT OF THE PREAMBLE OF PSI, 2007 READS AS UNDER : PREAMBLE IN ORDER TO ENCOURAGE THE DISPERSAL OF INDUSTRIES TO TH E LESS DEVELOPED AREAS OF THE STATE, GOVERNMENT HAS BEEN GIVING A PACKAGE O F INCENTIVES TO NEW / EXPANSION UNITS SET UP IN THE DEVELOPING REGION OF THE STATE SINCE 1964 UNDER A SCHEME POPULARLY KNOWN AS THE PACKAGE SCHEMES OF INCENTIVES. THE PACKAGE SCHEME OF INCENTIVES, INTRODUCED IN 1964 , WAS AMENDED FROM TIME TO TIME. THE LAST AMENDED SCHEME, COMMONLY KN OWN AS THE 2001 SCHEME IS OPERATIVE FROM THE 1 ST APRIL, 2001 TO 31 ST MARCH, 2007. THE STATE HAS DECLARED THE NEW INDUSTRIAL, INVESTMENT , INFRASTRUCTURE POLICY 2006 TO ENSURE SUSTAINED INDUSTRIAL GROWTH THROUGH INNO VATIVE INITIATIVES FOR DEVELOPMENT OF KEY POTENTIAL SECTORS AND FURTHER IMP ROVING THE CONDUCIVE INDUSTRIAL CLIMATE IN THE STATE, FOR PROVIDING THE G LOBAL COMPETITIVE EDGE TO THE STATES INDUSTRY. THE POLICY ENVISAGES GRANT OF FI SCAL INCENTIVES TO ACHIEVE HIGHER AND SUSTAINABLE ECONOMIC GROWTH WITH EMPHASIS ON BALANCED REGIONAL DEVELOPMENT AND EMPLOYMENT GENERATION THRO UGH GREATER PRIVATE AND PUBLIC INVESTMENT IN INDUSTRIAL DEVELOPMENT. THE PACKAGE SCHEME OF INCENTIVES 2007 OUTLINES THE ELIGIBILITY CRITERIA, QU ANTUM OF INCENTIVES AND MONITORING MECHANISM FOR ADMINISTERING THE INCENTIVES. 16. A FURTHER PERUSAL OF THE SCHEME REVEAL THAT THE STA TE OF MAHARASHTRA BEEN CLASSIFIED INTO DIFFERENT AREAS MARKED AS GROUP A TO GROUP D+, DEPENDING UPON THE DEVELOPMENT IN THE SPECIFIED AREAS. THE CLASSIFICATION OF AREAS UNDER THE SCHEME IS GIVEN BELOW : 12 ITA NOS.601/PUN/2013 AND 215/PUN/2014 1.3 CLASSIFICATION OF AREAS : FOR THE PURPOSE OF THE 2007 SCHEME, THE CLASSIFICATION OF THE AREAS OF THE STATE SHALL BE AS INDICATED BELOW : (I) GROUP A: COMPRISING THE DEVELOPED AREAS, VIZ, MUMBAI METROPOLITAN REGIONAL (MMR) AND PUNE METROPOLITAN REGION (PMR). (II) GROUP B : COMPRISING THE AREAS WHERE SOME DEVELOPMENT HAS TAKEN PLACE. (III) GROUP C : COMPRISING THE AREAS, WHICH ARE LESS DEVELOP ED THAN THOSE COVERED UNDER GROUP B. (IV) GROUP D : COMPRISING THE LESSER DEVELOPED AREAS OF THE STATE NOT COVERED UNDER GROUP A/GROUP B/GROUP C. (V) GROUP D+ : COMPRISING THOSE LEAST DEVELOPED AREAS NOT C OVERED UNDER GROUP A/GROUP B/GROUP C/GROUP D. (VI) NO INDUSTRY DISTRICT : NOT COVERED UNDER GROUP A/B/C/ D & D+. 17. THE BENEFICIARY OF PSI, 2007 WILL BE ISSUED ELIGIBILITY CERTIFICA TE BY THE IMPLEMENTING AGENCY AND THE ELIGIBILITY CERTIFICATE WILL BE ISS UED WITH EFFECT FROM THE DATE OF COMMENCEMENT OF COMMERCIAL PRODUCT ION BY THE ELIGIBLE UNIT. THE ASSESSEE IS CLASSIFIED AS MEGA PROJECT. TH E DEPARTMENT OF INDUSTRIES, GOVERNMENT OF MAHARASHTRA VIDE LETTER DATE D 30-10-2007 HAS OFFERED THE STATUS OF MEGA PROJECT TO THE PROPOSAL OF ASSESSEE ON THE BASIS OF EMPLOYMENT GENERATION AND HAS OFFERED INCENTIVES S UBJECT TO COMPLIANCE OF PSI, 2007. 18. THE ASSESSEE HAS ENTERED INTO MEMORANDUM OF UNDERS TANDING WITH THE GOVERNMENT OF MAHARASHTRA ON 15-10-2008 (PLACE D ON RECORD AT PAGE 119 OF THE PAPER BOOK). THE RELEVANT EXTRACT OF T HE TERMS AND CONDITIONS SPECIFIED IN MEMORANDUM OF UNDERSTANDING FOR CLAIMIN G BENEFIT UNDER THE SCHEME ARE AS UNDER : 1. ADAPL SHALL INVEST APPROXIMATELY RS.117 CRORES IN T HE NEW PROJECT AT VILLAGE SANASWADI, TAL.SHIRUR, DISTT. PUNE & WILL OFF ER EMPLOYMENT TO 510 PERSONS. 2. GOM WILL OFFER FOLLOWING BENEFITS / INCENTIVES GRA NTED HEREUNDER AVAILABLE WITH REGARD TO THE ELIGIBLE INVESTMENTS FOR EXPANSION AND SHALL BE PAYABLE TO ADAPL ON ADAPL COMPLYING WITH THE REQUIREMENTS UNDER PSI 2007. 13 ITA NOS.601/PUN/2013 AND 215/PUN/2014 2.1 ELECTRICITY DUTY EXEMPTION FOR THE PERIOD OF 7 YEARS FROM THE DATE OF COMMENCEMENT OF COMMERCIAL PRODUCTION. 2.2 100% EXEMPTION FROM PAYMENT OF STAMP D UTY. 2.3 INDUSTRIAL PROMOTION SUBSIDY (IPS) EQUIV ALENT TO 75% OF ELIGIBLE INVESTMENTS (AS DEFINED IN PSI 2007 ) MAD E W.E.F 28 TH MARCH, 2007 AND MADE WITHIN SUCH A PERIOD STIPULATED IN THE PACKAGE SCHEME OF INCENTIVES 2007. THE IPS WILL HOWEVER BE LIMITED TO 75% OF ADAPLS ELIGIBLE INVESTMENTS LESS THE AMOUNT OF BENEFITS AVAILED AT SR.NO.2.1 & 2.2 AS PER THE PERIOD PRESCRIBED THEREIN OR TO THE EXTENT OF TAXES PAID TO THE STATE GOVERNMENT WITHIN A PERIOD O F 7 YEARS WHICHEVER IS LOWER. 3. THE IPS MENTIONED AT 2.3 WILL BE ADMISSIBLE ONLY AFTE R THE COMPANY EMPLOYS 500 NUMBER OF PERSONS ON REGULAR BASIS WITHIN ON E YEAR FROM THE DATE OF COMMENCEMENT OF COMMERCIAL PRODUCTION A T THE PROPOSED PROJECT AND AT LEAST 75% OF THESE EMPLOYEES ARE LOCAL PERSONS. 19. A BARE PERUSAL OF THE PREAMBLE TO PSI, 2007 SHOWS TH AT THE INCENTIVES ARE OFFERED BY THE STATE GOVERNMENT TO THE E NTREPRENEURS FOR MAKING INVESTMENT AND SETTING UP OF NEW INDUSTRIES IN THE LESSER DEVELOPED AREAS OF THE STATE OF MAHARASHTRA. THE SCHEM E ENVISAGES GRANT OF FISCAL INCENTIVES TO ACHIEVE HIGHER AND SUSTAINABLE ECONOMIC GROWTH WITH EMPHASIS ON BALANCED REGIONAL DEVELOPMENT AND EMPLOYMENT GENERATION THROUGH GREATER PRIVATE AND PUBLIC INVESTMENT IN INDUSTRIAL DEVELOPMENT. IN OTHER WORDS, THROUGH THIS SCHE ME THE STATE GOVERNMENT INTENDS TO ATTRACT INVESTMENTS IN THOSE ARE A WHICH ARE LESS DEVELOPED SO AS TO CREATE A BALANCED DEVELOPMENT IN THE STATE AND GENERATE EVEN EMPLOYMENT OPPORTUNITIES THROUGHOUT THE STATE. THUS THE PRIME MOTIVE BEHIND PSI, 2007 IS SETTING UP OF NEW INDUSTRIES. 20. A PERUSAL OF THE TERMS AND CONDITIONS OF THE MEMORAND UM OF UNDERSTANDING REVEAL THAT THE INCENTIVE/BENEFITS UNDER TH E SCHEME ARE OFFERED TO THE ASSESSEE SUBJECT TO THE COMPLIANCE OF CER TAIN CONDITIONS. THE BENEFITS ARE IN THE FORM OF EXEMPTION FROM PAYMENT OF E LECTRICITY DUTY, 100% EXEMPTION FROM PAYMENT OF STAMP DUTY ON PUR CHASE OF LAND 14 ITA NOS.601/PUN/2013 AND 215/PUN/2014 ETC., THE INDUSTRIAL PROMOTION SUBSIDY IS GIVEN TO THE EX TENT OF 75% OF ELIGIBLE INVESTMENT MADE DURING PRESCRIBED PERIOD (LIMIT OF 75% OF THE ELIGIBLE INVESTMENT SHALL BE REDUCED BY THE AMOUNT OF BENEFIT S OFFERED IN THE FORM OF ELECTRICITY DUTY AND EXEMPTION OF STAMP DUTY) OR TO THE EXTENT OF TAXES PAID TO THE STATE GOVERNMENT WITHIN A PERIOD OF 7 YEARS, WHICHEVER IS LOWER. A CLOSE PERUSAL OF THE ABOVE CONDITION WOULD MAKE IT UNAMBIGUOUSLY CLEAR THAT IT IS NOT THE CHOICE OF THE BENE FICIARY UNDER THE SCHEME TO SELECT THE MODE OF SUBSIDY. THE BENEFICIARY IS ENTITLED TO SUBSIDY SUBJECT TO THE LIMIT OF 75% OF ELIGIBLE INVESTMENTS A S REDUCED BY THE AMOUNT OF BENEFITS AVAILED ON ACCOUNT OF ELECTRICITY DU TY AND STAMP DUTY EXEMPTION OR THE TAXES PAID TO THE STATE GOVERNM ENT WITHIN A PERIOD OF 7 YEARS, WHICHEVER IS LOWER. IN THE PRESENT CA SE, THE ASSESSEE HAS RECEIVED INDUSTRIAL PROMOTION SUBSIDY IN THE FORM OF RE FUND OF SALES TAX PAID TO THE STATE GOVERNMENT. THE LATTER MODE OF P AYMENT OF INDUSTRIAL PROMOTION SUBSIDY IS POSSIBLE ONLY WHEN THE BEN EFICIARY UNDER THE SCHEME HAS COMMENCED PRODUCTION AND ITS PRODUCTS ARE AVAILABLE IN THE MARKET FOR SALE. UNTIL AND UNLESS THE PRODUCTION STA RTS AND THE PRODUCTS ARE SOLD IN THE MARKET, THERE CANNOT BE REFUN D OF SALES TAX. IN THE BACKGROUND OF THE ABOVE NARRATED FACTS, IT WOULD BE WRONG TO CONCLUDE THAT SINCE THE ASSESSEE HAS RECEIVED SUBSIDY A S REFUND OF SALES TAX, THEREFORE, IT IS A TRADE RECEIPT. THE ASSESSEE HAS R ECEIVED SUBSIDY IN THE FORM OF REFUND OF SALES TAX FOR SETTING UP OF MEGA PROJ ECT IN CLASSIFIED AREA C OF THE STATE OF MAHARASHTRA AND UPON PROVIDING E MPLOYMENT TO MORE THAN 500 PERSONS, AS SPECIFIED UNDER THE SCHEME. 21. ONE OF THE OBJECTION RAISED BY THE CIT(A) IN REJECTING THE CLAIM OF ASSESSEE IS THAT THE ASSESSEE HAS FAILED TO COMPLIED WITH ONLY ONE OF THE TWO CRITERIAS LAID DOWN UNDER THE PSI, 2007 FOR CLAIMING BEN EFIT OF 15 ITA NOS.601/PUN/2013 AND 215/PUN/2014 INDUSTRIAL PROMOTION SUBSIDY, I.E. EMPLOYMENT CRITERIA. THE O THER CONDITION OF MINIMUM INVESTMENT IS NOT FULFILLED. ACCORDING TO MEMORANDUM OF UNDERSTANDING, THE ASSESSEE WAS REQUIRED TO INVEST APPROXIMATELY RS.117 CORES AND OFFER EMPLOYMENT TO 510 P ERSONS. A PERUSAL OF THE ELIGIBILITY CERTIFICATE DATED 17-03-2009 AT PAG E 112 OF THE PAPER BOOK SHOWS THAT AS AGAINST EXPECTED INVESTMENT OF RS.117 CRORES THE ASSESSEE HAD MADE INVESTMENT OF RS.94.53 CRORES BET WEEN 28-03- 2007 TO 05-12-2008. THE ASSESSEE HAD STARTED COMMER CIAL PRODUCTION ON 01-12-2008. THE TOTAL PERIOD OF INVESTMENT AVAILABLE WIT H THE ASSESSEE IS FROM 28-03-2007 TO 27-03-2012. THUS, THERE WAS STILL TIME AVAILABLE WITH THE ASSESSEE TO MAKE FURTHER INVESTMENT. TH E ASSESSEE VIDE LETTERS DATED 28-03-2007 AND 31-11-2011 HAD REQU ESTED THE GOVERNMENT TO CONSIDER THE LEVEL OF INVESTMENT AT RS.562 CRORES INSTEAD OF RS.117 CRORES AND TO PROVIDE EMPLOYMENT TO AROUND 19 37 PERSONS INSTEAD OF 510 PERSONS AT INDUSTRIAL UNIT SET UP BY THE ASSESSEE AT VILLA GE SANASWADI, TALUKA SHIRUR, DISTRICT PUNE. THE DEPARTMENT OF INDUSTRIES, ENERGY AND LABOUR, GOVERNMENT OF MAHARASHTRA VIDE LETT ER AT PAGE 132 OF THE PAPER BOOK HAS AGREED TO APPLY THE INCENTIVES O N THE ADDITIONAL INVESTMENT OF RS.445 CRORES, I.E. INVESTMENT UPTO RS.562 CRO RES. THE PERIOD FOR GRANTING INDUSTRIAL PROMOTION SUBSIDY WAS ALSO IN CREASED FROM 7 YEARS TO 9 YEARS. THUS, IT IS UNAMBIGUOUSLY CLEAR TH AT THE ASSESSEE HAD REACHED THE LEVEL OF INVESTMENT AND HAD EVEN GONE M UCH BEYOND THE INITIAL LEVEL OF INVESTMENT OF RS.117 CRORES. THEREFORE, THE S AID OBJECTION RAISED BY THE CIT(A) IN REJECTING THE CLAIM OF THE ASSESSEE IS UNWARRANT ED. 22. TO BE ELIGIBLE TO CLAIM THE BENEFIT OF SCHEME THE ASSESS EE WAS REQUIRED TO OBTAIN ELIGIBILITY CERTIFICATE. IN THE PRESENT CAS E, THE ELIGIBILITY CERTIFICATE WAS ISSUED WITH EFFECT FROM THE DATE OF COMMENCE MENT OF COMMERCIAL PRODUCTION BY THE ASSESSEE. THUS, THE ASSESS EE WAS ELIGIBLE 16 ITA NOS.601/PUN/2013 AND 215/PUN/2014 TO CLAIM THE BENEFIT OF INDUSTRIAL PROMOTION SUBSIDY FOR THE PERIOD OF 7 YEARS STARTING FROM THE DATE OF PRODUCTION, I.E. 01-12-2008 TO 30-12- 2015. ACCORDINGLY, THE PERIOD RELEVANT TO THE ASSESSMEN T YEAR 2009-10 WAS THE FIRST YEAR IN WHICH THE ASSESSEE COULD HAVE CLAIME D THE BENEFIT OF SUBSIDY. THE RELEVANT EXTRACT OF THE ELIGIBILITY CERTIFICATE IS REPRODUCED HEREIN BELOW : 6. CAPITAL C OST (RS.IN LACS) PARTICULARS MAXIMUM ADMISSIBLE FIXED CAPITAL INVESTMENT ACTUAL ACCEPTED INVESTMENT MADE FROM 28.03.2007 TO 5.12.2008 LAND & SITE DEV. 520.00 520.00 BUILDING 1984.00 1984.00 PLANT & MACHINERY 6913.00 6160.82 ELECTRICALS 1282.00 139.14 OTHERS 1001.00 649.73 TOTAL 11700.00 9453.69 7. DATE OF START OF COMMERCIAL PRODUCTION 01.12.2008 8. VALIDITY PERIOD OF EC & PERIOD FOR ED EXEMPTION 7 YEARS : FROM 01.02.2008 TO 30.11.2015 9. DATE OF EFFECT OF THE EC 01.12.2008 10. PERIOD OF INVESTMENT FROM 28.03.2007 TO 27.03.2012 ENTITLEMENT OF : (1) ELECTRICITY DUTY EXEMPTION FOR THE PERIOD OF 7 YEAR S FROM THE DATE OF COMMENCEMENT OF COMMERCIAL PRODUCTION (FROM 01.12.2 008 TO 30.11.2015). (2) 100% EXEMPTION FROM PAYMENT OF STAMP DUTY. (3) INDUSTRIAL PROMOTION SUBSIDY (IPS) EQUIVALENT TO 75% OF YOUR ELIGIBLE INVESTMENTS I.E.RS.11700.00 LACS TO BE MADE W.E.F. 28.0 3.2007. 1. LIMITED TO 75% OF YOUR ELIGIBLE INVESTMENTS LESS THE AM OUNT OF BENEFITS AVAILED AT SR. 1 & 2 ABOVE AS PER THE PERIOD PRESCRI BED THEREIN OR 2. TO THE EXTENT OF TAXES PAID TO THE STATE GOVERNME NT WITHIN A PERIOD OF 7 YEARS, WHICHEVER IS LOWER. THE AFORE STATED INCENTIVES SHALL BE SANCTIONED AND REL EASED UPON SUBMISSION OF LAND USE CONVERSION TO INDUSTRIAL PURPOSE P ERMISSION AND BUILDING PLAN APPROVALS FROM COMPETENT AUTHORITY ON OR BEFORE 02.03.2010. 17 ITA NOS.601/PUN/2013 AND 215/PUN/2014 IT IS EVIDENT FROM THE ELIGIBILITY CERTIFICATE ISSUED BY DIRECTOR ATE OF INDUSTRIES, GOVERNMENT OF MAHARASHTRA THAT THE ASSESSE E HAS RECEIVED BENEFIT OF SUBSIDY FOR MEGA PROJECT AFTER QUALIFYING ALL THE C ONDITIONS SET OUT IN PSI, 2007. 23. THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF PON NI SUGARS AND CHEMICALS LTD. (SUPRA) HAS LAID DOWN CERTAIN PRINCIPLES T O DETERMINE THE NATURE OF SUBSIDY, THEY ARE : (A) THE OBJECT OF SUBSIDY SCHEME - IF THE SCHEME WAS TO ENABLE THE ASSESSEE TO RUN THE BUSINESS MORE PROFITABLY THEN THE RECEIPT IS ON REVENUE ACCOUNT. IF THE OBJECT OF THE SUBSIDY SCHEM E IS TO ENABLE THE ASSESSEE TO SET UP A NEW UNIT OR TO EXPAND EXISTING UNIT THEN THE RECEIPT OF SUBSIDY IS ON CAPITAL ACCOUNT. (B) THE FORM OR MECHANISM THROUGH WHICH THE SUBSIDY IS GIV EN IS IRRELEVANT. THE PURPOSE FOR WHICH THE AMOUNT RECEIVED AS SUBSIDY IS UTILIZED. (C) THE PURPOSE FOR WHICH THE AMOUNT RECEIVED AS SUBSIDY IS UTILIZED. THE UNDERLYING FACTOR WHICH DETERMINES THE NATURE OF SUB SIDY IS THE PURPOSE FOR WHICH THE SUBSIDY IS GIVEN. THE MODE OF PAYMENT OF SUBSIDY DOES NOT DETERMINE THE NATURE OF SUBSIDY. 24. IN THE CASE OF SHREE BALAJI ALLOYS AND OTHERS VS. CIT (SUPRA), THE HONBLE HIGH COURT OF JAMMU & KASHMIR HAD OCCASION TO DEA L WITH THE ISSUE DETERMINING THE NATURE OF SUBSIDY, I.E. WHETHER CAPITA L OR REVENUE. IN THE SAID CASE THE SUBSIDY WAS RECEIVED BY THE ASSE SSEE UNDER THE SCHEME WITH TWIN OBJECTS, VIZ., (I) ACCELERATION OF INDUSTRIAL DEVELOPMENT IN THE STATE OF JAMMU & KASHMIR, AND (II) GENERATION OF EMPLOYM ENT IN THE STATE. THE SUBSIDY WAS RECEIVED BY THE ASSESSEE IN THE FORM OF EXCISE REFUND AND INTEREST, ETC. THE TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE REVENUE BY HOLDING THE SUBSIDY RECEIVED BY THE ASSESSEE AS REVENUE RECEIPT ON THE FOLLOWING GROUNDS : 18 ITA NOS.601/PUN/2013 AND 215/PUN/2014 (I) THE EXCISE REFUND AND INTEREST SUBSIDY HAD NOT BEE N GIVEN TO THE APPELLANTS TO ESTABLISH INDUSTRIAL UNITS BECAUSE THE INDU STRY STOOD ALREADY ESTABLISHED. (II) THE INCENTIVES WERE NOT AVAILABLE UNLESS AND UNTIL COM MERCIAL PRODUCTION HAD COMMENCED. (III) THE INCENTIVES WERE RECURRING IN NATURE, IN THAT, TH OSE WERE LIMITED TO A PERIOD OF 10 YEARS FROM THE DATE OF COMMENCEMENT OF COMMERCIAL PRODUCTION. (IV) THE INCENTIVES IN THE FORM OF EXCISE DUTY REFUND AND INTEREST SUBSIDY WERE NOT GIVEN TO THE ASSESSEES FOR PURCHASING CAPITAL ASSE T OR FOR PURPOSE OF MACHINERY. (V) THE INCENTIVES WERE GIVEN FOR EASY MARKET ACCESSIBILIT Y AND TO RUN THE BUSINESS MORE PROFITABLY. THE HONBLE HIGH COURT AFTER THOROUGHLY EXAMINING THE S ALIENT FEATURES OF THE NEW INDUSTRIAL POLICY UNDER WHICH THE SUBS IDY WAS EXTENDED TO THE ASSESSEE AND ALSO THE RATIO OF JUDGME NTS RENDERED BY THE HONBLE APEX COURT IN THE CASE OF SAHNEY STEEL AND PRESS WORKS LTD. (SUPRA) AND APPROVAL THEREOF IN PONNI SUGARS AND CHEMICALS LTD.(SUPRA) HAS HELD AS UNDER : 16) PERUSAL OF THE JUDGMENTS IN SAHNEY STEEL (SUPRA) A ND PONNI SUGARS (SUPRA), THEREFORE, REVEALS THAT THE APEX COURT HAD A PPLIED THE ABOVE QUOTED DICTUM TO DETERMINE THE PURPOSE, WHICH THE TWO SCHEME S HAD INTENDED TO ACHIEVE BY THE INCENTIVE SUBSIDIES, PERMISSIBLE UNDER TH E SCHEMES IN QUESTION IN THOSE CASES. IT WAS, THEREFORE, IN THE CONTEXT OF RESPECTIVE SUBSIDY INCENTIVE SCHEMES IN THE TWO CASES, THAT THE SUBSIDY IN SAHNEY STEEL (SUPRA) WAS HELD TO BE REVENUE RECEIPT WHEREAS THE SUBSIDY IN PONNI SUGARS & C HEMICALS LTD . (SUPRA) WAS HELD AS CAPITAL RECE I PT. 17) WE ARE SUPPORTED IN TAKING THIS V I EW BY THE OBSERVATIONS MADE BY THE HORI'BLE SUPREME COURT OF INDIA I N A LATER DECIS I ON REPORTED AS MEPCO INDUSTRIES LTD. VS. CIT & ANR . (2009) 227 CTR (SC) 313 : (2009) 31 DTR (SC) 305 : 2009 (7) SCC 564, WHERE THE ABOVE DICTUM WAS R EITERATED AS FOLLOWS : '........ SAHNEY STEEL & PRESS WORKS LTD. ETC. (SUPRA) WAS A CASE WHICH DEALT WITH PRODUCTION SUBSIDY , PONNI SUGARS & CHEMICALS LTD . (SUPRA) DEALT WITH SUBSIDY LINKED TO LOAN REPAYMENT WHEREAS THE PRESENT CA SE DEALS WITH A SUBSIDY FOR SETTING UP AN INDUSTRY IN THE BACKWARD AREA . THEREFORE, IN EACH CASE, ONE HAS TO EXAMINE THE NATURE OF THE SUBSIDY. THE JUDGMENT OF THIS COURT IN SAHNEY STEEL & PRESS WORKS LTD. ETC. (SUPRA) W AS ON ITS OWN FACTS; SO ALSO, THE JUDGMENT OF THIS COURT IN PONNI SUGARS & CHE MICALS LTD. (SUPRA). THE 19 ITA NOS.601/PUN/2013 AND 215/PUN/2014 NATURE OF THE SUBSIDIES IN EACH OF THE THREE CASES IS SEPA RATE AND DISTINCT. THERE IS NO STRAIGHTJACKET PRINCIPLE OF DISTINGUISHING A CAPITAL RECEIPT FROM A REVENUE RECEIPT, IT DEPENDS UPON THE CIRCUMSTANCES OF EACH CASE. AS STATED ABOVE, IN SAHNEY STEEL & PRESS WORKS LTD . ETC. (SUPRA), THIS COURT HAS OBSERVED THAT THE PRODUCTION INCENTIVE SCHEME I S DIFFERENT FROM THE SCHEME GIVING SUBSIDY FOR SETTING UP INDUSTRIES IN BACKWARD AREAS. 18) NOW COMING TO THE FINDINGS OF THE TRIBUNAL ON TH E ISSUE, WE FIND THAT THE TRIBUNAL HAS REFERRED TO VARIOUS PARAS APPEARING I N THE TWO JUDGMENTS TO SUPPORT ITS VIEW THAT THE RECEIPTS IN THE HANDS OF THE ASSESSEES WERE PRODUCTION INCENTIVES AND THUS REVENUE RECEIPT AND NO T CAPITAL RECEIPT. THIS, HOWEVER, APPEARS TO HAVE BEEN DONE WITHOUT APPRECIAT ING THAT THE OBSERVATIONS MADE IN THOSE PARAS WERE IN THE CONTEXT OF THE SCHEMES AS SUCH, WHICH THE APEX COURT WAS CONSIDERING TO FIND THE INTE NT AND PURPOSE OF THE INCENTIVES UNDER THOSE SCHEMES, AND NOT THE LAW LAID DO WN AS SUCH; 19) THE TRIBUNAL HAS RELIED UPON FIVE FACTORS TO HOL D THE INCENTIVES IN QUESTION AS PRODUCTION INCENTIVES BUT WITHOUT DEALING WITH THAT PART OF THE SCHEME, WHEREBY UNEMPLOYMENT IN THE STATE HAD BEEN INTENDED TO BE ERADICATED CREATING ATMOSPHERE FOR ACCELERATED INDUST RIAL DEVELOPMENT TO PROVIDE EMPLOYMENT OPPORTUNITIES TO DEAL WITH THE SOC IAL PROBLEM OF UNEMPLOYMENT. THIS IN OUR VIEW IS LOP-SIDED INTERPRETA TION OF THE NEW INDUSTRIAL POLICY AND CONCESSIONS FORMULATED BY THE CEN TRAL GOVERNMENT FOR THE STATE OF JAMMU AND KASHMIR VIDE OFFICE MEMORANDU M OF JUNE 14, 2002. 20) THEREFORE, IN VIEW OF THE CLEAR LEGAL POSITION A DUMBRATED BY THE HON'BLE SUPREME COURT OF INDIA ON THE ISSUE IN QUESTION, THAT TO DETERMINE THE NATURE AND INTENT OF THE INCENTIVES AS TO WHETHER THOSE WERE REVENUE RECEIPTS OR CAPITAL RECEIPTS, THE PURPOSE UNDERLYING THE INCENTI VES WAS THE DETERMINATIVE TEST, THERE MAY NOT BE ANY NECESSITY OF REFERRING TO THE JUDGMENTS OF OTHER HIGH COURTS OF THE COUNTRY RELIED UPON BY THE APPELLANTS' LEARNED COUNSEL, SOME OF WHICH HAD BEEN CONSIDERED BY THE HON'BLE SUPREME COURT OF INDIA IN THE ABOVE REFERRED CASES. 21) THUS, FINDING THAT THE NEW INDUSTRIAL POLICY AND OTHER CONCESSIONS FOR THE STATE OF JAMMU AND KASHMIR HAS NOT BEEN CORRECTLY APP RECIATED BY THE APPELLATE TRIBUNAL, WE PROCEED TO EXAMINE THE TRUE INTENT AND PURPOSE UNDERLYING THE POLICY AND THE CONCESSIONS CONTEMPLAT ED BY THE OFFICE MEMORANDUM OF JUNE 14, 2002 AND STATUTORY NOTIFICATI ONS ISSUED IN THIS BEHALF. 22) PERUSAL OF THE OFFICE MEMORANDUM DATED 14.06.200 2 INDICATING NEW INDUSTRIAL POLICY AND OTHER CONCESSIONS FOR THE STATE O F JAMMU AND KASHMIR, MAKES IT EXPLICIT THAT THE CONCESSIONS WERE ISSUED TO AC HIEVE TWIN OBJECTS VIZ. (I) ACCELERATION OF INDUSTRIAL DEVELOPMENT IN THE ST ATE OF JAMMU AND KASHMIR, WHICH HAD BEEN FOUND LAGGING BEHIND IN SUCH DEVELOPMENT AND (II) GENERATION OF EMPLOYMENT IN THE STATE OF JAMMU AND KASHMIR. AMENDMENT INTRODUCED TO THE OFFICE MEMORANDUM VIDE NOTIFICATI ON OF NOVEMBER 28, 2003 OF THE GOVERNMENT OF INDIA, MINISTRY OF COMMER CE AND INDUSTRY (DEPARTMENT OF INDUSTRIAL POLICY AND PROMOTION) ELOQ UENTLY DEMONSTRATES THE CENTRAL GOVERNMENT'S INTENTION IN EXTENDING THE INCENTIVES. THE GOVERNMENT'S OBJECTIVE, AS CONVEYED BY HON'BLE THE P RIME MINISTER AT SRINAGAR ON APRIL 19, 2003, WAS, FOR CREATION OF ONE LAC EMPLOYMENT AND SELF EMPLOYMENT OPPORTUNITIES IN JAMMU AND KASHMIR STATE. 20 ITA NOS.601/PUN/2013 AND 215/PUN/2014 23) TO ACHIEVE THE PURPOSE AND OBJECTIVE REFERRED TO HEREIN ABOVE, IT WAS, INTER ALIA, PROVIDED IN THE CENTRAL EXCISE NOTIFICAT IONS THAT THE EXEMPTIONS CONTAINED IN THE NOTIFICATIONS WOULD BE AVAILABLE ON LY ON PRODUCTION OF CERTIFICATE FROM GENERAL MANAGER OF THE CONCERNED D ISTRICT INDUSTRY CENTRE TO THE JURISDICTIONAL DEPUTY COMMISSIONER OF THE CENTR AL EXCISE OR THE ASSISTANT COMMISSIONER OF CENTRAL EXCISE, AS THE CASE MAY B E, TO THE EFFECT THAT THE UNIT HAD CREATED REQUIRED ADDITIONAL REGUL AR EMPLOYMENT, WHICH WOULD NOT, HOWEVER, INCLUDE EMPLOYMENT PROVIDED BY THE INDUSTRIAL UNITS TO DAILY WAGERS OR CASUAL EMPLOYEES ENGAGED IN THE UNITS. 24) A CLOSE READING THE OFFICE MEMORANDUM AND THE AM ENDMENT INTRODUCED THERETO WITH PARA NO.3 APPEARING IN THE CENTRAL EXC ISE NOTIFICATION NOS.56 AND 57 OF NOVEMBER 11, 2002, THUS, MAKES IT AMPLY CLE AR THAT THE ACCELERATION OF DEVELOPMENT OF INDUSTRIES IN THE STAT E WAS CONTEMPLATED WITH THE OBJECT OF GENERATION OF EMPLOYMENT IN THE STATE OF JAMMU AND KASHMIR AND THE GENERATION OF EMPLOYMENT, SO CONTEMPLATED, W AS NOT ONLY CASUAL OR TEMPORARY; BUT WAS ON THE OTHER HAND, OF PERMANENT N ATURE. 25) CONSIDERED THUS, THE PARAMOUNT CONSIDERATION OF TH E CENTRAL GOVERNMENT IN PROVIDING THE INCENTIVES TO THE NEW IN DUSTRIAL UNITS AND SUBSTANTIAL EXPANSION OF THE EXISTING UNITS, WAS THE GEN ERATION OF EMPLOYMENT THROUGH ACCELERATION OF INDUSTRIAL DEVELO PMENT, TO DEAL WITH THE SOCIAL PROBLEM OF UNEMPLOYMENT IN THE STATE, ADDITIO NALLY CREATING OPPORTUNITIES FOR SELF EMPLOYMENT, HENCE A PURPOSE IN PUBLIC INTEREST. 26) IN THIS VIEW OF THE MATTER, THE INCENTIVES PROVID ED TO THE INDUSTRIAL UNITS, IN TERMS OF THE NEW INDUSTRIAL POLICY, FOR ACCELERATE D INDUSTRIAL DEVELOPMENT IN THE STATE, FOR CREATION OF SUCH INDUSTRIAL ATMOSPHE RE AND ENVIRONMENT, WHICH WOULD PROVIDE ADDITIONAL PERMANENT SOURCE OF E MPLOYMENT TO THE UNEMPLOYED IN THE STATE OF JAMMU AND KASHMIR, WERE I N FACT, IN THE NATURE OF CREATION OF NEW ASSETS OF INDUSTRIAL ATMOSPHERE AND ENV IRONMENT, HAVING THE POTENTIAL OF EMPLOYMENT GENERATION TO ACHIEVE A SOCIAL OBJECT. SUCH INCENTIVES, DESIGNED TO ACHIEVE PUBLIC PURPOSE, CANNOT , BY ANY STRETCH OF REASONING, BE CONSTRUED AS PRODUCTION OR OPERATIONAL I NCENTIVES FOR THE BENEFIT OF ASSESSES ALONE. 27) THUS, LOOKING TO THE PURPOSE, OF ERADICATION OF T HE SOCIAL PROBLEM OF UNEMPLOYMENT IN THE STATE BY ACCELERATION OF THE IN DUSTRIAL DEVELOPMENT AND REMOVING BACKWARDNESS OF THE AREA THAT LAGGED BEHIND IN INDUSTRIAL DEVELOPMENT, WHICH IS CERTAINLY A PURPOSE IN THE PUBL IC INTEREST, THE INCENTIVES PROVIDED BY THE OFFICE MEMORANDUM AND STAT UTORY NOTIFICATIONS ISSUED IN THIS BEHALF, TO THE APPELLANTS-ASSESSES, CANNOT BE CONSTRUED AS MERE PRODUCTION AND TRADE INCENTIVES, AS HELD BY THE TRIBU NAL. 28) MAKING OF ADDITIONAL PROVISION IN THE SCHEME THA T INCENTIVES WOULD BECOME AVAILABLE TO THE INDUSTRIAL UNITS, ENTITLED T HERETO, FROM THE DATE OF COMMENCEMENT OF THE COMMERCIAL PRODUCTION, AND THAT THESE WERE NOT REQUIRED FOR CREATION OF NEW ASSETS CANNOT BE VIEWED I N ISOLATION, TO TREAT THE INCENTIVES AS PRODUCTION INCENTIVES, AS HELD BY THE TR IBUNAL, FOR THE MEASURE SO TAKEN, APPEARS TO HAVE BEEN INTENDED TO ENSURE THAT THE INCENTIVES WERE MADE AVAILABLE ONLY TO THE BONAFIDE INDUSTRIAL UNITS SO THAT LARGER PUBLIC INTEREST OF DEALING WITH UNEMPLOYMENT IN THE STATE, AS INTENDED, IN TERMS OF THE OFFICE MEMORANDUM, WAS ACHIEVED. 29) THE OTHER FACTORS, WHICH HAD WEIGHED WITH THE TR IBUNAL IN DETERMINING THE INCENTIVES AS PRODUCTION INCENTIVES MAY NOT BE DEC ISIVE TO DETERMINE THE CHARACTER OF THE INCENTIVE SUBSIDIES, WHEN IT IS FOUND, AS DEMONSTRATED IN THE 21 ITA NOS.601/PUN/2013 AND 215/PUN/2014 OFFICE MEMORANDUM, AMENDMENT INTRODUCED THERETO AND THE STATUTORY NOTIFICATION TOO THAT THE INCENTIVES WERE PROVIDED W ITH THE OBJECT OF CREATING AVENUES FOR PERPETUAL EMPLOYMENT, TO ERADICATE THE SO CIAL PROBLEM OF UNEMPLOYMENT IN THE STATE BY ACCELERATED INDUSTRIAL DEVELOPMENT. 30) FOR ALL WHAT HAS BEEN SAID ABOVE, THE FINDING OF THE TRIBUNAL ON THE FIRST ISSUE THAT THE EXCISE DUTY REFUND, INTEREST SUBSIDY AND INSURANCE SUBSIDY WERE PRODUCTION INCENTIVES, HENCE REVENUE RECEIPT, C ANNOT BE SUSTAINED, BEING AGAINST THE LAW LAID DOWN BY HONBLE SUPREME C OURT OF INDIA IN SAHNEY STEEL AND PONNI SUGARS CASES (SUPRA) . 31) THE FINDING OF THE TRIBUNAL THAT THE INCENTIVES WERE REVENUE RECEIPT IS, ACCORDINGLY, SET ASIDE HOLDING THE INCENTIVES TO BE C APITAL RECEIPT IN THE HANDS OF THE ASSESSES. IN THE INSTANT CASE ALSO THE GOVERNMENT OF MAHARASHTR A THROUGH PSI, 2007 INTENDS TO ACHIEVE INDUSTRIALIZATION WITH TWIN OBJ ECTS OF (1) BALANCED REGIONAL DEVELOPMENT, AND (B) EMPLOYMENT GENERATIO N. THUS, THE RATIO LAID DOWN IN THE CASE OF SHREE BALAJI ALLOYS VS. CI T (SUPRA) WOULD APPLY IN THE PRESENT CASE. 25. WE FIND THAT THE SPECIAL BENCH OF TRIBUNAL IN THE CASE O F DCIT VS. RELIANCE INDUSTRIES LTD., IN A CASE WHERE THE ASSESSEE HA D RECEIVED THE INCENTIVE/SUBSIDY IN THE FORM OF EXEMPTION FROM LIABILITY TO PA YMENT OF SALES TAX FOR SETTING UP OF INDUSTRIES IN NOTIFIED AREAS UNDE R 1979 SCHEME OF GOVERNMENT OF MAHARASHTRA HAS HELD THAT SALES TAX INCENTIVES RE CEIVED BY THE ASSESSEE FROM THE GOVERNMENT OF MAHARASHTRA IS CAPITAL RECEIPT NOT CHARGEABLE TO TAX. 26. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. CHAPHALKAR BROTHERS AFTER CONSIDERING THE RATIOS LAID DOWN IN THE CAS E OF SAHNEY STEEL AND PRESS WORKS LTD. (SUPRA) AND PONNI SUGARS AND CHEMICALS LTD.(SUPRA) HAS HELD THAT THE PURPOSE FOR WHICH THE SUBSID Y WAS GIVEN IS RELEVANT FACTOR TO DETERMINE WHETHER THE SAME IS CAPITAL OR REVENUE RECEIPT. IF THE OBJECT WAS TO ENABLE THE ASSESSEE TO S ET UP A NEW UNIT THEN RECEIPT OF SUBSIDY WOULD BE ON CAPITAL ACCOUNT. IN T HE AFORESAID CASE, THE STATE GOVERNMENT HAD GRANTED SUBSIDY IN THE FORM OF 22 ITA NOS.601/PUN/2013 AND 215/PUN/2014 EXEMPTION FROM ENTERTAINMENT DUTY ON CONSTRUCTION OF MULT IPLEX THEATRES. THE HONBLE HIGH COURT HELD THAT THE FACT THA T THE SUBSIDY WAS NOT MEANT FOR REPAYMENT OF LOAN TAKEN FOR CONSTRUCTION OF MULTIPLEXES CANNOT BE A GROUND TO HOLD THAT SUBSIDY RECEIPT WAS ON REVENUE ACCOUNT. THE RELEVANT EXTRACT OF THE FINDINGS OF THE HONBLE JURISDI CTIONAL HIGH COURT ARE AS UNDER : 5. SINCE THE OBJECT OF SUBSIDY WAS TO PROMOTE CONSTRU CTION OF MULTIPLEX THEATRE COMPLEXES, IN OUR OPINION, RECEIPT OF SUBSIDY WOULD BE ON CAPITAL ACCOUNT. THE FACT THAT THE SUBSIDY WAS NOT MEANT FOR R EPAYING THE LOAN TAKEN FOR CONSTRUCTION OF MULTIPLEXES CANNOT BE A GROUND TO HOLD THAT SUBSIDY RECEIPT WAS ON REVENUE ACCOUNT, BECAUSE, IF THE OBJEC T OF THE SCHEME WAS TO PROMOTE CINEMA HOUSES BY CONSTRUCTING MULTIPLEX THEATR ES, THEN IRRESPECTIVE OF THE FACT THAT THE MULTIPLEXES HAVE BEEN CONSTRUCTE D OUT OF OWN FUNDS OR BORROWED FUNDS, THE RECEIPT OF SUBSIDY WOULD BE ON CA PITAL ACCOUNT. IN THE LIGHT OF THE AFORESAID OBJECTS OF THE SCHEME FRAMED B Y THE STATE GOVERNMENT, THE DECISION OF THE INCOME TAX APPELLATE TRIBUNAL TH AT THE AMOUNT OF SUBSIDY RECEIVED BY THE ASSESSEE IS ON CAPITAL ACCOUNT CANNOT BE FAULTED. ACCORDINGLY, BOTH THE APPEALS ARE DISMISSED WITH NO ORDER AS TO COSTS. 27. THE LD. DEPARTMENTAL REPRESENTATIVE HAS PLACED RELIANC E ON THE DECISION OF COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF RASIKLAL M. DHARIWAL (HUF) VS. DCIT (SUPRA). IN THE SAID CASE, THE STAT E GOVERNMENT FOR THE PURPOSE OF PROMOTION OF WIND ENERGY GENERATION IN THE STATE OF MAHARASHTRA HAD GRANTED CERTAIN BENEFITS TO THE PERS ONS WHO HAD SET UP WINDMILL. THE POLICY TO GRANT FURTHER INCENTIVES TO WINDMILL OWNERS WAS FORMULATED IN THE BACKGROUND OF THE FACT THAT EARLIER POLIC Y OF THE STATE GOVERNMENT ON GENERATION THROUGH NON-CONVE NTIONAL SOURCES DID NOT ACHIEVE THE DESIRED RESULTS. IN THE SUBSEQUENT POLICY THE SALES TAX BENEFITS WERE GRANTED TO THE WINDMILL OPERATORS TO MIT IGATE THE PROBLEMS FACED BY THE PROMOTERS OF WIND ENERGY GENERATIO N. IN THE BACKGROUND OF THESE FACTS THE TRIBUNAL HELD THAT THE SA LES TAX BENEFIT WAS NOT INTENDED TO BE GRANTED FOR CREATION OR BRINGING INTO EXISTENCE A NEW ASSET. THE TRIBUNAL HELD THAT THE OBJECT OF THE SCH EME WAS TO 23 ITA NOS.601/PUN/2013 AND 215/PUN/2014 PROMOTE GENERATION OF ENERGY THROUGH NON-CONVENTIONAL S OURCES AND THE SAME IS SOUGHT TO BE ACHIEVED BY THE GOVERNMENT IN THE FORM OF SUPPORTING THE UNITS TO PERFORM MORE EFFICIENTLY AND PROFITA BLY. THUS, IN VIEW OF THE ABOVE FACTS THE TRIBUNAL HELD THAT THE INCENTIV ES RECEIVED BY THE ASSESSEES IN THE FORM OF SALES TAX BENEFITS WERE REVE NUE RECEIPT AS IT HAS NOTHING TO DO WITH SETTING UP OF THE WINDMILL. THE FACTS OF THE AFORESAID CASE ARE ENTIRELY AT VARIANCE WITH THAT OF THE CASE IN HAND. IN THE PRESENT CASE, THE INCENTIVE IN THE FORM OF REFUND OF SALES TAX IS ON ACCOUNT OF SETTING UP OF NEW INDUSTRIAL UNIT WITH TWIN OBJECTIVE OF BALANCE DEVELOPMENT OF REGIONS AND GENERATION OF EMPLOYMENT. AS PER THE SCHEME THERE ARE TWO MODES OF PAYMENT OF INDUSTRIAL PROMOTION SUBSIDY. THE SUBSIDY TO THE EXTENT OF 75% OF THE ELIGIBLE INVESTMENTS AS REDUCED BY THE BENEFIT OF ELECTRICITY DUTY EXEMPTION AND STAMP DUTY EXEMPTION OR TO THE EXTENT OF TAXES PAID TO THE STATE GOVERNMENT WITHIN A PERIOD OF 7 YEARS, WHICHEVER IS LOWER. IT IS NOT THE CHOICE OF THE ASSESSEE TO OPT FOR EITHER OF THE TWO MODES. THE BENEFICIARY UNDER THE SCHEME WILL RECEIVE THE SUBSIDY AFTER COMPARATIVE ANALYSIS OF BOTH THE MODES, WHICHEVER IS LOWER. THE ASSESSEE IS ELIGIBLE TO CLAIM THE INCENTIVE SUBJECT TO THE COMPLIANCE OF CERTAIN CONDITIONS MENTIONED IN THE PSI 2007 SCHEME, SUBJECT TO THE MAXIMUM LIMIT AS SPECIFIED IN THE SCHEME. SIN CE THE ASSESSEE IS ELIGIBLE TO QUALIFY IN THE LATTER PART OF THE SCH EME, THE ASSESSEE IS RECEIVING INCENTIVE/SUBSIDY IN THE FORM OF REFU ND OF SALES TAX FROM THE STATE GOVERNMENT. AS FAR AS THE PURPOSE OF SU BSIDY IS CONCERNED, IT IS QUITE EVIDENT THAT IT IS FOR SETTING UP OF N EW MEGA PROJECT IN THE CLASSIFIED AREA. HENCE, THE DECISION OF COORDINATE BEN CH OF THE TRIBUNAL IN THE CASE OF RASIKLAL M. DHARIWAL (HUF) VS. DCIT (SUP RA) WOULD NOT APPLY IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 24 ITA NOS.601/PUN/2013 AND 215/PUN/2014 28. THUS, IN THE FACTS OF THE CASE AND IN THE LIGHT OF VAR IOUS DECISIONS DISCUSSED ABOVE, WE HOLD THAT THE INCENTIVE RECEIVED BY T HE ASSESSEE UNDER THE PSI, 2007 SCHEME IN THE FORM OF REFUND OF SALES TAX IS CAPITAL RECEIPT, NOT LIABLE TO TAX. 29. IN APPEAL OF THE ASSESSEE FOR A.Y. 2010-11 GROUND OF A PPEAL NO.4 IS WITH RESPECT TO DISALLOWANCE OF PRIOR PERIOD EXPENDITURE RS .29,84,611/-. THE CIT(A) HAS UPHELD THE FINDINGS OF ASSESSING OFFICER BY OB SERVING AS UNDER : 4.3 THE ARGUMENTS ADVANCED BY THE LD. COUNSEL ARE CAREFULLY EXAMINED WITH REFERENCE TO THE NATURE OF PRIOR PERIOD EXPENS ES CLAIMED BY THE APPELLANT AND MATERIAL PLACED ON RECORD. THE CONTEN TION OF THE LD. COUNSEL IN THIS REGARD IS THAT THESE EXPENSES RELAT E TO A.Y. 2009-10 AND WERE NOT ALLOWED AS DEDUCTION BY THE AO IN THE A.Y. 2009-10 AND THEREFORE THE SAME OUGHT TO HAVE BEEN ALLOWED IN TH IS YEAR. THE CONTENTION OF THE APPELLANT IS NOT LEGALLY WELL FOU NDED. THE PROVISIONS OF SEC. 145 WERE AMENDED W.E.F. ASSESSMENT YEAR 1997-9 8 REQUIRING AN ASSESSEE EITHER TO FOLLOW THE CASH SYSTEM OF ACCOUN TING OR MERCANTILE SYSTEM OF ACCOUNTING. IT IS NOT IN DISPUTE THAT THE APPELLANT, BEING A COMPANY, FOLLOWED MERCANTILE SYSTEM OF ACCOUNTING A ND UNDER THIS SYSTEM OF ACCOUNTING, IT IS NECESSARY TO MAKE PROVI SIONS FOR ASCERTAINED LIABILITY TOWARDS EXPENSES AT THE END OF THE YEAR. THE CLAIM MADE BY THE APPELLANT IN THIS YEAR FOR SUCH EXPENSES OF EARLIER YEARS VIOLATED THE PRINCIPLE OF MATCHING OF COST WITH THE REVENUE. THE APPELLANT IS ALSO NOT ABLE TO SATISFACTORILY PROVE THAT THE EXPENSES COUL D NOT BE CLAIMED IN THE A.Y. 2009-10 BECAUSE OF PECULIAR REASONS AND CIRCUM STANCES BEYOND ITS CONTROL. AS COULD BE SEEN FROM THE ANNEXURE A ENCLO SED TO THE ORDER, THE EXPENSES RELATED TO SALARY & WAGES, PRODUCTION INCENTIVES, LTA & MEDICAL EXPENSES, TRAVELLING EXPENSES ETC. AND THE APPELLAN T COULD HAVE EASILY PROVIDED FOR THESE EXPENSES IN THE BOOKS OF ETC FOR THE A.Y. 2009-10. FURTHER, THIS IS ALSO NOT A CASE WHERE THE LIABILIT Y IN QUESTION IS A DISPUTED LIABILITY, WHICH IS CRYSTALLIZED ONLY DURING THE YEAR UNDER CONSIDERATION. IN SUCH CIRCUMSTANCES AND AS THE APPELLANT HAS BEEN FOLLOWI NG MERCANTILE SYSTEM OF ACCOUNTING, THE EXPENSES RELATING EARLIER YEA RS CANNOT BE ALLOWED AS DEDUCTION FOR THE YEAR UNDER CONSIDERATION. THEREFORE, THE ASSESSING OFFICER IS JUSTIFIED IN NOT ALLOWING THE DEDUCTION ON ACCOUNT OF PRIOR PERIOD EXPENSES AMOUNTING TO RS.29,84,611/- AND ACC ORDINGLY THE DISALLOWANCE MADE BY ASSESSING OFFICER ON THIS GROU ND IS UPHELD. GROUND OF APPEAL NO.2 FAILS. THE LD. AUTHORISED REPRESENTATIVE HAS NOT BEEN ABLE TO CONTROVERT THE FINDINGS OF CIT(A) ON THIS ISSUE, HENCE WE DO NOT FIND ANY REASON TO 25 ITA NOS.601/PUN/2013 AND 215/PUN/2014 INTERFERE WITH THE ORDER OF CIT(A) ON THIS ISSUE. ACCORDINGL Y, GROUND NO.4 OF APPEAL FOR A.Y. 2010-11 IS DISMISSED. 30. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR A.Y. 2009 -10 IS ALLOWED AND THE APPEAL OF THE ASSESSEE FOR A.Y. 2010-11 IS PARTLY ALLOWED. ORDER PRONOUNCED ON FRIDAY, THE 24 TH DAY OF MARCH, 2017. SD/- SD/- (R.K. PANDA) (VIKAS AWASTHY) / ACCOUNTANT MEMBER # / JUDICIAL MEMBER / PUNE ; ' DATED : 24 TH MARCH, 2017 SATISH ) *#,! -! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. CIT(A) - 11 , PUNE 4. CIT CENTRAL, PUNE 5. $ ''( , ( , / DR, ITAT, B PUNE; 6. , / GUARD FILE. / BY ORDER , // TRUE COPY // ASSISTANT REGISTRAR ( , / ITAT, PUNE